If you’re new to the home buying process, you may have a lot of questions. That’s good! But don’t let the unknowns get between you and your new home. If you’re not sure what questions are the right questions to ask, take it from those who have already gone through this process.
We’ve listed the top 6 questions first-time homebuyers should always ask to make the entire process easier. These questions will also set you up for better financial security in the future, too.
1. Where should I start?
You know the feeling you get before putting pen to paper? Sometimes you just stare at the blank sheet. Well, buying a home is kind of like that. It’s hard to know where to start, but once you do, the entire process can become much easier.
Once you decide to buy a home, you should search for a mortgage banker. A mortgage banker can help you set realistic expectations and answer questions that come up as you continue your search for the perfect home. A mortgage banker can prequalify you for a home and tell you how much the bank is willing to lend you. Starting here may save you so much time!
2. What will my actual monthly payment be?
This is an important question because more than your mortgage payment goes into your monthly statement from the bank. You’ll likely receive a statement each month that includes your:
- mortgage/home loan
- homeowners insurance
- flood insurance (as applicable)
- private mortgage insurance (as applicable)
- property taxes
If you don’t put 20% down on your new home, chances are that you’ll end up paying for private mortgage insurance, or PMI for short. This is insurance you need to carry in case you default on your mortgage payments. It protects the bank, not you. When you take out a car loan, the bank requires you to carry full coverage. PMI is a similar concept. It protects the bank’s investment. The cost of PMI will vary in every situation.
To get a mortgage, you’re also required to have homeowners insurance. If your home is in a flood zone, the bank may also require you to carry flood insurance.
Finally, you may have the option to add your property taxes to your monthly house payment. This makes it easier to break your total taxes due into manageable chunks.
You can use online mortgage calculators to get a good estimate of what your total monthly payment will be.
Talk to your mortgage banker to see what you’ll likely pay based on your unique situation.
3. Can I actually afford a home?
When you get prequalified for a mortgage, the loan amount you get prequalified for is not equal to what you can necessarily afford. The bank doesn’t know every aspect of your financial life.
Ask your mortgage banker to help you break down your potential monthly payment based on the terms of the specific mortgage you’re looking at. Account for homeowners insurance, private mortgage insurance, and taxes. If you’re renting right now, compare that number to what you’re paying for rent.
This is a great personal gauge. If a new house payment is a lot more, consider how this could affect other areas of your life. Can you swing the extra money? Consider additional home maintenance and utility costs. Again, picture how these expenses may impact you.
If you’re feeling pretty good after placing yourself in these scenarios, you’re more than likely in a good position to buy. If you don’t feel so hot, consider lowering your house price range or work on saving up.
4. Does my down payment matter?
Yes. Even if you qualify for a low to no-down-payment home loan, if you choose to skip the down payment, you’ll pay more in interest for every dollar borrowed over the life of your loan.
The more you put down, the lower your monthly payment will be, too. If you put 20% or more down, you won’t need to pay for private mortgage insurance each month. Since most homebuyers pay this insurance until they’ve paid off 20% of the loan, this could be years of savings.
Even if you can’t afford 20% down, the closer you get to this number can reduce the length you need to pay for private mortgage insurance. Many first-time homebuyers take advantage of the South Dakota Housing and Development Authority (SDHDA) First-Time Homebuyer program, which typically requires 3% down. The down payment required will vary by loan program.
Where can you acquire money for a down payment? You can use gifts, such as money from a parent. If you do make a down payment, ensure you have enough money left to cover unexpected expenses down the road.
Depending on your unique situation, even if you put little down, it may still be worth paying more in interest and PMI to get a home now.
5. What’s the best loan program for me?
Often, one of the first questions first-time homebuyers ask is what will my interest rate be? But better question is what’s the best loan program for me?
Choosing your program is more important than interest. The lower your loan term, the lower your rate will be. Your mortgage banker should first find a program that matches your needs and then help you get the best interest rate within that program.
With the SDHDA First-Time Homebuyer Program, everyone gets the same rate and terms. They don’t offer 15-year loans, only 30. Even if you qualify for this program, but can afford to make payments over 15 years versus 30 years, you may be better off going with the shorter term option.
A lot of customers get wrapped up in rate, but fees offer a better way to compare loan options. If you are searching the internet for mortgage options and see a really low rate, it’s likely because the fee is more. You need to consider the entire makeup of your mortgage and the costs associated with it to know what’s a good deal.
When in doubt, ask your mortgage banker. It’s their job to help you decide the best option for you.
6. What do I need to qualify?
Getting a home loan is less complicated than you may think. Some of the most common concerns people approach banks with are:
- Can I have a cosigner? Yes
- Can I qualify with student loans? Maybe
- Do I have to have 20% down? No
Let’s just say that times have changed since your parents bought a house. These situations don’t matter as much as your current financial stability. What’s more important is good:
- credit history and rental history
- employment status and income
- savings and assets
- spending habits
Your mortgage lender will review all these items.
Do a little research on your own financial health. Pull your credit score, analyze your spending habits, and maybe even review your budget (or create one).
Are you a first-time homebuyer?
What an exciting time! If you’re looking for an expert to learn more about the entire process, from prequalification to closing, we’re here to help. And our advice won’t cost you a thing!
Source: Plains Commerce Bank Mortgage Team