First Time Home Buyers Frequently Asked Questions
- Typical deductions are mortgage interest and real estate taxes.
- In most cases, loan discount points and origination fees are deductible.
- There are capital gains benefits, but don’t worry about that until you buy your first home.
It is time-consuming to learn about the various rates and terms of mortgages. Once you find your dream home, there is not always adequate enough time to do your research.
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A Realtor is a highly-valued asset when buying a home. They will walk you through every part of the home buying process. They will educate and inform you of all your options. They will represent you throughout the transaction and beyond.
A 620 credit score, or higher, is recommended. This score will be compared with your debt-to-income ratio. As you are probably aware, a higher credit score offers better lending terms. However, this is an ever-evolving topic as loan requirements are constantly changing.
Some lenders will approve buyers with a 580 score, sometimes even lower. Again, your loan officer will be the best source to give you a current answer for today’s lending requirements.
The downpayment is usually the most significant cost associated with buying a house. Lending fees are the second-largest cost to homebuyers. Most lenders will charge between 2% to 4% of the loan amount for loan origination fees, depending on the loan type.
Conventional loans usually have lower loan origination fees but require more money down. Adjustable rate mortgages are less common. Your loan officer will be able to help you determine how much you can expect to pay towards loan origination and closing costs. Ask them about private mortgage insurance to learn the best way to avoid that fee.
Interest rates are a large deciding factor in your monthly payment amount. In addition, they have a long-term effect on your overall loan payoff amount.
One unpredictable homeowner fee is the cost of maintaining everything in and around the home. For example, water heaters break, HVAC needs servicing, and appliances break down. Over time, these items will need to be replaced or repaired.
A common question from home buyers is whether rent-to-owns exist or whether an owner would consider that option. They are out there, but there are somethings that you need to know before agreeing to a rent-to-own.
When an owner is offering “rent-to-own” as a possible financing option, they are taking on a high risk since in most cases, a rent-to-own buyer has a credit score that is not impeccable. Since an owner is taking a higher risk the terms for a rent-to-own must be considerably favorable for the owner. This often leads to less than favorable terms for a buyer. When looking at a rent-to-own as an option you can expect to provide a considerable amount of money down and a higher interest rate than what a lender is currently offering.
If you’re able to purchase a home by financing through a bank or lender, you will be better off because the terms will be more favorable.
Generally, buyer agents do charge a fee, and the fee is paid by the seller. So as a buyer, you will almost never pay any commission fee.
Credit scores are used by lenders to predict the risk of lending money to an individual.
If you have a good credit score, then lenders will be more likely to approve your loan application. The higher your score, the lower your interest rates and monthly payments will be.
A bad credit score could mean that you are more likely to get rejected for loans and even if you are approved, the interest rates will be higher.
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Pre-qualification: Getting pre-qualified for a mortgage gives first-time homebuyers an indication of how much they “might” qualify to borrow. This mortgage amount is not guaranteed because no information has yet been verified. A letter from the lender may only state that you are “likely” to be approved for a mortgage.
Pre-approved: Better yet is getting pre-approved for a mortgage, which is based on a real credit score, and it also puts real estate agents and home sellers at ease. The buyer has more to offer when making a deal and in a competitive market this can be a definite plus.
The timeline for finding a house varies greatly from person to person. However, once you find a home and have an accepted offer, it usually takes around 30 days to close.
Beware of advice from people who do not work in the industry. Real estate is a popular topic, and almost everyone feels like they have some great insight to offer.
In reality, the people who know best are the people that work in the business. Good Realtors have sold hundreds (maybe thousands) of properties. They know what to expect and what pitfalls to avoid.
Friends and relatives have only bought and sold a few homes. Buying and selling a couple of houses does not make someone a well-rounded source of information. First-time buyers may become persuaded by well-meaning friends and family, only to be disappointed later. Be confident in your decisions and trust the professionals.
There are some great home buying programs to research. The main ones would be VA loans, USDA loans, and FHA loans. Knowing the difference between these loan types is essential.
The Ohio Housing Finance Agency (OHFA) offers several affordable loan options to help you achieve your dream of homeownership.
Under normal circumstances, you will get the keys at the closing. Closing typically takes an hour. Sometimes, the lender will need time to fund the loan, and you will need to pick up the keys after the loan has been funded. For example, if you have a Friday evening closing and the loan cannot fund until Monday, you may not get the keys until Monday.
Make sure to coordinate your closing to get the keys on the same day if that is what you need. Once you get the keys, make your monthly mortgage payment on time.
When it comes to financing a home, it is a good idea to shop around for the best mortgage terms. Many buyers often start with their own personal banking institutions or credit unions. The federal government offers competitive loan programs for first-time homebuyers as well. Buyers are able to seek out mortgage rates from several lenders before selecting the one that is best for them.
The benefits of buying a house rather than renting a house or apartment include:
- Tax breaks
- Financial gains
- Appreciation in value
- Capital gains
- A sense of pride
Saving for the down payment is the greatest obstacle for first-time homebuyers. Lenders expect between 5% to 20% for a down payment. It varies according to the lender’s requirements, and the type and length of the loan. Make a budget, set a goal, and stick with the plan. Saving and sacrificing is how most people come up with their first down payment.
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