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Thinking about buying a house in the near future? Here are the questions you need to ask yourself before committing to the home buying process.
It’s great that you’re thinking about buying a home! It’s critical to ask the right questions before you start house hunting. The real estate market can be extremely volatile, but interest rates are low right now and it’s a good time to buy, whether you’re a first-time homebuyer or buying your second or third home.
As a buyer, you should know that the home seller pays all real estate agents commissions. This means it costs you nothing to have an agent of your own. You should definitely get an agent on your side as early in the process as possible; they will have insights into the local housing market that can be invaluable. Just make sure you have an independent agent and don’t work with the seller’s agent, even if dual agency is permitted in your state.
You can use our mortgage calculator to help you figure out what you should budget for a house.
Your mortgage rate will also depend on multiple factors. Banks look at your credit, your debt, your income, and other factors before offering you loan terms, and your interest rate can vary from lender to lender. It’s best to get a rate quote from several different lenders to compare them.
The days of a required down payment of 20% for most home buyers are long gone unless you’re buying a high priced luxury home. There are many home mortgage programs that require far less. You could get an FHA loan (insured by the Federal Housing Administration) with as little as 3.5% down depending on your credit score. A VA loan or a USDA loan might even require no down payment at all. You can also use gifted funds from a family member to serve as part of your down payment if desired. Standard conforming loans only require 5% down and as little as 3% down for lower income borrowers with good credit.
Remember that your up-front costs to buy a home don’t start and end with the down payment. You’ll also have other costs including closing costs, and you’ll need to consider if the home will need additions or major renovations before being ready to move into. You’ll get a home inspection as part of the pre-sale process to reveal any problems with the house.
Be prepared to pay closing costs for you new loan including escrow reserves for property taxes and homeowners insurance which will all together average 2-4% of your purchase price. You’ll also need a chunk of money to put down as earnest money; however, these funds will be applied towards your closing costs and down payment at closing.
Again, with a conventional loan, lenders look for a credit score of at least 620. You’ll get better interest rates the higher your credit is. A “good credit score is generally accepted as being around 720. You’ll need at least a score of 740 to get the lowest interest rates on a conforming loan and a score of 780 for best rates on most jumbo loans.
That doesn’t mean you can’t get a decent mortgage with a lower credit score. You can typically qualify for an FHA loan even if your credit score is under 580, as long as the lender feels confident you can repay your loan. It’s important to work with a mortgage loan company with loan agents who base their advice on what you can realistically afford.
Your debt-to-income ratio, or DTI ratio, is used by most lenders to determine what kind of loan you qualify for. The higher your DTI ratio is, the fewer your options are. You can lower your DTI score by paying off some debts or increasing your monthly income. Don’t close lines of credit out as you pay them off; lenders also look at your available credit lines to determine your financial stability.
If your down payment is less than 20% of the home’s purchase price, you’ll probably be required to pay private mortgage insurance (PMI) premiums in addition to your monthly mortgage payment. This helps protect the lender. You can usually dispense with the PMI requirement or refinance to get rid of it once your equity in the home reaches 20% or more.
Your homeowners’ insurance premiums can be affected by the age of your home, what updates and improvements have been made to it, whether or not it has a security system, how old the roof is, and if you live in a flood zone or an area prone to natural disasters or not. If there have been insurance claims made on the property in the past, expect premiums to be higher. This is another monthly payment you must factor into your budget.
Closing costs can range anywhere from 2% to 5% of the home’s selling price. You can ask the seller if they are willing to share in the closing costs. These costs will include all lender and third-party fees, including title fees, appraisal costs, property taxes, homeowners insurance and country recording fees.
If you need to buy a house and move soon, it’s best to get the ball rolling as soon as possible. Getting preapproved for a mortgage helps you nail down your homebuying budget and ensure you qualify for a given purchase price, so when you find a house you like, you can make a confident, strong offer immediately. Once your offer on a home is accepted, you can usually expect to close on your house in around 30 days, give or take.
At Sammamish Mortgage, our salaried loan officers are ready and willing to help answer any questions you have about buying a home, and to help you start the preapproval process today.
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help you get preapproved. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.