05/13/2022: 14 Common First-Time Homeowner Questions
Purchasing a home is an important life event. Aside from the joy of ownership, each mortgage payment contributes to long-term wealth accumulation. If you’re buying a property for the first time, familiarizing yourself with the process can be really beneficial. The more you know, the better your chances of avoiding big setbacks are. And if you run into any issues, you’ll at least know what to do next.
We’ll go through some of the questions you might have as you begin your search for your first house. Here are the answers to 14 common first-time homeowner questions.
How much money will I need to buy a house?
- Your down payment will be determined by the type of mortgage you choose as well as the lender. Some conventional loans for first-time home purchasers with good credit allow for as little as a 3% down payment. However, even a tiny down payment might be difficult to save for. A 5% down payment on a $250,000 home, for example, is $7,500. Use our Mortgage Qualifier Calculator which steps you through the process of finding out how much you can borrow. You can calculate your mortgage qualification based on income, purchase price or total monthly payment.
- Closing costs are the fees and charges that you pay to complete your mortgage, and they normally range from 2% to 5% of the loan amount. You may be able to negotiate a percentage of your closing costs with the seller, and you can save money on some charges like home inspections by shopping around.
- After you’ve purchased your home, you’ll need money to move in. Make a budget for immediate house repairs, upgrades, and furniture.
How much house can I afford?
Before you start looking for a house, figure out how much you can afford. Use our Maximum Mortgage Calculator which collects important variables and determines your maximum monthly housing payment and the resulting mortgage amount.
Do I need a good credit score to buy a house?
Your credit score will impact whether you are eligible for a mortgage and the interest rate offered by lenders. Take the following methods to improve your credit score before purchasing a home:
- Obtain free copies of your credit reports from each of the three credit agencies — Experian, Equifax, and TransUnion — and challenge any errors that may affect your credit score.
- Keep your credit card balances as low as possible by paying all of your bills on schedule.
- Keep your credit cards active. Closing a card makes your credit utilization ratio, or the percentage of your available credit you’re using, jump up—and that’s a sign of risk to lenders because it shows you’re using a higher amount of your available credit.
What are my mortgage choices?
There are several types of mortgages available, each with different down payment and qualifying requirements. The following are the major categories:
- Conventional mortgages
This type of mortgage is not guaranteed by the government. Some conventional loans for first-time buyers only require a 3 percent down payment.
- FHA loans
The Federal Housing Administration insures FHA loans and allows for down payments as little as 3.5 percent.
- USDA loans
The US Department of Agriculture guarantees USDA loans. They are intended buyers in rural areas and normally do not require a down payment.
- VA loans
The Department of Veterans Affairs guarantees VA loans. They are available to current and former military personnel and normally do not require a deposit.
You also have choices when it comes to the length of your mortgage. The majority of house buyers choose a 30-year fixed-rate mortgage, which is paid off in 30 years and has a fixed interest rate. The interest rate for a 15-year loan is usually lower than on a 30-year loan, but the monthly payments are higher.
Are there programs for first-time home buyers?
Many states, as well as some towns and counties, provide first-time home buyer programs that include low-interest mortgages, as well as down payment and closing cost help. Some first-time home buyer programs provide tax rebates as well.
What do I need to know about mortgage rates?
According to the Consumer Financial Protection Bureau, request loan quotes for the same type of mortgage from various lenders to evaluate costs, including interest rates and possible origination fees.
Lenders may give the option of purchasing discount points, which are payments paid up ahead to reduce the interest rate. If you have the cash and want to stay in your house for a long time, buying points may make sense. To make your decision, use our Mortgage Points Calculator to see how buying points can reduce your interest rate, which in turn reduces your monthly payment.
Do I need to get pre-qualified?
During the pre-qualification process, your lender will gather some basic financial information from you in order to determine how much house you can afford. When you are prequalified for a home loan, you will have a good estimate of how much you will be approved for when it comes time to close.
Do I need a realtor?
A good real estate agent will search the market for homes that fit your requirements and will assist you with the negotiation and closing process. Obtain agent recommendations from recent house purchasers. Request references and interview at least a couple agents. When chatting with possible agents, inquire about their experience working with first-time home buyers in your area and how they intend to assist you in your search.
How do I choose the right property?
Given your lifestyle and budget, weigh the benefits and drawbacks of various types of residences. A condominium or townhome may be less expensive than a single-family home, but it will have less privacy due to shared walls with neighbors. When looking for condos and townhomes, as well as houses in planned or gated communities, don’t forget to factor in homeowners association costs.
Another alternative is to purchase a fixer-upper, which is a single-family home that requires upgrades or repairs. Fixer-uppers are typically less expensive per square foot than move-in ready homes. You may, however, need to set aside additional funds for repairs and remodeling. Renovation mortgages combine the purchase price of the home and the cost of improvements into a single loan.
Consider if a starting home or a forever home will best satisfy your long-term needs. If you plan to establish or extend your family, buying a home with more space may make sense.
Examine potential neighborhoods in depth. Choose one with features that are crucial to you, and commute during rush hour to see how it works. Remember to visit the potential homes during the day and evening to get a better feeling of the area.
Do I need a spending plan?
You may be pressured to spend more than you can comfortably afford by a lender, or you may feel pressured to spend more than you can comfortably afford to beat another buyer’s offer. Set a pricing range depending on your budget and stick to it to avoid financial trouble in the future.
Look for properties below your price range to offer yourself some breathing room while bidding in a competitive market.
Should I make a decision about a home based on photos alone?
3D home tours have grown in popularity, which allow customers to virtually walk through a home at any time of day or night and notice nuances that conventional images miss. They don’t provide all of the details that in-person visits provide, such as how the carpets smell, but they can help you narrow down the houses you want to see. You can always set up a visit to a potential home with your realtor.
Do I need a home inspection?
Invest in a house inspection. A house inspection is a detailed examination of the building’s construction and mechanical systems. Professional inspectors check for potential issues so you can make an educated decision about whether or not to buy the property. Here are a few things to remember:
Radon, mold, and bugs are not tested during standard inspections. Understand the scope of the inspection and whether more inspections are required.
Ascertain that the inspector has access to all areas of the house, including the roof and any crawl spaces.
The buyer is usually present at the inspection. You can have a better knowledge of the home and ask questions on the spot by following the inspector around. If you are unable to attend the inspection, carefully read the inspector’s report and inquire about any points that are unclear.
Can I work out any deals with the seller?
You might be able to save money by requesting the seller to pay for repairs up front or lowering the price to cover the cost of future repairs. You might also request that the seller pay a portion of the closing costs. However, lenders may restrict the amount of closing costs the seller can pay.
The strength of your negotiation position will be determined by the local market. When there are more bidders than properties for sale, it’s more difficult to strike a hard deal. Understand the local market and strategize accordingly with your real estate agent.
What about insurance?
Before closing, your lender will require you to get homeowners insurance. If your home or belongings are harmed by an occurrence covered by your policy, your home insurance will pay to restore or replace them. It also includes liability coverage in the event that you are found to be at fault for an injury or accident. Purchase adequate home insurance to cover the expense of reconstructing your home in the event that it is destroyed.