Anytime someone does something for the very first time, there will be many questions. This is especially true when buying a first home. There are so many different people involved when buying a home and lots of new terms will be thrown around many buyers may never have heard before. At the same time, there’s also a date on the sales contract that tells everyone when the closing is due to take place.
It does take some effort on everyone’s part to do their part and make sure the closing date isn’t missed. If you’ve owned a home before and gone through the entire process you essentially “learned on the job” and the second time around you more or less know what to expect. First-time buyers don’t have that luxury and because it’s a new experience they may not even know what to ask, much less what to expect. For first time home buyers, make sure you ask these questions before and during your loan approval.
Am I ready? Asking yourself this question will get the process going. If you’re thinking about buying, mentally you probably are ready. This question alone means you’re considering the prospect of owning and want more information. From a financial perspective, being ready means gathering copies of your bank statements, paycheck stubs and W2 forms. Your loan officer will provide you with a list of needed documentation.
How much can I qualify for? Perhaps the most common question for first time home buyers is this one. Your loan officer can answer this question for you over the phone. You’ll be asked about your income and employment and other monthly credit obligations you currently have. Then, the loan officer will pull up current interest rates and provide you with a qualifying amount.
Are there any special first time home buyer programs? There are some programs made available to first time home buyers typically designed to help out with lower down payments. Depending upon where the subject property will be located there may also be some state and local first time buyer assistance. Most often this assistance comes in the form of a grant to help cover part or all of your down payment and closing costs. Further, in today’s marketplace, a first time buyer is defined as someone not having owned a home within the previous three years so there may be some programs you can take advantage of even if you’ve owned a home before. Government-backed programs like FHA, VA and USDA remain very popular choices due to the low or zero down payment.
What are your rates? Another one of the most common questions is about rates. But make sure you ask about rates in the proper manner. Rates can be different for various loan programs and even different for the same exact mortgage. This first means you must decide on the type of loan you’re going to get before checking on rates in any serious manner. 15 year rates will be lower compared to a 30 year rate, for example. A rate guaranteed for 60 days will be higher compared to a rate good for 15 days. You can pay points to get a lower rate or exchange a slightly higher rate for less fees. When you ask about rates, say something to the effect of, “What are your rates for a $200,000 loan using a 30 year fixed rate with no points and good for 30 days.”
How much are your closing costs? Your loan officer can provide you with a list of potential closing costs. Just note that the lender only has control over its own fees and not third-party charges. When you review the non-lender fees, you can expect those fees to be pretty much the same from any lender. Instead, pay more attention to the fees the lender charges.
How do I get a preapproval letter? This is a term not to be confused with a prequalification. A prequalification indicates you’ve spoken with a loan officer and based upon your conversation you are prequalified for a mortgage. The difference between the two is the preapproval letter is issued after a review of your credit report, income documentation, employment and other factors. When you make an offer on a home it’s the preapproval letter the sellers will want to see, not a “prequal.”
How much will I need at closing? Your “cash to close” requirement is made up of your down payment, closing costs and money left over referred to as cash reserves. Your loan officer will provide you with a solid estimate and also ask for the source of these funds, such as your savings account. If you’re going to get a little financial help in the form of a gift, there will be other documentation needed for that, too.
Finally, don’t be shy about asking any question. Don’t feel as if you need to know all about the process before you even start. When buying a home you want to have all your questions answered upfront. After all, it’s you who will be making the monthly payments going forward.
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