Buying a new home is an exciting proposition, but the process can be trying. After all, a house is probably the most expensive thing that you’ll ever buy. Chances are you have lots of financial questions to ask before buying a house, not to mention financial, legal, and financial real estate terms to familiarize yourself with.
In part two of our three-part series on some of the most important questions to ask when buying a house, we’ve covered many of the financial questions that come up when first-time home buyers are looking to get the home of their dreams.
Financial Aspects of the Home Buying Process:
What should my total budget be?
This is really the key question, isn’t it? How much is a home going to cost, and how much can I afford to spend? After all, it’s no good to spend time looking at – and possibly falling in love with – houses that you simply can’t afford. You’ll want to look beyond the price of the house and take other costs into account, including the cost of any improvements or renovations that you want to make, HOA dues, property taxes, and so on. If you plan to make an offer on a home, you have to show that you have the means to pay for it, which you do by calculating the total cost and getting pre-approved by a lender for a mortgage. What should your total budget be? That’s a number you’ll need to hash out with your bank before you begin shopping, but you can learn a little more about how to calculate your mortgage and estimating how much you’ll pay each month by clicking here.
What kind of credit score do I need to buy a home?
When you get right down to it, the answer depends on your lender. The higher your credit score, the more likely you are to pay your mortgage on time. At least, that’s what a lender believes. A higher credit score means less risk to them. If your credit score is good, you’ll probably put less down or have a lower interest rate. When it comes to qualifying for a loan in the first place, some programs require a credit score above 620. Again, the exact number ultimately depends on your lender.
How much do I need for a down payment?
If you ask this question of most people, they may tell you that you need to put down 20% of the home’s value, an amount that can seem staggering, especially for a first-time home buyer. Like a lot of accepted wisdom, however, that 20% figure isn’t necessarily true these days. In fact, many programs for first-time home buyers don’t ask for big down payments. FHA loans, which are popular among first-time buyers, only require 3.5%, and most first-time buyers put only 3% to 5% down.
How do I get the best mortgage?
Just like you may use a Realtor to find the perfect home, you can actually use a mortgage broker to find the best mortgage terms. The National Association of Mortgage Brokers will list brokers in your area who can help you to get a good deal on your mortgage, which is something that you should start doing before you find the home of your dreams. Once you do, the clock starts ticking, after all.
What is the difference between pre-qualified and pre-approved?
These are both terms that you’ll hear during the home-buying process, but they’re not the same thing. Being pre-qualified means you get an estimate of the amount you might be able to borrow. It’s a good way for you to get an idea of your price range, but it isn’t a guarantee of a loan. Pre-approval, on the other hand, means that you’ve actually worked with a lender who is willing to offer you a loan of that amount. Pre-approval is something that you’ll want to get before you make an offer.
How much will I pay in closing costs?
What are closing costs? They’re all the various fees and other expenses that go along with the closing paperwork, such as loan origination fees, title research, appraisal costs, and so on. Closing costs can run between 2% and 5% of the purchase price, so factor that into your offer when you’re planning how much you’re going to spend.
That’s it for the big financial questions to ask before buying a house. Next time we’ll be talking about some of the major questions related to the property itself and the surrounding neighborhood. Check out our earlier installment about the general home-buying process.
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The mortgage calculator button is located on builder floor plans on the SRR site. Example here: https://santaritaranchaustin.com/floorplans/perry-homes/4931s/