First Time Home Buyer Mortgage Questions
These Are The Most Common First Time Home Buyer Mortgage Questions Asked To Lenders
Once you decided in becoming a first time home buyer, you probably have many common first time home buyer mortgage questions. The majority of first time home buyers will need a home loan in order for them to purchase their home. Unfortunately, the mortgage process is a fairly complex process and does take time. Many first time home buyers have similar first time home buyer mortgage questions that we will cover on this BLOG. Two of the most common first time home buyer mortgage questions are the following:
- How much down payment do I need to purchase a home
- Besides of the down payment, do I need closing cost and how much closing costs do I need.
- There are many other first time home buyer mortgage questions besides the top two that I will cover on this article.
How Much Down Payment Do I Need To Purchase A Home?
There are five general types of mortgage loan program and each of these mortgage loan programs require a certain amount of down payment. Here are the loan programs available and the down payment requirements for these mortgage loan programs:
- FHA Loans: A home buyer needs 3.5% down payment for a FHA Loan
- VA Loans: A VA borrower does not require any down payment to qualify for a VA Loan
- USDA: No down payment is required with a USDA Loan
- Fannie Mae And Freddie Mac: Fannie Mae and Freddie Mac are Conventional Loans and 3% is required for first time home buyers. A first time home buyer is defined as a home buyer who had no home ownership for the past three years. For non- first time home buyers, you need 5% down payment on a home purchase with a Conventional Loan
- Jumbo Mortgages: You need normally 20% down payment to qualify for Jumbo Loans. However, there are 10% down payment and 15% down payment Jumbo Mortgage available
How Much Closing Costs Do I Need On A Home Purchase?
Unlike down payment, closing costs is not a fixed percentage of the purchase price of a home. Here are examples of closing costs:
- Title Charges
- Pre-Paids which are escrows for taxes and homeowners insurance
- Appraisal Fees
- Discount Points and Origination Fees
- One year homeowners insurance
- Attorneys costs
- Appraisal and Home Inspection Fees
- Other third party closing costs
Closing costs can vary depending on city, county, state and can range anywhere from 2% to 5% or more of the purchase price. The good news is that most buyers do not have to come up with any closing costs on a home purchase. There are two ways that closing costs can be covered by home buyers:
- Sellers Concessions
- Lender Credit
What Are Sellers Concessions?
All mortgage loan programs allow for a home seller to offer a sellers concession to a home buyer via sellers concessions. Sellers concessions can only be used for home buyers to pay for the buyer’s closing costs and NOT for down payment. Here are the maximum amount of sellers concessions allowed for the individual mortgage loan programs:
- FHA allows up to 6% sellers concession
- VA Loans allows up to 4% sellers concessions
- USDA Loans allows up to 6% sellers concessions
- Fannie Mae and Freddie Mac allows up to 3% sellers concessions for owner occupant properties and second homes and 2% sellers concessions for investment properties
Sellers concessions can only be used for closing costs and not for down payment. Any overages in sellers concessions cannot be kicked back to the home buyer and needs to be returned to the home seller if it is not used. However, most lenders will apply any overages in sellers concessions to buy discount points and buy down the mortgage rates for the borrower.
What Are Lender Credit?
In the event if the borrower cannot get sellers concessions towards paying closing costs, the mortgage lender can offer lender credit to the borrower so the borrower does not have to pay any closing costs. A lender credit can be given to the borrower in lieu of a higher mortgage rate so the borrower does not have to come up with outside closing costs. Lender Credit is not free and the way borrowers pay for lender credit is by getting a higher mortgage rate.
The Loan Process For First Time Home Buyers
Once you have decided to become a first time home buyer, here are a list of tasks that you need to do:
- Consult with a loan officer from a lending institution
- Get pre-approved for a mortgage loan
- If you are not pre-approved with the current lender find out why?
- Consult with other lenders and other loan officers and due your due diligence and see why you do not qualify?
- Is the reason that you do not qualify due to the lender overlays or because you do not meet the federal minimum lending guidelines?
- If you already have been shopping at properties with your real estate agent, your real estate agent will refer you to mortgage loan originators and lenders where he or she has worked with before and had success with with them and has a smooth mortgage closing process with them.
- Realtors are often selective when referring mortgage lenders
- Real Estate Agents are the go to people in any home purchase transaction and most great realtors will oversee the whole home process and can be the mediator between buyers and sellers
- Realtors can guide you and refer you to a lender and loan officer who had a similar type of case scenario as you.
- You can shop for a lender and loan officer by searching the internet, asking for co-workers, asking family, asking friends for referrals
- Finding the right mortgage lender one of the most important decisions that you will make. It is not a matter of getting the best rates and terms. You need to get along with your loan officer.