First Time Home Buyer Mortgage Questions On House Purchase
This BLOG On First Time Home Buyer Mortgage Questions On House Purchase Was UPDATED And PUBLISHED On August 9th, 2019
Once renters decided on becoming a first time home buyer, they 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
In this article, we will discuss and cover First Time Home Buyer Mortgage Questions On House Purchase.
Top First Time Home Buyer Mortgage Questions On House Purchase
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 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 several types of mortgage loan program. Each of these mortgage loan programs requires a certain amount of down payment.
Here are the loan programs available and the down payment requirements for these mortgage loan programs:
- FHA Loans:
- 3.5% down payment required
- VA Loans:
- Does not require any down payment to qualify
- No down payment is required
- Fannie Mae And Freddie Mac:
- Fannie Mae and Freddie Mac are Conventional Loans
- 3% is required for first time home buyers
- A first time home buyer is defined as a home buyer who had no homeownership for the past three years
- For non- first time home buyers, borrowers need 5% down payment on a home purchase
- Jumbo Mortgages:
- Need normally 20% down payment to qualify for Jumbo Loans
- However, Gustan Cho Associates at Loan Cabin Inc. offers 5% down payment Jumbo Loans with no mortgage insurance
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-Paid 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
Sellers Concessions Or Lender Credit For Home Buyer’s Closing Costs
Closing costs can vary depending on city, county, state. 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 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 homebuyers to pay for the buyer’s closing costs. Cannot be used for the 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 allow up to 3% sellers concessions for owner occupant properties and second homes
- 2% sellers concessions for investment properties
Overages With Sellers Concessions
Sellers concessions can only be used for closing costs and not for the down payment.
- Any overages in sellers concessions cannot be kicked back to the home buyer and need 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, lenders can offer lender credit to the borrower:
- Lenders credit is offered by lenders 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
- Lender credit is offered by lenders so borrowers do not have to come up with outside closing costs
- Lender Credit is not free
- Borrowers pay for lender credit is by getting a higher mortgage rate
The Loan Process For First Time Home Buyers
Once renters have decided to become a first time home buyer, here is a list of tasks:
- 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 them and has a smooth mortgage closing process with them
Referral By Real Estate Agents
Realtors are often selective when referring to loan officers. However, homebuyers should do their own due diligence when hiring a loan officer:
- Real Estate Agents are the go-to people in any home purchase transaction
- Most great realtors will oversee the whole home process
- Real estate agents can be the mediator between buyers and sellers
- Realtors can guide buyers and refer them to a lender and loan officer who had a similar type of case scenario
- 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 borrowers will make
- It is not a matter of getting the best rates and terms
- Need to get along with loan officer and the lender needs to be able to do the loan specific to borrowers credit/income
For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at email@example.com.