First Time Home Buyer Tips On Financing Your Home

We will be covering first-time home buyer tips preparing for the mortgage process so there is no stress from application until the clear to close. It is highly NOT recommended to make large purchases or move money around from the bank typically three to six months before buying a home for a couple of very important reasons:

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First, you don’t want to take any unnecessary chances with the credit profile. Lenders want to see that you’re reliable. They want a complete paper trail so that’s they can provide you with the best loan possible. If you open new credit, take on new debt or buy large ticketed items you’re going to have a difficult time getting a mortgage with high debt to income ratios.

First Time Home Buyer Tips: Knowing How Much Can I Afford versus How Much Can I Qualify

It’s always advised to get pre-approved in advance to know how much home you can afford. There’s a big difference between a buyer being pre-qualified and one who has a pre-approved mortgage. Anybody can be pre-qualified for a home loan. Getting pre-approved typically means a lender has looked at all financial information. They’ve let you know how much you can afford and they will lend. Being pre-approved will save borrowers a lot of time and energy so you are not running around looking at houses you cannot afford. It also provides you the opportunity to shop around for the best possible deal and interest rates. Do your research and learn about junk fees, processing fees, and or points and make sure there aren’t any hidden costs in the loan.

First Time Home Buyer Tips On How Much Money Do I Need To Buy A House

Homebuyers need to worry about the down payment and closing costs on house purchases when it comes to a home purchase. The down payment is normally 3.5% for FHA-insured mortgage loans. The minimum down payment requirement for conventional loans is 5% of the purchase price. VA loan programs and USDA loan programs do not require down payments. Both of these two mortgage loan programs offer 100% financing. All home purchase and/or refinance mortgage loan transactions have closing costs. Closing costs on house purchase are any fees and/or costs associated with the home purchase and/or home refinance of a residential mortgage loan.

Examples Of Typical Common Closing Costs On A Home Purchase

Examples of closing costs on house purchase are transfer stamps, title insurance, homeowners insurance, pre-paid items ( insurance and tax escrows), and any other fees and costs associated with the transaction of the purchase and/or refinance of the property.

How Are Closing Costs Determined?

Closing costs on house purchases can vary depending on the state and county where the transaction takes place and can be anywhere between 2% to 4% of the transaction amount. On a $200,000 home purchase, closing costs can range from $4,000 to $8,000. Closing costs can really put a dent in a home buyer’s finances.

Ways Of Avoiding To Pay Closing Costs House Purchase

There are two ways a home buyer can not worry about paying for closing costs on a house purchase. The first and most common method is by getting a seller’s concession towards a buyer’s closing costs What is a seller concession? A seller concession is when a seller will contribute toward part or all of the home buyer’s closing costs on a home purchase. For example, say a seller wants a net of $100,000 in his pocket from the sale of his home and wants to help the buyer cover his closing costs because the buyer can only come up with the 3.5% down payment for an FHA loan.

How Are Seller Concessions Structured Between Seller And Homebuyers?

The seller can raise the real estate purchase contract price to $105,000 and give the home buyer a $5,000 seller concession towards the buyer closing costs so the buyer does not have to worry about paying closing costs. The seller gets his $100,000 net price in his pocket, the buyer does not have to worry about any closing costs and only has to worry about the down payment and the deal is done. The home needs to appraise and any leftover proceeds from the sellers’ concession cannot be given to the home buyer in the form of cash.

What Happens With The Overage In Seller Concessions?

Any leftover seller concession needs to be returned back to the seller. A home buyer does not want to waste any seller concessions. The maximum amount of seller concession allowed with an FHA loan is 6% and the maximum amount of seller concession allowed with a conventional loan is 3%. Maximum seller concession towards buyers closing costs on a VA loan is capped at 4%. Maximum seller concession towards buyers closing costs on an investment conventional mortgage loan is capped at 2%. Maximum seller concession towards buyers closing costs on a USDA mortgage loan is capped at 6%.

What Is A Lender’s Credit?

If the seller is not willing to give a seller concession towards the home buyer’s closing costs, then the second way the home buyer can offset his or her closing costs is by getting a lender credit towards a buyer’s closing costs. What this means is for a slightly higher rate, lenders can give borrowers cash credit to cover their closing costs. For example, say a borrower gets approved for a $200,000 mortgage loan at a 4.25% mortgage rate. Say the closing costs are $5,000. The mortgage lender can offer to give a lenders credit of $5,000 towards the borrower’s closing costs at a rate of 4.75% in lieu of the 4.25% original par rate. Maybe at a rate of 4.5%, the lender’s credit amount might be $2,500.

How Does  A Lender Credit Work?

Borrowers can elect to choose the 4.50% mortgage rate and get a $2,500 lender credit and pay $2,500 out of pocket to cover the $5,000 in closing costs. Some of the fees and costs are related to the borrower’s mortgage loan application. Examples of the above costs and fees are the expense of a credit report on all applicants and rapid rescore fees and costs.

First Time Home Buyer Tips On Potential Closing Costs

Other fees and costs are related to the subject property itself, such as the following:

  • attorneys fees
  • title charges
  • origination fees
  • transfer stamps
  • pre-paid
  • property home appraisal
  • pest inspection fees
  • home inspection fees
  • well inspection
  • roof inspection
  • termite inspection fees
  • mold inspection fees

Closing costs include any other third-party fees

How Much Are Closing Costs On Home Purchase Loans

Closing Costs On Home Purchase Loans

Unless the home seller offers to pay closing costs by giving home buyers a sellers concession towards the home buyers closing costs:

  • These expenses are charged to the buyer and often runs between 2 and 3 percent of the amount being borrowed
  • In Illinois, the seller can assist up to 6% in sellers concessions of the loan amount in paying the closing costs for the buyer on FHA Home Loans
  • Maximum sellers concession allowed on an owner occupant or second home conventional loan is 3% sellers concession
  • Maximum closing costs allowed on an investment property conventional loan is 2% sellers concession
  • The maximum closing costs allowed on a VA Loan is 4% sellers concessions
  • Closing costs can be paid by the lender for a higher interest rate too through a lenders credit towards closing costs
  • Because different states have different fees and taxes that are a part of these costs, it’s impossible to generalize nationwide

Examples Of Closing Costs On Home Purchase Loans

Common closing costs can include the following:

  • Processing and underwriting fee
  • Mortgage insurance premium
  • Home appraisal fee
  • Credit report fees
  • Tax service fee and application fee for third party vendors
  • Recording fees for the county
  • Transfer stamps
  • Title charges
  • Commitment
  • The wire transfer fee, etc.
  • Escrow accounts are often required for homeowners insurance, real estate taxes, and homeowners associations
  • Escrows require cash deposits at closing
  • Pre-paid is part of closing costs on home purchase loans

Once a mortgage loan applicant applies for a mortgage with a loan officer. the loan officer will send out the Loan Estimate, which replaced the old Good Faith Estimate. On the LE, it will have all estimated closing costs. Most closing costs disclosed on the Loan Estimate are over-disclosed.

Lender Credit For Closing Costs On Home Purchase Loans

The team at Gustan Cho Associates can help borrowers who are short on closing costs on home purchase loans by covering the shortage of the costs with a lender credit. This way borrowers do not have to come with any money out of pocket. For most of our borrowers who refinance with us, there are no closing costs on refinances because we cover the closing costs. Home Buyers who need to qualify for a mortgage with a direct lender with no overlays on government and/or conventional loans please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected]

There are two types of costs that are substantially on home purchase:
  • Down Payment Requirements
  • Closing Costs
On refinance mortgages, the only costs involved are closing costs. Every real estate transaction has closing costs. There are always closing costs on home loans. For every mortgage loan, whether they are home purchase, home, or refinance loans, there are closing costs. In the following paragraphs, we will discuss and cover closing costs when buying a home after doing a cash-out refinance on their first home.

First Time Home Buyer Tips On What To Look Out For In The Subject Property

It is always recommended to get a survey done on the property so buyers know exactly what you’re buying. Knowing precisely where property lines save you from a potential dispute with neighbors. Also, property tax is likely based on how much property you have. So it is best to have an accurate map on hand. Trying to anticipate the housing market is impossible the best time to buy is when you find the perfect house and you can afford it. Real estate is cyclical. It goes up and it goes down and it goes back up again. So, if you try to wait for the perfect time, you’re probably going to miss out.

First Time Home Buyer Tips On Buying The Biggest House On The Block

Everyone is usually drawn to the biggest, most beautiful house on the block but bigger is usually not always better when it comes to houses. There’s an old adage in real estate that says “don’t always buy the biggest house but buy the best house on the block. The largest house only appeals to a very small audience. You never want to limit potential buyers when you go to re-sell. Your home is only going to go up in value as much as the other houses around you. So if you $500.000 for a home and your neighbor pays $250.000 to $300.000, your appreciation is going to be limited. Sometimes (not always) but sometimes it’s best to buy the worst house on the block. This is because the worst house per square foot always trades for more than the biggest house on the block.

Comparing Buying Versus Renting

The difference between renting and homeownership is the sleeper costs. Most people just focus on their mortgage payments. They also need to be aware of the other expenses such as property taxes, utilities, home-owner- association dues, and homeowners insurance. New homeowners also need to be prepared to pay for repairs, maintenance, and potential property- tax increases. Make sure you budget for sleeper costs so you’ll be covered and won’t risk losing your house.

Think About How Much House You Can Afford Versus How Much Home I Qualify

Lender Credit For Closing Costs On Home Purchase Loans

Buying a house on emotions is short-lived. Usually, once the hype is over and reality sets in it typically breaks your heart soon thereafter. Simply because you purchased via emotion as opposed to an investment approach and could end up making some pretty bad financial decisions. Going with your instincts usually means that you recognize that you’re getting a great house for a good value. Going with your emotions is being obsessed with the paint color or backyard. It’s an investment, so stay calm and be wise.

First Time Home Buyer Tips Understanding Importance of Home Inspections

Let me ask you a question:

  • Would you buy a used car without having it checked out by a certified technician?
  • Of course not
  • A home inspector doesn’t cost much more around ($300) but could end up saving you thousands
  • A home inspector’s sole responsibility is to provide you with information so that you can make a decision as to whether or not to buy a particular home
  • It’s really the only way to get an unbiased 3rd party opinion
  • If the inspector does find any issues with the home (depending on what they are) it can provide you with leverage and a good bargaining tool for lowering the price of the home
  • It’s better to spend the money up front on an inspector than to find out later you have to spend a fortune which could have been avoided
  • Today, so many sellers are behind in their property taxes

If you have that valuable information it gives you a great card to negotiate a good deal, all you have to do to find out is go to the county clerk’s office.

Research Area And Location Of The Property

Finally, before you buy, get the lay of the land, drop by morning, noon and night and check out the scene at different times of the day i.e for traffic or noise even neighbor’s activity. Many homeowners after purchasing find themselves distraught because they found the perfect home only to find out the neighborhood wasn’t for them. Drive by the house at all hours of the day to see what’s happening in the neighborhood. Do your typical commute from the house to make sure it is something you can deal with on a daily basis. Find out how far it is to the nearest grocery store and other services. Even if you don’t have kids, research the schools because it affects the value of your home in a very big way. If you buy a house in a good school district versus a bad school district even in the same town, the value can be affected as much as 20 percent.

In Conclusion

This article about advice and tips for First-time buyers is written by Alex Carlucci. Alex is a senior loan officer with Gustan Cho Associates. Alex is also a contributing associate editor and writer for Gustan Cho Associates Mortgage Resource Center. Alex is a producing licensed mortgage loan originator with Gustan Cho Associates.  Alex is an expert in all areas of lending and real estate investments. Alex Carlucci is a real estate investor himself. We look forward to Alex’s upcoming articles on informational topics in lending and real estate in the coming days and weeks. Check If You Qualify for a historic low rate (Jan 6th, 2021)

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