When purchasing a home, there are many elements to consider during the mortgage process. Below are a few frequently asked questions first-time homebuyers are asking.
1) What homes can I afford? Can I afford a mortgage?
Before starting the home buying process, examine your financial situation for possible homeownership opportunities. To determine your affordability, consider getting a mortgage pre-approval. This process will estimate your affordability for buying a home. While there are many mortgage calculators available online, using a lender provides a more detailed mortgage pre-approval for future homeownership options.
In order to gain more details, lenders may require more details than online calculators. Lenders consider 2 ratios: Gross Debt service (GDS) ratio and Total Debt Service (TDS) ratio. GDS includes your proposed monthly mortgage payment, property taxes, and heating costs divided by your gross monthly income. Ideally, GDS should not exceed 32%. TDS is your entire debt load (homeownership costs plus credit card payments, loan payments, and other debts) divided by gross monthly income. Ideally, TDS should not exceed 40%. When considering purchasing a home, work with lenders through the pre-approval process to determine if you can afford a mortgage and home.
2) Why should I use a real estate agent? How do I find one?
Although homebuyers may consider a real estate agent unnecessary, working with a real estate agent improves the home searching process. A real estate agent is not an extra cost to the buyer; the seller pays the real agent for listing and selling their house. Furthermore, a realtor clarifies any questions, recommends offering prices, and examines the market. The best approach to finding a good real estate agent is through referrals from friends, family, and co-workers. Get to know their home buying experience and choose an agent familiar with the area.
3) How can a mortgage specialist help me?
When seeking a loan with a mortgage company or bank, working with a mortgage specialist is an essential resource. Customer oriented lending companies educate homebuyers about the homeownership process, typically focusing on first time home buyers. They educate buyers on loan options as well as suggest suitable loans for your specific financial situation. From pre-approval to closing, working with a mortgage specialist creates a hassle-free homeownership process.
4) What are “closing costs,” and how much money should I set aside for them?
Closing costs are the additional expenses at the completion of the home purchasing process. These expenses include:
- Lawyer’s/attorney’s fees: The home buyer needs to hire a lawyer to complete a title search of the house he/she is seeking to buy. A title search ensures no outstanding liens against the property and that the seller actually owns the property. It also includes confirmation of all documentation, registration of your mortgage, and replacing the new buyer on the documents.
- Land transfer tax: In a few states, some municipalities charge a fee for documenting a change in property ownership.
- Disbursements: These are the costs the seller must pay in advance, such as property taxes and utilities. The new buyer reimburses the seller for any prepayments that come into effect after possession of the property.
5) What are the best mortgage options for me? Where do I find a loan? How do I know if I can get a loan?
If you already expressed your preferences for loan size and terms, you should talk to a loan officer or a mortgage specialist. If you are unsure about loan options, ask your mortgage specialist to guide you. First time home buyers often seek pre-approvals and mortgage schedules from at least 4 lenders. Lenders evaluate one’s financial profile and future mortgage goals. Other factors that impact loan options include your credit score and debt-to-income ratio. They suggest mortgage options and guide you through the loan process.
6) What do I need in a neighborhood? How is the neighborhood/area?
Many homebuyers forget to consider the neighborhood when searching for a new home. The new neighborhood is one of the most important elements to consider. Neighborhoods impact property price, safety, surroundings, parking, public transportation, traffic patterns, schools, taxes, and local activities. Additionally, neighborhoods with better public school districts will save money on private schools down the road. Check out potential neighborhoods at different times of the day. A good real estate agent will share information about local neighborhoods during the home search. If you are aware of your neighborhood preferences and ask the right questions, you can save a great deal when purchasing a new home.