Buying your first home can feel like a whirlwind. From open houses to decorating, it is a time filled with a flurry of exciting activities. But it can also be a time of uncertainty. Some of the concepts and terms associated with the home-buying process can be confusing.
Having this information on hand will give you the confidence that you need to navigate the purchase of your first home.
How Much Home Can I Afford?
One of the first decisions you will have to make is to choose the right price range for your new home. The general industry guideline is to spend no more than 28% of your gross monthly income on your mortgage payment. Mortgage lenders will take this into consideration when deciding how large of a mortgage loan to offer you.
How Does a Mortgage Work?
A mortgage is a loan that can only be used to purchase a home. You can obtain a mortgage from a traditional financial institution or from newer e-loan companies. After you decide how much you can afford for a down payment, your mortgage will cover the remaining cost. You then have an extended period of time (usually 30 years) during which you will make monthly payments towards the balance of the loan.
How Much Do I Need for a Down Payment?
The conventional advice is to put 20% of your home price towards a down payment to avoid having to pay private mortgage insurance (PMI). PMI can cost several hundred dollars per month. If you don’t mind paying PMI, there are mortgage programs available that require as little as zero to 3% of your home’s purchase price for a down payment.
What is PMI?
Most lenders require private mortgage insurance, also known as PMI, if you cannot afford a 20% down payment for your home purchase. PMI protects the mortgage company from losing money if you should default on your loan.
What Are Closing Costs?
Closing costs are one-time fees that are paid at the closing of your home when the title to your home is transferred to your name. Closing costs can be paid by either the buyer or the seller, depending on what the purchase agreement specifies. Credit reports and title company fees are examples of closing costs.
What Are Property Taxes?
Property taxes are taxes assessed by the county in which you live. They typically range in the rate of 1-2% of your total home price. Property taxes can be paid bi-annually or as part of your monthly mortgage payment if they are escrowed into your payments.
What Credit Score Do I Need to Purchase a Home?
There is no specific minimum credit score required for a mortgage in general. Different lenders and different mortgage programs will set their own minimum acceptable scores. That said, a credit score below 620 is considered to be “poor” and will make it more difficult to secure a mortgage.
Are There Special Mortgages for First-Time Homebuyers?
For first-time homebuyers, there are several different mortgage solutions available. Many lenders offer special loans and grants that can assist with everything from down payments to closing costs.
Buying your first home doesn’t have to be intimidating. Familiarize yourself with these concepts, and you will sail through the process.
About the Author
Ryan Christensen
Responsive, Responsible and Resourceful - How Real Estate Should Be. This is the foundation of our continued success: responsive service, providing accurate and timely information, and demystifying the process. 100% of my business is referral based because I listen to my clients' needs and exceed their expectations. As a full-time real estate broker, I am the best advocate for both my buyers and sellers. I am always available, regardless of the time of day.
Being a native Southern Californian is a tremendous advantage. I know the area. Time is more valuable than money, but neither can be wasted. And, I'm a fan of hard work. My clients can enjoy their home buying and/or selling experience because I provide a trusting, focused, straightforward approach. I look forward to helping you achieve your goals and find joy in homeownership.
I am both a licensed Real Estate and Mortgage Broker. Others choose to concentrate on one or the other. I provide a higher level of service and expertise than those who do not obtain this dual skill set, which differentiates me from other service providers. My decisions and advice are based solely on what is in the best interest of my clients. I use Real Estate Sales as a tool to make sure my clients get the home that meets or exceeds their needs. As a Mortgage Broker, I search for the best loans so I can offer lower rates and pricing than my financing competition. This certainly IS in the client's best interest.