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5 Mortgage Questions To Ask Before Buying A Home
5 Mortgage Questions to Ask Before Buying a Home
Homeownership and a mortgage go hand in hand. Applying and gaining approval for a home loan is one of the toughest, most rigorous financial achievements you will ever accomplish. So before haphazardly stepping into the world of home loans, take the time to consider the five mortgage questions to ask before buying a home.
#1: Have You Reviewed Your Credit Report?
Home loan approval hinges heavily on your credit. If you’ve had shaky or less than ideal credit, you’ll need to improve it and build a new history before any lender is willing to risk approving a mortgage loan. This begs the question, have you reviewed your credit report?
Your bank should be able to provide you with a free copy of your credit report, and there are several free online options for grabbing a copy of the report as well. When reviewing your credit report, there are a few elements to pay close attention to:
Your Credit Score: What’s your score? It’s that sometimes scary, three digit number that basically sums up your worth. Home loan lenders will want to see a score of at least 620 to 640 before they will even consider approving your application. The sweet spot lies in the 700s. If you can build your score to a plump 720 or higher, you’ll demand some positive lending attention.
Your Personal Information: Your credit report should house a good bit of your personal information, including name, address, and employers. Review all of the personal info and ensure it is accurate. A missing employer or an innocent looking typo in your name or address can throw a huge monkey wrench into the home buying process.
Check for Errors: Not every credit report is correct. You should thoroughly review every last word on your report for errors. If you find any incorrect information, contact the reporting agency to request a correction. Sometimes you can fix a lot on your credit just by getting rid of the errors that pop up over time.
#2: Are You Ready For Closing Costs?
One of the most commonly overlooked costs of the home buying transaction is closing costs. Before jumping into a mortgage loan, you must ask yourself if you’re ready to handle closing costs.
According to the Department of Housing and Urban Development, you should plan on paying roughly 4 percent of the home’s purchasing price in closing costs. This is money paid in addition to the rest of the transaction.
Closing costs are not always paid by the buyer. In some cases, alternative agreements will be worked out where closing costs are split between the home buyer and the home seller. In other cases, the home seller may agree to cover closing costs as part of sealing the deal to push the sale. Don’t bank on either of these alternative scenarios. The smartest move you as a homebuyer can make is to be ready and able to fork out the closing costs.
#3: Have You Decided on Your Down Payment?
Experts all agree that before buying a home, the homebuyer should have six or more months of cash reserves set aside. These reserves should be capable of covering real estate taxes, living expenses, and other monetary obligations should the worst case scenario hit. And these funds should not be used as your down payment!
The down payment on a home loan can range from 0 to 20 percent or more of the house’s price. First-time homebuyers have access to several programs designed to assist or “front” the down payment for their first home. Smart buyers always pay something as a down payment, and they understand that the bigger the down payment, the better.
Before you buy, decide on where your down payment will come from and how much it will be.
#4: How Much Home Can You Afford?
It’s one of the cross-over questions that applies to every mortgage transaction: How much home can you afford? The answer involves more than calculating the most expensive home you can buy; it requires a blunt look at the whole picture.
Calculating how much home you can safely afford includes looking at the costs of homeownership, which includes costs outside of the home loan. For example, you will need to plan and save for home maintenance and repair. How can you do this? By planning now.
Think of the most expensive and heavily used appliances in the house, such as the refrigerator, stove, and HVAC unit. If one, two, or all of these randomly died at the same time, how much money would you need to front to get the essentials back in working order? Now, how long will it take you to save that amount of money and then replenish it for the next batch of mayhem?
If you buy a house and the monthly mortgage stretches your finances to the limit, how can you possibly expect to upkeep the house? Moreover, how can you expect to cover costs outside of the loan, like annual insurance, homeowner’s association dues, and so forth?
#5: Are Low Interest Rates Enough Motivation to Buy?
According to the National Association of REALTORS®, roughly one-third of home buyers are first-timers. Mortgage interest rates have hit all-time lows in recent years to stimulate an influx of fresh first-timers. But are low interest rates enough motivation to buy?
A low interest rate, particularly on a fixed rate mortgage, is highly appealing, as it should be to any serious buyer. But low rates alone are not enough reason to buy. Your honest answers to the questions we’ve covered will give you the greatest insight into whether home buying is a good idea today, tomorrow, or next year. It is far more important to make a smart buying decision over taking advantage of low interest rates.
The Hampton Roads real estate market is primed for transactions. As the popularity of the area grows and people start looking to buy in specific neighborhoods, like Lark Downs and Malibu, we’re sure to see an influx of first-time home buyers. Let us help you make the smartest buying decisions!