Buying a house for the first time can be intimidating. The lingo is confusing, the rules are complicated and the stakes of making a wrong move and getting in over your head are incredibly high. Most people rely on their realtors and financial institutions for a lot of guidance when going through the process, and there are also home buying education classes that can teach new homeowners a lot about this exciting new stage in their lives. These incredible resources can help you navigate the process smoothly and make sure you end up in the perfect new home.
But how do you know if you are even ready to consider buying a home? One of the most daunting obstacles for most people is getting a home mortgage loan and a lot of the time, people have very similar questions and concerns about getting a mortgage. Kaye Mack, Mortgage Sales Manager for American Bank & Trust in Sioux Falls, shared some of the most commonly asked questions about mortgages and her expert answers.
Q: What loan program is my best option? How do I choose?
KM: Mortgages are not one size fits all. There are lots of options, so it is important to sit down with a loan officer to determine the one that best fits your situation. Getting help from someone who understands the complex details of the different programs is key to choosing the right mortgage.
Q: Do I have to have a down payment and if so how much?
KM: It depends on the type of loan. Some loans, such as Rural Development and VA, require no down payment. Others require as little as 3% down. Many people have the misconception that they need to have 20% down, but there are plenty of options available where a much smaller down payment is required. There are also several down payment assistance programs that you may qualify for.
Q: What will my house payment be?
KM: Your house payment will consist of principal and interest (the amount needed to pay back the amount borrowed over the term of the loan), property taxes, homeowner’s insurance and, in some cases, mortgage insurance. Those vary in each specific scenario, so everyone’s payment will be a little bit different. A loan officer can help give you an estimate of what your payment might look like for a specific home loan. You can get an idea of what your house payment might be by using a payment calculator.
Q: I’m just starting a new job. Do I need to be working there very long?
KM: Time on the job is one thing that factors into your overall credit profile. However, it is often acceptable to be starting a new position as long as your employer does not indicate there is a probationary period or you are paid on a commission basis.
Q: Should I talk with a bank before looking at homes?
KM: Absolutely! Getting pre-qualified puts you in a better position when making an offer on a house you want to buy. It also prevents you from looking at what you consider your dream home only to find out it is out of your price range. Your loan officer can also identify any issues with your credit history that could be an obstacle to being approved for a home loan.
Q: Should I use a REALTOR®?
KM: Most certainly. Realtors are a very important part of a successful transaction. They know what other homes in the neighborhood have sold for and can present your offer to the seller in the best possible light, which is so important in this seller’s market environment. Typically, the seller pays the realtors so there is little or no cost to you as a buyer.
Q: What is earnest money? Will I get that back at closing?
KM: Earnest money is a deposit that a buyer makes that shows the seller you are committed to the transaction. As long as you complete the home buying process, that money is credited to you at time of closing.
Q: Do you sell your loans?
KM: At American Bank and Trust, we do not sell the majority of our loans, though many other lenders do. That can be very important when you have questions about your loan after closing, so it is something you should ask your lender.
Q: Why shouldn’t I make any large deposits right before trying to find a mortgage?
KM: Lenders need to make sure you didn’t recently borrow money for the down payment, or that the seller hasn’t provided you with an incentive to purchase their home. Deposits like your paychecks are fine because they are regular credits and can easily be explained but any unusual large deposits must be sourced. Large deposits might cause difficulties or delays in securing a loan, so it is best to wait until after a loan is secured to avoid problems.
Q: Should I take a Home Buying Education Class?
KM: Yes! Homebuyer Education classes are beneficial, especially for first-time homebuyers. Even if it is not a requirement for your loan program, this kind of education will be invaluable over the life of your loan. The class teaches you about the loan process, the additional costs of owning a home, etc. You may actually qualify for some discounts if you complete a course. Several non-profits offer online and/or in-person options, as well.
If you are interested in learning more about the mortgage process, you can contact Kaye Mackand her team or visit your local American Bank & Trust for more information. Happy house hunting, future homeowners!