Answering questions about home buying
Are you in the midst of house hunting, or do you plan to start looking for a house to buy soon?
If you have the money, it’s a good time to buy a new house while interest rates are still low.
Here are some of the frequently asked questions about home buying, in case it might help you decide to make your move.
Q. What are the “hidden” costs in buying a home?
A. These costs are not hidden, but sometimes overlooked. People believe that once they’ve saved a down payment, they’re on their way to homeownership. Not totally true!
While different programs have different down payment requirements (the percentage of the loan the lender requires from borrower to finance a loan, usually 0 to 20 percent). Closing costs are in addition to this.
Closing costs are fees and pre-paid costs both the lender and title company require to complete a loan transaction.
The bank usually charges an origination fee, document preparation fee, appraisal and credit report fees.
The title company charges a portion of the settlement and recording fees. That’s a lot of fees!
And don’t forget to include a Home Inspection! It is the best money you will ever spend.
Mortgage insurance (if needed), one year’s hazard insurance, FEMA insurance if the house is located in a flood zone, and county tax premiums and reserves are just some of the required pre-paid costs for a mortgage loan.
If the purchase agreement calls for the seller to pay closing costs, clarify exactly what will be paid.
A rough estimate for total closing costs is 5 to 7 percent of your loan amount. (That would be $5,000 to $7,000 on a $100,000 loan.) Some fees are negotiable and some may be allowed to be rolled into the loan if the appraisal amount of the home supports the additional debt.
Q. We’re trying to plan ahead for vacations and school schedules. So, once our offer for a house is accepted, how long will it likely take for us to actually be in our new home?
A. This can vary greatly, unforeseen complications and scheduling conflicts can arise between loan underwriters, inspectors, appraisers, verifications of income, employment, homebuyer education requirements etc. It could take 60 days or more to close a home loan.
Realtors customarily write a purchase/sale agreement to expire in 45 days. Written extensions of time are often needed so pay attention to expiration dates and be patient.
But, as you can imagine, because of Covid 19, some things are taking longer these days. All the more reason to get going sooner.
Q. How much of the selling price should I expect to pay on a down payment?
A. Twenty percent is the amount required if you want to avoid paying mortgage insurance. However, in an effort to make homeownership affordable, some lenders and some government underwriters have minimized down payment requirements.
Some loan products require as little as 0 percent down, but they are very rare these days. Underwriters want buyers to have “skin in the game,” that is, something to lose if the deal falls through.
Q. What is this eHomeAmerica.org?
A. This is a nationwide homebuyer education by internet. The course takes about six to eight hours to complete online (work at your own pace) and is also available in Spanish. The course does require either a phone or face-to-face follow up with our certified counselor. There is no cost for the counseling but the course costs $50 paid to eHome by credit card when you sign up.
When you’ve completed the course and counseling session, you will receive a certificate of completion. Because the course meets National Industry Standards, it is accepted by the United States Department of Agriculture (USDA) and most other lenders that require you to have completed a home-buyer education course to take better advantage of their loan products. We highly recommend it for homebuyer.
Q. I’ve always rented. How do I know how expensive of a house I can afford?
A. Without getting an actual “pre-approval” from your bank, there is an easy formula.
All lenders use debt-to-income ratios to determine what you can afford. While it can vary from lender to lender or program to program, the most common ratios are max 33 percent of your gross income for your housing costs and 43 percent for your housing and installment debts combined (that is car payments, personal loans, credit cards, etc.).
However, we find it helpful to calculate the amounts based upon your net income because this is the amount you actually have to spend.
Determine what you can afford per month for your housing costs ($2,500 per month income x .33 percent = $825). Remember to allow approximately 2 percent of that amount for your property tax and insurance costs, more for flood insurance if you are in a flood zone.
Bank web sites can give you information on the going interest rates and they also have calculators to help you determine how much house your monthly payment will afford you.
Buying a house is big deal
Buying a house is not like buying a pair of shoes. If you don’t like the shoes or you decide they don’t fit, you take them back to the store. Once you close on a home loan, that home is yours!
In fact, buying a home will likely be the most important purchase of your life. The decision should not be taken lightly or made in haste. You need to consider many things. Is your employment solid? Where you will be in five years? How do you anticipate your family to grow in that time? Do you really want to make a permanent commitment to the community you live in? These are all good questions to consider.
We can help you decide
The NeighborWorks® of Grays Harbor’s housing counselor is available to assist you with answering these and other questions regarding homeownership.
We can help you determine if the time to buy is now for you, and what programs or financing options might best fit your needs. Our housing counseling services are provided free of charge. Give us a call at (360) 533-7828 extension #102.
Please leave a message with your phone number and we will return your call.