Whether you’re a first time home buyer or you’ve owned a home before, chances are that you still have some questions about mortgages. After all, mortgages can be fairly complicated. No need to worry.
Here are some of the most common mortgage questions answered to help make your home buying experience a positive one.
What’s your mortgage rate?
This is a loaded question because it’s not a simple answer. It can be hard for people to know exactly what their mortgage rate is because there isn’t just one single rate for every borrower. Also, mortgage rates change every day, and sometimes they change two or three times a day.
Rates also depend on someone’s credit score, how much they have for a downpayment, what type of loan they pick and what loan term (the number of years for the loan) that is chosen.
Do I really need a 20 percent down payment?
These days, there are many mortgage options available that require a downpayment of less than 20 percent.
FHA, VA, USDA and conventional loans can all require a smaller downpayment. Some options may not even require a downpayment at all.
Even if a smaller downpayment of three or five percent is tough on your budget, there are plenty of programs available to help home buyers. These range depending on your neighborhood, city, county and state.
What will it cost me to buy a house?
This question can be tricky to answer because there are a lot of costs involved with buying a home. Chances are that one of the bigger costs will be the downpayment (except for VA and USDA loans that don’t require a down payment).
But what about all those other costs that are required to purchase a home? Well, once you find that dream house, your real estate agent will tell you to write a check for earnest money deposit worth one or two percent of the home’s purchase price. This lets the seller know you are truly “earnest” about buying the house.
You’ll also need an appraisal and a home inspection, both of which will likely cost a little over $300 each. These might not be required, but they can help you negotiate for a lower total home price.
Lastly, there are the closing costs. Generally, closing costs will cost about $3,500, but it depends on your home price and your mortgage.
Why is there so much paperwork?
Good question. Lenders want to make sure that they have all the information before they agree to give you a mortgage. Also, the rules lenders have to follow have gotten stricter since the mortgage crisis in 2007 to prevent home buyers from getting stuck in homes they can’t afford.
The paperwork is a pain, but it is there to protect not only the lender but you, the home buyer.
Why do I need private mortgage insurance?
If you don’t put 20 percent down on a conventional loan or if you choose an FHA mortgage, you will pay some kind of mortgage insurance to the lender.
For the conventional loan, you’ll be paying private mortgage insurance (PMI) that can cost on average 1 percent of the borrowed amount. That means it would cost about $100 a month per $100,000 borrowed – or $1,000 a year.
With an FHA loan, it’s called mortgage insurance premiums or MIP. That costs .85 percent for each $100,000 borrowed or $85 a month.