Buying a house is a lot to wrap your head around. It can be hard to understand the process as a whole, so we believe it is much easier to break it down into steps.

Here is a short compilation of questions concerning the first phase of buying a home:

1. How do I qualify for a loan?

When applying for a loan, mortgage lenders will consider your employment history, credit score, debt-to-income ratio, and how much you plan to put down on your home when deciding whether you will ultimately qualify.

The most common qualities that will help you get the loan you want are: stable employment history and a good credit score. Debt is also a major factor, lenders will focus on whether they believe your total debt is a manageable percentage of your pre-tax income or not.

2. What down payment do I need to buy a house?

The average down payment for first time home buyers is only 6%, this is much less than the common perception that you must put 20% down. Also, there are many loan programs who will let you buy with even less than that 6%.

Ultimately, down payments are flexible, there is no set percentage that every homeowner pays. The amount you will end up paying will be dependent on your income, what you have saved, how expensive the house is, and what your buying goals are.

Depending on what your goals are you could have very different perspectives on whether a bigger or small down payment is more beneficial. Those who can pay a bigger down payment will have a lower monthly interest rate and a lower monthly payment. And those who choose a smaller down payment will be able to stop paying rent and buy a home while also building equity faster. Either choice can be beneficial depending on your situation.

If you want to learn more about down payments check out this article on the average down payment on a house and when to put down more or less.

3. Why do people say I need 20% down?

We discussed that the average downpayment is far less than 20%, so why do so many people think 20% is the minimum?

The reason this is such a common thought is because paying a 20% down payment will allow you to get out of paying mortgage insurance. This mortgage insurance is an extra charge on your monthly bill. Naturally most buyers would want to avoid this charge and that is why most people aim for over 20%.

4. What is a mortgage?

A mortgage is a special type of loan used for those buying a house. According to the National Association of Realtors, only around 10% of buyers are able or will purchase homes solely with cash, everyone else will need to borrow at least some of that money.

So, what makes a mortgage different from other types of loans?

  • Lower Interest Rates
  • Longer repayment periods
  • Rates and payments are generally fixed
  • The loan is “secured” (by the value of your home)

5. What are mortgage points?

Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. This practice is also called “buying down the rate.” According to Bank of America, one points costs 1% of your mortgage amount ($1,000 for every $100,000).

While this concept may seem like an easy solution to higher upfront interest rates, it can actually be complicated. It is very important to research how mortgage points will affect your overall payment plan so that you can determine if you will save more money in the long run than you would in other choices such as refinancing.

Learn more about mortgage points here to decide if these option payments are right for you.

6. Will I have to pay closing fees?

Closing costs are fees and expenses that allow you to finalize a home purchase. Typically, you will receive an estimate of these costs around three days after you file a mortgage application.

You, as a first-time buyer, will have to pay these fees. Closing costs typically run from 2% to 5% of the total price of the home.

These costs are easy to overlook when you are in the process of buying your first home, mostly because there are so many other factors to think about. It is important to remain aware and prepared for this added cost so that you can plan and avoid any shock that may occur on closing day.

7. What credit score do you need to buy a house for the first time?

Most loan programs require a credit score of 620 or higher to buy a house for the first time. These include conventional loans, most VA loans, and USDA loans.

In general, a higher credit score will give you more flexibility and accessibility to a mortgage. When you have a credit score in the excellent range (720+), you can gain access to many loan programs and much better rates.

Therefore, if you have opportunities to improve your credit score before starting the buying process, we highly recommend that you do.

Buying a house is a massive task and it can be very overwhelming. We hope that this short FAQ has helped you understand what this process entails. Here at Holland Homes Sales, we want to make this process easier and be with you every step of the way. Contact us today and learn more about how you can begin your journey of finding that perfect home.

Get in touch with us today to discuss your home needs! 334-332-7157 334-332-7157