First time purchasing a home? This article puts together some of the most commonly asked questions about mortgage and home buying.
Updated, January 2018
Buying a home could be the most expensive decisions you will make in your lifetime. A careful and thorough preparation will help you avoid costly mistakes along the way.
If this is your first time buying a home and are just starting out with your self research, we’ve compiled a list of the most commonly asked questions about home buying and mortgages to make the job easier for you. These will hopefully help you navigate your way through the complex – though not impossible task – of buying your first home.
This is Part I of a two-part series.
See part two here.
Where do I start?
Find a lender. Compare interest rates, reputation, years of experience, and other fees and charges. You may find your lender online, via your local real estate channels, or through the recommendations of family and friends.
Before you get on it, however, it might be worth your while to get a referral from someone you trust and talk to that lender first for mortgage advice. Discuss with them your current situation and ask them about the potential mortgage programs that could fit you. You can then use this information to establish a baseline from which you can do your later comparisons.
Here are some of the most important questions that you should ask lenders about:
- costs associated with obtaining a mortgage
- time duration to close a mortgage
- types of mortgages and their pros and cons
- where your loans are processed and how they are underwritten
What documents do I need to get in order to obtain a mortgage?
Although each lender may differ in their requirements, there are fairly universal documents that you would most likely have to obtain for your application.
- asset statements
- bank statements
- copy of an earnest money deposit check
- drivers license
- fully executed purchase contract
- one to two months pay stubs
- your W2 forms for the past two years
- your social security number
Additional documentations that your lender may require include:
- updated pay stubs
- updated bank statements
- verification of employment
- gift letter for down payment (if a portion of your down payment money is gifted)
What is an appraisal?
An appraisal is a process conducted to determine how much the property of interest is worth in the market. This is done using comparables. Real estate agents contrast criteria from recently sold properties in a neighborhood, such as sale price, age of the house, size, and square footage.
Problems in home appraisal can cause the closing to delay such as when the valuation returns lower than the sale price. In this case, you might have to do another round of negotiations with the seller.
A property appraisal is conducted by a third party representative to prevent biased opinions and valuations of the property. For a VA loan, however, appraisals must be conducted by a VA-certified appraiser.Check out today’s mortgage rates.
Which mortgage type should I choose?
Though this has been previously mentioned in the first question, an enduring concundrum among first-time homebuyers concerns the type of mortgage they want to get.
The most common mortgage categories are:
FHA home loans
These mortgages are backed by the Federal Housing Administration and specializes in providing mortgages to first time buyers having a hard time coming up with a hefty down payment.
Instead of the conventional 20 percent down payment requirement, an FHA loan only requires its borrowers to pay down at least 3.5 percent of the home’s purchase price in exchange for a non-negotiable mortgage insurance premium. The borrower, however, needs to meet the FHA’s minimum credit score.
Conventional mortgages are the most common and perhaps preferred financing option among borrowers with strong credit scores and those who have enough money for a good down payment.
VA/USDA Home Loans
VA loans are guaranteed by the US Department of Veterans Affairs exclusively serving the country’s military men and women both retired and on active duty. Meanwhile, the USDA mortgage program puts its focus on providing home financing for the country’s low-income borrowers in designated rural areas.
Both programs offer 100 percent financing and have lenient underwriting qualifications compared to conventional and FHA mortgage programs.
Learning about the type of mortgage that’s best for you entails being honest with your finances. If you belong to one of these niche programs, then you shouldn’t pass the opportunity to take advantage of them. Speak with a financial advisor or a professional lender about the options that best fit your needs.
What is a home inspection?
A home inspection is a part of the mortgage process that is conducted by another third party personnel to assess the current condition of the home. This is a means of determining if there are repairs or improvements that need to be done on the home before the sale can proceed. Sometimes, in a sellers market, home inspections can be waived as a contingency.
If, however, you want to avoid any further costs in repairs later, a home inspection shouldn’t be bypassed.Click to See the Latest Mortgage Rates»