First-time homebuyers often face unique financial situations that make homeownership a challenge. Whether it’s student loan debt, a small down payment, or any number of other things, qualifying for a home loan may seem impossible at homes.
At PRM, we understand these challenges. That’s why we offer HomeReady, a loan solution that turns home ownership from a dream into reality.
Low down payment options
Co-borrower flexibility regarding residency
Additional income sources may be accepted
Conventional home financing with cancellable monthly MI
The Cost of Homeownership
Even with the right loan, homeownership is much more than just paying off the price tag on the house. Additional expenses will come with your new home besides just the down payment and the mortgage.
Thankfully, all upfront costs in a loan transaction are laid out and explained in the Closing Disclosure Form. However, it’s important for borrowers to understand the long-term details of their financial decision to become a homeowner.
Down payments are just one aspect of financing that some first-time homeowners don’t fully understand before purchasing a home. The traditional down payment for conventional financing is 20% of the purchase price of the home. However, there are loans that offer as little as 3% down or no down payment at all for qualifying borrowers.
Mortgage Insurance (MI)
Mortgage Insurance is an added insurance policy to protect the lender in the event that the buyer cannot pay their mortgage and the loan winds up in foreclosure. This insurance is required on conventional loans with a down payment less than 20% and is also typically required on FHA and USDA* loans.
Unlike with FHA and USDA* loans, which almost always require MI for the life of the loan, on a conventional loan, the MI comes off if you are paying it monthly.MI will automatically cancel when your loan balance reaches 78% of the original value of your home. For this purpose, “original value” generally means either the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower. You can also request to remove the mortgage insurance before then.
The appraisal is an inspection done by a professional appraiser which confirms the current market value of the home. It will be one of the first steps in the closing process. Appraisals will usually cost a few hundred dollars but can often be rolled into the loan amount.
At PRM, we want our clients to be in the best hands possible when it comes to homeownership. This is why we have an in-house appraisal team to help meet this need in the states of Oregon, Idaho, and Washington.
Closing costs, sometimes called settlement fees, are paid when closing on a home. These are fees charged by the people taking care of the purchase process. This will include the lender, real estate agent, and any other third parties involved in the transaction. Some of these costs can be rolled into the loan, allowing less cash out of pocket to be needed at closing.
Closing costs include but are not limited to:
- Government Recording Costs
- Appraisal Fees
- Credit Report Fees
- Lender Origination Fees
- Title Services
- Tax Service Fees
- Survey Fees
- Attorney Fees
- Underwriting Fees
- And more.
Earnest money is a deposit which the buyer submits at the time they make an offer to show that they have a serious intent to purchase the home. Most often, the amount is between 1-3% and the funds are generally held in escrow with the title company or closing agent.
Earnest money is not a separate expense as it will be applied to either the buyer’s down payment or closing costs. However, it’s worth mentioning because the funds are typically paid when the offer to purchase is made rather than when the loan closes. Depending on the terms and conditions of the contract, the buyers could possibly get this money back if the sale does not go through. So, it’s important to review these terms carefully before making an earnest money deposit.
A buyer will need proof of homeowner’s insurance before the mortgage loan can be completed. Not only is it a wise thing to have, but insurance is usually required by the lender to ensure that the mortgage will be paid off, or the property will be repaired or rebuilt to its current value, in the case of disaster. A buyer may also consider flood or earthquake insurance.
Buyers should always check the property tax rate for the new home. Local rates can vary by area depending on schools, fire districts, etc. The buyer may owe the previous homeowner for some portion of fees already paid as they are paid yearly and are split when the home is sold.
First-time homebuyers often forget how quickly small expenses can add up. You’ll want to make sure you consider these things in your budget if you decide to move:
- Moving Expenses: moving truck, boxes, hiring movers, etc.
- Maintenance Costs
- Monthly Bills
Is 2020 the year you become a homeowner? Contact a Mortgage Advisor today to begin your journey.