Frequently Asked Questions
Am I Ready to Be a Homeowner?
Purchasing your first home is a major milestone and not a decision to be taken lightly. It’s a huge financial commitment that can take months of preparation—searching for the right home, making an offer, going through the mortgage application process and closing on the home. Then you have the actual business of home ownership, which is a whole different story.
5 Signs You’re Ready to Be A Homeowner
1- You Have a Strong Credit Score. If your FICO credit score is above 670, give yourself a pat on the back. You pay off your loans on time and don’t keep high balances on your credit cards. …
2- You Can Afford the Down Payment.
3- You’re Ready to Settle Down.
4- You Have Stable Employment.
5- You Can Maintain Your New House.
What Is the Lender's Formula?
For most mortgages, lenders calculate your principal and interest payment using a standard mathematical formula and the terms and requirements for your loan.
A typical fixed-rate mortgage is calculated so that if you keep the loan for the full loan term – for example, 30 years – and make all of your payments, you will precisely pay off the loan at the end of the loan term.
The payment depends on the loan amount, the loan term, and the interest rate.
A balloon loan has a much shorter loan term than a regular mortgage – typically only five years – but the monthly payments are calculated as if the loan was going to last for a much longer time, typically 30 years. Because the monthly payments aren’t high enough to pay off the full loan, the remaining loan balance is due as one large final payment (known as the “balloon” payment) at the end of the loan term.
So, for example, if you had a mortgage loan of $100,000 for 30 years at an interest rate of four percent, your monthly principal and interest payment would be $477 per month. With a regular 30-year loan you would make this payment for 30 years. With a five-year balloon loan, you would make this payment for five years and then owe the balance of the loan – or $90,448 – at the end of the fifth year.
Adjustable-rate mortgage (ARM)
If you have an adjustable-rate loan, your initial payments are calculated assuming that your initial interest rate remains the same for the entire loan term.
When your interest rate adjusts, your payment will typically (though not always) be re-calculated based on the new interest rate and the remaining loan term.
The total monthly payment you send to your mortgage company is often higher than the principal and interest payment explained here. The total monthly payment often includes other things, such as homeowner’s insurance and taxes.
What Do I Look for in Homes?
If you’re thinking about buying a home, this list can help get your search off on the right foot. While the number of rooms, the condition of the kitchen, and the size of the yard are important, there are other things to think over before you make an offer. Consider these factors.
They say that the three most important things to think about when buying are home are location, location, location. You can live with almost any imperfection in a home if you love the neighborhood and your neighbors. You can change almost everything else. But, once bought, you cannot change your home’s location. When you go house hunting, consider any potential home’s proximity to your work, the charm of the neighborhood, how the home is situated on the lot, ease of access, noise from neighbors, traffic, and pets, as well as access to parks, shopping, schools, and public transportation.
Beyond location, look at the site of the home. If the home is on a hill, does it have a view, a walkout basement, or lots of stairs to climb? Do neighbors’ windows look directly into the home? Is the yard suitable for kids, pets, gardening, or other uses? Is access to the property safe regarding driveway elevation or stairs to the front door?
Be sure the neighborhood, and not just the house, meets your expectations. They say that you should own the smallest home in the nicest neighborhood that you can afford. You’ll have a great view! Drive around on weekdays and weekends, during the day and in the evening. Are homes in the neighborhood consistent in size and features? Do the neighbors keep the yards clean and tidy, or are there old cars and trash around? Is the neighborhood safe enough for people to walk, run, or bike, and are there children playing in the yards?
The Home’s Curb Appeal
Your home should reflect your lifestyle. Do you live a laid-back life? Then you might not want a formal Victorian or Tudor-style home. Something simpler and more contemporary might be in order. Look at the exterior features. A brick home is easier to maintain, unless, of course, you live in an earthquake-prone area. Ask yourself whether the roof is in good condition. Is the landscaping attractive and are the sidewalks leading to the home safe?
The Size and the Floor Plan
You may be thinking about buying your dream home. But is your dream home impractical? Do you need four bedrooms and four baths when you live alone? A large home can give you the extra space you’ve always wanted for a home office or crafts or art projects. But you’ll pay higher heating bills and have higher taxes. It will take more furniture to fill it and money to decorate. Think about how the new home space will be used and whether it will fit your lifestyle now and in the future.
The Bedrooms and Bathrooms
Decide how many bedrooms and bathrooms you need, and only look at homes that meet your criteria. It would be a shame to fall in love with a cozy, charming cottage that isn’t big enough. An extra bedroom is always a plus, as it can be used for a home office, craft studio, or guest room. If you think you’ll be adding more room later, be sure to consult an architect who can advise you on space planning, lot usage, and city regulations.
If the kitchen is the heart of your home, don’t settle for a home with a kitchen that won’t work. You can always remodel, but it’s very costly. Can you replace cabinet faces and countertops? Will an inexpensive makeover be sufficient? Don’t worry about appliances, as they can usually be easily replaced.
The Closets and Storage
Older homes tend to have little closets and not a lot of storage space. If you have lots of sports equipment, craft supplies, out-of-season clothes, and holiday decorations, be sure you know where all this will go in your new home. Newer homes tend to have big closets and lots of storage. You can always add storage space, but you might have to sacrifice living space in your rooms.
The Windows and Lighting
Do you love a bright sunny room, or do you love privacy? Look at home with light and sunshine in mind. Look at the locations of electrical outlets and fixtures. Will they accommodate your lighting needs? Is there recessed lighting in the kitchen, cove lighting in the family room and a lovely chandelier in the dining room? If not, you can add them later, but it’s nice to have it in place when you move in.
The Finishing Touches
Sometimes the simplest home looks spectacular thanks to the installed moldings, hardware, and fireplace. If these elements are important to you, look for them while house hunting or be ready to add them after you move in.
If you keep these specific elements of a home in mind, your house hunting will be more successful, and you’ll likely end up with the home of your dreams.
Is Renting or Buying Better?
There’s no doubt that buying a home is a major life decision, but is it right for you? Of course, there’s no single correct answer, as there are pros and cons to both renting and buying. A major factor in anyone’s decision-making process, though, is one’s personal finances. In most cases, renting seems to be the more affordable option.
However, that’s not always the case. Your decision can boil down to several lifestyle considerations such as whether you want flexibility or stability, what your career goals are and whether you want a place to truly call your own.
If you’re on the fence about whether you should rent or buy, read on to find out what you need to consider before taking the plunge.
Renting Pros And Cons
Aside from your personal situation, there are some objective benefits and drawbacks to renting and buying that will exist in most scenarios.
Renting Pros And Cons
• Mobility/freedom to move around
• Landlord pays for maintenance
• Doesn’t require expensive closing costs
• No fluctuation in monthly housing expenses
• Allows you to test-drive different living spaces
• You don’t build any equity
• Limited ability to customize your living space
• Rent could go up over time
• Landlord might sell or decide to stop renting
• Limited sense of home stability/permanence
Buying Pros And Cons
• You build equity over time
• Home value may increase over time
• You may reap tax benefits
• Unlimited freedom to customize your living space
• Sense of home stability/permanence
• Closing costs can be prohibitive
• Responsibility for maintenance and repairs which requires time and effort
• Less flexibility to move (at greater difficulty/expense)
• Home value may decrease
• Recent tax laws could hamper tax benefits
Do I Need a Home Warranty?
Both new and existing homeowners can benefit from a home warranty. But if you’re wondering why a home warranty would even be something you’d need, you aren’t alone.
Many homeowners think a warranty is something extra to pay for. And, if you never run into problems with your home, its appliances, and its systems, it won’t be used.
But if you do have problems, you’ll be very glad you have a home warranty. A single repair, like a broken dishwasher or faulty dryer, could cost you hundreds of dollars. And if the damage or problem is more serious – like a leaky roof – fixing it could total thousands.
With a home warranty, you don’t need to worry about unexpected problems appearing. Your warranty plan will protect your home. And you won’t need to pay for these sudden disasters no matter how quickly they need to be fixed.
What Does a Home Warranty Cover?
Home warranties typically cover the major systems and appliances in your home. This means that all of the components that keep your home protected from damage and functioning properly are included.
Most home warranties include coverage for the following:
• Central air conditioning
• Central heating
• Electrical systems and wiring
• Ovens and cooktops of any kind
• Microwaves (the built-in kind)
• Water heaters
• Garbage disposals
• Washers and dryers
• Garage doors and openers
So, if a home appliance or home system breaks, a home warranty can help with the repairs.
What Should I Expect at Closing?
You’ve found your dream home, completed all the inspections, and checked every item off your to-do list except for one: closing. Congratulations! You’re so close to becoming a homeowner. If you have everything in order, your closing process should be simple. Before you get the keys to your new house, though, you’ll have to sign on the dotted line at the closing table. Let’s talk about what you should expect on the big day.
Pick the right date for your closing
There are a few things you should think about when it comes to scheduling your closing. The first is that it may take more than an hour, so don’t bank on closing during your lunch break. Maybe take a half day, or a few hours at the end of the day to ensure that you have enough time to close. After all, buying a home is a big decision, and you don’t want to rush any part of the process. The second important thing to remember when choosing a closing date is to avoid closing at the end of the month. You need to build in a little wiggle room if something were to go wrong. You don’t want to wait till the last day of the month in case a problem arises that needs a few days to smooth out.
Do a final walk-through
Most buyers are allowed to do a final walk-through before closing. A final walk-through isn’t an inspection — at this point, your inspections are already completed. Your final walk-through simply helps ensure that the property you are about to buy is in good condition and hasn’t changed or been damaged since the last time you saw it. Usually, your real estate agent will arrange your final walk-through anywhere from a week to 24 hours before closing. Set aside some time to thoroughly check the property in your final walk-through.
Who will be there on closing day?
Besides the home buyer (you) and a co-borrower or co-signer, if you have one, there will be a few other people there on closing day to help:
• The seller and their real estate agent
• A representative from the title company
• Attorneys (yours and your lender’s, if you have one)
• A closing agent, who conducts the meeting
• Your lender (sometimes, not always)
Let’s talk about documents
You’ve probably already noticed that the mortgage process involves many different documents, from proof of income to past bank statements. Closing will be no exception. In fact, most of your closing day will consist of you reviewing and signing various documents. You should bring any document you’ve received throughout the home buying process, including proof of homeowner’s insurance, a copy of your inspection reports, and any of the documents your lender asked for during the approval process. You’ll also receive some important documents the day of your closing. At closing, the seller will sign documents that transfer the property ownership to you. You will receive documents pertaining to your mortgage agreement and property ownership. You’ll also have to pay closing costs and make escrow payments. Some of the real estate transfer documents you’ll receive and sign at closing may include:
• A deed, which transfers the property from seller to buyer
• A bill of sales, which transfers personal property from seller to buyer
• Transfer tax declarations
Some of the mortgage loan documents you’ll receive and sign at closing may include:
• A mortgage note, which is your promise to your lender to repay your loan
• A mortgage, which is the agreement that puts the property as collateral should you become unable to repay your loan
• A loan application, which you’ll review for accuracy
• A loan estimate and closing disclosure
It’s important that you are familiar with all of the closing documents before you sign. If you prepare and review ahead of time, you’ll be ready on closing day. Once you’ve reviewed all the necessary documents, signed, and gotten your keys, you’re officially a homeowner. Make sure you hold onto to all documents you received throughout the process and keep them somewhere safe. Happy homeownership!
What Is Pre-approval?
What is a mortgage pre-approval?
A mortgage pre-approval isn’t a promise that you’ll get a loan for the home you want to buy. A mortgage pre-approval only means a loan officer has looked at your finances—your income, debt, assets, and credit history—and determined how much money you can borrow, how much you could pay per month, and what your interest rate will be.
So, what’s so great about a mortgage pre-approval?
Once a lender has pre-approved you for a mortgage, you’ll get a letter you can then take to sellers. This letter shows sellers you’ve already started working with a lender, and that the lender is willing to work with you. It gives sellers peace of mind to know they won’t be wasting their time with someone who couldn’t afford their house in the first place.
Why would you want a mortgage pre-approval?
While a pre-approval doesn’t guarantee you’ll get a mortgage, being pre-approved does have some advantages. Here are three reasons you might want a mortgage pre-approval:
1. It gives you confidence in your search. When you know how much mortgage you can afford, you can look for houses within your budget. That way, you won’t have to deal with the heartbreak of falling in love with a house only to discover you can’t afford it.
2. It puts you on the fast track to closing. Because most of your information is in the lender’s system, a mortgage pre-approval accelerates the loan process once you make an offer.
3. It establishes your credibility as a homebuyer. A mortgage pre-approval shows home sellers that you have your finances in check, that you’re serious about buying a house, and that you won’t be denied a mortgage if they decide to sell you their home.