A. Whether you are purchasing your first home or you’ve purchased several through the years, it’s helpful to stay current on the latest and most recent updates to the home buying process. ReNew Lending has compiled many helpful guides to provide you vital information you need to know for one of the largest financial investments you can make.
What is FHA?
A. The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
Why should I buy instead of rent?
One of the major reasons to buy vs. renting in our current market is that many homes are available at such bargain prices, you may be paying the same amount a month (or less in some cases) for a home of your own as you are paying for renting an apartment or paying some elses rent by renting a home.
When you rent, that money goes to your landlord and that’s the end of the story for you. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes (if you live in a state where you pay state taxes). You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home will go up over time and as the homeowner you can benefit from the equity gain in your home in a number of different ways.
And of course one of the most important reasons of all is that it is YOUR home!
What if I don’t have perfect credit or a lot of money to use for a down payment?
A. There are a number of loan programs available for first time home buyers with below average credit and limited savings for a down payment. In fact, there are even county specific loan programs available that may help you finance repairs that are needed in the home and assist with down payment and closing costs.
Are there special home ownership grants or programs for single parents?
A. There is help available. Start by becoming familiar with the home buying process and pick a good real estate agent/broker. Meet with your ReNew Lending loan officer right away to get pre-qualified for your loan so that when you find a house you like in your price range you can make an offer right away.
Should I use a real estate agent/broker? How do I find one?
A. Using an experienced real estate agent/broker is an invaluable tool in todays market . All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional will guide you through the entire process and make the experience much easier. A real estate agent/broker will be well acquainted with all the important things you will want to know about neighborhoods you are interested in, the quality of schools, the number of children in the area, traffic volumes, quality of homes you are interested in, true values of properties you are interested in and much more. The home buying process is a detailed and involved process and you will have a lot of questions and concerns. A trusted real estate agent/broker will make your home buying process a much more enjoyable process then trying to go at it alone.
How much money will I have to come up with to buy a home?
The answer to this question depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs:
Earnest money – the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house.
Down payment – a percentage of the cost of the home that you must pay when you go to settlement.
There are a number of loan programs available that may be able to help minimize the required down payment for you to obtain a loan for your new home.
Closing costs – the costs associated with processing the paperwork to buy a house.
When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money usually varies. Ask your realtor for more information.
However, many of the bank owned homes that are currently available can have the contracts negotiated to cover a portion (and on occasion all) of the closing costs required to buy your new home. This of course excludes any down payment required by your lender and the initial earnest money deposit.
How do I know if I can get a loan?
A. The best thing to do is to contact one of our loan officers right away to discuss your specific situation and see how much home you may qualify to buy. You can also use our mortgage calculators to see how much mortgage payment you could potentially handle. If the amount you can afford is significantly less than the cost of homes that interest you, then you might have to wait awhile longer. In order to make an offer on any bank owned home (also referred to as REO’s and foreclosures) you must have a loan pre-qualification or loan pre-approval letter from your lender before the seller will even look at your offer. This step can make all the difference in the world between you getting or not getting the home of your dreams with how competitive the bank owned home buying market is right now. Getting pre-qualified or pre-appoved will also give you a target purchase range for you and your real estate agent/broker to shoot for when looking at potential homes so that you don’t waste your time on homes outside of your purchasing range.
Is the monthly mortgage payment all that I have to worry about as far as my expenses are concerned when I buy my new home?
A. You will, of course, have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. In addition, you might have homeowner association or condo association dues. You’ll definitely have property taxes (that’s usually a part of your monthly mortgage payment), but you may also have city or county taxes. Taxes are normally rolled into your mortgage payment.
So what will my mortgage cover?
Most loans have 4 parts:
Principal: the repayment of the amount you actually borrowed.
Interest: payment to the lender for the money you’ve borrowed.
Homeowners Insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards.
Property Taxes: the city/county taxes assessed on your property.
The most common repayment period for home loans is 30 years, although 15 year loans are available, too. During the life of the loan, you’ll pay far more in interest than you will in principal – sometimes two or three times more! Because of the way loans are structured, in the first years you’ll be paying mostly interest in your monthly payments. In the final years, you’ll be paying mostly principal.
With all of the different types of mortgages out there, how do I know what type I should get?
There are many types of mortgages, and the more you know about them before you start, the better. Your ReNew Lending loan officer will help you sort through all of the options that best meet your needs. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be because future national rate changes will not affect your loan.
Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities index. The advantage of an ARM is that you may be able to afford a more expensive home because your initial interest rate will be lower. Talk to us about the various kinds of loans before you begin shopping for a mortgage.
So what will happen at closing?
A. Typically, you will sit at a table with your agent/broker, the broker for the seller, probably the seller (in a conventional sale situation, you will not have the seller present if it’s a bank owned property), and a closing agent with the title and escrow company. The closing agent will have a stack of papers for you and the seller to sign. Again, if it’s a bank owned property the seller will not be present and the documents will be mailed to them to sign either after you have signed your portion or the seller will have executed their portion of the documents before hand. While the closing agent will give you a basic explanation of each paper, you may want to take the time to read each one and/or consult with your agent/broker to make sure you know exactly what you’re signing. After all, this is a large amount of money you are committing to pay back. And don’t hesitate to ask questions. Once everything is signed and any monies are collected by the closing agent which are necessary to fund your loan (i.e. down payment or closing costs), the documents will typically be sent via courier to the county recorders office to officially transfer the title and deed from the previous owner’s name/s into your name. Once that has been done, your agent/broker will contact you to set up a time to meet you with the keys to your new home.