If you are a first time home buyer, chances are you have plenty of questions about the kind of down payment you’ll need, becoming qualified, and different loan options. Although I’m not a loan officer, I’d like to answer some of the questions you may have, and give you a very general idea of some things to consider before you make an offer on a home.
The two most common loans are Conventional, and FHA.
- Conventional Loans: This type of loan is probably the one used most. The biggest difference between a conventional loan and an FHA loan is that a conventional loan requires a larger down payment. This ends up being as low as 5% for an owner occupant conventional loan, or 20%-25% on an investment that you don’t intend to owner occupy. With a 20% down payment, mortgage insurance isn’t necessary. Mortgage insurance is usually around $100 a month and protects the lender. It’s a ripoff in my opinion.
- FHA Loans: Federal Housing Administration loans are government insured loans that were created to help lower income families get into homes without having to pay a huge down payment. Generally, the down payment on an FHA loan is 3.5%. There are several conditions that must be met in order to obtain an FHA loan. First, they need to be owner occupied. When buying an investment, parents many times add a son/daughter that will be occupying the property, and take advantage of the low down payment. FHA loans must also get an FHA appraisal, which is more extensive than a conventional appraisal, and includes an inspection. There are also limits to the amount you can borrow.
Finding a lender: It’s important to find a local lender who has relationships with local appraisers and local title people. A lender who will return calls, works hard, and is honest. I can recommend several that I know will do good job. Interest rates can vary depending on which loan programs the lender has access to, so you should check around. I would call Andy Larsen: Velocity Home Loans first. firstname.lastname@example.org 801-636-7200. Please give me a call for other recommendations.
Inspectors: If you’re buying an older home, or if you’re getting a conventional loan, you will want to get an inspection. The cost is not included in the closing costs and a buyers approval of the inspection is a condition of the real estate purchase contract. I’m must say, I’m partial to one inspector in particular.
I like Jared Fenn at Pillar to Post.
Seller: you are responsible for paying the real estate commissions, and around 1% that the title folks charge to get things closed.
Buyer: you can also expect to pay 2% of the purchase price, which includes title work charges and the origination fee that the lender charges.
Interest Rates: Another thing to consider when purchasing a home is the current interest rate. The interest rate is the percentage that a lender charges on the principle balance of the loan. Interest rates can drastically influence your mortgage payment every month.
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