October 4, 2019|buying a home, closing costs, down payment, financing, mortgage, negotiations, planning, what to expect
So, I’ve been in this business for a long time. One of the things that has always driven me nuts is how unprepared first-time buyers can be for what’s involved in getting through the offer process. It’s not their fault…if nobody has taken the time to teach them, how would they know? I have a lot of young folks calling me and telling me what they want to spend on a home, where they want to be, and asking when we can go look. I have to burst some bubbles sometimes, by explaining the process step by step. So, you guessed it…we’re going over that here :)
First Things First
A mortgage pre-approval is the vital first step. I think that some folks get a little insulted when I tell them that they need to speak with a lender before we go look. There are multiple reasons for this. First and foremost, many folks have gone to an online mortgage calculator before ever calling me, and have run some numbers. Thats great, except for the fact that most of those don’t take into consideration the property taxes and hazard insurance. This is a HUGE portion of the monthly payment!
Even if you had some limited knowledge of values and rates, in metropolitan areas such as San Antonio, so much of the housing is outside the city limits with a much lower tax rate than being inside the city. I have a great mortgage calculator that I can use to help, but I always defer my clients to their loan officer to get the most accurately estimated payment. Pre-approval only takes about 15 minutes, y’all!
Eventually, they’ll need what we call the “Big Three”…this will be your last two years of tax returns, last couple of months of banks statements, and your last couple of pay stubs. There is almost always extra documentation required, but this is what gets the lender started.
Oh…and the Golden Rule of mortgage lending….DON’T BUY ANYTHING DURING THE APPROVAL PROCESS! No new accounts, no new cars, no furniture, etc….not without obtaining approval from your loan officer first! This can severely throw off your numbers, and cause you to appear as a lending risk!
How Much Money Is Required
This can often times be the biggest shocker to a first-time buyer. Everyone has told them that they need x-amount of money for their down payment, but they neglect to mention the closing costs involved in obtaining a mortgage loan. The most common type of financing is FHA, government-backed loans. This currently requires a 3.5% down payment. Yes, some loans are more or less…even $0-down financing for qualifying borrowers and/or properties. But, closing costs can run from just under 3%, upwards to 5% of the loan amount. As an example, on a $200k home, you could be looking at as much as $13,000, or more, for your “cash to close”. Now, that being said, there are options out there to decrease that amount significantly…too many to mention here, but call me and I’ll explain!