As someone who recently went through the home-buying process I can tell you from experience it’s no piece of cake. Between the endless piles of paperwork and the constant back and forth with my agent and lender, I felt like I’d run a marathon twice over by the time I finally reached the closing table.
When you’re caught up in buying your first home, it’s easy to get overwhelmed by all that it involves but it’s important to stay focused on the details. Forgetting to ask any of these key questions along the way could lead to big headaches down the line.
What Kind of Rate Will I Qualify For?
Before you commit to any mortgage loan, the first thing you need to know is how much you stand to pay in interest. The rate on your loan ultimately determines how much your mortgage will cost by the time the home is fully paid for.
Even a fraction of a percentage point can add thousands of dollars to the final interest total so it’s important to be clear about what kind of rate you’re eligible for. That way, you’ve still got an opportunity to shop around for a better deal if it’s not as low as you’d like.
How Much Will I Need to Close?
A lot of first-time homebuyers tend to get caught in worrying over how much money they’ll need for the down payment and they’re completely clueless about what it costs to actually close the loan. Closing costs typically run between 2% and 5% of the purchase price but fortunately, your real estate agent may be able to negotiate a seller’s credit for part of that amount. Still, you should have a ballpark idea of what the closing costs will be so you can work on putting those funds together before it’s time to sign off on the loan.
Will I Be Required to Pay Private Mortgage Insurance?
Private mortgage insurance (PMI) is another potential speed bump to your home-buying plans that you don’t want to run into unprepared. With a conventional loan, PMI applies when you don’t put at least 20% down on the home. You’re assessed both an upfront and an annual premium.
If you’re getting an FHA or USDA loan, you’re also required to pay an upfront mortgage insurance premium, as well as an annual premium. Conventional PMI and FHA or USDA premiums are usually rolled into the loan but that bumps up your monthly payment. Knowing whether you’re stuck paying it can help you plan your budget accordingly.
Are Taxes and Insurance Escrowed Into the Loan?
Besides your mortgage, you’re also responsible for paying homeowner’s insurance property taxes on your new home. During the underwriting process, you may be asked if you want to pay these out of pocket or have them built into your monthly payment. If your lender doesn’t give you this option, you need to ask them directly so you know when and how these costs are expected to be paid.
Is There Anything I Should Avoid Doing With My Credit Before Closing?
Your credit score plays a big part in determining whether you can qualify for a home loan and what your interest rate will be. In the months leading up to closing, lenders may check your credit several times for underwriting purposes to make sure you’re a financially responsible borrower. Things like maxing out your credit lines or paying late during this period can tank your score so be sure to ask your lender what you should specifically hold off on doing until closing is complete.
Buying a home for the first time can be exciting and nerve-wracking at the same time and the secret to getting through it is to be as prepared as possible. Asking the right questions can keep you in the loop so you’re not hit with any unexpected surprises along the way.