Home Buying Demystified: Answering My Clients' Top Questions
Buying a house can be an overwhelming experience, especially for first-time homebuyers. There are numerous misconceptions and questions that often arise during the process. In this Q&A, I address some of the most common questions I'm asked by my clients and hope to shed light on the key aspects of the home-buying journey.
Q: What’s the most common misconception about buying a house?
A: That you must put down 20%. The average first-time home buyer puts down just 6%, and certain loan programs allow as low as 3% or even $0 down. It's essential to explore various loan options and not be discouraged by the misconception of a hefty down payment.
Q: A lot of my potential home buyers are concerned with running their credit. Is there a real risk when filling out a mortgage application?
A: There are two ways to run credit, a hard inquiry, and a soft inquiry. A hard inquiry can, according to FICO, impact a credit score by a maximum of 5 points. A soft inquiry has zero impact on your score. As part of my pre-approval process, we only run soft credit inquiries, so there is no need to be worried about any negative impact on your credit score.
Q: What are the things that you’re looking for when pre-approving a potential home buyer?
A: There are 4 aspects of a person’s finances that we assess when determining eligibility:
The combination and balance of these determine eligibility, the best loan options, and the maximum purchase price.
Q: If someone is looking to buy in the future, do you recommend they reach out to you now, or closer to when they’re ready to purchase?
A: I always recommend that if someone knows they want to buy a house, we should look now. Even if someone doesn't plan to buy until later, going through the pre-approval process in advance helps in various ways. They'll have an idea of their goal purchase price, get a lot of the legwork done early, and understand what they need to work on to be ready to buy. Moreover, there's no obligation in filling out a mortgage application, and the soft pull of their credit won't impact their score.
Q: Is there a minimum credit score required to apply for a mortgage?
A: Yes, different loan products have different minimum credit score requirements. It's advisable to sign up for free credit reporting through your bank to get a more accurate sense of your score. A better credit score opens more options and competitive interest rates, making it essential to maintain good credit even if you're not immediately buying a house.
Q: What’s the difference between a pre-qualification & a pre-approval? Which do you do?
A: A pre-approval is a more thorough review of a potential home buyer’s information and includes document verification. It is the most realistic and effective way to start the home-buying process. A pre-qualification is usually a quick, verbal exchange of information and relies entirely on the potential home buyer to provide accurate and complete details – this is not verified by a loan officer and is less formal. This is not recommended due to issues with accuracy since we’re trained to know the federal regulations when it comes to verifying data and the home buyer doesn’t need to.
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Q: What costs are due up-front from someone buying a home?
A: Typically, you’ll pay your earnest money deposits (sometimes one or two initial deposits) right after attorney REVIEW is concluded. Then you’ll pay for your inspections – these costs can vary depending on what you choose to have inspected – and appraisal. If you’re buying a condo or a townhouse, there may be an additional fee required for what’s called a condo questionnaire. Other than these costs, there aren't any other upfront payments before the closing date. However, the buyer needs to show enough assets to cover all closing costs and demonstrate the ability to make mortgage payments.
Q: What if I have a buyer who doesn't have enough money for closing costs?
A: In such cases, they can request what's called a "seller's concession," where a certain amount to be applied towards closing costs is rolled into the loan amount. This money is added to the purchase price offered but doesn't affect the seller's net profits. Instead, it increases the loan amount and is mortgaged over the life of the loan.
Navigating the process of buying a house can be easier when you have a clear understanding of common misconceptions and concerns. By addressing the questions in this article, I hope to empower potential home buyers with the knowledge they need to make informed decisions and take confident steps toward their dream homes.
Remember, the key is to work with a knowledgeable and experienced mortgage professional who can guide you through the process with ease and clarity. Happy house hunting!
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