First-Time Home Buyers

When you are prequalified for a loan that usually means only your credit score was pulled by the lender. When you are preapproved that means your lender collected all income and asset documentation. There are some additional legal distinctions, but when you are serious about buying a home, it is imperative to get preapproved. Simply being prequalified isn’t enough.

Click here for more info on prequalified vs. preapproved.

On average, a preapproval is good for 60-90 days but will depend on the lender you decide to work with. Additionally, if your financial situation changes in any significant way, you may need to go through the preapproval process again.

Click here for more info on preapprovals.

A mortgage escrow is an agreement made with your mortgage lender that has a straightforward, two-fold job: hold money, and make home insurance and tax payments for the homeowner. After the transaction is finalized, and the buyer begins making mortgage payments, the escrow account holds a portion of each payment and uses it to pay property taxes and insurance premiums.

Click here for more info on mortgage escrow payments.

Private mortgage insurance (PMI) is insurance that offers coverage to your mortgage lender should you default on your mortgage payments. It’s often used in order to provide mortgages to home buyers bringing a lower down payment and don’t have enough cash on hand for a 20% down payment. PMI helps lenders reduce the risk of lending money to someone who may not be able to make their mortgage payments.

Click here for more info on private mortgage insurance.

When it comes to getting your earnest money deposit back, it all depends on the agreement you created. There are a variety of scenarios to consider and in some situations you can get the money back but it depends on how the deposit is incorporated into the offer.

Click here for more info on earnest money deposits.

Yes, it’s possible, but it’s more difficult. The vast majority of lenders require a credit score. However, it is possible to find lenders that provide loans to people without a credit score. However, you most likely have a credit score even if you have very little credit history or haven’t assumed any debt in a few years.

That depends on your own personal financial situation, of course, but many people find it useful to follow the 28/36% rule. This means your mortgage payments should not exceed 28% of your gross monthly income, and a combination of your mortgage and all other debt payments shouldn’t be more than 36%. These are just guidelines, however, and you have to choose numbers that work for you and your family.

Read more about home affordability here.

There are two factors in selecting the right home mortgage for you:

• The amount you want to pay each month
• How soon you want to pay off the mortgage

You should choose a mortgage that allows you to afford the payments as well as help you pay off the mortgage when you want. This may involve getting mortgage with a shorter payback time or just paying a little extra each month to reduce the payoff period.

Generally speaking, the higher the interest rate, the higher your mortgage. Also, if the Federal Reserve’s base interest rate goes up, home mortgage interest rates will follow. The increase is due to the fact that banks often borrow according to this rate, so to maintain profitability, they have to increase their rates as well.

Locking your interest rate is as simple as finding a rate you’re happy with and then telling your mortgage broker you want to lock it in. To find the best rate, a good rule of thumb is to watch bond prices and other financial news. Higher fixed-rate bond prices usually mean lower interest rates. And a stronger economy makes it more likely for interest rates to rise.

Your payment includes the principle, interest, taxes, and home insurance premiums. Some homeowners also choose to finance some or all of the closing costs.

After you get pre-approved, you find a home you love and make an offer. When the sale price has been agreed upon, you submit documentation that is used to get you full approval. Pre-approval is essentially saying, “This is how much it looks like you can afford. We’ll verify that during the full approval process.”

It can take 30 days or less to close on a home. Several factors could make the closing period longer including missing or incomplete financial documents, issues discovered during the home inspection, and the home’s value coming up too low in an assessment.

At closing, you review and sign the closing documents, provide proof of homeowner’s insurance if necessary, deliver the down payment via certified check or wire transfer, the funds to pay for your home are given to the closing agent, any necessary escrow services are set up so taxes and insurance can be included in your monthly payment, and you get the keys to your new home.