Top 10 Homebuying Questions and Answers

Buying a home, whether it’s your first or not, is a lot of work! The number of details to figure out can get confusing. We’re here to answer some of the most common questions we get when it comes to buying a home. 

How much can I afford? Use this guideline to set your homebuying budget: your monthly mortgage payment (including property taxes and homeowners insurance) shouldn’t be more than 28% of your monthly gross income. Also consider how future major life changes, such as having a child, could affect your budget. 

What is DTI? Debt-to-income ratio (DTI) is calculated by dividing your total monthly debt payments by your gross monthly income. Lenders use this number to decide how much more debt you could take on and still afford all the payments. In general, keeping your DTI under 36% is the best way for you to be approved for a loan. 

What is an FHA mortgage? A Federal Housing Administration (FHA) mortgage is a loan insured by the government aimed toward borrowers with lower credit scores or those who don’t qualify for a conventional loan. Typically, it requires as low as a 3.5% down payment. This type of loan is usually best for first-time homebuyers who may not have built great credit yet or have limited down payment savings.

Is there a certain credit score I need? Typically, you need a credit score of at least 620 to get a mortgage. It’s possible to get a mortgage with a lower credit score, but you’ll have a higher interest rate. Work on raising your credit score to get a lower rate!

What documents do I need to apply? This varies depending on lenders or situations, but in general you should provide:

• All applicants’ residential addresses for the past two years.
• Social Security numbers for all applicants.
• All applicants’ employment history for the past two years.
• Income information for all borrowers (salary/wages, dividends, etc.).
• Bank and brokerage account information.

What’s the difference between mortgage prequalification and preapproval? Prequalification gives you an estimate of the mortgage amount you may qualify for based on the financial information you provide. This is a good early step to help you figure out your budget. Preapproval takes things further, verifying the information you provide and calculating a specific mortgage amount. It’s essentially applying for a mortgage without a specific home in mind. 

How much do I need for a down payment? This depends on what type of loan you are eligible for. Some loans, like for first-time homebuyers, only need a minimum of 3% down. If possible, you may want to make a bigger down payment (up to 20%) because you’ll save more in the long term on interest. 

Are there other fees besides the down payment? Yes – be sure to budget enough for closing costs, a home inspection and moving expenses. Closing costs will be between 2-5% of the home price and a home inspection typically runs between $300 to $500.

What is PMI? Private mortgage insurance (PMI) is required in some cases when your down payment is less than 20%. PMI insures the lender in case you default on your loan. Once you’ve made enough mortgage payments to build a certain amount of equity in your home, you can get it removed. 

My offer was accepted! Do I move in right away? After your offer is accepted, it usually takes at least 30 days for the closing process. During this time everyone will be gathering necessary documents, securing financing and scheduling any inspections or repairs.

Have more questions? We’re here to help. Contact us today!