GUEST POST: Mortgage Essentials You Need to Know Before Buying a Home

Buying a home can be an extremely stressful and expensive situation, but it doesn’t have to be.   

By choosing an experienced lender you can trust and educating yourself on the essentials, you’ll be better prepared and could snag a competitive mortgage rate with your home.

We experienced this firsthand when we were house hunting for our current place. By asking questions and running the numbers, we felt more confident about buying the house and how it fit in with our other financial goals.

If you’re getting ready to buy or are getting prepared, here are some essential things you should know about mortgages.

Know Before You Owe: Understanding Mortgages

One of the ways you can make sure you’re with the right lender is talking with their loan officer.

They should be able to break down all the major steps and expenses that typically come up when you’re buying a home.

They should also be able to help you understand all of the mortgage loan options you may qualify for.

• Fixed-Rate: The consistency of having a set interest rate has made this a popular choice for many buyers with 30-year and 15-year being typical terms.
• Adjustable-Rate: This is more commonly known as an ARM and as the name suggests, the interest rates can fluctuate. Some loans will state a rate for a specific term (like three or five years) before they shift.
• FHA Loans: This can be a good option for first-time homebuyers as they require a smaller down payment.
• VA Loans: If you or your spouse in the military (active or reserve) or are a veteran, you could qualify. VA loans are backed by the Department of Veterans Affairs and require no money down.
• USDA Loans: If where you’re buying a house is in a rural area, you may be able to take out a USDA. These loans have low down payment options.

Because there are benefits and drawbacks to all of them, sit down and work with your loan officer to what the best option is for you and your circumstances.

Closing Fees to Expect (and Budget For)

While your down payment is typically what most buyers focus on, it’s not the only expense during closing you need to be aware of!

Because fees can vary based on the type of mortgage you get, you’ll want to speak with your lender to make sure you know what’s expected from you.

Before you go in for the closing, your lender should provide you with a Closing Disclosure statement.

Here are a few expenses you may be responsible for:

• Application fee: This can vary based on your lender. Typical prices can be around $100-$300 to apply for a mortgage.
• Appraisal: Lenders require this as they need to calculate the loan to value ratio.
• Escrow Deposit: When you purchase your home, you need to put money into your escrow account to cover expenses like your property taxes and insurance.
• Home Inspection: When buying a home, it’s smart to have a professional home inspector look over and make sure there aren’t any significant issues with the house.
• Homeowners’ Insurance: When buying, you’re expected to prepay for the first year of your home owner’s insurance.
• Origination Fee: Basically this fee compensates your lender (or mortgage broker) for their work performed.
• Private Mortgage Insurance (PMI): If you put down less than 20% down, your lender may require that you pay PMI as a way to ensure the loan. It’s an additional fee rolled into your mortgage payment.
• Title Insurance: This is actually a protection for you and your lender. Should something come up (like a dispute over the title), the company will cover legal costs.

Your closing may have some of these expenses and not others.

One other expense that you may want to look into - discount points.

You may also hear about mortgage or discount points, which basically is you paying upfront at closing to get a lower interest rate.

If you have any questions or concerns, you should feel free to contact your loan officer.

Taking Those First Steps

If you’re thinking of buying a home in the near future, you should definitely check out the mortgage options Coastal offers!