Buying a home is a very important financial decision and it should not be taken lightly. Here Are 7 key terms that all first time home buyers should comprehend.
7 Important Terms for First Time Home Buying
Down Payment Requirements
– Down payment requirements vary greatly, but essentially, you’ll need 5 to 10 percent of the total home price as a down payment if you want a traditional loan and have somewhat decent credit. Taking out FHA loans
or making use of certain other loan options could mean that you need as little as 3.5% down, and some loans – VA and USDA loans in particular – may be available with no money down required.
Mortgage Insurance – This is insurance that covers the risks a lender takes when extending you the loan, and can increase your interest rate by between .03 to 1.15 percent depending on the situation.
Conventional or FHA Loans
–A conventional loan is one extended to you through a traditional lender like Fannie Mae or Freddie Mac, and is often out of reach for many first-time home buyers. FHA loans are backed by the federal government and are better for those with lower credit scores or first-time house buyers. They have less stringent credit score requirements and lower down payment requirements. See FHA First Time Home Buyer Loans
Closing Costs – Closing costs are a bundle of lender fees, attorney fees, and fees from other third parties like home inspectors that are all related to buying your home. Usually they’ll run anywhere from 2 to 5 percent of the total cost of the home, but the exact number will vary.
Appraisal – This is nothing more than an estimate that places a rough value on your home. This way the lender will know just what to give you in terms of the loan and what kind of down payment you might need.
– This is the one you’ve probably already heard, but it’s important to understand that there’s no hard limit on what your credit score should be. It’s possible to get a first time home loan with a score of less than 600
, despite what many people believe. A lot of other facts are at play that may be worth understanding.
Pre-Qualified – This term is confusing since it’s different than a preapproval. Prequalified essentially means that you’re likely to be able to qualify for a loan of a certain amount. You should really only use it to start shopping around for a home since it will help you understand what’s in your price range. Pre-approval is essentially something telling you that you will actually be able to receive a certain amount in a loan – it’s for when you’re ready to buy your home.
Interest rates and lending standards for first time house buyers are subject to change without notice. Discuss your credit and eligibility with a licensed first-time mortgage lender today.
We suggest that you speak with several financing professionals prior to making a deposit to a seller during the home buying process.