Five Things I Wish I'd Known About Home Loans
While going to open houses and choosing a master bedroom are the much more glamorous aspects of buying a house, the devil is in the details as they say. Knowing a few details about how home loans work now will help make the process of purchasing your first home seamless. And lucky for you, we’ve pulled together five things new homeowners say they’d wish they’d known about home loans.
Get pre-approved for a loan (not just pre-qualified).
Getting pre-approved for a mortgage loan is the bank or financial institution giving you the green light and saying, “Yes, we’ll give you this amount of money.” This will not only show the seller that you mean business, it will give you a definite budget while you’re house hunting. On the other hand, getting pre-qualified for a mortgage loan just means that the bank has estimated an amount that they could possibly loan you… which is not exactly the strongest signal to a seller.
Be prepared to have a little good faith when you put in an offer.
(No, we’re not talking the spiritual kind.) When you are ready to put in an offer on your dream home, it’s not a smile and a handshake. Instead, you’ll put your offer amount in a letter and include what is called good faith money or earnest money to show the seller you are very interested. This can be around $500 or in some cases more, if there have been a lot of interested parties. This money will go towards the purchase price if the offer is accepted.
If your offer is accepted, don’t pack your bags just yet.
The average mortgage loan currently takes 45 days to close. And because mortgage rates fluctuate, you’ll want to keep a close eye on where they’re at and stay in constant communication with your mortgage lender so you can lock in the best rate. The silver lining of this window of time is that you don’t actually have to write a check for your down payment until the loan closing. This means you’ll have that extra time to save or move your money around to accommodate the amount.
You’ll have an appraisal, but you’ll want an inspection.
Before the loan closing you will want to schedule a house inspection to ensure you’re getting what you’re paying for and there aren’t any surprises. This inspection is for things like plumbing and electrical issues, and the cost (anywhere from $200 to $500, or possibly more) will be out of your pocket. (The offer will typically be valid pending inspection so you have another chance to negotiate if anything needs to be fixed or still have an out if it doesn’t meet expectations.) The appraisal on the other hand is required and done by the bank or financial institution to ensure that the house is actually worth the purchase amount. This cost is included in your closing costs.
Yes, there are closing costs!
Before the mortgage loan can be closed, there will be a fee that includes a number of things like the appraisal, a mortgage processing fee, a fee for running your credit report, and other costs associated with the mortgage loan. Closing costs can be 2% to 5% (or possibly more) of the cost of the house. These should be considered during the negotiation process and factored in when making your offer, so don’t be afraid to ask your mortgage lender for the specifics.
With these tidbits of knowledge in hand, you can feel confident starting your home hunt! Be even more prepared with a free consultation with one of our home loan experts. We’ll walk you through what the home purchasing journey looks like and address any questions you may have. And don’t worry if you’re not entirely sure what you’re doing… that’s why you have us. Or, if you'd like more helpful tips on buying your first home, subscribe to our email series, The Path to Ownership!
Lincoln Savings Bank, Member FDIC. Equal housing lender.
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O'Meara, Bob. "First-Time Home Buyers Present Challenges and Opportunities." The Raddon Report. 28 May 2015. Fiserv, Inc. Web. 1 Jun. 2015. http://www.theraddonreport.com/?p=11321.
Smolin, Andrea. "What Are Closing Costs and How Much Are They Typically." Zillow. Yahoo!-Zillow Real Estate Network. Web. 1 Jun. 2015. http://www.zillow.com/mortgage-rates/buying-a-home/closing-costs/.