Knowing exactly what questions homebuyers typically ask before buying a home can help you identify some of the factors you should pay attention to before making one of the biggest purchases in your life. To help, we’ve compiled a list of the most important questions that many would-be homeowners ask nowadays.
How much home can I afford?
Filling out a mortgage application is the best way to get the right answer to this question. Although you can use an online calculator or the 28/36 rule to find out how much home you can afford, only a lender can tell you the exact mortgage amount and interest rate he is willing to offer you based on your income, credit score, and credit history. Knowing the maximum mortgage amount you’re likely to qualify for could save you a lot of time that you might otherwise waste viewing properties outside of your budget.
When buying a home, it’s also important to consider the other costs that you’ll be responsible for in addition to the monthly mortgage payment. Although the expenses that you’ll need to cover depend on the type of property and its location, they usually include property taxes, homeowners insurance, private mortgage insurance (if applicable), HOA and/or CDD dues, ongoing home maintenance, and any renovations you plan to do.
How much should I save for the down payment?
The amount that you’ll be required to put down in order to get a mortgage depends on the market value of the property you intend to buy, your credit situation, and type of loan you qualify for. The down payment typically required for most conventional mortgages is 20% of the home’s market value. By putting down at least 20%, you can avoid paying PMI and increase your chances of getting approved for a mortgage. If you can afford it, you could put down more cash upfront, which will reduce the loan amount you need to borrow, and/or buy discount points to lower your interest rate. In addition to the money you need for the down payment and discount points, it’s recommended to set aside between 3% and 4% of the home’s purchase price in order to cover the closing costs, which generally include application fees, loan origination fees, title insurance, appraisal/inspection fees, and deed transfer taxes, and moving expenses.
What type of mortgage can I qualify for?
Currently, there are 3 major types of home loans: conventional mortgages, FHA-insured mortgages, and VA loans. Each type of loan has its own set of qualification requirements, benefits, and drawbacks. To help you choose the best type of loan for your situation, here is how they compare:
Minimum down payment – As you already know, the typical down payment for a conventional loan is 20% of the home’s purchase price. On the other hand, the down payment for FHA loans is either 3.5% or 10%, depending on the credit score. VA loans don’t carry any down payment requirements.
Credit score – Credit score requirements can vary greatly among lenders and types of loans. In general, lenders require a minimum credit score of 620 for a conventional mortgage, 640 for a VA loan, and 500 with a 10% down payment or 580 with 3.5% down for an FHA loan.
PMI – If you aren’t able to put down 20% of the home’s value when taking out a conventional mortgage, you’ll need to pay an extra PMI fee every month in addition to your mortgage payment until you have at least 20% equity built up in your home. The FHA-insured mortgage requires an upfront PMI premium of 1.75% and an ongoing fee, which ranges between 0.45% and 1.05% of the loan amount and is divided into 12 payments that will be added to your monthly mortgage payment. VA loans don’t require PMI, but you’ll need to cover a funding fee that ranges from 0.5% (refinance) to 3.6% (first use) of the total loan amount. This fee can be paid upfront or rolled into the loan and paid over its life.
Can I get a mortgage if I have bad credit?
Getting a home loan with a credit score as low as 500 is possible. However, a higher score will generally allow you to put less money down on the home you want to buy and get a lower interest rate, which may translate into hefty savings over the life of the loan. For more information about why good credit is important, check out our blog post: The Importance of Your Credit.
Taking the leap into homeownership is an important decision that requires careful consideration of all the benefits and drawbacks. If you’re buying your first home, finding the right financing option may be confusing. But don’t worry, as we’ve got you covered! At North Florida Mortgage, our professionals can help you understand all the pros and cons of each financing option we provide so that you can choose the right Jacksonville mortgage for your home!
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