Home Mortgage Basics

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Here are the main costs to consider when saving for a home:

• Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit allow as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. 
• Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount. You can ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.
• Move-in expenses: You'll need some cash after the home purchase. you may want to paint, renovate or even flip that home! 
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Figure out how much you can spend on a house before starting to shop. Check with a lender to help you navigate this if needed. Johnson Realty can connect you with a list of professional mortgage brokers, lenders and credit unions to help you!   

Sometimes a bank will give you a loan for more house than you really want to pay for. Just because a bank says it will lend you $300,000 doesn’t mean you should actually borrow that much. Many first-time homebuyers make this mistake and end up “house-poor" with little left after they make their monthly mortgage payment to cover other costs, such as clothing, utilities, vacations, entertainment, or even food.

In deciding how big a loan to actually take, you'll want to look at the house's total cost, not just the monthly payment. Consider how much property taxes are in your chosen neighborhood, how much homeowners insurance will cost per year. You also want to consider how much you anticipate spending to maintain or improve the house.

Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to improve your score. 

• Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.
• Pay all your bills on time, and keep credit card balances as low as possible.
• Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.
• Track your credit score. 

A variety of mortgages are available. Here  at Johnson Realty, we can help direct you based upon these main categories:

• Conventional mortgages are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down.
• FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.
• USDA loans are guaranteed by the U.S. Department of Agriculture. They are for rural home buyers and usually require no down payment.
• VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment. Check our VA Loan section for more info. Valerie Johnson is a Military Relocation Professional and holds the MRP designation. Let Valerie walk you thru the VA home buying process.  
• Buyers have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger. 
• CASH - We love cash buyers too!  If you have cash in the bank, all you need is a Proof of Funds letter to make an offer on most homes. 

 At this point, your lender will need to "pull" your credit. They will see the good, the bad, and the ugly. Scared? We get it, and  we hear this often. A lender will pull your credit and review documents to verify your income, assets and debt. If you find your credit is not great, a lender can provide you information you will need to correct your credit issues, and move in the right direction toward home ownership.

Having a preapproval letter shows home sellers and real estate broker's that you're a serious buyer and that you are ready to move forward. Applying for preapproval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, such as 30 days. We suggest discussing this with your lender if you are not ready to buy just yet.  Most prequal letter's will expire after a set amount of time, 90 days or so typically, so check with your lender to see how long your letter/approval is good for.         

Get agent referrals from other recent home buyers or check out our great reviews here on our Johnson Realty website!