Last week we talked about what a great time it is to buy a house, what with low interest rates and plenty of available homes for sale at lower prices.
And, we let you know again about the new online home buyers’ education course — eHomeAmerica.org. This program, created by our parent organization NeighborWorks of America, is a six- to eight-hour online course that you can complete at your own pace for as long as it takes and from any internet connection. Based on the NeighborWorks America’s Realizing the American Dream curriculum, eHome America meets the National Industry Standards for homebuyer education.
But we got to thinking, perhaps you just need a quick refresher on some of the frequently asked questions about buying a home. Maybe you’re not a first-time home buyer, but it’s simply been a while since you purchased a home.
Whatever the reason, if you’re interested in learning more about the “mysteries” of buying a home, here are some questions and answers that we hope will give insight.
Q. I keep hearing that buying a house is expensive but besides the down payment, what are those “hidden” costs everyone keeps talking about?
A. They are not hidden but sometimes overlooked. People believe that once they’ve saved a down payment, they’re well on their way to homeownership. Not totally true!
While different programs have different down payment requirements (a percentage of the loan the lender requires to finance a loan, usually 0 to 20 percent or more), closing costs are in addition to this.
Closing costs are fees both the lender and title company require to complete a loan transaction.
The bank usually charges an origination, document preparation, appraisal and credit report fee. Mortgage insurance, one year’s hazard insurance, FEMA insurance if the house is located in a flood zone and county tax premiums and reserves are just some of the required costs for a mortgage loan.
The title company charges title insurance (a guarantee the title of the house is free of liens, etc.), as well as settlement and recording fees. That’s a lot of fees!
If the purchase agreement calls for the seller to pay closing costs, clarify exactly what will be paid. Often this only covers the title company costs.
A rough estimate for closing costs is 5 percent of your loan amount. (That would be $5,000 on a $100,000 loan.) Some fees are negotiable and some may be allowed to be rolled into the loan if the appraisal amount of the home supports the additional debt.
Q. From the day we agree on a price, how long will it likely take for us to actually be in a new home?
A. This really varies due to the complications and conflicts cause for each of loan underwriter’s schedules inspections, appraisals, verifications of income, employment, homebuyer education requirements etc, it could take 60 days or more to close a home loan. Realtors customarily write a purchase/sale agreement to expire in 45 days. Written extensions of time are often needed so pay attention to expiration dates and be patient, it’s not your realtor’s fault!
Q. How much of the selling price should I expect to pay on a down payment?
A. Twenty percent is the amount required if you want to avoid paying mortgage insurance. However, in an effort to make homeownership affordable, some lenders and some government underwriters have minimized down payment requirements. There are products that require as little as 0 percent down, but they are very rare these days. Underwriters want buyers to have “skin in the game,” that is, something to lose if the deal falls through. NeighborWorks has down payment assistance funds to use with most lenders, but home buyer education certification (through eHomeAmerica.org) is required.
Q. My spouse and I are starting to look at houses to buy, but how do we know how much we can afford?
A. Without getting an actual “pre-approval” from your bank, there is an easy formula.
All lenders use debt-to-income ratios to determine what you can afford. While it can vary from lender to lender or program to program, the most common ratios are 33 percent of your gross income for your housing costs and 38 percent for your housing and installment debts (that is car payments, personal loans, credit cards, etc.).
You might want to calculate the amounts based upon your net income since this is the amount you actually have to spend.
Determine what you can afford per month for your housing costs ($2,500 per month income x .33 percent = $825). Remember to allow approximately .02 percent of that amount for your property tax and insurance costs, more for flood insurance if you are in a flood zone.
Bank web sites can give you information on the going interest rates and they also have calculators to help you determine how much house your monthly payment will afford you.
BUYING A HOUSE IS A BIG DEAL
Remember, buying a home will likely be the most important purchase of your life. The decision should not be taken lightly or made in haste. You need to consider where you will be at in five years. How do you anticipate your family to grow in that time? Do you really want to make a permanent commitment to the community you live in?
Buying a house is not like buying a pair of shoes. If you don’t like the shoes or you decide they don’t fit, you take them back to the store. Once you close a home loan, that home is yours!
WE CAN HELP YOU DECIDE
The NeighborWorks of Grays Harbor’s counselors are available to assist you with answering these and other questions regarding homeownership.
We can help you determine if the time to buy is now and what programs or financing options might best fit your needs. Our housing counseling services are provided free of charge. Give us a call at360 533-7828.
After talking a little bit, we will likely first direct you to taking the eHomeAmerica.org online course to begin your home-buyers education. But, we understand, sometimes it’s just nice to talk to a person to get started!
Dave Murnen and Pat Beaty are construction specialists at NeighborWorks® of Grays Harbor County, where Murnen is the executive director. This is a non-profit organization committed to creating safe and affordable housing opportunities for all residents of Grays Harbor County.
Do you have questions about home repair, remodeling or becoming a homeowner? Call us at 533-7828, or 1-866-533-7828, or visit us at 710 E. Market St. in Aberdeen.