FAQs for First-time Home Buyers

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Real Estate

As a first-time homebuyer, you probably have a lot of questions to ask, some myths to dispel, and few fears to overcome. The following FAQs are designed especially for you and will answer some basic questions that will help you with buying and negotiating the purchase of your first home.  Hawaii Real estate agents are very familiar with the many types of loans available but the loan experts are the mortgage lenders.  There are many different mortgage lenders and most real estate agents can refer you to one if you ask.

How Many Mortgage Lenders Should I Contact When Assessing Loan Rates?

To make sure you get the lowest loan rate, check the rates with 3 mortgage lenders.  Recommend don’t go to one lender and stop there. Do some loan comparison shopping first.

What Are the Different Types of Home Loans?

While you will find dozens of ways to finance a home, over 90% of first-time home buyers rely on one of four primary loan programs. These loan programs include conventional, FHA, VA, or USDA funding. Options for these programs allow for low down payments, self-employment, a lower credit score, or a large size loan.

What Is Included in the Mortgage Payment?

To figure a mortgage payment, you need to include the principal, taxes, interest, and homeowner’s insurance into the calculation. Doing so will permit you to find a home and mortgage it with confidence.

How Is a Mortgage Defined?

According to the National Association of REALTORS®, a mortgage is a specialized home loan that has the following features:

·       Extended Repayments – Most people will pay off a mortgage in about 30 years.

·       Fixed Rates - A fixed mortgage rate allows you to pay the same payment over the entire period of your loan. Adjustable-rate loans may also be used to pay a mortgage. These types of loans are better choices for buyers who want a low initial rate who don’t plan to stay in their home over 5 to 10 years.

·       Secured Financing – Mortgage financing represents a secured loan – or a loan that is secured by your real estate’s value. If you do not make the payment, the mortgagee, or loan company, can take your house to cover its loss.

·       A Down Payment – The amount of the mortgage covers what you owe after you apply a down payment. For instance, if you put down $20,000 (10%) on a $200,000 home, the mortgage covers $180,000, or the remainder.

How Much Do I Need for a Down Payment for a Mortgage?

While many first-time buyers think they have to put down about 20%, that is a mistaken belief. The average down payment runs about 6%. Moreover, some specific loan programs ask for even a lower down payment. FHA loans require 3.5% down while VA and USDA loans ask for nothing down. 

What Are the Benefits of Applying a Larger Down Payment?

Key takeaways include a lower interest rate and a reduced monthly payment.  You might also move to the head of the line if multiple offers are put in on a home.  A buyer often sees large down payments as a strong signal that the transaction will be less complicated and has a higher chance of successful closing.

What Are the Advantages of a Smaller Down Payment?

A lower down payment allows you to keep more savings available for emergencies, which also permits you to start building equity sooner.

If Lower Down Payments Are Available, Why Do Real Estate Professionals Promote the Idea of 20% Down?

A 20% down payment helps the mortgagor avoid paying mortgage insurance. This charge adds a couple hundred dollars per month to the mortgage payment.

Do I Have to Pay a Down Payment Out-of-Pocket?

Yes, in most cases, you need to pay a down payment from what you save. However, you can also check into a down payment assistance program in your area. Down payment assistance programs feature low-interest loans or grants overseen by local governmental sources. Gift funds may also be used for a mortgage down payment.

To prove the money is a gift, you need to show that the funds were transferred from the giver’s bank account and deposited into your bank account or into escrow. The giver must also provide a gift letter that explains the giver’s relationship to you and a statement that repayment for the gift does not need to be made. In this instance, the giver can gift any size amount of money.

What Is the Best Loan to Take Out for a First-time Buyer with Poor Credit or a Low-Down Payment?

An FHA home loan is the best choice if the buyer’s credit is less than acceptable. An FHA loan allows a buyer with a credit score as low as 580 to buy a home at 3.5% down. If the credit score is under 580, or at the minimum 500, the buyer must place 10% down. Also, his or her low credit score must not be due to a recent bad credit history.

How Does a Conventional Loan Work?

A conventional or conforming loan is what comes to mind when most home buyers apply for mortgage financing. These conforming loan products meet the guidelines set by the governmental entities, Fannie Mae and Freddie Mac.

Conventional mortgages or conforming mortgages are the best choices for home buyers with a good credit score and a payment of at least 10%. In some cases, some conventional loan products allow home purchasers to put down as little as 5% to finance a home.

What Is a VA Loan?

The VA loan program is offered for home buyers associated with the U.S. military. The loan product is available to veterans and active military members. The 100% financing offers simplified approvals and access to desirable and low mortgage rates.

What Is a USDA Loan?

The United States Department of Agriculture (USDA) offers loans for home buyers purchasing real estate in remote rural areas, or towns that have less than 20,000 people. This loan package offers no down payment, lower mortgage rates, and lower mortgage insurance payments for buyers with low to moderate incomes.

What Are First-time Home Buyer Grants?

These grants, which are offered on the local or state level, also are referred to as down payment assistance (DPA) programs. They cover all or a portion of a down payment and the closing costs. This form of down payment help comes in the form of a first-time homebuyer grant that does not need to be paid back.

What Does the Mortgage Payment Include?

To find out how much you can afford when buying a home, you need to look at all 4 parts of your mortgage payment. These parts, known collectively by the acronym, PITI, are made up of the principal, interest, taxes, and insurance.

While the principal and interest make up the basic mortgage payment, or payment and interest, the taxes cover property taxes that range from 1 to 2 percent of you home’s value on an annual basis. The insurance covers homeowner’s insurance, which amounts to .25 to .50 percent of your real estate’s value annually.

For example, if you buy a home priced at $250,000 and place 10% down on the price, you will need to save $400 per month for insurance and taxes and about $1,100 per month for the principal and interest.

Do you have any further questions? If so, give your local real estate agent a call. Using a skilled agent will help you in your quest in buying a home that meets your needs personally and economically.

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Kapolei Real Estate Agent

MaryJo McGillicuddy



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Kapolei, HI 96707

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