Home Buying 101

1. Know how much you have for a down payment? There are many loan options ranging from zero down - up to 20 percent down. There are many loan options that have various benefits depending on the different down payments.
2. Whatever down payment you make, you’ll want to have a few extra thousand on hand to cover the closing costs. Closing costs are the fees associated with making and executing the loan such as transferring the title or document fees. A good rule of thumb is to have 3-4% of the total price in savings or checking for closing costs.
3. When figuring out your monthly payment, don’t forget about adding the escrow amount for property taxes and insurance unless you plan to pay these out of pocket. Escrows are required unless the buyer is at 80% LTV (loan to value) meaning that if a buyer puts down 20% or more then escrow is not required to be part of the loan payment and can be paid separately. Most investors charge a waiver fee.
4. Property taxes and insurance is usually added to the loan payment. This portion of the payment is held in escrow and used to pay for taxes and insurance. If you opt to not have these included as part of your payment, you will be responsible for coming up with this money and paying these fees every year.
5. Determine your financial net worth to determine how much you can spend on your down payment and closing costs. Your net worth is the total of your assets minus your liabilities. Assets are things you own: Cash, real estate, car, mutual funds, money market accounts and the like. Liabilities are debts that you own like-credit cards, mortgage, school loans, car loans, spousal or child support or debts your business has (if self-employed). Lenders tend to look for a minimum reserve of at least two months mortgage payments.
6. Make sure your finances are up-to-date before applying for a mortgage. For example, if you haven’t filed taxes for the previous year, go ahead and do so. Once you make an offer on a house, you must have a loan approval letter within 5 days of the binding agreement date on the contract. You may find yourself in a bind if you need to do a financial catch up first.