FAQ: Common Buyer Questions

What You Need to Know When Making This Very Important Investment

Do I Need a Real Estate Agent?

The U.S. Department of Housing and Urban Development recommends the use of a real estate agent. This is because they play an integral part in helping you navigate through this process. Your real estate agent will use your criteria regarding cost, neighborhood, schools, home size and amenities, and match it with the homes Multiple Listing Service (MLS), which lists all of the homes for sale in a particular area. You do not have access to this service, making a real estate agent extremely valuable. Also, if you’re purchasing government housing, such as a HUD home, you must have an agent.

Can I Afford a Mortgage?

Before starting the process of purchasing a home, you must be sure you can afford the home. The majority lenders adhere to standards set by Fannie Mae, which buys and sells mortgages on the secondary market. Lenders want to see that your total monthly housing payment is no greater than 28 percent of your gross monthly income, and that your total monthly debt payments are no greater than 36 percent of your total gross monthly income.

What Are the Up-Front Costs?

You are responsible for two upfront costs when you buy a home. First there is earnest money, which is a small deposit that lets the seller know you’re serious about buying the home. Earnest money can be anywhere from $500 to $2,000. The second is the down payment, which is a percentage of the cost of the home. Lenders have different requirements for down payments. Traditional lenders usually seek a down payment of at least 10 percent. Lenders backed by the government can seek less, if you qualify. FHA has a program where you are only required to make a 3 percent down payment.

How Do I Apply?

All homebuyers should be prepared to turn in a large amount of documentation when they apply for a mortgage loan. You will need personal information, such as Social Security numbers and photo IDs. You must be able to prove you can afford the home. This is achieved using bank statements, a month’s worth of pay stubs and documentation of all other financial assets. You will also need documentation of your current credit accounts, tax statements for the past two years and contact information for someone who will verify your employment.

How Does My Credit Score Fit In?

You credit scores will play a large role in whether or not you will be approved to purchase a home. It will also determine what your interest rate will be. To get the best rates, your credit score should be 740 or above.