Ask the Expert: Common Homeownership Questions
When it comes to the journey of homeownership, there's no such thing as too many questions. You should be able to make an informed decision about one of the biggest investments you'll ever make in your lifetime. Whether you're buying your first home, renovating your current home, or finally ready for your ultimate dream home, we're here to help make the process as smooth as possible.
Homeownership doesn't have to be complicated, especially in today's market. To help, we asked Shannon Hook (NMLS# 1180034), our Director of Mortgage Lending, to share her tips and answer a few frequently asked questions when it comes to homeownership.
When is the best time to buy a home?
Shannon: There are many opinions on when the best time to buy a home is. Some will say spring, as it is a popular time for homes to hit the market. Others may say winter, as sellers may get more motivated to liquidate their homes.
You, as the purchaser, are really the only person that can determine when the right time to buy would be. No matter what season, you need to be prepared with down payment and closing costs for when the ideal home becomes available. In some cases, you can negotiate the sales contract to have the seller cover a percentage or amount of closing costs. Some new construction home sellers offer to cover closing costs as an incentive to purchase the home. Either way, it it is important to obtain a preapproval, so that when a home that interests you hits the market, you know your purchasing power.
What's the difference between closing costs and down payment?
Shannon: Down payment is the amount you must pay up front in order to cover the full purchase price of the home minus any loan proceeds you are borrowing. For example: Purchase price is $100,000.00. You are approved for a loan amount of $97,000.00 (97% loan-to-value). You would need a down payment of $3,000.00 to cover the remaining amount of the purchase price.
Closing costs are fees you may incur during the loan process, such as attorney fees, appraisal fees, lender fees, etc. Most of these can be paid at the time of closing; however, some may be required upfront.
How much do I need to save for a down payment?
Shannon: A good rule of thumb is to save 5-20% of the average sale price for the type of home you're looking for. The amount you put down can affect the interest rate and the monthly payment. Putting down 20% or more will allow you to avoid private mortgage insurance (PMI).
There are a variety of programs which offer different down payment options. Some programs offer zero down payment options. These programs usually require certain criteria such as having a higher credit score or being a first-time homebuyer to qualify.
What is Private Mortgage Insurance (PMI)?
Shannon: Private Mortgage Insurance or PMI is a type of mortgage insurance that some lenders may require if you put down less than 20% when you purchase your home. PMI protects the lender, not the borrower, in the event the loan goes into default. If your loan includes PMI, the monthly premium is typically included as part of your monthly mortgage payment.
Why should I buy a home vs. rent?
Shannon: Buying a home can be a long-term investment. When you purchase a home, you are continuously building equity as you make your monthly payments. If your mortgage has a fixed rate, then the monthly principal and interest will remain the same. When you rent, there is no investment return for you. If you rent, there is also no guarantee that your monthly rent payment will not increase.
What are the most important factors to consider when looking for a home?
Shannon: Determine what your family's needs and wants are in a home:
- Size of living area
- Number of bedrooms/bathrooms
- Amenities such as fencing, decks, garage space, etc.
- Neighborhood appeal
- School zoning
- Commuting distance to work
- Proximity to shopping, dining, and entertainment
What is homeowners insurance and why do I need it?
Shannon: Homeowners insurance is protection for the homeowner when the unexpected happens to the home. Generally, most policies cover losses and damages for events such as fire, storm damage, theft and personal liability for harm to others.
As a homeowner, your home is a valuable asset. Homeowners insurance helps you protect that investment. Most mortgage lenders require you to carry enough insurance coverage to cover the balance of the mortgage. If your home is located in a flood zone, flood insurance may also be required.
What is a foreclosure?
Shannon: Foreclosure is a legal process that takes place when a borrower fails to make their monthly mortgage payments. Since the home was used as collateral for the mortgage loan, this process allows lenders to take the necessary steps to sell the home to help satisfy what’s owed on the mortgage.
What is the bet way to plan for home improvement projects?
Shannon: Know your project’s budget and costs. Seek guidance from your lender to determine the amount of equity you have in your home. AllSouth typically orders an appraisal during the application process to determine the home’s current market value.
Financing options for these types of projects include cash out refinances, Home Equity loans or Home Equity lines of credit. Keep in mind when getting cash out, depending on the lender, there may be certain loan-to-value requirements (LTV – to calculate your LTV, divide your outstanding mortgage balance by the value of your home). With AllSouth, you can borrow up to 80% of your home’s current value minus any existing first mortgage balance.
What are the benefits of refinancing my home?
Shannon: There are several benefits to refinancing your home. Here are just a few:
- Get a lower rate, which could lower your monthly payment
- Turn an adjustable rate mortgage into a fixed rate mortgage
- Use the equity from refinancing for home improvements or debt consolidation
- Turn a long-term mortgage into a shorter-term loan
- Remove private mortgage insurance
When it comes to your mortgage, there are never too many questions to ask. The more you know and better prepared you are, the less intimidating and confusing the journey towards homeownership can be. If you have any additional questions or need assistance with getting started, our mortgage team is happy to help you through the process.