Buying a house is perhaps the biggest investment most folks make in their lifetime. It’s important to do it right. Family Trust’s Mortgage Service Center can help you get started by answering some common questions.
How much house can I afford? Usually you can buy a home with a value two or three times your annual household income. The amount depends on your employment and credit history, your assets, down payment, and current debt.
What paperwork do I need to present for a home loan? You and your spouse will need copies of your license and Social Security card, two most recent pay stubs covering at least 30 days year to date, two most recent years signed tax returns including W-2s and 1099, etc., current bank statement for accounts outside Family Trust, other asset accounts, including 401(k)s and investments, homeowners insurance name and agent and attorney to be used for the closing.
What about my credit score? A minimum 640 score is required for those wanting a government loan. Buyers wanting a conventional mortgage need a minimum score of 680.
What’s the difference between a fixed and an adjustable interest rate? With a fixed rate, the interest rate stays the same for the life of the loan, typically 10, 15 or 30 years. The monthly payment will remain the same throughout the life of the loan. With an adjustable rate (ARM), the interest rate starts at a lower initial rate for a specified amount of months and then can adjust up or down at specified times (usually annually) throughout the rest of the loan depending on the market and index the ARM is tied to.
For example: a 5/1 ARM will be fixed for the first five years and then could adjust each year afterward. There is an adjustment cap and a lifetime cap – the adjustment cap is generally 2 percent and the lifetime cap is 5 percent for the example of the 5/1 ARM.
How much down payment do I need? You don’t need a down payment on VA and Rural Development loans (USDA). Conventional loans require as little as 3 percent although the more you provide, the better. FHA loans require 3.5 percent down.
You’ll need 20 percent if you do not want to pay Private Mortgage Insurance (PMI).
What are the costs of owning a home? In addition to your monthly mortgage payment, you’ll pay property taxes, insurance, utility bills, maintenance and any applicable homeowner association or condo dues.
Why own a home? You currently can deduct the amount paid for property taxes and your mortgage loan interest from your federal income tax. In addition, building equity in a home is a great way to save. Consult your tax advisor on what you can deduct for your individual situation.
What happens at the closing? You and your agent will meet with the buyer and their agent at the chosen attorney’s office to sign the final loan documents. Read the paperwork carefully before signing. This is where you’ll pay closing costs and the down payment and obtain the keys to your new home.
Learn more at our financial guidance library. It contains articles on home-buying and other financial topics. You’ll also find a variety of calculators, including one that will help you determine your monthly mortgage payment (including property taxes and insurance).