“Follow the Yellow Brick Road” to Home Ownership- A GUIDE TO CREDIT SCORES, DOWN PAYMENTS AND CLOSING COSTS.
The best way for me to explain about closing costs is to compare them with rent and security deposits. It’s the cost to get into a home. When looking for the right home, one can either pay a landlord or pay a mortgage lender. My advice? “STOP PAYING YOUR LANDLORD’S MORTGAGE!” There. I said it.
I’m determined to spread the news and to share information to help get Tenants off the “rent cycle” and onto the highway to home ownership.
Renters spend thousands of dollars a year on rent and think they’ll need thousands more to buy. It’s just not true!
DOES THIS LOOK FAMILIAR?
- $1,500 Security Deposit
- $50 Rental Application
- $1,500 First Month’s Rent
- $150+ Pet Deposit
- Total upfront expense: $3,200.00
- Total Rent Paid in 12-Months: $18,000.00! (Money a Tenant will NEVER see again)
THE GOOD NEWS: The $3,200.00 upfront expense shown above is not far from what you’d spend to buy a home. Yes, I’m serious!
HERE’S WHAT’S INVOLVED WHEN BUYING A HOME: There are FOUR different financial categories when buying a home. Don’t get overwhelmed – keep reading and I promise it’ll all make sense.
1) Down Payment
2) Closing Costs
4) Amount to Make an Offer (opens to new page)
What are Down Payments, Closing Costs and Prepaids?
DOWN PAYMENTS are typically determined by your credit scores and how much you qualify for. If you have stellar credit and reliable income, you may not need a down payment. On the other hand, if you have a few dings on your credit report, there are other fantastic mortgage options available to you.
Down payments can range between 0.00% to 20.00% of the purchase price. It depends on what kind of loan you get: Conventional Loan, VA Loan, FHA Loan, etc… For first-time home buyers obtaining an FHA Loan, down payments range from 0.00% to 3.50% of the purchase price.
Example: 3.50% of $100,000 = $3,500 down payment
CREDIT SCORES: The easiest and quickest way to find out about your FICO credit score is to talk to an experienced Mortgage Loan Officer. Many lenders, who want your business, may be willing to discuss your credit report for FREE! Make sure they are looking at reports from ALL THREE credit reporting agencies: Experian, TransUnion and Equifax.
Credit Scores are calculated by using a complex formula by the credit reporting agencies. Let a professional help you navigate through your report. For preferred interest rates, a minimum 620 FICO score is recommended.
If you’re not ready to talk to a lender about your credit, visit www.AnnualCreditReport.com. This is the ONLY free site to obtain your credit report (from all three credit bureaus), without having to sign up for anything! You will have access to your credit activity and balances. If you want to see your credit score, it’s best to speak with a Mortgage Lender. (The scores offered on AnnualCreditReport.com are NOT the same FICO score used to qualify for a Mortgage).
MYTH: Shopping multiple mortgage lenders will hurt my credit score.
FALSE! The credit reporting agencies want you to get the BEST loan available to you. They understand you will want to shop more than one Mortgage Lender. As long as you shop Mortgages within 30 days, your credit score will only get “hit” ONCE.
CLOSING COSTS: Closing costs are a compilation of expenses required to obtain a mortgage. These fees include Title Fees, Lender Fees, Attorney Fees, etc… Both Buyers and Sellers have their own list of closing costs. Mortgage Lenders are required, by law, to provide you with an itemized list of estimated expenses after reviewing your credit report. [NOTE: Some or all of your closing costs can be negotiated to be paid by a seller.]
PRE-PAID ITEMS: Prepaid items include real estate taxes and homeowner’s insurance paid at closing. [NOTE: Some or all of your prepaids can be negotiated to be paid by a seller.]
Closing Costs ar around $4,800. Prepaids will depend on which homeowner’s insurance you select and how much the taxes are for the home you’re buying.
CLOSING DAY: The Down Payment, Closing Costs and Prepaids are due at closing. The final amount will depend on the purchase price, the property taxes, your homeowner’s insurance, and the amount of the Seller’s contribution (if any). Your lender will calculate this for you.
In today’s market, the less you ask from a seller, the better your chance to have your offer accepted. Our housing inventory is low, which is causing multiple offer situations in many parts of town.
If you still have questions about the home buying process, I am at your service SEVEN DAYS A WEEK! My phone is always on. When you hire me, I remain “on-call”, even after everyone else clocks out!