Frequently Asked Questions by First-Time Home Buyers

Buying a home is typically the largest investment most individuals will make in their lifetime. The benefits usually out-weigh the challenges. Asking the questions and doing your homework prior to buying that first home is a recipe for success. Here are some frequently asked questions for the first-time homebuyer:

Should I Buy Instead of Rent?

The benefits of buying rather than renting include:

Tax breaks
Financial Gains
Appreciation in value
Equity
Capital Gains
Freedom
Security
Pride

Am I Ready to Buy?

Ask yourself the following questions when considering whether you’re ready to buy:

Do I have a steady job?
Have I been steadily employed for the last two to three years?
Is my current income reliable for the foreseeable future?
Do I have a positive bill-paying history?
Do I have few outstanding long-term debts, like car payments?
Have I saved for a down payment?
Can I afford to pay a mortgage, taxes, utilities and insurance?

Does My Credit Score Impact My Ability to Buy?

A credit score numerically summarizes an individual’s credit history and gives a snapshot to a lender. Mortgage lenders use the score to decide who receives loans and at what interest rate. The higher the score means the better the chance of getting a loan with an attractive interest rate.

If your score is low, it is not impossible to get a loan but it will take longer. These three different companies keep credit histories: Equifax, TransUnion, and Experian. Before applying for a loan, get reports from all three companies. Fix any errors to put your best foot forward in front of lenders.

How Much Do I Need for a Down Payment?

Saving for the down payment is the greatest obstacle for first-time homebuyers. Lenders expect between 5 and 20% for a down payment. It varies according to the lender’s requirements, and the type and length of the loan. Make a budget, set a goal, and stick with the plan. Saving and sacrificing is how most people come up with their first down payment.

What Are the Homeowner’s Tax Benefits?

- Typical deductions are mortgage interest and real estate taxes.

- In most cases, loan discount points and origination fees are deductible.

- Read Publication 530 titled Tax Information for Homeowners found on the Internal Revenue Service’s Web site at www.irs.gov/publications/p530/index.html.

- There are capital gains benefits but do not worry about that until you buy your first home.

What Is the Difference between Pre-Qualified and Pre-Approved?

Pre-qualification: Getting pre-qualified for a mortgage gives first-time homebuyers an indication of how much they “might” qualify to borrow. This mortgage amount is not “guaranteed” because no information has been verified, yet. A letter from the lender may only state that you are “likely” to be approved for a mortgage.

Pre-approved: Better yet is getting pre-approved for a mortgage, which is based on a real credit score, and it also puts real estate agents and home sellers at ease. The buyer has more to offer when making a deal and in a competitive market this can be a definite plus.

How Do I Get the Best Mortgage?

It is time consuming to learn about the various rates and terms of mortgages. Once you find your dream home there is not always adequate enough time to do your research. So, do your homework prior to searching.

Here are a few tips:

- Contact the Better Business Bureau to make sure you are working with reputable mortgage lenders.

- Use a mortgage broker to help you find the best mortgage; find one through the National Association of Mortgage Brokers.

- If a veteran, you might be eligible for VA (Veterans’ Administration) assistance. Go to the United States Department of Veteran Affairs Web site at www.homeloans.va.gov/veteran.htm.

- Learn all about mortgages at the Home Loan Learning Center, which is sponsored by the Mortgage Bankers Association.