How Much Should a First-Time Homebuyer Put Down on a Home?
Your down payment is determined by the price of the home and the terms of the mortgage loan. Paying at least a 20% down payment will lead to better loan rates and allow you to forgo having to pay private mortgage insurance or PMI. Some loans, such as FHA or Fannie Mae loans, can require as little as 3.5% down but may come with higher interest rates. You can work with your banker and real estate agent to determine the best down payment for your financial situation.
What is PMI?
PMI, or private mortgage insurance, is required by some lenders as additional protection if a buyer defaults on their loan. It is usually required when a buyer puts forth a down payment of less than 20%. PMI costs around 0.5% to 1% of the mortgage annually. For example, a PMI fee of 1% on a $300,000 loan will cost $3,000 annually, with a monthly payment of $250. PMI is added to the mortgage payment every month until the loan is paid off by at least 80%.
What is Included in a Monthly Mortgage Payment?
Unlike some rental payments, a monthly mortgage payment does not cover utilities, cable and internet service, and homeowner association fees. However, it usually includes the principal amount of the loan, interest, property taxes, homeowners insurance, and PMI, when applicable.
Do I Need a Real Estate Agent to Buy a House?
Although you can purchase a home without the assistance of a real estate agent, buying a home is a lengthy and complicated process that is best overseen by a professional. A real estate agent is an expert in real estate procedures and the closing process. They also understand current market conditions and can provide invaluable advice. Sellers usually have their listing agent, so it’s crucial to have an expert who can advocate for you during negotiations. Not only this, but real estate agents have access to a network of lenders and appraisers to make the home buying process streamlined.
What Happens During the Closing Process?
Once the seller and buyer agree on a price, a 30-45 day closing process begins. During this time, the home appraisal and inspection are conducted, and the purchase contract is drawn up. Once these are all completed, both parties will meet and sign legal documents to transfer the home to the buyer.