THE LENDER: FINANCING YOUR HOME.
We recommend that you talk with at least two lenders and pick the one whose offer is most competitive and comfortable for you. Now take a deep breath as we peek at what it costs to buy a home.
Up front costs – When you buy a property, you typically have to bring some money – usually in the form of a cashier’s check – to the closing table.
Down payment. This can range anywhere from 0% of the purchase price (Zero Down) on up. At least 20% of the home’s purchase price is usually required for the very best loan terms, but we can’t all qualify for the best terms and down payments of 5% are perfectly acceptable.
Closing costs. Include points and other charges by the lender, which can add up to 3% of the amount you borrow; title insurance costing from a few hundred to over a thousand dollars depending on the home’s purchase price; inspections, $200 – $500; recording fees and other miscellaneous charges. Many of these costs are negotiable between the buyer and seller as to who pays.
Ongoing costs - You’ve probably heard the acronym “PITI”, which refers to the basic components of your monthly mortgage payment. Let’s break it down.
Principal. This is the amount you pay each month towards the principal (or loan amount) of your loan.
Interest. This is the amount charged by the lender as interest on your loan. It’s basically your loan rate times your principal amount divided by twelve (one payment for each month of the year).
Property taxes. The average in Austin is 2-3% of the appraised value per year depending on the school district. The tax rate and amount is included on residential listings, so you will know what this is before you buy.
Homeowners insurance. If you are applying for a mortgage, the lender will insist you buy homeowners insurance to protect not only your home, but also your personal belongings inside the home. The cost varies from policy to policy. It’s a great idea to buy this insurance whether or not you have a loan. After all, it’s a large investment that you will want to protect.
MAKING SENSE OF MORTGAGES.
Conventional mortgages. If you have at least 5% for a down payment, you will be eligible for a conventional loan. These loans usually have the best interest rates and closing costs.
VA, FHA mortgages. If you have less than 5% for a down payment, ask your lender about Veterans’ Administration (VA) and Federal Housing Administration (FHA) loans that offer competitive interest rates and require little to no money down. You must be a veteran to qualify for the VA loan, but almost anyone can apply for a FHA loan. There is an upper limit on the amount of an FHA loan.
Tip: Get pre-qualified or pre-approved before you start house hunting! Pre-approval is a more complex process but carries more weight with a seller than a pre-qualification letter. It’s
proof of your buying power, and can give you an advantage when you’re among several buyers pursuing a property. This happens more often than you think in the Austin market.
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