First-Time Home Buyer Santa Cruz
Paying for a home is a lot more complicated than slapping down a credit card or a pile of cash. But that’s why I and the Mason-McDuffie Mortgage Team are here—to guide you through those murky financial waters when purchasing your first home or refinancing your second home!
We understand that buying a home is complicated and we created this short list to help you to decode the main mortgage terms you will want to be familiar with as you move through the home buying process.
We know you are going to have questions along the way and that is why we are here to help.
So let's get started. Here are the top 4 terms that will help you in the process.
1. Down payment
When negotiating the terms for your new home, there will hopefully come a time where you and the seller agree on a price. At this point, you will need to make a down payment.
A down payment is a lump sum in cash that you can afford to pay at the time of purchase.
Don’t have that much cash lying around? No worries – when purchasing a home, there are financing options that enable you to put down less.
For those people who served in the military or qualify for a USDA home loan, there are financing options with as little as “0%” down.
If you are a US Veteran, please give me a call so you can learn about the various home loan options available to you.
For the typical home buyer, you will need a down-payment. The days of no-cash-down mortgages are mostly a thing of the past. This is for a good reason. Have you heard of the subprime mortgage crisis?
The rules for mortgage lending have changed. So it is important to have a reputable mortgage lender who knows the rules.
2. Fixed-Rate Mortgage
There are many type of mortgages available to home buyers. However, if you don’t like surprises – like a sudden jump in your mortgage’s interest rate – then a fixed-rate mortgage is for you.
A fixed-rate mortgage is exactly that. Once you lock in your interest rate with your lender, that is it. That is the interest rate you will be paying for the life of your mortgage.
Your monthly payments will not fluctuate due to changes in interest rates. Depending on your long term goals, you can secure fixed-rate loans that can last for 10, 15 , 20, 30 year terms.
3. Rate Lock
While you are negotiating the terms and conditions of your mortgage – no matter the type – lenders keep reacting to changes in the financial markets by changing interest rates.
On any typical day, mortgage rates can change 2-4 times based upon various market conditions.
To keep a rate that you like while you navigate the home loan process, you will want to “lock it in” with the bank.
A rate lock protects you from the fluctuations in the daily loan rate. Your “locked in” loan rate will remain in effect until closing, but only if you close by an agreed-upon deadline, typically 30-45 days.
4. Closing Costs
Your down payment isn’t the only chunk of change you’ll need when purchasing your new home. When you arrive at the closing – the day you sign all the paperwork and before you get your new homes keys – you are responsible for paying closing costs.
Closing costs vary, but it is a good rule that you BUDGET 3% of the purchase price towards the closing cost. This number is negotiable but it is a safe number for which to be prepared.
So what are closing cost? Closing costs are the various fees paid for the services and processing necessary to make your mortgage happen. Closing cost can include: title fees, appraisal, home inspections, escrow fees, and setting up an escrow account for your taxes and insurance.
Now, you shouldn’t be blind-sided by the amount of the closing costs, because within three days of receiving your loan application the lender must provide you with a three-page “loan estimate” that lays out the various fees so there will be NO surprises.
Don’t be worried about closing costs. There are some strategies that you can leverage to help pay for some of those cost.
Feel free to give me a call when you are ready to put a plan in place for you to purchase your new home. My team is here to help.