3 Questions First-Time Homebuyers Should Ask Themselves

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Experts predict 2021 will continue to be a strong year for the housing market. Zillow forecasts a 21.9 percent increase in annual home sales (6.9 million homes), potentially the biggest year for the housing market since 1983. With today’s low mortgage rates, this may be the time to buy a new home.

But there are many factors to consider when deciding if the time is right. According to a recent poll from the Roanoke College Institute for Policy and Opinion Research, consumer sentiment stalled over the last quarter for Virginians, as concerns about the current economy, including uncertainty related to COVID-19 and rising prices, continues to weigh on consumers’ minds.

For first-time homebuyers, navigating the highly competitive housing market during a time when they might be feeling uncertain about the economy can be a daunting task. But it doesn’t have to be with the proper planning. As you tackle the preliminary stages of homeownership, here are three questions to consider.

What can I afford?

The first step to buying a home is setting realistic financial expectations, including determining the down payment and monthly mortgage you can afford. The down payment is typically between 5-20 percent of the sale price. There are some government-sponsored programs that allow you to put a smaller amount down (but remember, the less you put down, the larger your mortgage payments will be). Also, if you put down less than 20 percent, you will likely be required to buy private mortgage insurance (PMI), which protects the mortgage lender in the event you become unable to make your payments.

A mortgage cost depends on many factors: the principal (amount you borrow), the finance charge you pay for using the money, and the term (length of time the mortgage lasts). Using a mortgage estimation calculator can help you determine if you’re ready for a mortgage payment, and how much you can afford.

 What are my financing options?

It is important to note that not all mortgages are the same. Each mortgage type has its unique characteristics. It is crucial to select a mortgage that best suits your needs and lifestyle. Consider things such as your credit score, employment and income, current debts, monthly budget, and the amount you can pay upfront for the down payment and closing costs.

For example, a conventional mortgage is the most straightforward type of loan that gives you the money you need to buy a house, which is paid back over the life of the loan (typically 15, 20 or 30 years). If your credit score isn’t high enough, you might be able to get a government-insured loan where the Federal Housing Administration (FHA) promises to pay back your lender if you default, reducing some of the risks to your lender. For more expensive homes, you also have the option of a “jumbo” mortgage, which is above the government’s “conforming mortgage limits,” or the amount the Fannie Mae has determined that traditional loans cannot exceed.

Will I qualify?

To obtain a mortgage, you will need to apply and qualify in order to borrow. Different loan programs may have different requirements for income and assets. Additionally, down payment amounts, credit score and property type may affect your qualification. Your loan officer will be able to determine your qualifcations after a full review of your documents.

It is recommended that homebuyers obtain a pre-approval letter, as most sellers will be more willing to negotiate with those who prove they can obtain financing. To be pre-approved for a mortgage, your lender will require proof of assets and income, good credit, employment verification, and other documentation. During this process, you will also learn the maximum amount you can borrow, which will help set the price range for your home search.

Be aware that affordability and qualification are not the same thing. Just because you qualify for a certain mortgage does not mean it is wise to borrow that amount of money. Establish a set budget to ensure you can afford this new commitment and start building an emergency fund to help bridge the gap if something unexpected happens.

There are many factors at play when buying a home, from understanding home insurance to working with a real estate agent and mortgage loan officer, to saving for a down payment. To make the process easier, you can find more tips and resources on Banzai, a free educational curriculum provided by Atlantic Union Bank.

 Bio: Dean Hackemer is the Home Loans President at Atlantic Union Bank, Virginia’s largest independent bank and the only statewide regional bank in Virginia. Dean has over 30 years of experience in the mortgage business and uses his wealth of knowledge to enhance Atlantic Union Bank customers’ home lending experience.