Buying a Home

Thinking about buying a place to call home? Then it’s time to think through the home buying process. It can be tempting to start by cruising through your dream neighborhood or checking out house plans, but the most realistic place to start is with the costs.

Down Payments

The cost of buying a home depends largely on where you live and what you’re buying. No matter your budget, you’ll need to keep certain costs in mind that apply to any purchase. First, you’ll need cash for a down payment, usually a percentage of the total cost of the home. First-time home buyers may be able to put as little as 3-5% down in cash—on a $300,000 home, 3% is $9,000, so that’s still a good chunk of change. Some programs require less of a down payment—ask your lender what is available for you.

Traditionally, buyers are encouraged to put down 20% to avoid paying for private mortgage insurance, or PMI. PMI is a protection for the lender against you defaulting on the loan. If you put down 20% or more, you won’t need mortgage insurance. Otherwise, plan on that additional cost, which could be as much as a few hundred dollars a month on top of your regular mortgage payment.

When You Don’t Get Approved

Somewhere around 10% of all mortgage loan applications are denied, with a slightly higher rate for Federal Housing Administration (FHA) loan applicants. If you’re turned down for a loan or during the pre-approval process, take the time to find out why. Make sure they are working off of current information—you could have an error on your credit report that is impacting your credit score. If you do find issues on your credit report, contact the credit bureau to report them.

If the denial isn’t because of an error, now is the time to take steps toward securing a mortgage in the future. Keep the following best practices for good credit in mind.

Build your credit history
Keep your debt-to-income ratio down
Make credit payments on time
Report inaccuracies right away
Keep accounts open
Diversify the types of credit accounts
Minimize new credit lines and inquiries

Under the Fair Housing Law, lenders cannot turn you down because of your age, race, gender, marital status, or religion. If you think you’ve been discriminated against, file a complaint with the U.S. Department of Housing and Urban Development. You can also report the violation to the appropriate government agency provided by the lender, or check with your State Attorney General’s office to see if the creditor violated state laws.

Real Estate Agent Fees

Many homebuyers—especially first-time ones—use a real estate agent to purchase a home. Real estate agents know the market and price trends, know which neighborhoods and features are most desirable, and can help you with price and contract negotiations.

These services come with a cost, though. Real estate agents are typically paid a commission of 5-6% of the purchase price. On a $250,000 property, that’s $12,500 split 50/50 between the buyer’s agent and seller’s agent. Good news though: if you’re buying a home, typically the seller pays the real estate commissions.

Closing Costs

Before a home is truly yours, you’ll need to finalize the sale and sign the documents (many, many documents!). At this time, closing costs are due, too. These are one-time costs that you can either pay upfront or possibly roll into the mortgage. Closing costs cover all of the expenses of applying for the loan and finalizing the sale, and typically run between 2-5% of the overall purchase price. Your closing costs may include fees for services required by your mortgage lender, including:

Property appraisals
Title search
Title insurance
Origination fee
Underwriting fee
Points

Renting vs. Buying

The costs associated with buying a home can be overwhelming, but that doesn’t mean it’s the wrong choice. It’s up to you to weigh the benefits of ownership vs. renting.

Ways Renting Saves You Money

Don’t pay property taxes
Don’t pay for maintenance
Less cash tied up in the property
No risk of declining property values
Not tied to a geographic location

Ways Buying a Home Saves You Money

Deduct mortgage interest and property taxes on your federal tax return
Build equity as you pay down your mortgage
Potential profit if home value increases and you decide to sell
Access to equity through a home equity line of credit (HELOC) if needed for personal loans or other uses
Feelings of security in owning a home

There is no specific home buying timeline that works for everyone, so make sure you don’t rush the process. Consider the costs, pros, and cons before you make this life-changing decision.

Speak with a Union Bank Mortgage Banker

For more information or to schedule an appointment with a Union Bank Mortgage Banker, call 800.974.3273.

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Disclaimer

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

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