There are certain milestones in every person’s life they will always remember, from learning to ride a bike and graduating high school to getting married and starting a family. Often, there’s no true way to prepare for these moments other than to enjoy them. But there is one major life milestone where there is no such thing as being too prepared: Buying your first home. Homeownership can be a very confusing and expensive journey for even the savviest buyer, that’s why it’s vital that you understand the process and what exactly this adventure entails.
Think you’re ready? Take this short five-question quiz to find out!
Q: How much of your gross monthly income should go to paying for housing?
A: 30 percent. The key to this rule is to consider your total housing payment, not just your mortgage. There are a variety of other monthly fees you may be responsible for, like homeowners’ insurance and perhaps mortgage insurance (more on that later). That’s, of course, not considering home upkeep, utility costs, property taxes, and your other financial obligations. It’s always safer to be more conservative to avoid becoming “house poor.”
Q: If you’re buying a home with a partner, does it matter if only one of you has good credit?
A: In short? Yes. That is, if you expect both of your incomes to be considered when it’s time to crunch your mortgage numbers. While it doesn’t necessarily mean you’ll be denied a mortgage, your partner’s bad credit may make your interest rate exponentially higher than your good credit score would have earned you otherwise.
Q: Do all mortgage lenders offer you the same rates and terms?
A: Definitely not! Shopping around for the right mortgage lender is one of the most important steps of homebuying—one that nearly half of borrowers don’t take. Mortgage rates and terms can differ drastically, so not comparing a variety of lenders first can cost you big in the end. Some lenders also offer valuable programs to ease the process and help you save even more, like Suffolk’s First Home Club and First Time Home Buyers Club.
Q: Should you get a pre-approval?
A: If you want your offer to be taken seriously, yes. Sellers want a guarantee that you’ll be able to afford your offer price, so a pre-approval letter is key. Don’t be shy when it comes to submitting a loan application to multiple lenders, either. As opposed to applying for multiple credit cards, multiple credit inquiries from mortgage lenders in a short period of time are considered a single inquiry and typically have little to no effect on your score.
Q: Can you buy a house with a down payment of less than 20 percent?
A: Can you? Yes. Should you? Not necessarily. For many first time homebuyers, saving 20 percent of a home’s asking price can seem an impossible feat, especially on Long Island, where the average Suffolk county home costs between $349,000 and $471,250 (that’s a down payment of $69,800 to $94,250 for those doing the math). That’s why there are a variety of programs that require less than 20 percent, like the popular FHA loan, which requires as little as 3.5 percent. What’s the catch? Well, in addition to the fact that your monthly mortgage payment may be substantially larger since your principal is 96.5 percent of your home’s price instead of 80 percent, you will also need to pay mortgage insurance premiums, which may be required for the life of the loan. In the end, it’s always best to put more down now and pay less in the long run.
So, how did you do? Even if you aced the quiz, there’s always more to learn! That’s why Suffolk Federal offers free first-time homebuyers seminars throughout the year. Visit www.suffolkfcu.org/events for details. Prefer to speak to a mortgage team member in person? Contact us to get started.