Home Buying – the Money Part

At the outset, let me say that I am not a loan officer or a mortgage specialist. I am a Realtor, and as such, I come across buyers who are bewildered by the money part of buying a home.

 

Terms like closing costs, down payment and earnest money fly around them, and they are totally foxed. Not to be gender-biased, but 50% of buyers (you know who I am talking about) just nod knowledgably, I might add, when talk veers around to financing the home. Then, after that show of familiarity and proficiency, it’s too late to ask what these terms actually mean.

 

So… here in a nutshell are terms, meanings and where they all fit in.

 

Term	How much	Type	When	What is it
Earnest Money	$500 - $2,000 depending on the price of the home	Personal Check (unless property is a foreclosed one)	Paid while writing an offer. The check is deposited when the offer becomes a contract	It shows you are serious about buying the property
Down Payment	·        $0 for VA & USDA loans ·        3 – 3.5% of sale price for FHA loans ·        5 – 20% for conventional loans	Certified check	At closing	Your ‘skin’ in the purchase. Deducted from the sale price. The amount depends on the type of loan.
Closing Costs	Depends on type of loan. Maybe 2 – 5% of sales price.	Certified check	At closing	Costs of getting the loan, title search and attorney fees. Can also include VA and other fees.
Mortgage	The actual amount of the loan (sale price minus down payment)	Your bank sends certified funds to seller	At closing	The amount you owe on the house.
PITI	-	Personal check	Every month	Principal, interest, tax and insurance that you pay your mortgage company

 

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Check out all homes for sale in Columbia and Lexington at www.homesincolumbiasc.net

If you are self-employed and want to buy a house...

It's great being self-employed but when it comes to buying a home, here is what you should keep in mind:

1. You will need a great credit score (that's a given for everyone) - 640 or more.

2. You will need good credit history. Typically, if you have a restaurant or convenience store, where sales may be in cash, then you are very likely spending that cash and not using a credit card. Car payments will be part of your credit  history, but you need to show at least 2 lines of credit. Get a secured credit card with a small limit and use it for your day-to-day purchases. Pay the balance off every month as soon as you get the bill. This will go a long way towards building your credit history.

3. You will need tax returns for 2 years. Here again, the tendency is to show a smaller income or take a lot of deductibles. If you don't have sufficient income, no loan officer is going to work with you.

Plus... all buyers (not just those that are self-employed) will need:

1. Some money as down payment. Depending on the type of loan, you may have to put down anywhere from 3.5% to 10% of the purchase price. Or even more.

2. Money for closing costs - these include lender fees, attorney and title fees, items to be paid in advance and reserves with the lender.

Here's a tip: when talking to a loan officer, make sure you know what your monthly payments are going to be - mortgage payment (principal + interest), taxes and insurance. And to this, add utility charges.

You must be comfortable with this figure. This will determine the price range you should stay in.

Finally... never ever be house poor. That is, don't let all your income go towards paying for the house. You need to have the basics - food, clothing and school, but you also need to have some fun.

If you want more information on buying a home, call me at 803-348-9922 or email me.