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Buying a Home: What to Expect

Buying a Home: What to Expect

Podcast Transcription 

Money Talk is a podcast brought to you by PFCU where we will share tips and tricks and talk to the experts on all things finance related. Join us as we cover everything from credit and loans to cyber security and careers. No matter where you are in life, PFCU is here for you.

Hi everyone, welcome to another episode of PFCU’s Money Talk Podcast! The weather is warming up and that means that home sales are going to rise. Peak home sales in Michigan actually happen in May through July. Buying a home is no small feat and there are a lot of things to consider. It can be overwhelming as you want to make the right decision and stay within your budget.

Being a first-time home buyer can come with some special loan programs including lower down payment requirements, tax credits and educational resources to guide you through this purchase. Make sure to keep an eye out and take advantage of these.

One of the biggest costs that you will need to save for is the down payment. You will need cash for the down payment, which is a percentage of the total cost of the home. You may be able to put down as little as 3-5% or even less depending on the program, however, it’s typically encouraged for a buyer to put down 20% of a home’s cost. Now, putting down 20% allows you to avoid paying Private Mortgage Insurance, or PMI, which is a protection for the lender against you defaulting on your loan. So, if you’re not planning to put down 20%, PMI is another cost that you're going to want to prepare for.

You’re going to want to get preapproved for a mortgage which will give you an idea of how much you can afford, the type of loans you qualify for and potential interest rates. The lender is going to look at your assets, your income, your other debts and your credit.

Your mortgage payment's going to depend on a few different things: your principal amount borrowed, your interest rate, the term (or the length) of the mortgage, property taxes, homeowner’s insurance and if you’re paying that private mortgage insurance. Lenders typically want your total payment to be below 28% of your gross monthly income. This will give you a great starting point and frame of reference of what you will be able to afford.

Keep in mind though that you need to make sure that you’re setting a budget for yourself on how much you can actually afford. When lenders approve you for a certain amount, they’re not taking into consideration your other bills, costs and expenses. You do not want to get in over your head with your mortgage payment.

There are some other costs you want to be prepared for when purchasing a home. For example, if you use a real estate agent, that will come with a fee which is usually a commission of 5-6% of the purchase price of the home. You don’t have to use a real estate agent but remember there are benefits of doing so. Agents know market and price trends, which neighborhoods and features are most desirable and can help with price and contract negotiations. Closing costs are one-time costs that you either pay up front or roll into your mortgage payment. These cover all of the expenses of applying for the loan and finalizing the sale. Examples being an underwriting fee, property appraisals and title insurance. It's typically between 2-5% of the overall purchase price.

Okay, I know that was a lot of information as there’s a lot that goes into buying a home! I hope this gives you a good idea of what to expect and the costs that come with buying a house, especially if it’s your first time going through the process.

Thanks for listening, everyone!

Money Talk is a podcast brought to you by PFCU. PFCU offers many products and services to fit your needs. From our various loan and account options to our team of financial coaches to help you reach your goals. Make sure to take advantage of the many conveniences PFCU offers, such as the mobile app, mobile wallets, bill pay, and more. Visit our website at pfcu4me.com to learn more. PFCU is an equal housing lender and is federally insured by the NCUA.