Make Homebuying Easy With These 7 Tips
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 cybersecurity and careers. No matter where you are in life, PFCU is here for you.
Maddy: Thank you for joining me for another episode of PFCU's Money Talk Podcast. I have a special guest with me here today and it is Julie with PFCU's mortgage team. Hi Julie, how are you?
Julie: Good. How are you, Maddy?
Maddy: Good, thanks for being here.
Julie: I'm glad to be here.
Maddy: Could you just share really quickly how long you've been doing this for here at the credit union?
Julie: I have been in the mortgage business for 38 years. I actually started with PFCU in 2008 originally and then came back in 2013 after two years off.
Maddy: Awesome.
Julie: Been doing mortgages that long.
Maddy: So, you are the expert and the perfect person to be talking to about this topic. She's going to share some home buying tips. Home buying can be overwhelming for a lot of people and quite the process. So, I think these tips will be super helpful for people that just have those basic questions, especially if they've never bought a house before. Could you share if someone should get pre-qualified, maybe what that even means for people who don't know?
Julie: Absolutely. Everybody should get pre-qualified when they purchase a home. Number one, you need to know your budget. How much can you pay or how much do you want to pay? What you can get pre-qualified to buy and what you actually can afford or are comfortable with is really up to you. So, what I first tell people to do is give yourself a budget. What is your lifestyle? What kind of house payment do you want? You know, do you want to go out to dinner every week and maybe go to the movie every week or do you just want to be married to your home? So, create yourself a budget, set in your mind what you're comfortable for with a payment, then talk to a loan officer and then they can tell you the amount you should be looking for.
Maddy: Okay, that's good to know because they can get pre-qualified for, like, a certain amount, right? But that doesn't mean that that's the amount that they should necessarily be looking for if it doesn't fit into the budget and the lifestyle that they want.
Julie: Absolutely. I have had a borrower in the past, you know, buy her maximum amount. And then when it came to having to make the house payment, she really struggled with that based on her lifestyle. So, you could qualify actually for less than what you're expecting to, maybe, you can rent and you're a great budgeter, but we do have parameters we also have to follow.
Maddy: Yeah. Does 20% need to be put down when you purchase a home?
Julie: No, you don't need to put 20% down when you purchase a home, but if you have 20% down, you'll avoid what's called private mortgage insurance. And what private mortgage insurance does is it protects the lender in case the homeowner to go into foreclosure default. PFCU does offer loans with private mortgage insurance, which allows the borrower to put as little as 3 % down. Depending on your credit score, private mortgage insurance can be relatively cheap. So, if you have a really low credit score, you're gonna pay a lot of mortgage insurance. If you have a higher one, you could pay 20, 30 bucks a month. It just depends on what your sale price is and your credit score.
Maddy: Right.
Julie: PFCU also does offer a zero-down program, which is the Rural Development Program. There's income limits, minimum credit scores, and the property needs to be eligible based on the area it's in. So, on that one, there isn't necessarily private mortgage insurance, but there is funding fees by Rural Development, which is essentially the same thing.
Maddy: Okay, so aside from putting money down and private mortgage insurance, are there any other fees that people should be aware of?
Julie: There's a lot. There's closing costs and closing costs will vary depending on the size of the loan because you'll have, PFCU has set amounts based on the loan, what our closing costs are, but you have third party fees such as appraisals, title insurance, closing fees, and so it can depend on the program that you actually pick. Also, on top of closing costs, you're going to have escrow accounts, and that's to pay your taxes and insurance. Typically, those are required on anybody who puts less than 20% down. So, you're going to have to initially fund those upfront. So, you're going to need a portion of your taxes, a portion of your homeowner's insurance. It just depends on the month of the year that you buy because taxes are typically due in July, sometime in the summer July through September or in December. So, you're going to also have to fund those accounts too. You can waive the escrow account if you have 20% down.
Maddy: Okay. Moral of the story, be prepared, not just for your down payment and you know, your payment every month, but all of those extras when you buy a house.
Julie: Absolutely.
Maddy: Yeah.
Julie: You can also, on those costs, you can negotiate with the seller to pay it, but every program's a little bit different. So, check with your lender. And then in today's market, some sellers won't pay any of it and sometimes they will, depends on how motivated they are to sell their home.
Maddy: What about gift funds? Can you use those for closing?
Julie: Absolutely. Again, it depends on the program. Most cases you can use gift funds, but restrictions do apply depending on the type of financing. For example, you couldn't, if you were buying an investment property, you can't use gift funds for that. But speak to your loan officer for any requirements, depending on your situation.
Maddy: Yeah. I feel like that goes with a lot of this, right?
Julie: Yes.
Maddy: That it all depends on your situation, what you're looking for, what programs you qualify for and all that.
Julie: Absolutely, absolutely.
Maddy: People hear a lot about how credit's important in different aspects of their finances, different aspects of their lives. Is credit important when it comes to getting a mortgage?
Julie: Absolutely. Depending on your credit score, you may qualify for different programs. For most programs, the higher the credit score, the better your interest rate and the lower payment you will receive. Again, going back to PMI insurance, you'll have less PMI insurance. It also affects your interest rates. So, lenders look to make sure that the borrowers that they are lending to have a good pay history, and they want to be confident that they will be paid back those funds. So, for an idea of what your credit might look out, I would check out Savvy Money in your online banking with PFCU. That will give you an idea. I will tell you that there are many different credit scoring models out there. So, the credit score you get for a car loan or credit karma may be different than what you get for a mortgage loan. So, be prepared that those scores do vary, but it would give you a good idea.
Maddy: Yeah, yeah. That savvy money tool is really cool. So, people that haven't checked it out, they should. What about job history? Does someone need to have the same job for two years?
Julie: Typically they do not. We like to see them in the same line of work for two years, so we want to know that they're employable. Also, if you are a student, somebody who's come out of college, we're going to use that as part of your two-year history. So, if you went for a teaching degree and you got your teaching certificate in May of this year and you're starting a new job with a contract this year, we will absolutely take a look at that. So, we're looking for that history of an employable person.
Maddy: Perfect. Do you need a realtor to purchase a home?
Julie: No, you do not need a realtor. You can do a for sale by owner, but it's a good practice to seek out a knowledgeable person in your area or a realtor when purchasing homes. Sales contracts can be difficult and confusing. Realtors have been trained in this area. So, I would suggest if you are looking for a realtor, interview several different realtors in your area, find the one that you are most comfortable with. Again, it's okay to purchase a home without a realtor, but make sure that you understand all aspects of the purchase agreement because it is a legal binding contract. Once you sign it, you have to stick with it.
Maddy: Okay. And I like the idea of interviewing realtors to find someone you're comfortable with because it's such a big purchase.
Julie: And most realtors, when you sign a contract, you're with them for six months.
Maddy: Okay.
Julie: So, if you find out after 30 days that you, you're not compatible with that person, you know, you're still gonna pay them.
Maddy: Yeah, that's a good tip. Alright, Julie, is there anything else that you wanted to share. You shared some good stuff.
Julie: We're here for you. PFCU has a very experienced team. We're very knowledgeable. We're here to answer questions to help you out, get you started in the right directions. One thing I will say on the credit, I'm gonna come back to that really quickly. A lot of people, when they apply for the mortgage now, their information is sold to a credit bureau. And so once you apply for a mortgage, you are going to get multiple, multiple calls, 50, 60 calls. People want your business. So, we do have an opt out information on our website. So, if you don't want to get all those calls bugging you for days after you've applied for a mortgage, you may want to opt out and just so you know, it can take months for that to take effect.
Maddy: Okay.
Julie: Okay?
Maddy: Yeah, good to know. Well, thank you.
Julie: Thank you.
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.