Before you start your homebuying journey, make sure you’re educated on the process.
Know what goes into a closing cost or the importance of your FICO? If you said no to either of those, here are some tips from Dave Jacobin, the president of 1st Mariner Mortgage.
Tip 1: Find out how much closing costs cost
All too often, I see borrowers stunned by the amount of the closing costs to finalize the purchase of their new home. Avoid this last-minute shock altogether and address closing costs well before you get to the table. When you’re pulling the contract together, know your options. If up-front closing costs are a problem, you can look into mortgage loans that work them into your mortgage payment to work around the up-front costs.
Bonus: Fannie Mae recently launched a program aimed at attracting more first-time homebuyers, the HomePath Ready Buyer program, under which qualifying first-time homebuyers can receive up to 3% of the purchase price of the subject property in closing-cost assistance toward the purchase of a HomePath property.
Tip 2: Know who is responsible for closing costs
Similar to the way many don’t understand the true cost of closing, they often are unaware of who is responsible for paying them. Be sure to communicate with the seller clearly throughout the home-buying process, as sometimes they will agree to assume the closing costs on behalf of the buyer in order to close the deal. Buyers should understand that even if they don’t have enough cash to cover both the down payment and closing at the time of sale, there are negotiable alternatives.
Bonus: According to ClosingCorp, closing costs are paid when a real estate transaction closes and the title to the property is transferred to the buyer, usually between 2-5%. The fees cover appraisal, inspection and attorney's fees to home warranties. ClosingCorp is working to emphasize the need to educate Millennials, and really all consumers, about the real estate closing process.
Tip 3: Understand the value of your credit score
Your credit score is crucial in determining your eligibility for mortgage loans, so don’t be surprised if you qualify for high interest rates if your credit score is low. If you’re planning on applying for mortgage loans in the near future, focus on paying off debt to build up your credit score. The strength of those three numbers will make or break your home-buying experience. Remember, it doesn’t matter if your debt is $24 or $24,000 – if your credit report shows you owe money, that is a reflection of how disciplined you are with making payments and how likely it is that you’ll be able to repay the mortgage.
Bonus: It’s important to note that there are some rumblings in the industry from lenders who are pulling away from FICO scores. San Francisco-based SoFi is currently pushing the limits by recently announcing it will not use FICO scores when evaluating applicants.