Need Help Understanding Insurance Terms?
So you’re ready to buy a home for the first time! You’ve waited so long for this, but you’re not sure where to begin. The market is hot and you don’t want to miss out on your dream home, but where do you start? Here are 6 critical answers for first time home buyers.
1. Should I work with a professional?
If you went to the hospital, you would expect a doctor to meet your needs. Buying a home is no different. With as many technicalities as there are in purchasing a home, you will want the best people on your side, including a realtor to help you buy the home, a processor to help you with the loan, and an insurance agent to protect your new asset and make sure it is compliant with the loan requirements.
2. How do I get pre-approved for a loan?
There are quite a few different options for starting the process online – however, you may want to begin by looking locally. A local loan officer will know the territory and the market far better than an online vendor will, and will in all likelihood be able to qualify you for a lower interest rate and higher quality loan options. We suggest that you begin by contacting a local loan officer. From there, they will ask you for the following items to help you qualify for the best loan possible:
1) Most recent mortgage statement
2) Most recent complete 30 days of pay stubs
3) Most recent 2 months of bank statements
4) Most recent W2
5) Two years’ tax returns as well.
3. How much house can I afford?
There are a few various ways to calculate how much house you can and should purchase, but a good rule of thumb would be simply to start with a budget using a mortgage calculator. You will also want to leave some room for other budget items like utilities, Homeowners Association fees, insurance, and other recurring expenses.
4. How much do I need for the down payment and closing costs?
This will depend on the type of loan you get and the agreement between the buyer and seller. A good rule of thumb is to save up 20% of the home value as a down payment, but as a first time home buyer you may qualify for a FHA loan which would require as little as 3.5% down. A bonus thought: If you qualify for this type of loan and have saved the 20%, you can still either put the money down and lower the payment or use the money for home improvements.
5. When should I buy homeowners insurance?
Once you have the home picked out and a purchase agreement has been signed, you should get your homeowners insurance quote as soon as possible. Do not wait until the day of closing as this could cause delays in the process and/or could leave you with coverage gaps specific to your situation if the quote is done in haste.
For the majority of newly purchased homes, the mortgage company requires the homeowners insurance to be paid via escrow, which means the mortgage company will pay it in full and you will see the appropriate increase in your monthly mortgage payment to account for it.
6. What happens to my mortgage if I die?
If your home is worth more than you owe on it at the time of your untimely death, the balance will fall upon your heirs – your children, your spouse, etc. The executor of your will (assuming you have one) can sell the property and use the difference to pay off debts, but why put them in this sort of situation?
This is precisely where life insurance can help. You will want to make sure you have a life insurance policy that meets your needs and protects not only your assets including your home, but also saves your grieving family from having to deal with additional financial burdens.
Your first home purchase is a huge decision – one of the biggest you’ll ever make! The 6 critical answers for first time home buyers will help you begin this process. Because of this, you’ll want to make sure you have everything in place and understand how the process works as best you can before you get started.