Five FAQ’s We Get From First Time Home Buyers


As a team of Realtors with over 48 years of experience, we have helped many buyers find their perfect home. People entering the Woodland real estate market for the first time always have questions. After all, this is new territory and you are venturing into a complex process to make the biggest purchase of your life. You should have questions.
 
Here are five that we hear frequently:

1)    How Much House Can I Afford?

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The easy answer to this question is to add up the following numbers:

               How much money you can borrow
          +   How much cash you have for down payment
              ___________________________________________________

          =  The Price of Home you Can Afford


Remember to take into account the money needed for move-in expenses and an emergency reserve (unexpected costs always come up).

With the shake –up in the mortgage business that took place in 2008, many lenders now have more strict standards. Credit scores are now used to determine the interest rate you will pay and now more money is required for down payments in order to get the loan.

Just a few years ago lenders used the 28% and 36% formulas.

The 28% formula says that you should spend no more than 28% of your GROSS MONTHLY HOUSEHOLD INCOME on your total monthly mortgage, which includes principal, interest, taxes and insurance.

The 36% formula says that you should spend no more than 36% of your Gross Monthly Income on all long-term debt (mortgage, car payments, credit cards, etc.). Any debt that will not be paid off in less than 10 months is considered long-term debt.

One bright note, FHA and VA loans have slightly more relaxed qualifying standards and may allow a lower down payment, as low as 3%.

A quick visit or phone call with a local mortgage broker will get you pre-qualified and establish how much you can borrow.



2)    How Much is My Property Tax Going to Be?


The total amount of the previous years property tax can usually be found in the listing information on any property. You can also contact the Yolo County Assessors office to get current tax information. Yolo County property taxes are due twice per year. The first half is due in December and the second half in April.  Most lenders (and most home purchasers) set up an impound account and 1/12 of your property taxes are added to your mortgage payment each month. This avoids having to absorb two large payments per year to your household budget. As a rule of thumb in the Woodland area, calculate that your annual property tax will be about 1.3% of the purchase price of your new home.



3)    Can I Buy a House if I Have Filed Bankruptcy?


Lenders are most concerned about how you have managed your credit in the last 24 months. Lenders generally require you to wait two years after a bankruptcy has been discharged before applying for a loan. It is critical that you rebuild your credit, have an excellent payment history and manage your credit lines well. You may have to settle for a higher interest rate or more of a down payment, but with care, there is no need for a past bankruptcy to stop you from purchasing a home.



4)    What is Earnest Money and How is it Different Than a Down Payment?


Earnest Money is a check that accompanies the buyers’ offer when it is presented to the seller. It shows that you are serious (i.e “earnest”) about buying the sellers home. Typically, Earnest money checks are usually $1,000 or 1% of the sales price. The earnest money is held in a trust account by the listing broker, or at the title company and then credited to you at closing against your down payment or closing costs. If your offered is not accepted, or you can’t come to terms with the seller, the earnest money is returned to you.

A Down Payment is the cash amount that the buyers put up, usually 10% to 25% of the purchase price.  It is the difference between the sales price of the home and the loan amount. Down payments can range from 10% to 25% depending on the type of loan and whether you intend to occupy the home, or if it is an investment property.
The lower the down payment, the higher your monthly payment will be for your loan.



5)    What Are Closing Costs and How Much Are They?


Lenders are required to provide you with a “good faith” estimate of closing costs when you apply for a loan.  These costs can include the following:

  • Loan Origination Fee, usually about 1% of the loan amount.
  • Recording Fees
  • Pre-payment of reserve accounts – impounds for property taxes and insurance.
  • Escrow Fees
  • Recording Fees
  • Title Insurance
  • Pro-rated interest from the date the loan closes until the end of the month. For instance, if your loan closed on the 20th of the month, you would have to pay interest from the 21st to the 30th at closing.
  • Document Preparation Fees
  • Document Delivery Fees
  • First year premium on mortgage insurance, if your loan requires it.


The amounts for each of these items can vary depending on the amount of the loan you’re getting and the geographic area where you are buying a home. Your lender and your Realtor will provide you with the actual closing statement for your review before the loan closes and before you sign your loan documents.


The more you know about the home buying process before you start, the better off you will be. Armed with knowledge you can save money and make buying a home a better experience and a smoother transition for you and your family.

At Woodland Easy Home Search, we are here to help you through the home buying process every step of the way, from loan pre-qualification to closing the sale and handing you the keys to your new home. We’re here to answer your questions and take care of the details.

So call us today at 530-908-7905, or Contact Us, and let us help you find the perfect home for you in Woodland, Davis, or anywhere in Yolo County.

 - Tom, Vicki, Teresa, Stacey, Ed & Katie

The Team at Woodland Easy Home Search