Disclaimer: I’m not a financial professional, just sharing my experience from buying a home.
As I mentioned a few weeks ago, I’m currently under contract for a house. It has been a whirlwind, but one of the most simultaneously interesting and exhausting portion of the house-buying process is financing the purchase.
Before I began house shopping, this is how I pictured getting a loan: you call up your bank, tell them you’re buying a house, they run your credit, assign you an interest rate and then you have a loan.
If only it was really that simple. There are so many portions of getting a loan that I simply just didn’t know existed. Like what is PMI? And what are these closing costs I’m hearing about? And what are these points?
While I had a momentary freak-out during my loan research, I’ve now come to actually find the housing financing fascinating. It could be the first time I’ve really found numbers exciting. These are some of my major takeaways from getting a loan:
#1: There isn’t just one loan.
When I was going in to talk about loans, I was blown away with how many different loans you can get. It’s not just that you walk into the office and then they pre-approve you for money. I didn’t realize there were “products,” and that it wasn’t just you getting money. You can get different loans, some with high interest rates with PMI (mortgage insurance, which you have to get if you don’t put 20 percent down).
It's a lot more complex than just a IOU on money.
#2: You can get paid to buy a house.
In Virginia, they want people to buy houses, so they have grants for first-time homebuyers. I didn’t even know that was a thing, and was wildly surprised when I was offered a portion of my down payment if I went with a specific loan.
I think this program is really phenomenal, as it encourages and helps people get into their first house, and I am rather surprised they don’t promote the program to the general public.
#3: Closing costs are expensive.
I was sitting in the car once talking to my realtor about houses. The conversation progressed to cover what to expect once you put an offer in on a house. She was explaining the title insurance, attorney fees, origination documents, home inspection and some other costs, but my head was exploding.
You don’t just buy a house and get a mortgage. There are so, so many other bills. When I started calculating closing costs, I almost stopped looking into buying. I had saved quite a bit of money, but it was starting to seem like all those savings would hardly cover closing costs. But then I learned another great house financing fact…
#4: The seller might cover closing costs.
You can negotiate to get some of your closing costs covered. It ends up being a good idea if you would rather have money in your pocket than a lower mortgage. I’m not advising which way you negotiate, but if you want to save money somewhere and are more comfortable paying a bit more a month and saving on bulk up-front costs, you can ask for the seller to pay some of your closing costs and going in with a bit higher of an offer.
#5: You might be in a better financial position to buy than you expected.
My sister bought a house around this time in her life, and I always assumed I wasn’t in as good of a financial position to buy a house as she is. While that is definitely true, this is a really good time to not compare myself to someone who is exceptional at almost everything. She’s a damn overachiever. And I can actually afford a house – albeit a bit less of a house than she can afford.
When I went into the loan meeting, I was told that not only was I a good candidate for a loan, but that I could qualify for substantially more than I asked for. However, I wouldn’t have been comfortable at that level, and I purchased a house that was within my budget.