Here are 7 of the 20 most common questions we get from first-time homebuyers.
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There are a few questions in particular that we’ve noticed homebuyers have been asking, so today we want to give you the real answers to those questions. There are about 20 questions, so we’ll cover the first 7 today and the rest in a future update.
1. “How much money do we have to put down for a house?” You can put down 3% to get a conventional loan. If your credit isn’t the best, you can also get an FHA loan that only requires a 3.5% down payment. There are even loans for veterans that require no money down, meaning that with the right negotiations, you could potentially get into a home without putting any money down. Of course, these all depend on your specific lending scenario, your credit, and other factors.
2. “How much should I put down?” Depending on your circumstances, you can put as little as zero down, but if you put 20% down on a conventional loan, you don’t have to pay mortgage insurance, which is an extra fee you pay each month. If you put down less than 20%, you’ll have to pay for mortgage insurance, but once your home builds up a certain amount of equity, you’ll no longer have to pay it.
3. “Are there first-time homebuyer incentives?” Yes, sometimes. These programs change a lot, so if you have any questions about them, reach out to us and let us connect you to the right people who can get you the answers you’re looking for.
With the right negotiations, you could potentially get into a home without putting any money down.
4. “What are interest rates like now?” Some of our buyers are getting rates under 3%, which is the lowest they’ve ever been. Understand that your rates depend on different factors like your credit. For a true rate quote, talk to a lender. Rates can change every day, but right now is definitely a good time to purchase a home and lock in a super-low rate for the next 30 years. For the record, the Austin market is doing as well as it ever has.
5. “How are taxes calculated?” Every home has a different tax rate, and your property taxes depend on things like your city taxes, your school district, and other factors. Austin tax rates are often between 2.2% and 2.4%, but they can be as high as 3%. To calculate yours, look at the tax rate for that house and what its tax appraised value is.
6. “How do I pay my taxes?” Let’s say you have a 2% rate and the house appraised for $300,000. Two percent of $300,000 is $6,000, meaning that on average, you’ll pay $500 a month for taxes. It’s a fairly large part of your mortgage payment. Most people will end up paying a big lump of that sum at the end of the year because of what’s called an escrow account. Every month, what you pay goes into that account so you’ll have an even payment throughout the year, and then the escrow will pay out for the taxes at the end of the year.
7. “How long do I need to stay in a house before I can sell it and make a profit?” There are closing costs associated with the sale that buyers don’t have to deal with. We tell people to estimate paying around 7% in closing costs. On a $300,000 house that you sell, you’ll have about $21,000 in closing costs. That means if the sale price is $300,000, you’ll net around $279,000. So, to make a profit, your house would need to go up that much in value. Also, consider how the IRS looks at your home. You need to have lived in a house for two out of the last five years to be exempt from capital gains taxes.
If you have more first-time homebuyer questions, you can contact us to get your name on our waitlist of buyers participating in a live Zoom Q&A session. In the meantime, keep an eye out for the second part of today’s topic in a future post!