Phillip Taylor — also known as “PT” — is an entrepreneur and CPA on a mission. He wants to help readers make money, save more money and spend their money wisely. As the founder of the personal finance blog, PTMoney, and FinCon, the annual conference for financial media, Taylor is committed to helping his audience fix their finances so they can build the lives they want. He’s also dedicated to creating the best annual conference for the financial media community.
Taylor is passionate about helping people learn, the proper way, how to own a piece of the American Dream. TransUnion caught up with him to discuss common mortgage questions and answers for first-time home buyers.
Question: What credit score is typically needed to get approved for a mortgage loan?
PT: The typical credit score needed to get approved for a mortgage can vary based on the financial institution, but most banks offer the best rates to those who have a 700-plus score.
Given that, it’s important that we don’t focus just on the score, but also on the other things we need to be able to purchase a home successfully. For example, having a good amount of money saved for a down payment and closing costs is equally — if not more — important than what your credit score is.
Question: When people say you have to pay closing costs, what exactly does that entail?
PT: Simply put, your closing costs are the costs associated with purchasing your home. This can include fees to your lender to originate the loan, points you may have to pay to get a desired interest rate, underwriting costs, appraisal, home inspection and more.
The key is to ask your lender for a closing cost checklist prior to purchasing your home so you have an idea how much they will be. If you’re not prepared, these costs can really creep up on you.
Question: Is it better to get pre-approved for a mortgage before I look for a home?
PT: You should certainly know your purchasing capacity before you start looking. Getting pre-approved helps you fully understand what your financial institution is willing to lend you. You can make a more informed decision as to whether you can afford this new home when you have this information. Technology has made it easy to obtain pre-approval, so you don’t have to go visiting a lot of lenders.
You can get pre-approved online from the comfort of your own couch. One thing to keep in mind, however, is that a pre-approval is just a pre-approval. It isn’t your final loan; so make sure you know the contingencies you’ll have to meet to make that loan final.
Question: What is the best type of mortgage for me? Fixed? Variable? ARM? 30-year? 15-year?
PT: Personal finance is personal, so “best” is going to be based on what works for each person’s situation. But a fixed rate mortgage is probably best for the average person. When you think about variable-rate mortgages and/or adjustable-rate mortgages — or ARMs as they’re called — you have to realize that your monthly payment can increase, potentially causing you financial hardship.
A fixed rate mortgage, whether it’s for 30 years or 15 years, assures you that you’re going to be paying the same amount every month for the duration of your loan. There are no surprises and there’s nothing to figure out.
Question: What is private mortgage insurance (PMI)?
PT: Private mortgage insurance or PMI is the bank’s way of protecting its asset. Typically, homebuyers are required to put down 20 percent when purchasing a home, but if you put down less for any reason, the bank will charge you this extra fee as a way of mitigating the risk that you won’t make your payments.
Question: Is there any general advice you would give to someone who is purchasing a home for a first time?
PT: I’ve been a homeowner for almost 10 years. When you buy a home, you’re not just buying the home. You’re purchasing all the other responsibilities that come with maintaining the home. Don’t get me wrong — home ownership is a great way to begin increasing your wealth, but you can possibly set yourself back if you’re not fully prepared.
If you’re thinking about buying a home, check out our other articles on home buying to learn more about prep steps, financing and everything in between.
The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views, positions or opinions of TransUnion. The author was compensated in connection with the preparation of this article.