Buyer Frequently Asked Questions-
Home Buying and Selling is a sometimes complex process, which is why I am here to help. Still, it can be helpful to have a resource to get the basics down. As such, I have compiled a list of frequently asked questions for clients and prospective home buyers/sellers. Please contact me to ask any questions at all!
- What the first step of the home buying process?
Getting pre-approved for a mortgage is the first step of the home buying process. Getting a pre-approval letter from a lender is the best way to start your search:
First, you need to know how much you can borrow. Online calculators and rules of thumb are decent starts, but there is important variation that a lender will help you navigate. Knowing how much home you can afford narrows down online home searching to suitable properties, thus you don’t waste time considering homes that are not within your budget. Indeed, this can help prevent disappointment that would come with falling in love with homes outside of your price range.
Second, the loan estimate from your lender will show how much money is required for the down payment and closing costs. You may need more time to save up money, liquidate other assets or seek mortgage gift funds from family. In any case, you will have a clear picture of what is financially required.
Finally, being pre-approved for a mortgage demonstrates that you are a serious buyer to both your real estate agent and the person selling their home.
Most real estate agents will require a pre-approval before showing homes – this is especially true at the higher end of the real estate market, but is a good idea at every price level as a seller.
- How long does it take to buy a home?
Under normal market conditions, the average time to complete the sale of a home (with a loan) is around 35-45 days. Though, well-prepared home buyers have been known to purchase properties faster than that. Lender requirements, as well as mortgage regulation is the major driver of this delay. Homes that are bought with cash can be a matter of days, if so desired and able.
- How much do I have to pay an agent to help me buy a house?
Home buyers pay little or no fees to an agent to buy a home. Here’s the reason:
For most home sales, there are two real estate agents involved in the deal: one that represents the seller and another who represents the buyer.
Listing brokers represent sellers and charge a fee to represent them and market the property.
Agents who represent buyers (a.k.a. buyer’s agent) are compensated by the listing broker for bringing home buyers to the transaction. When the home is sold, the listing broker splits the listing fee with the buyer’s agent. Thus, buyers don’t pay their agents. Which is great for buyers, but hurts a little more for sellers.
- What kind of credit score do I need to buy a home?
Most loan programs require a FICO score of 620 or better. Borrowers with higher credit scores represent less risk to the lender, often resulting in a better interest rate. Conversely, home shoppers with lower credit scores may need to accept a higher interest rate to offset the lender’s risk.
- How much do I need for a down payment?
As little as 3%, and sometimes less. First time homebuyers will often only put down 3 to 5% on a home. That’s because several first-time home buyer programs don’t require big down payments. A longtime favorite, the FHA loan, requires 3.5% down. What’s more, some programs allow down payment contributions from family members in the form of a gift.
Some programs require even less. VA loans and USDA loans can be made with zero down. However, these programs are more restrictive. VA loans are only made to former or current military service members. USDA loans are only available to low to-middle income buyers in USDA-eligible rural areas.
For many years, conventional loans required a 20% down payment. These types of loans were typically taken out by repeat buyers who could use equity from their existing home as a source of down payment funds. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI).
- What is earnest money?
When you make an offer on a home, your agent will ask for a check to accompany it (the deposit is typically 1% to 2% of the purchase price). Earnest money is made in good faith to demonstrate – to the seller – that the buyer’s offer is genuine. Earnest money essentially takes the home off the market to anyone else and reserves it for you.
The check (or sometimes cash) is deposited in a trust or escrow account for safekeeping upon reaching a contract agreement. If there is no agreement, the check is voided and shredded. If a deal is struck, the earnest money is deposited, and will eventually apply to the down payment and closing costs. If the deal falls through, the money is returned to the buyer in 99% of cases.
The only case where the buyer’s earnest money is not returned: if the terms of a deal are agreed upon by both parties, but then the buyer backs out without adequate reason. There are many easy ways to protect your earnest money using contingencies.
- What is a seller’s market?
In sellers’ markets, increasing demand for homes drives up prices. In a seller’s market, there is a much greater chance for sellers to have multiple offers and have the negotiating power over the buyer. Here are some of the drivers of demand:
- Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can be built.
- Low Interest Rates – improves home affordability, creating more buyer interest, particularly for first time home buyers who can afford bigger homes as the cost of money goes lower.
- A short-term upward spike in interest rates – may compel “on the fence” buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) gets eroded.
- Low inventory – fewer homes on the market because of a lack of new construction. Prices for existing homes may go up because there are fewer units available.
- What is a buyer’s market?
A buyer’s market is characterized by declining home prices and reduced demand. In a Buyer’s market, the Buyer will have more negotiating power. Several factors may affect long-term and short-term buyer demand, like:
- Economic disruption – a big employer shuts down operations, laying off their workforce.
- Interest rates trending higher – the amount of money the people can borrow to buy a home is reduced because the cost of money is higher, thus reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals.
- Short-term drop in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
- High inventory – a new subdivision and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.)
- Should I sell my current home before buying a new one?
A tough decision. It affects the timeline of buying a new home, and can be an important factor in the process in many ways. If the built-up equity in your current home will be applied to the down payment on the new home, naturally the former will need to be sold first.
It is often easier, if possible, to buy a home before you sell. A very common method is to get a purchase agreement on a new house and then listing the old home, overlapping the timeframe a bit to minimize the difficulties of holding two mortgages.
Buyers often have a short time frame to sell their current home when relocating to a new city because of a job transfer. If you are moving but taking a position with the same employer, check to see if they offer relocation assistance to help offset some of the costs.
- How many homes should I view before buying one?
That’s up to you! For sure, home shopping today is easier today than ever before. The ability to search for homes online and see pictures, even before setting a foot outside the comfort of your living room, has completely changed the home buying game. Convenience is at an all-time high. Most of what will be important to you can be seen online, but not everything. Nothing beats visiting a home to see how it looks and ‘feels’ in person. I recommend narrowing to the most likely options you see online, and taking a look at those. More can always be seen if those don’t work out.
- How long can the seller take to respond to my offer?
Usually it is within 24 hours, but can be longer depending on seller situation. You can retract your offer at any time before the seller accepts it, however. So if you feel like you’ve waited too long you can back out before their answer.
- What if my offer is rejected?
Sellers can flat-out accept or reject an initial offer. But there a third path that is the most common – sellers can counteroffer. If a counteroffer is given by the seller, you and your agent need to review it determine whether the counteroffer is acceptable. If so, then approving it will result in an executed contract. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual.
- Should I order a home inspection?
Without question. Only the most experienced investors or contractors are likely to be ok without an inspection. Home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections cost $300-600, but can prevent thousands, sometimes tens of thousands in repairs if they catch a huge issue you did not. Homes are the biggest investments most people make in their lifetimes, failing to properly inspect the property would be a mistake.
- Do I need to do a final walk-through?
It’s not required, but it’s recommended. Final walk-throughs give buyers a chance to make sure nothing had changed since their first visit/inspection. If repairs were requested, as part of the offer, a follow-up visit ensures that everything is squared-away, as expected, per the terms of the contract.
15 . When is the closing date?
When buying a home, the excitement level is extremely high. It’s important to understand that the closing date in the purchase offer is a target and not a guarantee. Before you hire the movers and take time off from work, know that the closing date in the contract isn’t necessarily the date you will own your new home. Many buyers will ask their Realtor this question, however, it isn’t up to the Realtors when a closing will be. It is very dependant on the lender and escrow/title company. However, if everyone is doing their job, it will usually be right on time.
- Can a home depreciate in value?
Over time, real property rarely depreciates in value. Certainly spikes and drops in the market can influence short term values in a significant way (like we saw in the 2008 market). However, over time, it is not very common for property to depreciate. This is why it’s a reasonably safe investment. Make sure you carefully consider location and community when choosing a home, that can affect the home’s future value greatly.
- Is an older home as good a value as a new home?
This is really just a matter of preference, but both newer and older homes offer distinct advantages, depending upon your unique taste and lifestyle. A big factor: Older homes will generally cost less than new homes. Some other factors:
In general, older homes have more sturdy building materials (plaster vs drywall, brick/wood vs vinyl siding, etc.). Newer homes have been built with more strict building codes though, which theoretically should result in a better products in some ways (electrical requirements ensure more convenient and often safer situations in newer home). Newer homes are typically much more energy efficient also.
Some people are charmed by the elegance of an older home but shy away because they”re concerned about potential maintenance costs. Consider a home warranty to get the peace of mind you deserve. A good Home Warranty plan protects you against unexpected repairs on many home systems and appliances for a full year or more after you move in. It can be a reasonable idea for a newer home too.
Older homes can be better judged for their quality and timeless beauty. New homes that now possess a smooth veneer might reveal the use of substandard building materials or shoddy workmanship over time. Older homes often have charming architectural elements that new homes will not (crown mouldings, plasterwork, etc). There is also much more variation in overall architectural style than in newer homes.
If you design and build a brand new home, you can get exactly what you want, which is a huge advantage. Floorings, paint colors, cabinets, layout, fixtures, you can pick it all. However, there can be a significant time (6 months to a year) and money investment, and your locations to build are often limited.
As you can see there are advantages and dis-advantages to each, but it really comes down to what fits you and what you are looking for in a home.
- What are closing costs?
Closing costs are expenses incurred by buyers and sellers in transferring ownership of a property. For a cash deal, closing costs are likely under 2k. For a mortgage deal, the lender sets the closing costs and they can vary quite a bit, you should ask your lender for a better estimate.
- What does FSBO mean?
FSBO stands for For Sale By Owner. A for sale by owner property usually indicates that the property is being sold without a real estate agent. These can be seen on zillow or other platforms, not to mention by sign in their yard. They offer advantages and disadvantages to both seller and buyer. Typically, FSBOs succeed 10-15% of the time. Two reasons are the main culprit – poorly priced, and poorly marketed. However, occasionally they are good options, and I am happy to consult with a buyer who is considering one, or even a seller who is considering the FSBO route.
- What is a contingency?
A contingency is a provision included in a sales contract stating that certain events must occur or certain conditions must be met before the contract is valid.
- Why should I use a real estate agent?
A real estate agent is more than just a sales person. Indeed, I do not consider myself a salesperson at all. I am a facilitator, an advisor, a marketer, a legal document drafter, and a layer of protection. I am not in the business of selling – I am in the business of helping clients transact real estate.
A real estate agent provides you with advice and guidance when buying or selling a home, as well as facilitates the paperwork and contract. Due to the constant changing of the market, the information available on listings is not always 100% accurate. There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with a real estate agent.
If you are in the market to buy, it would be advisable to use a Buyer’s Agent. They can make recommendations on what terms and prices to offer as well as negotiating a deal with your best interest in mind.
- Should I just call the listing agent or go to an open house instead of using a Buyer’s agent?
Going to open houses can bind you to that agent, and having the listing agent show you the home can do so as well. It is usually a smarter course of action to use your own agent to show you homes, even if there are convenient open houses (they will likely be happy to come with you!). Having the listing agent show you the home, or seeing it at open house can lead to dual agency (see next answer).
- What is the problem with Dual Agency?
Dual agency is when the listing agent represents both the buyer and the seller. It is unclear to me how adverse parties can both be represented adequately against each other by the same agent. The listing agent cannot recommend specific negotiation strategy, etc to the buyer. At that point, the listing agent’s only option is to take a neutral course, which doesn’t represent a buyer to the fullest, in my opinion.
Some buyers think that if they do not have a buyer’s agent, the seller will not have to pay their commission, and money can be saved either to the seller or the buyer. In reality, most of the time the listing agent simply keeps the entire commission (both listing and buying side), and money is not saved by either party, though the listing agent is possibly twice as happy…
I think dual agency is inherently unethical, and I have never, and will never, be a dual agent.
- How much should I offer the sellers?
When buying a home, you are the only one who can determine how much you should offer a seller. Certainly it’s suggested you ask for your Realtors advice and thoughts, but ultimately you are the only person who can determine how much you should offer.
Risk tolerance is the reason it will be your decision. If you offer too low, you risk not getting the home, whether by being beat out by another offer or offending the seller. If you offer too high, you’ve spent money you didn’t need to. Somewhere in the middle is where you should be comfortable, and that depends on many factors unique to each buyer.
- What’s the next step?
Congratulations! You have a contract for a new house. Now what? Between contract acceptance and the closing date, there are many things that need to be completed, and many of them will be completed for you by your agent, your mortgage broker, and the title company. Most relevant to you though, is after an offer is accepted, generally any inspections will be completed. After the inspections, you will need to sign a ROC (Removal of Contingencies). This can include conditions for removing your inspection contingency, like seller fixing an item found, or a credit that will cover its repair when you take possession. Aside from the inspection phase, throughout the mortgage process you should expect the bank to require documentation, letters, and other items from you to satisfy the bank conditions, so don’t be upset or surprised when this happens. It will sometimes be a lot of documentation, and the quicker you deliver the better off you will be in terms of keeping to the closing timeline.
26. What is the advantage of having an agent who is also an attorney?
Buying a home is one of the biggest investments most people will ever make. Small errors in contract drafting can cause expensive problems. I charge the same rate as other agents, which for a buyer is nothing. There is no reason not to be better protected – choose a real estate professional, not just an agent.