FAQ’s About Buying a Home
When buying a home, especially before the process has even begun and you’re looking for a real estate agent, you’ll come across the terms agent, Realtor, and broker. So what’s the difference, and how are you supposed to know which one to choose?
A real estate agent is anyone that is licensed to accommodate the sale or purchase of real estate, land or property, to any individual or business. To earn a real estate agent license an individual must undergo a number of courses and training pertaining to real estate transactions and the law surrounding them, and then pass a final exam. The requirements and coursework vary from state to state but it typically consists of 40-90 hours of study time. All states also require that real estate agents are at least 18 years of age. Once the individual has completed the training and passed the exam, they cannot operate independently even though they now have their real estate license. They must work for a real estate broker.
A Realtor is a real estate agent that has undergone extensive training past the minimum amount required, is a member of the National Association of Realtors (NAR), and subscribes to the Realtor Code of Ethics. The ethics training undergone by potential Realtors must be completed within one year of the agent becoming a member of the NAR and they must also update their training and examinations once every two years. While all Realtors are real estate agents, not all real estate agents are Realtors, and only those that are can use the registered Realtor trademark on their promotional materials.
A real estate broker is an individual that has completed even more extensive training beyond the real estate agent level and is educated and licensed to run their own brokerage. Once this training has been completed, the broker can then work independently or can hire real estate agents to work for them.
Many people toy with the idea, at least at first, about buying a home without a real estate agent. After all, how hard could it be to find a suitable home for sale and make an offer, without having to deal with a middle-man? Truthfully, with the amount of online databases, and properties being advertised just about everywhere, it’s not that difficult. And, because the seller won’t have to pay a commission fee to an agent, they might even be more flexible with you on the price. However, purchasing a home without the help of an agent can not only be very daunting, it’s also extremely complicated and can end up being a disastrous situation.
One of the first thing’s you’ll face when you decide to buy a home without your own real estate agent is that the seller might ask if you’re interested in dual representation. In this scenario, the seller’s real estate agent will complete all of the paperwork and handle the transaction for both the buyer and the seller. This can seem like a tempting option since you’ll still have an agent to work with without having to actually find one yourself; but it can be dangerous. Because the agent was technically the agent for the seller first, they will always have the seller’s best interests at heart and it will be impossible for them to remain impartial.
Another thing to be wary of when you opt to buy a home without using a real estate agent is that the home may have a shady history that you’ll be unaware of. Real estate agents have more access to information about the home, such as if it was ever used as a meth lab, and they are required by law to disclose that information to buyers. But if you don’t work with an agent when buying the home, they’ll never have the chance to tell you about it and so you could commit to something that could have serious implications in the future.
Information regarding the home’s history isn’t the only thing you might miss out when you choose to buy a home without an agent. Real estate agents can tell you about schools in the area, amenities, and which neighborhoods are pricier than others. Without this information you could not only pay more in the long run, but you could also end up very unhappy in your new home. Without a real estate agent to tell you about these things, the home-buying process will also likely take much longer.
There are many benefits to letting a Realtor help you during the home-buying process. The first, and possibly biggest, benefit is that Realtors will have much more education and experience about buying property than you do because they have done it every single day for several years. They have seen a lot of different situations, know what to look for, and know the ins and outs of the neighborhood you’re moving into. All of this, and not to mention the extensive training and licensing requirements they’ve undergone in order to sell real estate.
Real estate agents can also be great buffers between you and the homes that aren’t really worth your time. They might have a history with sellers, knowing if they’re willing to negotiate and by how much, and they’ll also keep those sellers away that are trying to entice you into buying their home, when it’s not really something suitable for your needs. Because most people during the transaction will be dealing with your agent rather than you, all you’ll have to worry about is finding a home that you’re comfortable and happy in.
Even if your nose is constantly in the real estate section of the local paper and you keep yourself up to date on current market trends, a real estate agent is going to know more about the current market condition, be able to forecast the future of the local real estate market, and give you information about which properties will be best for you given those conditions.
A real estate agent can also help you with hiring the different professionals you’ll need to work with during the home-buying process. This includes inspectors, appraisers, home contractors, home designers, and other professionals. Your real estate agent will be able to recommend the best people in the business and will once again save you the time it would take to research these professionals on your own.
Even with the most current information about the housing market, and the ability to find different properties that are suitable to you, you’ll have no one better fighting for you during negotiations than a real estate agent. Agents know how argue and negotiate for their client in order to get them the best possible price and conditions possible, while never giving away confidential financial or personal information.
And the last, but certainly not the least important benefit you’ll get by using a real estate agent is sage help and advice even after closing. Closing can be a very important time, getting the keys to your new home and officially taking ownership. It can be easy to overlook things like transfer taxes, doc stamps, and property tax assessments. Once the deal has been done and these issues crop up, your real estate agent will be there to help you sort it all out.
Choosing to use a Realtor can end up being a very smart decision in the end, but only if you find a really great Realtor that has both a great education and experience, but is also there for you whenever you need them. So how do you find that Realtor?
Referrals are one of the best ways to find a real estate agent. In fact, most agents rely on them in order to stay in business because they can’t always be spending time finding new clients. The first thing you should do when looking for a real estate agent is to ask friends and family members that have bought real estate in the past. You can also visit the neighborhood that you’ll be moving to and ask around there, or look for advertising in the form of a listing or ”sold” sign on the lawns. Start making a list of potential real estate agents to work with, and make sure you add the name and number on the sign to your list.
There are a number of different websites that will give you an entire list of real estate agents in your area, but be forewarned that for many of these sites, real estate agents pay to be listed on them so finding a listing doesn’t necessarily mean finding a good real estate agent. Instead, visit the website of local real estate offices and brokerages in your area, then visit the profile pages of individual agents. This will tell you more about them, including a general idea of whether or not you’d like to work with them. If you do, add those real estate agents to your list.
Look in the local newspapers and online about open houses in your area. Take the time to go to a few, even if you’re not interested in the home that’s being shown. It will give you a chance to meet with different real estate agents in person, which will tell you a lot more than just visiting their web page.
So now you know how to find the names of different real estate agents, but how do you go about finding the right one for you? What should you look for in a real estate agent? Truthfully, the right real estate agent for you will be someone who has a number of things, including proper licensing, happy clients, experience, and knowledge of the area you’re looking at living in.
Start your search by making sure that any real estate agent you speak to is licensed; the ones that don’t have proper licensing aren’t worth your time. You can check the status of any agent’s licensing status by asking your state’s licensing board to give you the details of the agent’s license. These regulatory bodies will also often have information regarding any complaints or issues that have arisen with an agent in the past, which is another reason why this is a great place to start your search.
While checking with the licensing body, you can also inquire about how long the agent has been in business. While an agent that’s new to the field isn’t necessarily bad, it’s important to know that if the agent hasn’t been in the business for at least five years, they’re still learning, and they’re leaning with your situation, your money, and your time. Agents who have more experience under their belt are going to be more aware of the things that you need to watch for, how to negotiate for the best price, and how to close the deal quickly.
Along with licensing, credentials are another good indication that any agent you’re dealing with is a good one. A real estate agent that’s also a CRS (Certified Residential Specialist) has completed extensive training that makes them a specialist in residential real estate. An ABR (Accredited Buyer’s Representative) is specialized to represent and help buyers in any real estate transaction, which can make these most helpful for those in the home-buying process. An SRES (Seniors Real Estate Specialist) is someone that is also specialized in helping buyers and sellers in their real estate transactions, but with a focus on clients in the 50+ age range. If honesty and integrity are the traits most important to you in a real estate agent, it’s important that you choose a Realtor, who has officially pledged to abide by a certain code of ethics.
Don’t hesitate to ask the agent for a list of properties they’ve helped purchased in the last year, along with the contact information for the buyers. Make sure you ask the agent directly if any of the clients will be particularly pleased or disappointed with the agent. Also ask the agent what the asking price vs. sales price was on the last 10 homes they’ve helped in the sale of. This will give you an idea as to whether or not the agent works to save you money by negotiating on the asking price.
Also make sure you check out the real estate agent’s website and online presence. Visit websites such as Realtor.com and see how many listings the agent has for sale. How similar are they to the property you’re looking to purchase? The answer to this question will tell you how familiar the agent is with what you’re looking for in your home. What is the price range of the listings of the homes for that agent? This will tell you how experienced they are working with people within your budget. Also, what is their web presence like? Is their website easy to navigate, and were they easy to find using a simple search engine? All of these things will tell you how comfortable the agent is working with and utilizing the Internet; and that will prove to be very important during the home-buying process.
Lastly, once the real estate agent has found you a suitable home to look at, ask them what other houses are for sale in the area. This will give you a chance to see how well the agent knows the area off the top of their head; they should know the area extremely well.
No one can put an exact number on how much Realtors are paid because it’s typically a commission based on the home’s selling price. Commission rates for one agent might not be the same as those of another; and the division of the commission fees between the listing and buying agent will vary from state to state. However, typically when sellers sign a listing agreement, their contract is with the brokerage that listed the property. Any agent or brokerage fees that are paid must be paid through that brokerage, and it’s through this brokerage that the seller’s agent, as well as the buyer’s agent, will be paid.
After speaking to a lender about financing their mortgage, buyers are likely to get one of two letters: a pre-qualification, or a pre-approval. Both are likely to evoke excitement, but what do they really mean?
A pre-qualification letter is simply a letter from your bank, lender, or mortgage broker, which states how much of a mortgage you can afford. It’s important to understand that this letter simply states how much home you can afford, and does not take into account other costs of home ownership such as property taxes, insurance, utilities, and home maintenance. It’s also important for home-buyers to understand that while there may be a certain amount indicated on a pre-qualification letter, it doesn’t absolutely mean that the buyer will be approved for this amount when it’s time to apply for a mortgage.
A pre-approval on the other hand, is very different. With these letters, a bank or lender has committed to lending you a certain amount, and you can confidently start looking at homes under that price, as you know that financing has been virtually secured. Pre-approvals typically garner the most excitement from home-buyers as they should; they’re a guarantee that you’re going to get financing and that you can purchase a home you’re interested in. It’s for this reason that pre-approvals also make sellers excited, because to them it means that the buyer isn’t going to have financing issues that hold up the closing of the sale.
When a seller wants to sell a home for less than what’s still owed on the mortgage, it’s called a “short sale”. In order for a short sale to occur, the lender financing the mortgage has to agree to the sale. Sometimes the lender will agree to the sale and just take the difference as a loss because it’s easier than unloading a foreclosed property. Other times the seller will have to pay the lender the difference. Short sales are beneficial to sellers because they can often sell a property that they can’t afford, and because short sales can help protect their credit. But, short sales also bring a number of benefits to buyers.
Short sales can help save the buyer money in a number of ways. Firstly, because the home is being sold for less than the amount already owed on the mortgage, buyers can often snag a great price because the lender would rather sell it than pay the costs associated with foreclosure. Also, properties that need maintenance or repairs completed on them, and that are listed as a short sale, often require that the responsibility of repairs be on the buyer. Bringing these factors up during the negotiation process can also help score you a better deal.
Properties that are listed as a short sale can also save the buyer money if the lender wants to sell the home, and sell it quickly in order to start making some money from it. Typically when a homeowner has gotten into so much trouble with their mortgage that they’re forced to list their property as a short sale, they’re already two or three months behind on their mortgages payments; which means the lender has been receiving no money during that time. Rather than start the process of foreclosure and not only continue not to receive any payments, but also incur more expenses, the lender is often eager to sell it to someone who will pay the mortgage, even if they have to offer a great deal in order to do it.
Purchasing a property from homeowners that have listed as a short sale also has a bigger benefit than buying one that is in foreclosure. After a home has been put into foreclosure, it has placed the homeowners in one of the most undesirable positions possible. They may feel as though the lender is being unfair, they may be angry with the life circumstances that landed them in foreclosure, and they’re probably scared and worried about where they will live. For these reasons, homeowners that have had their home foreclosed on them often don’t leave easily and sometimes even require eviction proceedings that can take a long time for buyers that just want to move into their home. Being able to purchase a property before it gets to this point, and when it’s still listed as a short sale, can help buyers avoid these problems.
Foreclosure is a legal proceeding started by the lender when a homeowner has stopped making their mortgage payments. Typically no homeowner goes into foreclosure willingly but rather because they were laid off or fired from their job, unable to work due to medical conditions, excessive debt and bills, divorce, and a number of other reasons. For this reason, homeowners that have been put into foreclosure are often frustrated, and that’s just one of the things that can make the process of buying a foreclosed home so difficult. If buyers choose to embark on this journey, it’s very important that they know what they’re in for, and what the pros and cons are.
The biggest reason buyers typically show interest in foreclosed homes is because they can get them at a great deal. Lenders don’t usually want to keep a property that’s not getting them any profit on their books, so they want to sell it as quickly as possible. Because of this, they’re often willing to offer buyers great deals and the price that’s paid is often well under market value for the home. When this happens in a foreclosure deal, the buyer has already profited before they’ve even moved into the home.
That money saved also gives the buyer more to put back into their home. Whether that’s through upgrades or moving into a nicer neighborhood than they could otherwise afford, foreclosures often allow buyers to purchase a much nicer home than what their budget would otherwise allow.
However, while price and saving money might be the biggest pros for buying a foreclosed home, there are many more cons to purchasing this type of property and it’s important that buyers are aware of them.
The condition of the property is often one of the biggest cons of buying a foreclosed home. Pre-foreclosures are considered to be in the best condition of all, but the homeowners are still in foreclosure because they couldn’t afford their mortgage. The chances are very good that they also couldn’t afford repairs and upkeep on their home and so, it won’t be in very good condition.
Homes that have reached the real estate owned (REO) phase of foreclosure are typically in the very worst shape and are often uninhabitable because of the amount of structural damage present. This is because REO indicates that the property is very far long in a very lengthy foreclosure process, and that the property likely hasn’t been lived in for months, if not years. During that time mold can build up, pipes can break, vermin and bugs can infest, and a number of other things can occur.
Any and all repairs or maintenance that is required to the home is the responsibility of the buyer and although that can be used as a bargaining chip when it comes to the offer, it can also mean a lot of headache and stress for the new buyer. Also, because homes in foreclosure are often required to be purchased sight-unseen, home buyers might not know exactly what they’re getting into when they buy the property.
It’s also important to understand that even though the property has been foreclosed, the previous owners might not be so eager to leave. Not only might they refuse to go until legal eviction proceedings have started, but they could also take out their anger on the home before they leave and cause further damage.
If the last owners are no longer there when you plan to move in, it doesn’t mean that they’re completely gone. If there are debts associated with the property such as property taxes, construction loans, or home equity lines of credit, it’s very possible that you could assume responsibility for that debt when you take ownership of the property. Be sure that you ask about the financial obligations tied to the property so that you’re fully aware of what you’re getting into.
With foreclosures also comes a lot of red tape, and absolutely no guarantees that you’ll eventually be the owner of the home. Foreclosures can take an awfully long time and there’s a lot more paperwork required for these purchases. In some cases several people will need to approve your offer including the current owners, the primary lender, and any lienholders. This can take months and a lot of homebuyers can lose patience within that time.
While lenders are trying to sell the property and start making a profit from it once again, they also don’t want to lose too much money and want to make as much as possible from the sale. Because of this, they can typically back out of the deal at any point, up to and including closing. This can happen if they start to have doubts about the buyer, they work out a payment system with the current owners, they receive a better offer, or a number of other reasons. Whatever the reasoning is, it can be incredibly frustrating and upsetting to buyers that have already gone very far in the process of buying a home they really want, only to have it taken away.
Getting a mortgage can also be very difficult for distressed or foreclosed properties because many lenders simply don’t offer them. Before you even make an offer on a foreclosed property, you need to make sure the lender you want to deal with will finance the property.
Lastly, foreclosures can come at a great deal for the buyer, and that means that any foreclosed property you’re looking at is likely gaining a lot of attention and interest. Because of this, you’ll face much steeper competition and will have to make a much more attractive offer. Homes that are up for auction come at an even bigger discount, which means that the competition will be even more serious.
Whether you sell your home before your buy or buy before you’ve already sold is up to you, but there are some things you need to consider before making a decision either way.
When you buy a new home before you’ve sold your current home, it can be very reassuring to know that once the current property is gone, all you have to do is move from one place to another – without any rushing around looking at homes and properties. However, know that when you put an offer to buy the new house it will have a contingency clause stating that your home must be sold and the transfer of title on the home must take place before you can actually buy the new home. During the time period of placing an offer on the new house and selling your current house, other buyers could enter the picture and place on offer on the new house without any contingency clauses, making it that much more appealing for the seller. In this case you could end up losing a home you’ve already fallen in love with, and that can be heartbreaking.
Selling your current home before buying a new one takes away the fear of contingency clauses and other buyers because you’ve already sold your current home and just need to buy another. The downside in this scenario is that you might not find a new home before you have to vacate the current home. If this is the case, sellers can ask the buyer about “rent-back,” a scenario in which the sellers (you) are able to stay in the home for a certain number of days after closing so there is time to find a new home. With rent-backs, the seller has to take over the buyer’s mortgage for the amount of time they remain in the home.
First-Time Buyers FAQ’s
There is no fixed dollar amount set for the amount of down payment you will need; rather, the down payment is a percentage of the total cost of the home. The size of the down payment you’ll need will depend not only on the price of the house but also on your financial and credit history, which will be checked by lenders when you apply for a mortgage.
First-time buyers can apply for Federal Housing Administration (FHA) loans, which require that you make a down payment of just 3.5 per cent of the home’s total value. However, if you can’t make a 20 per cent down payment, you should seriously reconsider whether or not you should buy a home. Not only will anything less than 20 per cent make your mortgage payments even larger, making a smaller down payment is also a good indication that you can’t afford to purchase a home right now.
The biggest reason ever given for buying a home instead of renting one is that when you buy, you are making an investment on your future, and for something that is completely yours. While renting, you pay rent every single month to someone and that money is gone forever, giving you nothing really but a place to live for one more month. When you own a home though, that monthly mortgage payment is going towards equity in your home, meaning there’s another little piece of it that you actually own. Once your mortgage is entirely paid off, you’ll then have the biggest asset you’ll likely ever own – a home!
But in addition to just making a sound investment for your future, there are other reasons that buying is so much more attractive than renting. You can also deduct your mortgage interest from your federal, and often your state taxes, every single year. This can save you thousands of dollars because your monthly mortgage payments are largely made up of that interest that you can write off each and every year. The property taxes you pay for the home can also be deducted from your yearly income tax.
Lastly, when you own a home – even before the mortgage is paid off – it’s yours to do with as you wish. Paint the walls, dig up all the landscaping and replace with new, and knock out walls if you wish. When you buy a home there are no limits on what you can do with it because it’s yours and so, you can feel free using it as another means of personal expression. When you rent however, that property still belongs to someone else so even if you just want to touch up the paint job, you’ll have to get written permission, which can be difficult to get and isn’t always granted.
Rent-to-own properties can sound like a great idea, especially for homebuyers that don’t feel as though they can afford to take on a whole mortgage but also want to get out of the hole of renting and start investing in a home of their own. But rent-to-own agreements can be very complex and often, they don’t end up very favorable for the buyer.
You can find rent-to-own properties through a real estate agency, companies that specialize in rent-to-owns, or private owners that are willing to sell their home over time, through a rent-to-own contract. With these contracts, buyers will still make a payment over time. A portion of this payment will be put towards the rental of the property for the time the buyer/tenant is living there; and the other portion of the payment will be put towards the down payment on the home for when the buyer fully purchases the property in the future.
Many buyers typically look for rent-to-own properties because their credit score is not high enough to get them approved for a traditional loan; and this is the reason why these types of purchases are not usually ideal for the buyer. The risk on the owner or lender is great when lending to individuals with low credit scores and because of this, they’ll charge a much higher interest rate on the home, meaning it will take even longer to pay off and own the home.
Buying a home with a less than perfect credit history is possible, but it’s going to be a lot harder to get a loan than someone with outstanding credit. You might be required to supply a larger down payment and you could even be required to pay for mortgage insurance. This type of insurance is provided by companies and it protects the lender in case the buyer is unable to make payments on their mortgage. While this insurance is in place to give consumers the opportunity to purchase a house when they’d otherwise be unable to do so, it’s also very costly and can add hundreds of dollars to your mortgage payment every month.
Another factor that will greatly increase the amount of the monthly mortgage payment is the amount of interest you’ll need to pay. When a buyer has bad credit, the lender assumes a much greater amount of risk and for this they will charge a much higher interest rate. For this reason, it’s extremely important that before buying a home you try to get your FICO score as high as possible and that you try to repair any past credit problems.
Of course the amount you’ll have to pay before you even move into the home will vary depending on the cost of the home, as well as the type of mortgage you choose to get. However, there are three different costs you’ll have to pay once the deal is signed and the home is officially yours. These are the earnest money deposit, the down payment, and the closing costs.
An earnest money deposit is money that you give to your real estate agent when you first put an offer in on a house. The agent will then place this money into an escrow account until the offer is accepted and at that time, it will be put towards your down payment or closing costs. If your offer isn’t accepted, the money will be returned to you in full. The amount of the earnest money deposit varies from property to property.
The down payment on your home is of course, a large amount of money that you’ll have to pay upfront for your mortgage. This down payment gives you equity in the home (the portion of the home that is actually paid for) and gives the lender some protection in case you default on your mortgage payments. The larger your down payment is the lower your mortgage payments will be so it’s important to try and save as much as you can for it before buying a home. Different lenders will have different requirements for their down payments but typically it’s suggested that you try to acquire 10 to 20 per cent of the home’s price. Certain loans, such as those provided by the FHA can have very low down payment requirements and buyers can take advantage of down payments lower than four per cent.
Closing costs must be paid at closing, when the deal is signed and officially done. These costs cover the different costs charged by the lender as well as expenses incurred for processing the loan. While these costs may not sound all that significant they can be quite large averaging about 3 to 4 per cent of the price of the home. When you first apply for your mortgage your lender will be able to give you an estimate of what your closing costs will be so that you can figure those into your purchase.
Buyers often think that they should look at homes first so that they know how much to ask the bank for, but this is a mistake. You could end up falling in love with homes you can’t afford, or having financing problems you don’t know about. Instead, before even starting to look at homes, speak to your bank or your lender. They will talk to you about your current financial situation, your debts and assets, and tell you what you can afford to spend on a home.
If you’re a first-time buyer, it’s especially important that you speak to a bank first. There are many federal, state, and county programs available to help first-time buyers and you should know about them before you start looking. First-time buyers often aren’t familiar with the different costs of buying a home including escrow, pre-paid items, and down payments to name just a few. Speaking to a bank can help buyers know exactly what they’re committing to before they start looking at homes.
Finding a lender for your mortgage is very easy. Finding the right mortgage lender for you however, requires some time and research on your part. If you don’t already have an idea of the bank or lender you want to use, you can start by checking out banks, savings and loan companies, credit unions, government lenders, or private mortgage companies. Start by making a list of the different lenders you’re most interested in and then contact them individually to find out more about them. If you’re already working with a real estate agent, you can also ask them if they know of a particularly good mortgage company or lender in the area.
Each of the lenders is likely to offer different interest rates and terms for your mortgage so make sure when speaking to them you bring a pen and paper to write down the numbers, amounts, and other important information. Make sure that you speak with several different lenders before making a decision; you’re entering into a contract with that company that you’ll be committed to for the next 15 to 30 years.
For most lenders the entire loan process will take 3 to 6 weeks from beginning to end. This means for many buyers, they can apply for and be approved for the loan before they’ve even started closing the deal on their house.
So you’ve heard that your mortgage payment might cover other payments such as mortgage insurance, but what other costs will be included in your mortgage payment? It’s important to know so that you’re aware of what you’re already being covered for, and what you’re not.
Most mortgages have four parts: the principal, interest, homeowners insurance, and property taxes. The principal is the total amount that you borrowed. In most mortgage contracts, the first payments are made up of mainly interest expenses while the payments made in the last years of the loan’s life make up the principal of the loan. The interest is money paid to the lender for allowing you to borrow the money. All mortgages also include homeowners insurance, which will protect you and your home from fire, smoke, theft, and other hazards. Lastly, property taxes will also be included in your mortgage payment. Each year the county or city will assess the taxes due on your property. That amount will then be divided by the number of mortgage payments over the year.
The principal, interest, homeowners insurance, and property taxes are all costs that will be added to just about any mortgage for any home. However, there might also be additional costs added to the monthly mortgage payments depending on your situation, such as mortgage insurance.
This is a great question and it’s one that’s asked all the time by first-time buyers. The amount of paperwork that you’ll both need to complete and bring with you can be overwhelming, and how are you to know what the bank or lender is going to need from you? The lender is going to be most interested in your current financial situation including your assets and your debts so you’re going to need documents showing all of your loans, income, and investments.
Start by collecting: the social security numbers for both you and your spouse, if you’re both applying for the mortgage; checking and savings accounts for the past 6 months; paperwork pertaining to any investments including bonds or stocks; paycheck stubs from the past 3 months outlining your earnings; all credit card statements, including the total amount owed and the amount being paid each month; paperwork pertaining to outstanding loans such as car loans; your income tax statements for the last two years; and the contact information for an individual that can verify your place of employment.
Of course, every bank and lender is different and requires different items and paperwork. Before you make an appointment with anyone, make sure to ask them what else you should bring in order to make the loan process go as smoothly as possible.
There are numerous types of mortgages that you can use to finance the purchase of your home, and the sheer amount can seem overwhelming at first. However, take the time to fully research all of them and speak to a mortgage broker or other professional about all of your options; knowing what they are could save you a lot of money and stress for the next several decades!
The two most common types of mortgages are fixed-rate and adjustable rate mortgages (ARM). Fixed rate mortgages are just that, homeowners pay a fixed amount for their mortgage payment every month. That amount is the same amount every single month and includes the principal, interest, and other parts of the mortgage. The biggest benefit of this type of mortgage is that it’s much easier to budget for the monthly payment because you’ll know exactly what it will be every single time.
ARMs work a bit differently in that they are directly tied to the U.S. Treasury Securities index, the financial index that states what the interest rate currently is. ARMs can change according to this index, going up when interest rates rise and falling slightly when those same rates drop. This can happen a few times a year, which can be scary for those that need to know exactly where their money will be going over the course of the entire year. The initial interest rates on these loans is typically smaller than on fixed rate mortgages, which is a huge benefit to buyers, along with the fact that at times, they could be paying much less for their mortgage.
In addition to these two most common types of mortgages, there are others that you might choose to take advantage of including Veteran’s Administration programs and the Department of Agriculture’s program. It’s important to speak to your lender or your mortgage broker about all the many different programs available that might be able to get you a mortgage made just for you.
This is often the worst fear of buyers, but even if your real estate agent comes back and tells you that your offer has been rejected, it doesn’t mean that you’re never going to live in that home. It simply means that you need to start negotiating if you still want the home. Those negotiations may begin with you offering more money for the home but they can often include the seller taking on the closing costs, or making repairs that perhaps you would have been willing to overlook for the first price. While no one wants their first offer rejected, it can be a real opportunity when it is.
Just remember that during negotiations, it can be easy to lose sight of the end goal and emotions can make you start to value the home more just because it’s so difficult to get. Don’t let that happen. Keep a clear head, only offer as much as you want to or can afford, and don’t be willing to give in to the demands you have that are the most important for you.
This is another very common question asked by a lot of buyers, especially those that are buying their first home, and it’s one that is very difficult to answer. Every minute that goes by after that offer has been submitted can seem like an eternity because you’re so anxious to hear whether or not you’re going to get the home. However, you should be aware that once the seller has received your offer, it has an expiry date and time. This time varies but could be anywhere between 12 hours and 4 days.
Your real estate agent will be able to tell you when you should be able to hear, but there are some guidelines that you can expect. If the home you’ve put an offer in on is a new listing with a high probability of receiving multiple offers, a shorter life, or closer expiry date, is suggested. However, if the property has been on the market for some time already and there are extenuating circumstances, such as the seller being out of town, a longer life might be necessary.
Every homebuyer that purchases a new home has the right and the opportunity to take a final walk-through of the home. Often the sale isn’t ready to close until weeks, sometimes even months, after you’ve initially walked through the home during the showing. A lot can happen during that time and you want to make sure that there’s no major damage that wasn’t present the last time you were there, that any appliances or other items that were included in the contract are in fact still there, and that the home is in the same condition it was when you agreed to buy it.
Although taking that final walk-through is not required of you, it’s essentially as important as an inspection where you’re looking throughout the home and making sure you’re happy with it. During the walk-through make sure you check that the furnace is working, that the roof is in good shape if possible, that there’s hot water, and that all the toilets are flushing properly.
Closing is something you’ll hear a lot about during the home-buying and mortgage process and many buyers, especially first-time buyers, don’t really know what’s going to happen or what they can expect. Where does this “closing” even happen?
Closing is simply when the deal essentially closes and you take ownership of the home. Typically keys will be exchanged, closing costs will be cleared up, and any remaining items will also be taken care of. During the home loan process your lender should have provided you with a good faith estimate of how much you’ll have to pay at closing; they’re required by law to supply this estimate. They’ll also tell you about any and all documentation that you’ll need to bring to closing with you. If you don’t receive this information from your lender you must ask for it. Closing costs can be a lot and you’ll need to know right away just how much you’ll expect to pay.
The meeting will take place in an office and in addition to you, your broker, the seller’s broker, the seller, and a closing agent will all be present. The closing agent will have a lot of papers for both you and the seller to sign and while they might give a brief explanation of what they are, take the time to read through each of them. You don’t want to be agreeing to something you don’t want. Once the paperwork has been signed and all closing costs paid you will be given the keys to your new home!
Seldom Asked Questions When Buying a Home
This is the most important question that all homebuyers must first ask themselves before speaking to any lenders or even looking at homes. Of course you want to make sure you’re buying a home for the right reasons, because you want to start investing in your future and have a place all your own, but there are other factors you have to take into consideration as well. One of those things is what purpose you expect your home to serve you.
Is this a home for you to live in, or is renting an option? Where will your life be in the next five years? What will your life look like in the next five years? Will there be any additions to your family or people leaving the nest? All of these are things you need to consider because you need to know what you’re going to need out of your home not just this year, but one, two, or several years from now. Even if you’re buying a rental property you’re going to have to consider how easily the home will be to rent to a number of different people with different needs over the next few years.
Answering these questions could also determine the type of home loan you end up getting for the home, which is another reason why it’s important to ask yourself this before the home-buying process has even begun.
Many people can get lured into the idea of buying a home when interest rates are low and the market is active, especially if they are financially ready to buy a home. But while these conditions might be completely favorable for some, it’s not a worthwhile investment if you’re going to be moving within a few years of moving into the house.
The very process of buying and selling real estate is costly because of all the administration fees and costs associated with it, so if you don’t stay in the home you could end up paying those fees several times over the course of just a few years. It’s cheaper to just rent for the time-being and then think again about buying once in your new city or state.
This is a question that can be easy for buyers to overlook, especially if they’re purchasing a home that’s not in the town they’re currently in, but it’s one that needs to be asked. Not only do you want to make sure that you’ll be happy in the neighborhood and that it has the amenities you need, but you should also check out several different neighborhoods, even if it’s only online. This is important because different neighborhoods have different price ranges and so, while you could start off really wanting to live in one neighborhood, you might find out it’s not for you once you see that the asking prices are way out of your budget.
Of course, just like you have to consider what your life will be like after you own the home, you also have to consider if the neighborhood will be suitable for that life. If you’re young and like to be out and about on the town, you might want to consider a metropolitan center that will keep you in the “hub” of everything. If you currently have a young family, or think you may have one in the next several years, your priorities will likely be a neighborhood that has access to public transportation, parks, and that has a very high safety standard.
By now you probably already know that when purchasing a home, you need to take into consideration not just the sale price, but also things like property tax, mortgage insurance, and closing fees. However, there are other costs of owning a home that are just as relevant and that you also need to know about.
You’ll have to pay for the water, gas, electric, and other utilities in your home so you need to know how much these are to understand how much it will cost you every month to live in your home. In addition to that, you’ll also have to accept the fact that there will be repairs and maintenance that needs to be done on the home; no home is ever perfect forever. Also remember that if the home is in an area that is prone to natural disasters such as earthquakes or tornadoes, you’ll likely have to pay for hazard insurance as well, and this can be very costly.
People say all the time, “Well I’m paying $1,000 for rent when my mortgage payment would only be $700,” and think that owning a home is automatically cheaper just by those numbers. Truthfully however, there are so many other costs associated with home ownership that simply comparing these two payments isn’t enough to determine whether or not renting or home ownership is cheaper.
Before you start looking at homes, you need to know how much you can afford. Typically speaking to a lender or bank will tell you this information but if you want to get an idea of how much you can afford before you do, you can do it on your own. Outline all of your income, expenses, assets, savings and debts. Doing so will help you get a realistic picture of what you can afford and what you cannot.
You also have to remember that the total you end up with is not the total amount you can spend on a home; you’re going to need money for other living expenses as well. The general rule of thumb that’s used by mortgage brokers and lenders is that your maximum mortgage payment should not be more than 28 per cent of your gross income. Your debt load, including the new mortgage payment you will have, should not be greater than 30 per cent of your gross income. These are the ratios that are typically used by lenders when determining if they are going to agree to the loan.
One of the best ways to find out how much home you can afford is to find a mortgage calculator online. Simply search through any search engine and you’ll be provided with a list of calculators that will all take some basic information from you and determine how much of a home you can actually afford.
Of course the utilities in the home are going to be one of the biggest expenses you face after you move in. Because of this, it’s very important to know how much each utility costs per month, what the agreement is and if there’s documentation you need to have, and if there are predetermined dates when the payments are made.
To find out the utility costs of any home, try to speak to the seller directly about it. They can not only provide you with an average monthly amount, but they can also tell you whether they kept the house warm, if they continuously ran dishwashers or laundry machines that would use up more water and energy, or if they had any appliances in the home that used a lot of energy. All of these things will help you compare their utility bills with yours, as you may not keep the heat on that high or simply use less energy and resources, which can ultimately make a difference in the monthly bills.
A real estate agent can tell you what the asking price is on an offer, and they can provide guidance as to whether or not a seller will even consider your offer if your first suggested offer is too low. But ethically, real estate agents cannot tell buyers an exact dollar amount to offer on the home. Buyers are given the listing that includes the price and determine on their own whether they should offer the full asking price, or whether they should go a bit above or below it. Often the choice seems very simple. If the buyers are in love with the home and are happy paying the asking price, they will. If the buyers could see themselves there, but think the seller might have overestimated the value, they can offer a little less. But sometimes, the answer is just not that simple.
For example, what if you do love the home and would happy to pay the full asking price, if there wasn’t all that work needed in the basement, or on the roof. While you might want to offer a bit lower than asking, you might not know how much. Because the agent can’t tell you directly how much to offer, you’ll need to know some other questions to ask to get your answer.
The best question you can ask is for prices of “comps,” comparable homes that are in the same neighborhood, and are similar in size and structure. If those properties have already sold you can ask what they sold for, and even for price ranges of multiple homes in the area.
Another great question to ask to get an idea of the home’s worth is to ask how long the property has been on the market. If it’s been listed for several weeks and hasn’t seen a lot of offers, it could be because the property is overpriced, which will give you an indication that offering less than the asking price would be acceptable.
Some buyers think it’s better to start with their lowest offer so that during negotiations, they have some wiggle room to move higher to the seller’s asking price. But, this can be a very tricky situation and anyone about to enter into it needs to know what they’re getting into. If the initial offer is too low, it could actually insult the seller and they might close off the bargaining doors to you altogether, meaning you lose out on the home. If this is going to be your buying tactic, know that you’ll likely have to make several offers on many homes, which can require patience and a bit of emotional restraint once you’ve seen a home you really love.
If you do want to place a low offer, or at least one lower than the asking price, but you want to make sure you don’t insult the seller, there are a few ways to go about it. The first is by simply asking how flexible the seller is on the asking price, and you can ask this directly to the seller or you can go through your agents to find out.
You can also ask if the seller is willing to help with the closing costs. These can be significant and if the seller is willing to take on some or all of them, it might leave room in your budget to make a higher offer.
Some states, such as Texas, require that sellers submit a disclosure form to the buyer, indicating everything that’s wrong with the property. Other states don’t have this requirement though, so it’s an important question to ask when you’re looking at the house. If you can, always try to ask the seller directly, as this will give you an indication as to how honest they’re being with you. In some markets, especially those that are really hot, sellers have a tendency to list their home as being in “perfect condition” to attract more buyers, so you really want to make sure you really know what you’re getting.
Of course, as much as you’d like to take the seller’s word, you can’t always be sure and that’s why a home inspection is still so important. During the inspection a licensed and registered inspector will visit the home, give it a thorough examination and analysis, and then write a report indicating everything that’s wrong with the home or that might require repairs sometime in the near future. Some sellers want to be certain of what they’re selling and so they’ll hire their own inspector before even putting the home on the market. Even if this is the case, you want to make sure that you still hire your own inspector that is completely impartial and that you’ll be able to ask, “What’s wrong with this house?” The home inspection is one of the most important aspects of the home-buying process.
This is something that sometimes happens in hot markets. There are lots of properties available and most of them already have multiple offers. When advising their clients on how to get a home that they’ve really fallen in love with, they suggest submitting a “clean offer”, or one that doesn’t include a home inspection clause. By doing so you make the offer much more attractive to the seller and therefore, much more likely to be accepted and end up with the home of your dreams. However it is always, always a huge mistake to buy a home without a home inspection. And if you do, that home you loved so much could end up being a nightmare.
If you purchase a home without a home inspection, you could overlook major problems with the home. There could be problems with the foundation that you didn’t even know to look for, problems with the electrical or plumbing systems that you can’t see, or other major issues. If the home is purchased and you find out about the problems after the fact, it will be too late. The responsibility for making the repairs or updates, as well as all costs associated with it, will be yours.
It’s important to know what the age is of certain items and fixtures in the home, especially ones that are essential and costly to fix. A home inspector will be able to tell you how old the roof is by looking at it and determining if areas are sagging, or if shingles are starting to come off. However, there are other items in the home that the home inspector won’t be able to tell you the ages of and for those, you’ll need to ask either your Realtor or the seller.
You’ll definitely want to know the ages of the furnace, water heater, and air conditioning. If the seller doesn’t know the ages or you can’t speak directly to the seller, your real estate agent should know where they can find the serial numbers on the appliances and fixtures, which will give you the age of them. Based on those ages you can then determine (or ask the home inspector) how much longer they should last for and when or if they’ll need any repairs any time soon.
Again, if an appliance breaks and is still under warranty, it will do you no good if you’re already in the home and the seller has moved on. This one’s simple: you must ask for any and all warranties for any and all mechanical systems, appliances, and other large items before closing the deal. If you don’t have this documentation and the appliance malfunctions or breaks down, you’ll be the one paying for any and all repairs.
If you’re familiar with the area, this is an answer you might already know before even asking. If the home is in a flood plain the chances are good that you’ll have to deal with the unpleasantness of a flood, and the damage they can bring, at least once while living in the home. Not only do you need to be prepared for that, but you also need to know if a home is in a flood plain for insurance reasons, too.
You can tell if the potential property is in a flood plain by checking out the different maps provided by the Federal Emergency Management Agency (FEMA) or just by asking the seller (of course, you’ll always want to double-check). You can also speak with the county and your real estate agent as well. If the home is in a flood plain, you’ll need to buy additional flood insurance, which can greatly add to the cost of the home. Different flood plains have different ratings and certain ratings indicate a higher risk of flood than others. Of course, the higher the risk, the higher the insurance payments will be so it’s not only important to know if the home is in fact in a flood plain, but what type of flood plain it’s in.
Your real estate agent might be able to tell you how much you’ll have to pay for flood insurance but if they don’t, you can always ask the seller directly what they’ve paid for it in the past. In some instances it’s even possible to simply assume the seller’s insurance policy upon sale of the house, which could mean less time and paperwork for you!
With a short sale, the lender agrees to allow the buyer to sell the home for less than what is still left on the mortgage. This can be very advantageous to the buyer because it means that they can often purchase the property for a much lower price than if the property wasn’t listed as a short sale. Because of this allure of short sale properties, some sellers advertise their property as a short sale even when it’s not, simply to get buyers in the door. What happens then is that just before the deal closes, the lender denies approval of the short sale and the buyer often ends up losing out on the deal, and the home.
In order to avoid this happening to you, you must first find out if the lender is agreeing to the short sale, preferably even before you look at the property. This step can often be overlooked by buyers who are so eager to purchase a home, especially if it’s a home they love, that they neglect their due diligence and don’t take all the steps necessary to make sure that the homes they’re looking at are actually what they’re advertised to be.
Like short sales, foreclosures can be very enticing to buyers because they often come at an incredibly low price. But too often buyers simply look at the benefits and don’t take into consideration the amount of work, stress, time, and possible heartache is involved with buying a foreclosure. That’s why before you embark on the adventure of purchasing a foreclosed property, you must ensure that doing so is the right decision for you.
Firstly, you have to make sure that your finances are in order. Of course this is a step that you have to make sure when buying any home, but it can be especially important with foreclosures. This is because in addition to just having to purchase the home, pay closing costs and earnest money deposits, foreclosures have costs that other homes simply don’t. These can include upfront fees to research foreclosure properties, construction and repair expenses, and the cost of any inherited liens tied to the property. You have to make sure that you’re ready to take on all these costs, plus have additional funds for unexpected expenses.
And while an experienced real estate agent that’s knowledgeable in the area might be enough when looking at standard properties, when purchasing a foreclosed home you’ll want to work a foreclosure expert. There can be a lot of different issues that go into buying a distressed property and even the law surrounding them is different. For this reason, you’ll want an agent that specializes in selling foreclosed properties, as well an attorney that’s extremely familiar with foreclosed properties and foreclosure laws in your area.
It’s important to know that when you’re buying a foreclosure, there could be a number of things that could delay the purchase of the home or, cause it to fall through altogether. Homeowners that find themselves in foreclosure could come up with the money for their loan, putting it back in good standing order and taking their home off the market. At auction, lenders could also find that there are no lucrative offers and so simply decide to take full ownership of the home. In these cases, it could be months before the bank puts it up for sale as an REO property. The timeline for buying a foreclosed property can be tricky. While you have to be prepared to act quickly, you also have to be very patient during the sales process and understand that a number of things could hold up the process.
Repairs or significant work might be another factor that doesn’t necessarily hold up the sale of the property, but do in fact hold up your move-in date. Because of this, if you’re interested in foreclosed properties, especially those that are in quite a state of distress, you need to understand that you might not be able to move into your new home right away, and will need to have alternate accommodations available during that time.
Lastly, it’s important to know that buying a foreclosed property can be a real rollercoaster ride. It’s an emotional process that will almost never work out exactly as you had planned. Just make sure that you’re up for the journey before embarking on it.