With close to 30 years of representing hundreds of clients we have complied a list of some of the most frequently asked questions. Here’s how this works, click the "+" next to the question you want to learn more about. Voila, this will open up your answer. Please note that while these are typical answers, your circumstance may be different. Feel free to
reach out if you need more information or need something clarified. We are always happy to help you with all your real estate questions.
Getting pre-approved for a mortgage is the first step of the home buying process. Getting a pre-approval letter from a lender will help to get the ball rolling in the right direction.
Here’s why:
First, you need to know how much you can borrow. Knowing how much home you can afford focuses down your online home searching to suitable properties; thus no time is wasted by you considering homes that are not within your budget. (Pre-approvals also help prevent disappointment caused by falling in love with unaffordable homes.)
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.
Good real estate agents will require a pre-approval before showing homes - this is especially true at the higher end of the real estate market; sellers of luxury homes will only allow pre-screened (and verified) buyers to view their homes. This is meant to keep out "Looky Lous" and protect the seller’s privacy. What’s more, by limiting who enters their home, sellers are given extra security from potential thieves trying to case the home (like identifying security systems, locating expensive artwork or other high-value personal property).
The national average for down payments is 11%. But that figure includes first time and repeat buyers. Let’s take a closer look.
While the broad down payment average is 11%, first time homebuyers usually only put down 3 to 5% on a home. This is because several first-time home buyer programs don’t require large 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.
Several programs require even less. VA loans and USDA loans can be made with zero down. However, these programs have more restriction. VA loans are only made to former or current military servicemembers. USDA loans are only available to low to-middle income buyers in USDA-eligible rural areas.
For several 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).
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 lower down payment requirement and better interest rate. Conversely, home shoppers with lower credit scores may need to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk.
From start (looking online) to finish (closing escrow), buying a home takes about 10 to 12 weeks. Once a home is selected and the offer is accepted, the average time to complete the escrow period on a home is 30 to 45 days (under normal market conditions). Though, well-prepared home buyers who pay cash have been known to purchase properties faster than that.
Market conditions are a major factor in how fast homes are sold. In hot markets with a lot of sales activity, buying a home may take a little longer than normal. That’s because several parties involved in the transaction get behind when business suddenly picks up. For example, a spike in home sales increases the demand for property appraisals and home inspections, yet there will be no increase in the number of appraisers and inspectors available to do the work. Lender turn-around times for loan underwriting can also slow down. If each party involved in a deal takes a day or two longer to get their work done, the entire process gets extended.
In sellers’ markets, increasing demand for homes drives up prices. 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.
- Interest rates trending downward – 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 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.
A buyer’s market is characterized by declining home prices and reduced demand. 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.)
- Natural disasters - a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred.
- 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.
- Some home buyers decide to turn their current home into an investment property, renting it out. In that case, the current home will not need to be sold. However, your loan advisor will still need to evaluate your risk profile and credit history to determine whether making a loan on a new home is feasible while retaining title to the old home.
- 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.
- When you make an offer on your home, your agent will ask for a check (typically a certified check) to accompany it. The amount of the earnest money varies and can be up to 1% to 2% of the purchase price. Your agent will be able to tell you what to expect to pay in the price range you are looking in before you put in an offer.
- 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 is deposited in a trust or escrow account for safekeeping typically at the title company that you choose when you put in your offer. If you close on the home the earnest money is applied to the down payment and closing costs. If the deal falls through, the money can potentially be returned to the buyer.
- Important: if the terms of a deal are agreed upon by both parties, but then the buyer backs out, the earnest money may not be returned to the buyer. Ask your agent about the ways to protect your earnest money deposit – such as offer contingencies.
Yes! Home inspections are required if you plan on financing your home with an FHA or VA loan. For other mortgage programs, inspections are not required. However, home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections bring peace of mind to one of the biggest investments of a lifetime.
It’s not required, but it’s a darn good idea! Final walk-throughs give buyers a chance to make sure nothing had changed since their first visit. 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.
You can build equity in three ways.
First (and easiest) is from market appreciation.
Second, when making your monthly mortgage payment, try to send a little bit more. This will go directly to the principal of the loan, rather than the interest. Be sure your lender knows to put the extra toward principal, and not the next month’s payment. Even an extra $50 per month can quickly build equity, as well as knock years off of your loan.
The third way to build equity into your house is to make improvements. There are a variety of ways to remodel and make positive changes to the interior and exterior of your home. One of the best ways is to add square footage/living space. It is a good idea to check with your Realtor before making improvements as not all improvements will increase the equity in your home.
MLS stands for Multiple Listing Service. It’s a network of real estate listings in an area, where buyers can (through a Realtor or the Internet) view what is available in their price range, and with the features they are looking for. It is a system usually run and supported by the local Real Estate Board that has details of almost every home, land, and business listed for sale with a real estate agent.
Closing costs are expenses incurred by buyers and sellers when the ownership of the property is transferred. These are usually negotiable items as to who will be responsible for their payment. Examples of closing costs include recording fees, documentary fees, real estate commission, taxes prorations, settlement fees, and title insurance
Title Insurance ensures a buyer that he or she is getting clear title to the property without any liens or encumbrances. A title insurance company researches the county records to see what has been recorded on the property. The title commitment will show what loans need to be paid off and what restrictions, if any, are on the property. The cost is determined by the sale price and varies with insurers. Typically, the seller pays for the policy, and any endorsements required by the buyer’s lender are usually a buyer’s responsibility.
Also known as private mortgage insurance (PMI), it is insurance to cover the lender on the mortgagee. This coverage is typically required on loans where the buyer is borrowing more than 80% of the value of the property.
Square footage includes finished, heated space, also known as “livable space”. Garages, unfinished basements and attics, for example, are not included when calculating a home’s square footage. Hallways and closets are included when determining a home’s square footage, however.
Recently sold properties that are similar in size, location, and amenities to the home for sale are considered “comps”. You may hear this word when an appraiser or Realtor is helping to determine the fair market value of a property.
First impressions matter in business, but especially in real estate. Anyone walking through a house or touring it virtually will be looking for ways to pass or negotiate down on the price. You must help clients make sure that the HVAC, plumbing, and electrical system all work properly. Each room should look clean and decluttered with no overt damage insight.
A public tax assessor gives the assessed value for a property. This assessment typically occurs yearly for taxation purposes. The fair market value is an agreed-upon price between a willing buyer and seller. There is usually a difference between the assessed value and market value. For homeowners, the assessed value is a double-edged sword. Because, if their annual assessed value increased then their yearly taxes will also be raised. On the flip side, when selling a house it can help boost its market value.
