I want to buy a home, where do I start?
- Find an Agent that you can trust. It is important to do this before you go rushing off looking for homes or you may end up with no representation. A reputable Realtor can recommend lenders, inspectors and can answer many questions for you throughout the buying process.
- Familiarize yourself with the mortgage process, pre-qualify with a lender, get your financial picture in focus, determine your budget. Now is not the time to buy a new car and open up lines of credit!
- Determine your housing needs, wants, and location, consider all of the various housing types, condo, single-family, and high-rise. Make an appointment with your Realtor to start looking.
What is a Buyer’s Agency Agreement? A Buyer’s Agency Agreement is a document signed by the agent and buyer. It represents a principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.
What is Dual Agency? When a Broker is representing both the Buyer and a Seller of real property. The broker is not acting in a “designated” agency capacity.
What is the difference between a loan and a mortgage? A loan is a sum of borrowed money that is generally repaid with interest. A mortgage is a conditional transfer or pledge of real estate as security for the payment of a debt. Also, it is the document creating a mortgage lien.
What is a pre-approval letter? It is a letter from a lending source stating that based on the information regarding income, credit, job history etc. that you provided to them, that you will be able to obtain a loan with terms stated in the letter.
Who pays the Realtor? The seller pays the Realtor’s commission. Generally, the agent who lists the house “for sale” and the agent who “procures the buyer,” split the commission. The commission is paid at closing and taken out of the seller’s proceeds.
Who pays for a home inspection? The buyer hires and pays for an inspector.
What is earnest money? Money deposited by a buyer under the terms of a contract, as good faith money, to be forfeited if the buyer defaults according to the contract terms, but applied to the purchase price if the sale is closed.
How much money do you put down on a house? There are 100% finance options available now, so some buyers (who are eligible for these types of loans) do not need any money to put down. Most buyers however, put down 5-20% of the purchase price. There are so many “creative financing” options out there, that it is best to talk to your lender openly about your personal situation so they can find appropriate financing for your needs. Also, by putting at least 20% down, the buyer avoids mortgage insurance, which can save you a considerable amount on your monthly payment and over the course of the loan.
What are the differences between mortgage pre-qualification, pre-approval and final loan approval? Pre-qualification is when the lender will look at a basic copy of your credit report and use the information you supply to determine how much of a mortgage payment you can afford based on your income. No accounts or employment information is verified. Pre-approval is subject to the appraisal of the property you have chosen to buy. Your credit information and accounts are verified. Final loan approval occurs when the property has been appraised, all documentation requested from the lender has been received, and all contingencies have been met.
After you are pre-qualified, do you need to do anything else with your lender prior to making an offer on a house? No, but after the offer is accepted it imperative that you follow through with a lender and make formal “loan application” with a lender according to the terms of the contract. Then you will need to provide specific documents, depending upon the loan type that is chosen for you.
What are closing costs? Closing costs are the miscellaneous expenses that are incurred during the loan process.
How many different fees are included in “closing costs”? You may see these on the closing statement and your “good faith estimate”. Appraisal Fee, Credit Report Fee, Document Processing Fee, Loan Document Viewer, Flood Certification Processing Fee, Lender Underwriting Fee, Tax Service Processing Fee, Wire Processing fee, Title Insurance, Title Exam Fees, Recording Fees, Attorney Fees, and Transfer Taxes.
Who pays for closing costs? And, just how much are closing costs? The party who pays for closing costs is negotiable in the contract, but it is assumed that the buyer will pay for them unless it is negotiated in the contract for the seller to pay or help with a portion of them. The total costs could vary, but a good estimate is 2.8% of the loan amount. Ask your lender to be sure!
I am looking at new subdivisions, and at some other resales in the area, the agents are really nice, do I still need my own agent? First of all, in virtually all situations, the buyer does not pay a commission, so the services of an Agent working for you are paid for by the seller. Generally, agents on site represent the seller (builder) and not the buyer. Without an agent working for you, you maybe missing valuable information regarding the transaction and you may be missing representation of your interests.
Should I spend the money to have a home inspection? Yes! New or resale! The $250-$300 for a professional home inspection cost could be the best money ever spent on a house. Not only does the home inspector seek out any defects of the home, the inspector will often give you tips on maintaining and repairing your house. The best thing of all is the peace of mind of being informed.
What is an appraisal? An appraisal is an opinion of the value of the home you want to purchase. Virtually every lender will need an appraisal before the loan is approved.
What is a Sellers Disclosure? It is a questionnaire that the seller fills out that gives the buyer the history of the home.
When I find the house I want to buy, how do I know how much to offer? The most reliable indicator of a home’s value is what similar home’s sold for in the past. Ask your Realtor to do a CMA of the neighborhood in where you are considering purchasing. You can take a look at various factors of the home and decide with your Realtor’s knowledge and the information you gathered. These factors may include location, condition, recent sales, competition, and other special circumstances such as a sale due to a divorce, corporate transfer, pre-foreclosure, or estate sale?
What is homeowner’s insurance? Do I need to buy it? It is an insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. You are generally required to bring a pre-paid policy to your closing to cover your new dwelling.
What is an FHA Loan? A loan insured by the Federal Housing Administration (of the Housing and Urban Development.) Note: There are certain loan limits. Check with your lender on the guidelines.
What is a conventional loan? A mortgage loan not insured by the Federal Housing administration or guaranteed by the Veterans Administration. In other words no governmental agency approval is required for the lender, borrower, or property.
My lender said that I need to have an escrow account. What is that? An account held by the lender to which the borrower makes monthly installments for property taxes, insurance and special assessments, and from which the lender disburses these sums when they become due.
What is a Survey? Do I need to get one? A survey is measurement of land, prepared by a registered land surveyor. It is quite useful to have and generally recommended to have so you know where your lot boundaries are. Most lenders do not require you to have a survey prior to closing on the loan of your home. Be sure to ask your lender if a survey is required and ask your Realtor if one is available on the property (from the seller).
What is a FICO score? A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. Credit scores analyze a borrower’s credit history considering numerous factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed by data provided by each of the three bureaus Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.
How can I increase my FICO score? While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.
- Pay your bills on time. Late payments and collections can have a serious impact on your score.
- Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
- Reduce your credit-card balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively.
- If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.
What if there is an error on my credit report? If you see an error on your report, report it to the credit bureau. The three major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) all have procedures for correcting information promptly. Alternatively, your mortgage company may help you correct this problem as well.
How much house can I afford? The answer depends on many factors; such as cash on hand, debt, income, debt to income ratios, FICO, etc.. Try using the calculator tool from bankrate.com.
Why should I get an Inspection? A home inspection will look at the systems that make up the building such as:
- Structural elements, foundation, framing etc
- Plumbing systems
- Electrical systems
- Cosmetic condition, paint, siding etc
If you are buying a home, you need to know exactly what you are getting. A home inspection, performed by a professional home inspector, will reveal any hidden problems with the home so that they may be addressed BEFORE the deal is closed. You should require an inspection at the time you make a formal offer. Make sure the contract has an inspection contingency. Then, hire your own inspector and pay close attention to the inspection report.