FREQUENTLY ASKED QUESTIONS
You’ve Got Questions. I’ve Got Answers
DO I NEED A REALTOR WHEN BUYING A HOME?
There is no reason not to have a Realtor when purchasing a home. A Realtor has extensive tools that will assist in your search. Zillow, Realtor.com, etc are limited and they pull their listings from the MLS. A Realtor can run comps, analyze prior sales, see trends and negotiate for you. Another important reason to have your own Realtor is the listing agent for the seller is on the seller’s side, trying to get them the best price and terms, while your own Realtor will be trying to do the same for you. The best part – you don’t pay the commission to the Realtor – the seller does.
WHAT DO I NEED TO DO TO START THE PROCESS IN BUYING A HOME?
One of the first things to do before actively looking for a home is getting pre-approved for a mortgage is one of the most important steps in starting your search for a home. Obtaining a pre-approval letter with the ability to adjust the approval amount in a short time is almost a must in today’s seller’s market. When submitting an offer, the sellers almost always want a pre-approval letter or proof of funds.
SHOULD I GET PRE-APPROVED FOR A MORTGAGE BEFORE I START LOOKING FOR PROPERTY?
Yes! By getting pre-approved for a mortgage, not only will you have an easier time of a successful acceptance of an offer, you will know how much you can afford. There is no reason to be looking for a $750,000 home when you can only afford a $600,000 home. Better yet, some mortgage lenders are allowing a fully underwritten pre-approval. This particular approval means all of your financial information and verification has been submitted and processed. You could possibly close in two weeks. Sellers are more likely to treat an offer with an underwritten pre-approval as a stronger offer. This process will also help you understand what the other associated costs of purchasing a home will be.
WHAT IS THE DIFFERENCE BETWEEN MORTGAGE BANKER AND MORTGAGE BROKER?
The banker originates sells and services mortgage loans. The broker is someone who, for a fee, places loans with investors but does not service the loans. A broker can find loans catering to unusual circumstances or to buyers with not-so-great credit.
HOW LONG DOES IT TAKE TO CLOSE ON A PROPERTY?
In today’s crazy busy market, some title companies are taking 60 – 75 days from start to closing. Add to that the actual search and negotiations, and you will be close to 3 months before you could possibly be in your new home. Prior to this recent seller’s market, closings could take place in 30 – 45 days.
SHOULD I BUY OR RENT?
Buying a home right now is a solid investment; interest rates are extremely low and prices will only go up. In addition, there is the new 40 year mortgage period which will allow more people to get into home at lower monthly payments. There are exceptions, how long will you be in the house – if only for a couple of years, it might be better to rent, as you may not recoup your closing costs in such a short period of time.
WHAT IS A SELLER’S MARKET?
Plain and simple – the seller holds the cards. They can ask an elevated price, they can turn down offers, they do not have to make repairs or upgrades. With low inventory, buyers find it difficult to find options and have to settle.
WHO PAYS THE COMMISSION ON THE SALE OF A PROPERTY?
Generally, the seller pays the commission to both the listing agent and the sales agent. It is rare that the buyer has to pay towards the commission.
SHOULD I SELL MY HOME BEFORE BUYING A NEW HOME?
There are pro’s and con’s to this. The greatest benefit to buying a home prior to selling your current home is that you will have your housing lined up and have the ease of moving on your own schedule. Doing this requires you to either pay cash for the new home, having the financial ability to be approved for a new mortgage or, you can put in an offer on a new home with a contingency based upon the sale of your current home. Selling your home first also has advantages. You can be confident you won’t have two houses at the same time, you will have (hopefully) cash towards the new purchase and you will not have to make an offer with a sale of home contingency.
WHAT IS THE DIFFERENCE BETWEEN A PRE-APPROVAL AND PRE-QUALIFICATION?
Loan pre-approval is a process where the lender certifies that you are financially qualified and credit worthy for a loan up to a cap amount. An underwritten pre-approval is even better; it means that the lender has collected and verified all of your financial information and it can close much sooner than a regular pre-approval. A pre-qualification is an estimate of how large a loan you may be able to obtain. It’s just an estimate — no credit report is checked, and no promise of a loan is made at this stage, most sellers will not accept this when presented with an offer.
HOW MUCH MONEY DO I NEED TO PUT DOWN ON A PROPERTY?
The amount of the initial deposit depends on the price of the property and the seller’s request. For as little as a $1,000 deposit, you can take a property off the market for inspection. Once the inspection period is complete, it is customary to put down an additional amount which would total 10% of the purchase price. This ensures the buyer has skin in the game and won’t walk away. Again, though, each transaction is different, and a seller may request more earnest money down.
WHAT IS EARNEST MONEY?
Earnest money is a deposit, sometimes called a good faith deposit. When a buyer and seller agree to all terms, the buyer will make a deposit into an escrow account, showing the seller you are serious about purchasing the home. Many times there will be a second deposit made following the inspection period. Again, this shows the seller that the buyer is serious and has skin in the game and will not walk away from the deal.
IS MY DEPOSIT SAFE?
After a contract has become effective and both parties have agreed and signed. The buyer makes, as per the contract agreement, an initial deposit which is held in escrow (safe keeping) by a title company or attorney who will close. Any subsequent deposits, perhaps after the inspection, that are made, also go into the escrow account. Neither the buyer or seller can have access to this money until closing or termination of the contact, and at that point, both parties must sign their approval that the funds can be released. The title company and/or the attorney cannot release the funds to either party without the written consent and release of both parties.
WHAT IS A SHORT SALE?
A short sale is when there is more owed on a house than the proceeds of the sale would cover. It is a long process and the buyer must be patient. The sale needs bank/lender approval and might end in disappointment. If you need to move quickly or by a certain date, this might not be the way for you to purchase a home.
WHAT IS A FORECLOSURE?
A foreclosure, or REO, is a property that is owned by a lender. Most foreclosed properties are sold as-is, so you might be getting what looks like a great deal, but there may be underlying issues with electric or plumbing issues or the roof needs to be replaced or there may be liens on the house.
WHAT IS A LIEN?
A lien is a claim to a property by a bank, mortgage company, or service provider indicating there is money due. The holder of the first mortgage generally has the first claim. Other lien holders can include a contractor or the utilities company. Liens must be cleared up for a sale of a property to go through.
IS BUYING A HOME IN A GOOD SCHOOL DISTRICT IMPORTANT?
Yes! If the county has specific school zones based on addresses, it is vitally important to get into the right school zone if you have or will have children. Even being 1 block off can mean the difference between an ‘A’ rated school or a ‘D’ rated school. It is better to invest a little more money into the location of a home, than to be forced into sending your children to a private school for 12 years.
HOW MUCH SHOULD I OFFER FOR A HOME?
There is no set percentage or formula when it comes to making an offer on a home. Your realtor should run comps, see what the trend has been and take into consideration how much time you will have to negotiate. Recently, buyers have been coming in too low, thinking they have time to negotiate. In today’s market, this is not the case. A buyer that comes in with a very strong offer with reasonable or no contingencies will beat out someone that is low balling a seller – every time.
WHEN WILL THE SELLER RESPOND TO MY OFFER?
Within most real estate contracts is a timeframe for the seller to respond to an offer – 2 days if the field is not filled in. In this current cut throat market, some agents are advising their buyers to request a response in less than 24 hours, some just a few hours. This puts pressure on the seller to respond and doesn’t allow them to receive as many multiple offers. If the seller does not respond in the allotted time frame, the offer is no longer good, however, the buyer may choose to extend the time frame. From the seller’s’ point of view, a seller might have their agent state in the listing that no responses to offers will be made for ‘x’ number of days, thus allowing the seller to receive several offers with which they can compare.
WHAT IS ESCROW?
Escrow is where funds are held by a third party who will disperse those funds once both parties one and two agree and sign off on release. Typically, a buyer will place the earnest money deposit into escrow, which is held by and attorney or title company. Any additional deposits will also be placed in escrow and held there until closing. At closing, the buyer signs to release the money to the seller adding all additional monies through a wire transfer or a lender. In the case of any discrepancies, neither the buyer or seller can touch the funds until all issues have been resolved either by attorneys or mediators.
IS A HOME INSPECTION NECESSARY?
Absolutely! Unless you are purchasing the property for land value with the intention of tearing it down. A buyer should always know what they are purchasing and the condition so they know how much additional money they will have to spend. The home might look great but there could be some underlying issues that only a professional inspector can find.
WHAT IS A COUNTER OFFER?
After a buyer presents an offer, the seller can accept, reject, or counter. A counteroffer can include a price change, closing date change or other contingencies mentioned in the original offer. The contract will only be effective after both parties sign and date in agreement to all components of the contract.
WHAT DO CLOSING COSTS INCLUDE?
Depending on which county the sale is in, buyers and seller are responsible for costs and fees above and beyond the purchase price of the property. A seller typically pays both Real Estate commissions, as well as clearing any leans, tax proration, documentary stamps on the deed and recording fees. A buyer typically pays for all associated loan fees including credit reports, appraisals, lender fees, inspections, title insurance, homeowner insurance, prorated association and tax fees, intangible taxes on a loan (if taken out) and recording of the deed and mortgage. There are also the title company charges, attorney fees, courier and copy costs.
WHAT KIND OF CONTINGENCIES CAN I INCLUDE IN MY OFFER?
Contingencies are conditions which must be met for the sale to go through. Contingencies can include financing, inspection, sale of current home and any other circumstances that would need to be rectified prior to closing. In today’s current seller’s market, many sellers are not accepting offer contracts with contingencies. Make sure to discuss contingencies with your Realtor to ensure you are protected and your deposit is safe.
CAN I GO TO AN OPEN HOUSE WITHOUT MY REALTOR?
A public open house is open for anyone to walk in and preview a property. A potential buyer can definitely go to an open house without their agent; however, it is imperative that when signing in or speaking with the listing agent, that you mention you are working with an agent already. Your agent does not need to be there, but it is helpful if they know you are going so you have all the information about the property and comps before you go. It is also helpful to carry a few of your Realtor’s business cards to give to other agents, thus ensuring they will not bombard you with phone calls.