Below is an ever growing list of questions that we commonly get. The answers below are based on our experience and are not meant to be all inclusive. If you have any other questions that we can help clarify, don’t hesitate to contact us.
I’m ready to buy a house…what do I do now?
First, find a realtor to work with. As with any sales type of profession, there are going to be certain people that you “click” better with. And just as important, some realtors are simply more willing and better equipped to help you meet your objectives than others. A good way to start narrowing down the field is to ask relatives, friends, and acquaintances for recommendations. Then you can call some realtors, meet with them in person, and ask some questions with regards to how they can help you. It won’t take you too long to figure out what is the right match for you.
Secondly, you need to meet with a lender to get prequalified for a mortgage. This will help you to determine what kind of house you can afford and what kind of expenses you can expect when purchasing a house. And, in today’s day and age, you’ll most certainly need a letter of prequalification with any offer you present.
How much does it cost to hire a realtor?
Nothing. Realtor’s fees are paid by the SELLER out of proceeds at closing.
How much money do I need up front to buy a house?
This is a question that we ALWAYS refer directly to your lender. However, as a general rule of thumb, we figure on our down payment plus about 3% in other closing costs and pre-paid expenses. Minimum down payments are 0% for USDA eligible mortgages, 3.5% for FHA mortgages, and usually 5% for conventional financing. Closing costs and pre-paid expenses USUALLY include the banks origination fee, an appraisal fee, interest on your loan for the first partial month of ownership, first years home owner’s insurance, an escrow deposit for property taxes and insurance, title insurance and title company fees, and some other smaller miscellaneous costs.
Should I call the realtor whose sign is in the yard?
Many first time home buyers make the mistake of thinking that you must call the listing agent of a particular house in order to view it. This is NOT the case!!! ANY REALTOR CAN SHOW YOU ANY HOUSE LISTED IN OUR MLS. We would always advise that you pick one agent to assist you in your home search and always use that agent as your point of contact for any property that you’re interested in.
Should I use my bank for as my lender for a home mortgage?
It’s certainly worth letting them earn your business, but this is a product worth shopping around for. It’s not likely that the person (or even the bank) that originally processes the loan for you will end up servicing the loan for you. So what you really should be looking for is a financial advantage. Consider this…assuming that the up front costs are about the same, a savings of .5% on a 30 year mortgage of $125,000 can help you pay the house off 3 years sooner with no additional money out of pocket.
What is PMI?
PMI (Private Mortgage Insurance) is insurance to protect your lender in case you default on your loan. Generally speaking, borrowers pay PMI when they have less than 20% down payment and continue paying it until at least 20% equity in the house is reached. PMI will be included as part of your monthly payment along with your principal, interest, and any escrow required for taxes and insurance. Click here for a PMI calculator that we found.
What should I offer for this property?
Good question!!! The answer has so many variables that it’s difficult to give a pat answer for any specific property, let alone in this general sense. However, a good start is to figure out the fair market value of the house. Your realtor can provide you with a list of comparable properties that have recently sold or are currently on the market. I generally look at the average price per square foot for recently sold properties that have similar specifications. Using that figure, I’ll add on a dollar amount for upgrades (such as an extra bath) or subtract a dollar amount for necessary repairs (such as a new roof). That will help you determine the fair market value of the house. As for your offer, some other considerations…how motivated are you to get this house…how long has the house been on the market…is this a unique, desirable property or are there a dozen others just like it…is it bank owned or owner occupied? A couple of other observations from my perspective…cash offers tend to be more desirable from a seller’s point of view and give you more negotiating power with regards to purchase price. Also, the more contingencies that your offer contains, the less desirable your offer will be and the less negotiating power you’ll have with regards to purchase price.
What is a “short-sale” property?
A house that is in pre-foreclosure may be eligible for a short-sale. In a nutshell, the borrowers are in some sort of default on their mortgage and the bank is willing to take less than what is owed on the mortgage in order to avoid the time and expenses associated with foreclosing on the borrowers. The upside? In a lot of cases, you can get a good (sometime great) deal on a house. The downside? You must be patient. An offer on a short-sale must be approved by both the owners of the house and the bank. In a lot of cases, the sellers aren’t motivated to sell because they are living in the house for free while the bank goes thru the due process required to foreclose. If you do get the owners to approve the offer, then you have to get the bank to approve it. This sometimes can be a black hole with little communication from the bank with regards to the status of your offer. This is especially when you’re working with some of the larger banks that are not local. We currently have an offer on a property with a bank that was submitted exactly 3 months ago…as of last week, we were told the offer had not even been looked at yet. The bottom line that we hear from the experts is to expect 2 – 6 months to buy a short-sale.
What is earnest money?
Earnest money is simply a deposit submitted with your offer to purchase a property. In the event that your offer is accepted, the earnest money is deposited in an escrow account and applied to your down payment at closing. Should the deal fall thru as a result of a contingency in your purchase agreement, your earnest money will be returned to you. However, in the event that you simply walk away from the deal for some reason other than outlined in the purchase agreement, your earnest money will likely be retained by the seller as compensation for their time and trouble.
Am I required to have a home inspection?
In most cases, the answer is no. Having a home inspection is generally at the discretion of the buyer. However, most inspections will run between $250 and $400 and are a great investment. Even if absolutely nothing were to come up in the inspection (which is highly unlikely), the peace of mind of having a trained professional review the property for you is well worth the cost.