The 7 Most Common Home Buyer Questions And Their Answers
Buying a home is exciting, scary, sometimes weird, usually epic, and never boring. You’re handing over a huge lump of cash for a place you’ll occupy hopefully for years to come. As such, you’re bound to have a lot of questions during every step of the process. Whether you’re a first-time buyer or repeat buyer who could use a refresher on how deals get made, here’s are some answers to the questions that come up most often.
How do I get started?
This question comprises of a lot of different information. It all depends on where you are beginning from. If you are currently renting – you are presumably used to paying a monthly housing payment. This can get rolled right into a mortgage and if you are comfortable paying monthly for your housing payments, a mortgage expense shouldn’t be all that different.
If you haven’t started doing research about homes and mortgages or saving up money, those should be your first steps. But, if you’re ready to really get into the home-buying process where having some down payment money saved up will help, your first step is to talk to your bank and different mortgage companies including mortgage brokers to find out your lending options and get pre-approved for a loan.
Unless you are paying cash for a house, you will need to get a mortgage. In order to know how much home, you can afford, you will need to get pre-approved for a loan. This is the first-step in the home buying process.
There is no reason to look at homes that are listed for $250,000 if you can only afford up to $200,000.
Those that plan on paying in cash will simply need to keep their budget a little less than the amount they have on hand to cover closing costs and any additional fees. A lender will go over your entire financial situation and determine your interest rate, how much you can afford in a monthly payment, and will give you a good range of pricing so that you can afford up to the maximum value.
Once you’ve done your homework, look online for a good mortgage calculator. Keep in mind that not all calculators are created equally; some are intended to paint an overly optimistic picture. A good mortgage calculator will allow you to enter all of your data, including purchase price, interest rate, loan term, PMI rate, taxes, and insurance. In addition to providing monthly payment information, it should also generate an amortization chart so that you can see how your loan will break down over the years. Just adjust the purchase price until you find a monthly payment in your comfort zone.
Once you have settled on a price range, you will be one step closer to being a homeowner. You will be able to start touring homes in your price range while shopping around for the best mortgage deals. The best part is that you won’t have lingering doubts about what you can afford, allowing you to fully enjoy the house-hunting experience.
Another important reason to talk with a bank before looking at homes is so you understand exactly what costs are associated with buying a home. There are many home buyers who don’t understand the difference between a down payment, pre-paid items, and escrows, which can be fully explained by a mortgage professional. A mortgage professional can give you advice on the type of financing you should be looking to obtain and also whether or not you should request the seller to contribute towards your closing costs, also known as a seller’s concession.
The purchase of your home is most likely going to be the greatest and most important purchase of your life. Getting out there and looking at real estate might be fun and exciting, but you don’t want to get your heart set on a house only to find out that you won’t be able to qualify for it.
How long is the home buying process?
When it comes to selling, buying or closing on a home, one of the major headaches can be time. the average closing time is around 50 days, and the time to close depends on funding, appraisal disparities, and more. The process changes significantly and depends on the type of property you are purchasing. FHA and VA loans can take a few additional days, and short sales are particularly slow, taking an average of 90 to 120 days to close. The actual time it takes to close on a house in Nevada is around four to six weeks.
Usually, as part of the closing process, it’s essential to find the best mortgage terms. Selling a home, buying a home or closing on a home involves many factors that can depend significantly on the location. To reduce the timescale, buyers and sellers of real estate in Nevada will benefit from the following:
- Knowing exactly what they want in a house
- Working out how much they can afford
- Asking a realistic price for a property
- Choosing a recommended real estate agent
- Getting a suitable mortgage lender
The closing process can take place quicker. If the sale is an all-cash sale, the buyer does not need to wait 30-60 days to close while waiting for final loan approval. The sale can close once the home inspection and other contingencies have been satisfied. A streamlined closing is advantageous to the seller. Closing can even take place in as little as 7 days.
What does a Realtor do?
A realtor is your most valuable asset when buying a home. They will walk you through every part of the home buying process. They will educate and inform you of all your options. They will represent you throughout the transaction and beyond.
Once the baseline of pre-approval is complete, your agent can bring the right buyers and sellers together. The real estate agent can put the right budget with the most affordable properties in that price range. They work much like the conductor of an orchestra.
The great thing is that this process of being able to know ahead of time the price range to look in saves time, money and frustration. It is just as unpleasant for the agent to learn that a buyer doesn’t qualify as it is for the potential buyer.
Realtors handle negotiations between home buyers and sellers. When Realtors represent buyers, they help their clients find the best property for them at the best price and navigate them through the offer and closing process. Realtors representing seller’s market their client’s property, help them find qualified buyers and help them get the best price for their property.
Attempting to buy a home without an agent can really make the home buying process more difficult. Having a realtor is always recommended when buying a home. One thing not to do when buying a home is calling the listing agent because you don’t want to “bother” your agent. This is one thing that real estate agents hate.
How much do I have to pay a Realtor as a homebuyer?
One reason why buyers ask the question about the need of having a Realtor when buying a home is that they don’t understand who pays the Realtor fees when buying a home. There are no guarantees, however, in most cases, the seller pays the Realtor fees.
Most first-time buyers have no idea that there are usually two real estate agents involved in a real estate transaction. They simply call at the listing agent of a home they want to see and use that agent to facilitate either that transaction on that home or any future transaction. Homebuyers usually have no idea on how real estate agents get paid.
The seller is generally responsible for paying the Realtor’s fees and commissions since the Realtor represents them and helps them make the sale. The seller’s Realtor typically splits their commission with the buyer’s Realtor. That’s typically how the person representing the buyer makes money on the deal.
When a seller lists a property with the listing agent the seller agrees to a certain percentage of the sale price to go to the agent involved in helping the transaction. If the same listing agent also represents the buyers, meaning that there are no other agents involved in the transaction, that listing agent will receive the full commission. However, if the buyer brings their own agent, the commission percentage is usually split in half.
You can see why the listing agent would really want to be the buyer’s agent on the same property as they receive the full commission. But, this is a sticky situation and also that the agent is working for the seller of that property first, which means their due diligence and fiduciary duties are to the seller first before the buyer. If the buyer has their own agent, that agent’s sole responsibility would be towards the buyer, not the seller. It always helps to have someone on your side during the transaction rather than the agent that is just trying to sell the property.
As a buyer, it is important to have your own representation during a purchase and sale agreement. The agent will receive half the commission from whatever home the buyer chooses but that agent is representing the buyer in the transaction and putting the buyer’s needs, budget and negotiations first before the seller’s needs. This is imperative so that a buyer can get what they want, the terms and price they need, and their confidential negotiation strategies are kept private.
What kind of credit score do I need to buy a home?
A 620 credit score, or higher, is recommended. As you are probably aware, a higher credit score offers better lending terms. This is an ever-evolving topic as loan requirements are constantly changing. There are some lenders who will approve buyers with a 580 score, sometimes even lower. Your loan officer will be the best source to give you a current answer for today’s lending requirements.
Generally speaking, if your credit score is below 700, you’ll be at a disadvantage, but that doesn’t mean you can’t buy a home. You may have to pay a higher interest rate, or you may be able to qualify for a Federal Housing Administration (FHA) loan if you have poor credit that’s still above a score of 580, but you’ll have to pay mortgage insurance (which protects the lender) which will cost you.
Easily the most common reason why you might be denied a mortgage, credit woes can put a halt to your home-buying ambitions before you even get the process started. Over the years, you may have gotten lazy about always paying your credit cards on time or spent a little more than you could afford.
Unfortunately, while this sort of behavior may feel like it shouldn’t be a big deal, blemishes stay on your credit report for seven years. A mistake you made when you were 25, therefore, could still keep you from getting a loan when you’re 30.
Many other people make the classic mistake of not building up a credit history at all before they want to buy a house, but having no credit hurts your chances of getting a loan about as much as having bad credit.
Can I buy a home and sell my current one at the same time?
It is a very stressful time to buy and sell at the same time. Find a trusted agent in your area to advise and guide you throughout the process. It depends highly on your resources and the markets where you are buying and selling but it’s the real estate equivalent of walking a tightrope.
On the one hand, if you buy a home before you sell the one you’re in, you’re overextended financially; if you sell before you buy, you might need to rent awhile before finding a new place. But there are ways to do both at once, and one option is to instate a “sale contingency” in your contract. This means you only agree to buy a home if you can sell the one you’re in. The only downside is if your seller doesn’t agree.
Ideally, you can negotiate a closing date on both contracts that let you make the transition, closing on the sale of your existing home, then closing on the purchase and using the proceeds from your sale to cover everything. But sometimes, that timetable doesn’t pan out. An alternative to cover the costs is a “Bridge Loan”. This is an interest-only loan that can have a term of up to two years with some lenders. The interest rate will be higher than your permanent financing when you are done with both transactions, but it is for a short term. It can be a great way to find the home you want, purchase it, finish any projects that could increase the value of the home you’re selling and take the stress out of a timetable to close on two houses.
A bridge loan, sometimes called gap financing, is a short-term loan lent by a bank to cover the interval between buying a new house and selling your old one. Note that bridge loans can be difficult to find, as not many banks offer them.
What other fees are there, besides the down payment?
The down payment is usually the largest cost associated with buying a house.
When you are looking at homes online, the sales price of the home listed for sale is not the only cost associated with buying the home. There are many other fees that are associated with buying a house and owning real estate in general.
Earnest money
Earnest money is not necessarily a fee, but it is something to be aware of because you will need the funds ready when you put in a contract on a house. Earnest money is basically a buyer’s proof that they “earnestly” want to purchase the home. A purchase contract is a great start, but there needs to be some cash involved to protect the seller’s interests while they take their house off of the market. In Las Vegas, 2-5% is typical for offers involving financing.
If you don’t have at least one percent of the sales price to offer as an earnest deposit, you should wait on placing any offers until you have the funds available. If you are making an offer in a competitive market, you may want to increase your earnest deposit to make your offer stronger than the other offers.
The earnest money deposit is placed into the escrow account within a few days of an accepted offer so you need to make sure you have the funds available for immediate withdrawal. If you decide to cancel the contract while you are in escrow, there is a chance that the seller may be entitled to your deposit. Make sure you read the contract thoroughly so you will know what to expect.
Know this, even if you are within your full rights to cancel the transaction and receive your earnest money back, in some states like Nevada, the seller has the right to hold it up during a dispute over the earnest money. When you place your earnest money check in escrow, there is no guarantee of a quick return should you decide not to buy the home for any reason.
Even though the contract may state the buyer receives their earnest money in full, without a seller’s signature, it can’t be released. This is important for the buyer to understand. If the seller doesn’t sign the release, escrow won’t release it to the buyer and mediation or court will typically follow.
Closing Costs
This is usually the second largest out-of-pocket expense for a home buyer. Both the seller and the buyer have closing costs to pay, but they differ a lot. The seller’s costs are usually higher (since they pay the Realtor’s commission) but they cover fewer costs in general. The buyer, on the other hand, pays for more line items. Those items include several fees, from appraisal fees and origination fees to bank processing fees and title insurance.
Most lenders will charge between 2% to 4% of the loan amount for loan origination fees, depending on the loan type. Conventional loans usually have lower loan origination fees, but require more money down. Your loan officer will be able to help you determine how much you can expect to pay towards loan origination and closing costs.
Some buyers are able to negotiate with the seller for a contribution toward these costs; otherwise, expect to pay between 2 and 5 percent of the purchase price in closing costs. On average buyers pay around $3,700.
At closing (also known as the settlement) the buyer provides a check for what they owe on the home, the seller signs over the deed to the home to the buyer, the title company registers the new deed to the home, and the seller receives any proceeds they earned from the sale. According to the Home Buying Institute, it’s a lot of paperwork and you’ll likely sign your (full) name anywhere from 10 to 30 times. Get your arm ready.
Closing costs are lower with cash. Added fees for a bank attorney or mortgage broker are not necessary. This is about a $750 fee. Add to that $300-$600 up front for property taxes deposited into an escrow account. There are no loan origination fees or other lender fees assessed on buyers who take out a mortgage to purchase a home.
Inspection Fees
The mortgage appraisal normally involves a visit by the lender’s surveyor to check the property is not being sold at a vastly inflated price, and that there are no obvious structural problems. A home inspection, on the other hand, tests the construction of the walls, ceilings, roof and other structural elements of the building, evaluates the driveway, landscaping, drainage, and exterior, checks plumbing, electrical systems, HVAC equipment, furnaces, smoke detectors and even appliances. In other words, it’s a detailed report of the home’s condition that raises any red flags for potential buyers. In Nevada, you can Expect to pay $350 and up for a decent home inspection.
Property Tax
As a homeowner you pay an annual property tax to you county or municipality. The amount depends on the appraised value of your home; the more your home is worth, the more you should pay. Because taxes are set by local government, the amount you pay each month may go up, even though you have a fixed-rate mortgage. Any home improvements you make that increase the value of your home may also raise your tax bill.
Mortgage Insurance
If you take out a conventional loan with a loan-to-value ratio (the amount you borrow compared to the value of your home) of 80 percent or more, then you likely will pay private mortgage insurance. PMI pays the mortgage company if you don’t make pay your mortgage. Typically, the insurance premium is added to your monthly mortgage payment, but that payment reduces as you pay down the loan and stops when you have 20 percent equity. FHA borrowers always pay mortgage insurance for the full lifetime of the loan.
Homeowners insurance
Homeowners insurance pays out if your home is damaged or destroyed by any of the calamities listed on the policy. The more risks the policy covers, the higher the premium. Homes in earthquake, flood or hurricane zones may need additional insurance.
In most cases, the mortgage company asks you to pay your property tax and insurance premiums into an escrow account each month. The lender, via an escrow company, takes money from the escrow account to pay your bills. This gives the lender peace of mind that your bills are being paid on time.
Moving Costs
Unless your family and friends are prepared to help you shift boxes into your new home, a moving truck is inevitable. Costs vary, depending on whether you hire a truck and move yourself, or call in a professional moving company. The further you have to travel, and the more stuff you have to move, the more you pay. Most companies can give you a quote over the phone.