With spring comes a busy season of movers and shakers. Among those will be buyers itching to settle down into their new home. Buying a home typically occurs in sporadic intervals throughout one’s life. The process itself can seem straightforward. Find a house; then buy it. At its core, it should be so simple. With that in mind, let’s keep it simple by answering a few of the most common questions we see that homebuyers consistently bring up.
Why should I buy versus rent?
The ability to accrue equity is probably one of the most important factors of buying. Instead of paying off your landlord’s mortgage, you’re paying off your own and putting your hard earned cash back in your own pocket. Close behind is your ability to claim tax deductions including interest on your loan, property taxes, and even mortgage insurance. Then there are the intangible benefits like actually being a homeowner, having the ability to throw wild parties, or even just sleep well at night knowing you’re never at the whim of your landlord’s 30-day notice to vacate the premises.
Related: Buy Vs. Rent – What the Numbers say.
Do I need a real estate agent?
It’s a good idea to use a real estate agent. It helps to do a bit of research or ask family and friends for a recommendation when it comes to choosing an agent. You want somebody whom you can trust to guide you through the transaction and negotiate on your behalf.
What is a Pre-Approval Letter?
In layman’s terms, it’s a document saying based on your income, assets, and liabilities, you are able to afford a home valued at “X” at an interest rate and payment terms of “Y.”
I have bad credit and little cash for a down payment; can I still buy a home?
There are programs available which are suited for buyers with little money for down payment. If you are a veteran, a VA loan would be a great option to look at as loan amounts can be as high as 100% loan to value. That means you’ll need to bring $0 to the transaction for a down payment. Keep in mind you’ll still need to put down a good faith deposit when your offer is written, but there are options available to buyers in circumstances like this. In regards to the low credit score, first take a look at this article on improving your credit scores. Secondarily, you may also want to speak with a lender who may be able to help you come up with a plan to help address blemishes on your credit report, and get you on the fast-track to becoming a homeowner.
I’ve found a house I like but I don’t know if I can afford it.
There are a number of mortgage calculators out there, which will be able to help you figure out what you’re able to afford with just a few quick figures. The amount of your mortgage and what you can afford will typically be reliant on many factors. The best way to determine what you can realistically afford is to talk with a lender.
How do I find a lender to talk to?
You can talk to friends and family to see if they have any lenders that they personally have used and can vouch for. Alternatively, here at The Kink Team, we are constantly working with a trusted team of advisors. We have a number of lenders we trust and would be happy to provide you a list of lenders to choose from if you so desire.
What are the costs involved with buying a home?
The most common costs of buying a home include the home itself, the down payment or earnest money deposit, closing costs, inspection costs, title and escrow fees, lender points for the loan among others. These amounts will vary based on the price of your home and the amount of investigation you choose to do before closing the deal.
How will I know how much to offer if I find a home?
This is where your real estate broker will step in and help out. The offer will vary on a number of components. What are the comparable homes selling for in the area? How fast are homes moving? If they’re moving slow, you may be able to submit a lower offer if sellers are anxious to sell. Take into consideration the condition of the property relative to comparable properties around the same price point. If it needs a lot of work, that will likely drive the price down. How much do you really want the home? Keep in mind that the price you offer may not always be less than asking. If you’re up against 4 other buyers, there’s a good chance that the price will be driven up above asking.
What happens after the offer is accepted?
Now your real estate agent will provide and go over with you the necessary documents and disclosures to sign. The inspections will take place and you will have the opportunity to review the documents to ensure there are no surprises with the sale of the home.
What if there are surprises after we are in contract?
If there are surprises that arise after the inspection, you can go over the report with your agent to identify any “deal-breakers.” Most of these issues can be worked out with the seller through a shorter round of negotiating. Face it, you both want the deal to work if possible, a little movement on the price or terms will usually be the result. If the blemish is too glaring to overcome, you will have the ability to back out of the deal if you are within the time-frames specified in the contract. Always consult with your real estate broker to help guide you through this process.
What is Escrow and what do they do?
Escrow is a third party entity, independent of both buyer and seller, assigned as the intermediary to ensure both parties to the transaction follow the specified guidelines as laid out in the original purchase agreement. Escrow handles the disbursement of funds to all parties and ensures all tasks with regards to recording the documents with the county are completed.
What are contingencies?
In layman’s terms, it’s a term of sale. On the buyer side, there are some common contingencies including the loan contingency, inspection contingencies, and appraisal contingencies. These contingencies are in place to protect the buyer in case they are unable to receive a loan; the inspection comes back with significant work that the seller is unwilling to fix and the buyer unwilling to do. The appraisal contingency deals with how much the home is valued at, this plays a role with how much the lender is willing to lend.
What is an appraisal?
An appraisal is a verification or estimate of value for the target property.
What happens if my home does not appraise?
If your home doesn’t appraise, you have a few options. The first option is to pay the difference between what the appraisal came in at, and the purchase price of the home. The lender will not make a loan on a property where the collateral (your home) is less than the value of the loan they make. This is why the appraisal is important. An alternative option is renegotiating the price with the seller. There may be other options as well, but it is recommended to speak with a real estate broker to brainstorm creative ideas to make it work.
These are just a few of the many questions that buyers have. If you are interested in learning more about the home-buying process, grab a copy of our free Ultimate First Time Home-Buyer Guide. It will walk you through the steps of a transaction from start to finish.