FAQ'S ABOUT REAL ESTATE

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Do I really need a real estate agent when buying a home? 

When buying a home, it’s strongly recommended you have a real estate agent. Attempting to buy a home without a real estate agent can really make the home buying process more difficult. 

What is the first step of the home buying process? 

Getting pre-approved for a mortgage is the first step of the home buying process! Getting a pre-approval letter from a lender gets the ball rolling in the right direction.  Here’s why: 

• First, you need to know how much you can borrow. Knowing how much home you can afford narrows down online home searching to suitable properties; thus, no time is wasted considering homes that are not within your budget. (Pre-approvals also help prevent disappointment caused by falling in love with unaffordable homes.)  
• Second, the loan estimate from your lender will show how much money is required for the down payment and closing costs. You may need more time to save up money, liquidate other assets or seek mortgage gift funds from family. In any case, you will have a clear picture of what is financially required.  
• Finally, being pre-approved for a mortgage demonstrates that you are a serious buyer to both your real estate agent and the person selling their home.  

How long does it take to buy a home? 

From start (searching online) to finish (closing escrow), buying a home takes about 10 to 12 weeks. Once a home is selected and the offer is accepted, the average time to complete the escrow period on a home is 30 to 45 days (under normal market conditions). Though, well-prepared home buyers who pay cash have been known to purchase properties faster than that.  

What is a seller’s market? 

In sellers’ markets, increasing demand for homes drives up prices.   Here are some of the drivers of demand: 

• Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can be built.  
• Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for first time home buyers who can afford bigger homes as the cost of money goes lower.  A short-term spike in interest rates – may compel “on the fence” buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) gets eroded.  
• Low inventory – fewer homes on the market because of a lack of new construction. Prices for existing homes may go up because there are fewer units available.

What is a buyer’s market? 

A buyer’s market is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, like: 

• Economic disruption – a big employer shuts down operations, laying off their workforce.
• Interest rates trending higher – the amount of money the people can borrow to buy a home is reduced because the cost of money is higher, thus reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals. 
• Short-term drop-in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.  
• High inventory – a new subdivision and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.)  
• Natural disasters – a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred.  

How much do I have to pay an agent to help me buy a house? 

Home shoppers pay little or no fees to an agent to buy a home.  Here’s why: 

• For most home sales, there are two real estate agents involved in the deal: one that represents the seller and another who represents the buyer.  Listing brokers represent sellers and charge a fee to represent them and market the property. Marketing may include advertising expenses such as radio spots, print ads, television and internet ads. The property will also be placed in the local multiple listing service (MLS), where other agents in the area (and nationally) will be able to search and find the home for sale.  Agents who represent buyers (a.k.a. buyer’s agent) are compensated by the listing broker for bringing home buyers to the table. When the home is sold, the listing broker splits the listing fee with the buyer’s agent. Thus, buyers don’t typically pay their agents.  

What kind of credit score do I need to buy a home? 

Most loan programs require a FICO score of 620 or better. Borrowers with higher credit scores represent less risk to the lender, often resulting in a lower down payment requirement and better interest rate. Conversely, home shoppers with lower credit scores may need to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk. There are some, though limited, exceptions to this rule. Make sure to ask your lender what you can do or if there are any programs you qualify for if your FICO score is lower than 620.

Note: Ask your lender about buying back a “mortgage point”.  

What are mortgage points? 

Mortgage points are the fees a borrower pays a mortgage lender to trim the interest rate on the loan. This is sometimes called “buying down the rate.” Each point the borrower buys costs 1 percent of the mortgage amount. So, one point on a $300,000 mortgage would cost $3,000.  Each point typically lowers the rate by 0.25 percent, so one point would lower a mortgage rate of 4 percent to 3.75 percent for the life of the loan. How much each point lowers the rate varies among lenders, however. The rate-reducing power of mortgage points also depends on the type of mortgage loan and the overall interest rate environment. Borrowers can buy more than one point, and even fractions of a point. A half-point on a $300,000 mortgage, for example, would cost $1,500 and lower the mortgage rate by about 0.125 percent.

How much do I need for a down payment? 

The national average for down payments is 11%. But that figure includes first time and repeat buyers. Let’s take a closer look.  While the broad down payment average is 11%, first time homebuyers usually only put down 3 to 5% on a home. That’s because several first-time home buyer programs don’t require big down payments. A longtime favorite, the FHA loan, requires 3.5% down. What’s more, some programs allow down payment contributions from family members in the form of a gift.  Some programs require even less. VA loans and USDA loans can be made with zero down. However, these programs are more restrictive. VA loans are only made to former or current military servicemembers. USDA loans are only available to low to-middle income buyers in USDA-eligible rural areas.  For many years, conventional loans required a 20% down payment. These types of loans were typically taken out by repeat buyers who could use equity from their existing home as a source of down payment funds. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI).  

What is private mortgage insurance (PMI)? 

Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.   PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.  

Should I sell my current home before buying a new one? 

If the built-up equity in your current home will be applied to the down payment on the new home, naturally the former will need to be sold first.  Some home buyers decide to turn their current home into an investment property, renting it out. In that case, the current home will not need to be sold. However, your loan advisor will still need to evaluate your risk profile and credit history to determine whether making a loan on a new home is feasible while retaining title to the old home.  

How many homes should I view before buying one? 

That’s up to you! For sure, home shopping today is easier today than ever before. The ability to search for homes online and see pictures, even before setting a foot outside the comfort of your living room, has completely changed the home buying game. Convenience is at an all-time high. But…nothing beats visiting a home to see how it looks and ‘feels’ in person. 

The average person views around 7-10 homes but being in a hot market, you need to keep in mind that homes do not stay on the market long and can be contracted within hours of being put on the market. If you find one you like, you may want to act quickly.  

What is Escrow? 

Escrow is a legal agreement in which a third party controls money or assets until two other parties involved in a transaction meet certain conditions. Think of escrow as a mediator that reduces risk on both sides of a transaction – in this case, the sale, purchase and ownership of a home. When it comes to real estate transactions, escrow is used to temporarily hold a buyer’s earnest money (or good faith deposit), which demonstrates a level of seriousness in following through with the eventual purchase of the home. After the purchase is complete, escrow may also be used to hold a portion of the homeowner’s monthly mortgage payment, which is then automatically put toward the payment of taxes and insurance.

What is earnest money? 

Earnest money Is typically 1% of the purchase price. Earnest money is made in good faith to demonstrate - to the seller - that the buyer’s offer is genuine. Earnest money essentially takes the home off the market to anyone else and reserves it for you. The check (or sometimes cash) is deposited in a trust or escrow account for safekeeping. If a deal is struck, the earnest money is applied to the down payment and closing costs. If the deal falls through, the money is returned to the buyer.  Important: if the terms of a deal are agreed upon by both parties, but then the buyer backs out, the earnest money may not be returned to the buyer.   

How long can the seller take to respond to my offer? 

Written offers should stipulate the timeframe in which the seller should respond. Giving them twenty-four (24) hours should be sufficient.  

What if my offer is rejected? 

Sellers can flat-out accept or reject an initial offer. But there's a third path that is quite common, sellers can initiate a counteroffer. You and your agent need to review it and determine whether the counteroffer is acceptable. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual and negotiations are a part of what Realtors do as a matter of routine. Each revision should bring both parties closer together on the terms of the deal.  

Should I order a home inspection? 

Yes! Yes! Yes! Home inspections are required if you plan on financing your home with an FHA or VA loan. For other mortgage programs, inspections are not required. However, home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections bring peace of mind to one of the biggest investments of a lifetime.  

Do I need to do a final walk-through? 

It’s not required, but it’s a damn good idea! Final walk-throughs give buyers a chance to make sure nothing had changed since their first visit. If repairs were requested, as part of the offer, a follow-up visit ensures that everything is squared-away, as expected, per the terms of the contract.  

What is a short sale? 

Before getting involved with a short-sale, it’s important you understand exactly what it is and what to expect from a short sale. The easiest way to understand a short sale is the sale of a home in which the proceeds from the sale are less than the balance of debts secured by liens against the property and the home owner cannot afford to pay the liens in full.  Before purchasing a short sale, you should consider things such as the time it can take for a short sale response, the fact that a foreclosure is still possible, and that many short sale properties are in disarray. Short sales are not impossible to buy but you must be patient and be in no immediate rush to move.  

What is a foreclosure? 

Believe it or not, foreclosures can actually be a smoother transaction than a short sale. A foreclosure, sometimes referred to as a REO, is a property that is owned by a lender. If you’re considering the purchase of a foreclosure, it’s important to understand that most are sold “as-is.” Foreclosures, if not purchased by an owner occupant, are often purchased by investors, fixed up, “flipped,” and sold to an owner occupant.