Real Estate FAQs
Often times, we receive questions about the home buying process. My job as a realtor and real estate agent is to guide customers and clients through the often complex world of home buying and selling. Whether you’re a first-time buyer or repeat buyer, here are some answers to the most often asked questions.
What are the steps to buying a home:
Step 1: Meet with a real estate professional
Step 2: Get Pre-approved
Step 3: If approved begin the search for your dream home
Step 4: After finding the right home, Make an offer
Step 5: Negotiating of the offer and signing the contract
Step 6: Under contract/Contingency/due diligence period
Step 7: Final Details
Step 8: Closing day
What is a mortgage pre-approval:
This is the process whereby you find out from a Mortgage lender how much you can borrow to buy a home. The lender will look at your credit score, income and your assets to determine how much they can lend you towards the purchase of the home, and what your interest rate on the loan would be. After the lender reviews your financial information, if the lender feels confident that you can repay the loan, the lender issues a letter stating their willingness to lend you money for the home purchase, pending the fulfillment of other conditions like appraising the home value, title work, etc
What are the requirements to qualify for a mortgage:
To pre-qualify for the loan, you will need the following:
A steady source of income
Low to medium Debt
A fair or good credit score
Cash for down payment and reserves
Two years employment with same company or industry
What documents do I need to provide to the lender:
Tax returns. ...
Pay stubs, W-2s or other proof of income.
Bank statements and other assets
Credit history: The lender will typically obtain this when they pull your credit
Gift letters
Photo ID
Renting history
What can prevent me from qualifying for a mortgage?
A low credit score
Insufficient income and job history
Insufficient down payment
Excessive debt
Why do I need a pre-approval?
A pre-approval empowers you with the ability to purchase a home. Seeking pre-approval early in the process helps you determine if you, in fact, can be approved for a home loan and how much you can be approved for. This step is essential early in the process because. Typically, lenders will scrutinize your credit report for your credit history and credit score. They'll check your financial statements, job history, reserves, etc, for your creditworthiness. The great thing about seeking pre-approval earlier on is that, if for some reason you do not qualify for the loan at the time, no time and resource is wasted searching for and falling in love with a home that you cannot afford. That time will now be tailored towards resolving issues with your credit, saving more money for a downpayment, seeking a mortgage gift funds, building reserves that will help make purchasing your dream home possible.
Secondly, it lets you know how much you can borrow towards the purchase of the home. Knowing how much you can borrow lets you know how much home you can afford which in turn helps with narrowing down your search to properties that fall within your budget, thus no time is wasted considering homes that are not within your budget. This eliminates the possibility and disappointment that comes with falling in love with a home that you cannot afford.
Thirdly, the loan estimate from your lender will show how much money is required for the down payment and closing costs. If you don't have enough saved up at the time, 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 you require, financially, to make purchasing your dream home a reality.
It demonstrates to sellers that you are a serious buyer: Oftentimes, the seller will allow pre-screened (and verified) buyers to view their homes. This is meant to keep out "Looky Lous" and protect the seller’s privacy, reduce the stress of keeping up with readying the home for tours especially if little ones or the elderly are involved. What’s more? By limiting who enters their home, sellers are given extra security from potential thieves who may be trying to case the home (like identifying security systems, locating expensive artwork, or other high-value personal property).
Finally, being pre-approved for a mortgage demonstrates that you are a serious buyer to your real estate agent: Most real estate agents will require a pre-approval before showing homes. Real Estate agents work on contingency bases that mean they only get paid when you purchase a home. They invest time and resources to help you find a home, navigate, and manage the home buying process to closing on your dream home in return for waiting to get paid when you close on your home. Having a pre-approval ensures that the agent's time is spent productively. Often times, if you are not yet approved, your agent will help you through the pre-approval process by connecting you with competent and reliable lenders. If for some reason you are not pre-approved at the time, your agent will stay with you and help guide you through preparing until you can be approved You will also have a professional on your side that you can ask questions and will be rooting for your success.
How long does the home buying process last?
From start (searching online, taking home tours, making offers, due diligence period) to closing on the home will typically take 10 to 12 weeks. Once a home is selected and the offer is accepted, the average time to complete the contract and closing also known as escrow or due diligence period) is 30 to 45 days (under normal market conditions). Though, well-prepared home buyers backed by a great lender, cash buyers have been known to purchase properties within a shorter time frame (about 2 to 3 weeks).
Market conditions can sometimes affect how fast homes are sold. In hot markets with a lot of sales activity, buying a home may take a little longer than normal. For example, a spike in home sales may lead to an increase in property appraisals, home inspections with a limited number of appraisers and inspectors available to do the work. Lender turn-around times for loan underwriting can also slow down. If each party involved in a deal takes a day or two longer to get their work done, the entire process gets extended.
How much do I have to pay an agent to help me buy a house?
Very often, the buyers pay little or no fees to an agent to buy a home. Although buyer's agents are not salaried nor receive a monthly or weekly paycheck, they are often paid by the commission. That means that, while they invest their time, resources, and expertise in helping you find your dream home and helping you navigate the home buying process, they wait until you close on your home to get paid.
So how do they get paid or where does their payment come from? There are a few ways in which your buyer's agents get paid. Some of these ways could be by the listing company, by the seller, by retainership fee, by fee-for-service. We'll focus on the first two as these are the most common and often occurring situations.
Payment by the listing company
Here’s how:
For most home sales, there are often two real estate agents involved in the transaction: one that represents the seller and another who represents the buyer.
Real estate agents who represent sellers charge the seller a fee to list their properties and market their property to get it sold. Marketing may include advertising expenses such as radio spots, print ads, television, internet ads, etc. The property also gets placed in the local multiple listing service (MLS), where other agents in the area (and nationally) will be able to search for and find homes for their buyers. When homes are placed on the MLS, the listing broker agrees to compensate a buyer's agent for bringing a buyer to the table. Therefore, when the home is sold, the listing broker's company splits the fee with the buyer's agent company who in turn pays the buyer's agent. Very often, this is how the buyer's agent gets paid.
Buy the seller:
Here's how:
When a home is for-sale-by-owner, they have no listing broker(company) representing them so their home is often not listed on the MLS. Although their home is not listed on the MLS, they are often willing to pay the buyer's broker for bringing them a buyer. Often the buyer's agent will reach out to the seller negotiate the brokerage fee so into the offer so you don't have to pay your brokerage fee from out of pocket. If the seller is unwilling to pay the brokerage fee (which rarely happens), this responsibility then falls on the buyer to pay the brokerage fee. This can also be negotiated as part of the offer as well. This, in practice, is a rare occurrence.
At other times, depending on the type of service, the buyer or seller may pay a retainer fee. The last two are often very rare scenarios.
What does it mean for a home to be under contract or contingent:
This means that a buyer has made an offer on a home and the seller has accepted the offer but the sale is not final yet as the buyer would need to go through a due diligence period to finalize their financing, ensure the condition of the home, ensure that the title of the home is free and clear before they close on the home. Both the buyer and the seller sign a contract, that defines the terms of the agreement; signifying that the buyer agrees to by and the seller agrees to sell based on certain conditions being met. The seller is bound by contract to sell to this buyer and the buyer is bound by contract to purchase the home. The home is taken of the market at this time and the seller cannot sell the home to another buyer from under the buyer during this time.
What are the terms that are negotiated under a contract:
Negotiating an offer on a home is more than just negotiating the price. The following are some items that are often negotiated and agreed upon in the terms of the contract :
The price of the home: After a market analysis, an offer is made by the buyer based on what would be a fair market value for the home
The earnest money amount: This is the amount the buyer puts down in good faith once a contract has been signed to show they are serious about purchasing the home. This is usually held in escrow by the buyer's attorney, buyer's brokerage company, or the seller's brokerage company. Often time, when the transaction goes to closing, this is often credited to the buyer at closing.
Amount of down payment and amount being financed: This part of the contract shows how much the buyer will be financing. Often times, this can show the financial strength of the buyer
Who pays the buyer's closing costs: Sometimes the buyer can request for their closing costs to be paid for by the seller. If the seller agrees, this is included on the offer
The type of financing being used: This could be USDA, Conventional, VA, FHA (in no particular order)
Important dates on the contract: Here the dates whereby certain due diligence items must be completed and when the closing will take place must be defined. These dates are important in the contract and not keeping to these dates could lead to a potential violation of the terms of the contract.
Inspection contingency: This defines when and how the inspections will take place and how items on the inspections would be addressed.
What is included in the sale of the home: Is storage shed included, pool (yes pool!), playground equipment, shrubbery, chandelier, etc? these have to be defined in the contract as well.
What is included in the buyer's closing costs:
•Property appraisal
•Home inspection
•Processing fee
•Underwriting fee
•Lender fee
•Loan discount fee
•Recording fee
•Settlement officer fee
•Title insurance
•Document preparation fees
•Escrow taxes and insurance
•Prepaid interest
•Credit report
•Transfer taxes
•Attorney/notary fee
What kind of credit score do I need to buy a home?
Most loan programs require a minimum 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.
How much do I need for a down payment?
According to NAR, the national average for down payments is 12%. For the first time homebuyer, that number is often smaller
Although the national average is12%, first-time homebuyers usually only put down 3 to 5% on a home. That’s because several first-time homebuyer programs don’t require big down payments so it makes it easier for first time home buyers to qualify for a loan. 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.
Other programs require even less. VA loans and in some cases with no minimum credit score requirement USDA loans can be made with zero percent down. However, these programs are more restrictive. VA loans are only made to former or current military service members while 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).