Frequently Asked Questions
Q: How much home can I afford?
A: That depends, of course—on your income and other financial obligations; plug them into Realtor.com's Home Affordability Calculator for a ballpark figure. And do it before you start shopping. If you see houses you love outside your price range, it opens you up to disappointment," Meet with a lender to get pre-approved for a home loan. I know several that I have worked with for many years and trust them to find the right loan program for you.
Q: Can I buy a home and sell my current one at the same time?
A: Yes, you can—but it's the real estate equivalent of walking a tightrope. This is one of the trickiest questions to answer. 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 (which is possible if they want the timing set in stone).
Q: How many homes should I see before making an offer?
A: Up to you. While home shoppers these days can look at hundreds of homes online, they only hoof it to check out 10 homes on average before they put in an offer. But keep in mind, “This varies tremendously for each person “Some people find their home within hours of hunting. For others, it takes months." If you want to streamline the process, it can help to really hone in on a particular neighborhood you're keen on; that said, if you feel limited by your options, it may be time to expand to surrounding areas.
Q: What do you think the seller will accept as a fair price?
As a rule of thumb, knocking 5% off the list price won't ruffle any feathers. If it's been sitting on the market for months, you can venture below that, but the bottom line is, “You never know how low a seller will go, as they have different motivations for selling," says Marc Castillo of Coldwell Banker in Atlanta, GA. If the sellers are eager to move, you could luck out and score a deal.
Q: How do I know if the property is a good deal?
While there's no crystal ball on whether a certain home is a bargain and will appreciate, rest assured that with research, you can keep surprises to a minimum. The best way is to check out comps—what similar properties are selling for in the area and whether those prices have been going up or down in the recent past.
Q: How quickly can I close?
A: Typical escrow periods are 30 to 45 days. This gives you enough time to do the investigation on the property and get a loan completed.
Q: Should I get a home inspection?
While buyers often wonder if a home inspection is truly necessary, most Realtors unequivocally say yes, yes, and yes. A home inspector takes a weight off of your shoulders by looking into the condition of the roof, electricity, heating and air, plumbing. Ensuring these things work prevents you from paying to fix them in the future. If some things are not up to par, you can negotiate with the seller to get those fixed before you sign the paperwork.
Q: When can I back out if I change my mind?
A: While buyers can always back out of a deal, doing so without good reason may forfeit their earnest money (the cash put down to secure the offer, typically around 1%-2% of the home's price). But there are some ways to walk with your earnest money in hand.
“Contingencies are great loopholes," says Bridges. “For example, upon an unsatisfactory home inspection, the buyer can ask for their deposit back. Another loophole is 'subject to appraisal.'" That means you can back out if the lender for your loan doesn't think the property is worth what you offered.
Home buyers aren't the only ones with questions; home sellers have plenty on their minds, too. Find out what they're wondering in a new article next week!
Q: What the first step of the home buying process?
A: Getting pre-approved for a mortgage is the first step of the home buying process. Getting a pre-approval letter from a lender get the ball rolling in the right direction.
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 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.
Most real estate agents will require a pre-approval before showing homes - this is especially true at the higher end of the real estate market; sellers of luxury homes will only allow pre-screened (and verified) buyers to view their homes. This is meant to keep out Looky Lous and protect the seller’s privacy. What’s more, by limiting who enters their home, sellers are given extra security from potential thieves trying to case the home (like identifying security systems, locating expensive artwork or other high-value personal property).
Q: How long does it take to buy a home?
Under normal market conditions, the average time to complete the sale of a home is 30 to 45 days. Though, well-prepared home buyers have been known to purchase properties faster than the averages. Market conditions are a major factor in how fast homes are sold. In hot markets with a lot of sales activity, buying a home may take a little longer than normal. That’s because several parties involved in the transaction get behind when business suddenly picks up. For example, a spike in home sales increases the demand for property appraisals and home inspections, yet there will be no increase in the 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.
Q: 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. 4. 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.
Q: 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 pay their agents.
Q: What kind of credit score do I need to buy a home?
A: 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 the 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.
Q: 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 service members. 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).
Q: 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.
Buyers often have a short time frame to sell their current home when relocating to a new city because of a job transfer. If you are moving but taking a position with the same employer, check to see if they offer relocation assistance to help offset some of the costs.
Q: What is earnest money?
A: When you make an offer on a home, your agent will ask for a check to accompany it (checks are the same as cash, and the deposit is typically 1% to 2% 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. Ask your agent about the ways to protect your earnest money deposit and the ways to protect it – such as offer contingencies.
Q: How long can the seller take to respond to my offer?
A: Written offers should stipulate the timeframe in which the seller should respond. Giving them twenty-four hours should be sufficient.
Q: What if my offer is rejected?
A: Sellers can flat-out accept or reject an initial offer. But there a third path that is quite common, sellers can initiate a counteroffer. Remember this: a deal isn’t dead until it’s dead. So, if a counteroffer is proffered by the seller, you’re still in the game. You and your agent just need to review it determine whether the counteroffer is acceptable. If so, then approving it closes the deal immediately. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual. Each revision should bring both parties closer together on the terms of the deal.
Q: Should I order a home inspection?
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.
Q: Do I need to do a final walk-through?
It’s not required, but it’s a darn 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.
Q: I’m Ready to Buy a Home. What’s the First Step?
A: While attending open houses is much more exciting than filling out paperwork, the first step a homebuyer should take is getting pre-approved for a loan. This helps you determine how much house you can afford and set a firm budget. Sellers are also more inclined to take you seriously and consider your offer if they know the home is within your pre-approved limit.
Q: How Does My Credit Score Impact My Home Loan?
A: When determining how much home you can afford and whether you are eligible for a home loan, a lender will look at your credit score. Typically, you need a score of 580 or higher to qualify, but it is recommended to have a 620 or higher. The higher your credit score, the better lending terms you may be eligible for.
Q: How Many Homes Should I View?
A: There is no right or wrong number of homes you should view before making an offer. Some people find their dream home on day one while others house hunt for months. View as many as it takes to find the home that fits your needs.
Q: How Do I Search for a Home?
Start by viewing MLS listings on a real estate database, such as VegasRealtyPro.net. Narrow down the results by searching for homes within your price range and with the desired number of bedrooms and bathrooms. Your real estate agent can also research homes and make recommendations based on your criteria.
Q: How Safe is the Neighborhood?
No one wants to live in a dangerous city, but your real estate agent can’t help you with this question. Due to the Fair Housing Act, a real estate agent cannot answer questions regarding crime statistics. Before starting your house hunt, research crime data for the cities and neighborhoods you are considering.
Q: What Should My Down Payment Be?
A: While it depends on the type of loan, most mortgage lenders require at least a 3-percent down payment, and FHA loans require a minimum of 3.5-percent down. The percentage you are required to put down will depend on your credit history, the type of property, and several other factors. In 2014, the average down payment was 14 percent.
Q:. How Long Does the Home-Buying Process Take?
A: The process varies significantly and depends on the state in which you are buying and the type of property you are purchasing. Once the seller has accepted your offer, it takes an average of 36 days to close. FHA and VA loans can take a few additional days, and short sales are notoriously slow, taking an average of 90 to 120 days to close.
Q: How Will My Home Purchase Affect My Taxes?
There are a number of tax benefits to buying a home, but filing your taxes can be a lengthy process if you aren’t used to itemizing. You can deduct your mortgage interest payments, as well as property taxes, points paid at closing, interest on home equity loans, lines of credit, and other items. A tax professional can help you decide what to itemize.
Buying a home for the first time can be overwhelming. Working with an experienced real estate agent can help you navigate the world of real estate and address your questions.
Q. Why do I have to obtain another pre-approval letter from a different lender when I make an offer on a home?
A: Cross-qualification is imminent in certain markets, especially with bank-owned or short sale properties. Some of the large banks that own homes require any potential home buyer to be qualified with their preferred lender – who is typically a representative of the bank that owns the home. This is one way for the bank to recoup a small portion of their loss on the home from the previous foreclosure or short sale. In other scenarios, the listing agent/seller prefers to feel safe in knowing the home buyer they’ve selected has a back up plan should their current one not work out.
Q. I was pre-approved, but after I found a home and signed a contract, my lender denied my loan. Is this a common trend?
A: There are literally hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute, and then after the fact in some unfortunate instances.
With the borrower – credit scores, income, employment and residence status may change. With the property – appraised value, poor inspection report, title transfer/ property lien issues, seller cooperation, HOA disclosures. With the mortgage program – Interest rates can change affecting the DTI ratio, mortgage insurance companies change guidelines or go out of business, new FICO score requirements etc. It’s important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team through the entire process so that they’re aware of any delays or changes in your status that could impact your final approval.
Q. What happens if I can’t find a home before my pre-approval letter expires?
A: Depending on your mortgage program and final underwritten conditions, you may have to re-submit the most recent 30 days income and asset documents, and have a new credit report pulled.
It’s important to know critical approval / condition expiration dates if your real estate agent is showing you available short sales, foreclosures or other distressed property purchase types that have a potential of dragging a transaction over several months.
Q: Should I buy instead of rent?
A: The first and most important question you should ask yourself is if you want to buy a home versus renting. We have a few articles in our Renting vs Buying section that will “test” you on the responsibility of being a homeowner.
Q: Can I become a homebuyer even if I have bad credit, and don’t have much for a down-payment?
A: Having credit problems doesn’t automatically mean you can’t become a homeowner. Many mortgage loan officers can help you with your questions and inform you about special loans for people with credit challenges. But first you need to try and do the following items: check your credit report and review it for any errors, pay all your bills on time, be aware of how and when you use credit cards and avoid credit-repair companies who charge a fee for services.
Q: Should I use a real estate agent? How do I find one?
A: Finding a real estate professional is a crucial part of the home buyer process. As we mentioned previously, buying a home is a huge step, so you want to find someone who will understand your needs and look out for your best interest during this transaction. We’ve got the tips to finding the perfect real estate professional to help narrow down potential agents for you.
Q: How much can I afford and besides the mortgage payment, what other costs do I need to consider?
A: When you qualify for a home loan and look at the monthly mortgage payment it may see ‘doable’ but you must also factor in the additional costs associated with home ownership. Many times you can have your mortgage insurance and real estate taxes rolled up into your monthly payment; however, additional utility costs, condo or homeowner’s association feeds and property taxes also need to be factored in.
Q: How do I find a lender?
A: You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Different lenders can offer different interest rates and loan fees, so it would be best for you to take your time and shop around for the best deal.
For additional home buyer resources, visit the our moving costs page or you can browse questions that home buyers and sellers are asking on our Q&A community.
Q: Do I Really Need A Realtor® To Sell My Home?
A: One of the most common questions that sellers have when selling a home is if it's worth it or not to hire a Realtor®. Now certainly I'm biased to this question, but there are way more reasons why it's worth hiring a Realtor® rather than attempting to sell a home by owner.
The number one reason why hiring a Realtor® is worth it is because of the knowledge a top Realtor® will have of the local real estate market. By having a strong knowledge of the local market, a real estate agent knows the importance of properly pricing a home for sale. A home that is overpriced will be at a severe disadvantage when comparing to other homes for sale in an area and potentially may not sell.
Bottom line, if you're asking yourself, is hiring a Realtor® to sell my home worth it, the answer is absolutely!
Q: Why Is It Important To Choose The Right Realtor®
A: After a seller realizes the importance of having a Realtor® and has a handle on how to correctly choose a Realtor®, many sellers wonder why choosing the right Realtor® is so important. Home sellers who pick an agent who may not be the best fit to sell their home can be costing themselves thousands of dollars. Sellers need to understand why picking the right real estate agent is critical. Picking an agent who prices a home too high, puts a sign in the yard and does nothing else to market the home, and an agent who isn't an effective negotiator is a recipe for disaster.
Q: What Marketing Strategies Will You Use To Sell My Home?
A: By now you should be able to tell the importance of correctly marketing a home for sale by reviewing the previous 3 common questions from home sellers. One of the most common questions from home sellers is in regards to the real estate marketing strategies Realtors® use to sell homes.
A home that is priced properly and given maximum exposure should sell in a very short amount of time and for top dollar. Some of the top real estate marketing strategies that top Realtors® are using to sell homes include;
1. Print & traditional marketing such as post cards, TV, and newspaper ads
2. Online exposure
3. Social media
4. Content marketing
These are 4 of the most important marketing strategies that top agents are using and what a seller should expect from their agent. Real estate agents who are not using the Internet or not using social media as a channel to give their sellers homes exposure are potentially costing them money and wasted time.
Q: How Do You Determine The Market Value (List Price) Of My Home?
A: Many home sellers ask how real estate agents determine the market value of a home. Rightfully so, this should be something sellers should inquire about. There are many resources available for sellers to find estimated values of their home online, but it's important to take that information with a grain of salt. Sellers need to understand how the market value of a home is determined. One of the best questions for a seller to ask a real estate agent about is how they plan on determining the price of their home. There are several methods that can be used to determine the market value of the home, with the most effective being the comparative market analysis (CMA) approach.
Other methods for determining market value include the price per square foot method and appraisal method. It's important that when selling a home, a seller understands how their real estate agent is going to determine the market value of their home.
Q: What Are The Costs Of Selling My Home?
A: Another common question from home sellers relates to the costs of selling a home. Many home sellers don't realize there are costs to sell a home. Since a home sale is one of the biggest transactions someone will be involved in, it's critical to know what all the costs involved are. Below are some of the most common costs of selling a home.
1. Brokerage fees/real estate commissions
2. Seller concessions (if applicable)
3. Title search
4. Instrument survey
5. Home warranty (if applicable)
6. Transfer taxes
7. Capital gain taxes
8. Costs of various repairs from inspections
9. Existing mortgages or home equity loans
Q: What Should I Do To Prepare My Home For The Market?
A: Home sellers who prepare their homes for the market, in most cases, will sell their home for more money and in a shorter amount of time. There are certain steps that should be followed to make sure a home is market ready.
Not only is being market ready important there are also steps to ensure the home is "show ready." There is only one chance to make a first impression with a buyer. There are many home selling checklists that are available for sellers to ensure their home is not only market ready but also show ready.
Q: Should I Stage My Home Or Sell It Empty?
A: Many home sellers wonder whether selling a home staged or empty makes a difference. There are certainly PROs and CONs to both. There are some buyers who cannot envision their own belongings in a home that is full of other peoples belongings while others prefer to see how a space is utilized. One of the biggest considerations when determining whether to sell a home staged or empty is the price it would cost to stage a home.
If the cost to stage a home is thousands of dollars but the sale price would be thousands higher, it is likely worth staging a home. The answer to this question is not concrete and will depend on each sellers situation. It's important that sellers ask their real estate agent what they think and why in order to make an educated decision whether to sell their home staged or empty.
Q: How Long Will It Take To Sell My Home?
A: Similar to the question about staging or selling a home empty, the length it takes to sell a home is not concrete. There are many factors that contribute to the amount of time it will take to sell a home.
For those home sellers who are wondering how long does it take to sell a home, below are some of biggest contributing factors that impact the amount of time it takes from listing date to closing date.
1. Current state of real estate market (sellers market, buyers market, balanced market)
2. Listing price
3. Real estate marketing strategies used
4. Number of inspection contingencies
5. Buyers mortgage approval process
6. Closing document review process
Q: What Should I Avoid When Selling My Home?
A: Home sellers who are concerned about what they need to avoid are taking the sale of their home very serious, and rightfully so. There are certain home selling blunders that some sellers make that can kill a home sale before it even gets going. It's important to avoid home selling mistakes such as hiring the wrong agent, pricing a home too high, not accommodating showings, and being unrealistic with negotiations. By avoiding these items when selling a home, a seller exponentially increases the chance of a successful sale of their home.
Q: Should the Seller and Buyer sign a contract prepared by the real estate agents?
A: It depends on whether you have had your attorney review it and discuss it with you first. It is easy to get caught up in the excitement of buying or selling a house and signing a contract on the spot. The problem is, however, that it often results in the parties signing a contract without having an attorney review it. Once a contract is signed by both parties, the Buyer and Seller are legally bound to its terms and it may be too late to use any of the good counsel and advice of your attorney. If time does not permit for this review before signing a contract, then at least include in the contract a provision that it is “subject to Buyer’s / Seller’s attorney review and approval” within some agreed time period. This will provide the parties with additional time to allow their respective attorneys to review the contract with their client’s needs in mind and negotiate the terms if necessary.
Q: Does each party to a real estate transaction pay their own Realtor?
A: Usually not. Typically, it is the Seller’s responsibility to pay both the listing agent as well as the selling agent, who may be the same party. Accordingly, pursuant to common agency law, both of these agents work for the Seller. There are occasions, however, in which a party will hire – and pay for – the services of a Realtor working exclusively for that party. Realtor commissions are usually 6% of the sales price, but may be negotiable. Also, Buyers and Sellers must review the contract carefully to determine whether the Realtor is charging either party an additional administrative or processing fee (which generally ranges between $150.00 to $400.00).
Q: Why hire a real estate attorney for a closing if the parties are represented by real estate agents and can use a title company instead?
A: The real questions ought to be: Why wouldn’t I hire an attorney? Buying or selling a home is often the biggest transaction in a person’s life, with much money involved and risks incurred. While it is true that a real estate agent often prepares a real estate contract and a title company can act as closing agent, the attorney is the only party that can advocate a position and give its client legal advice. Buying and selling real estate is an important transaction and to do so without legal representation can be dangerous. We always recommend hiring an attorney before signing a real estate contract (see above). Attorneys are trained, have the experience to know what issues can arise during a real estate transaction and can protect a Buyer or Seller by helping to negotiate the contract. Attorneys may also be able to advise their clients on issues ranging from title, zoning, financing, inspections, taxes, and other contract contingencies that title companies cannot.
Q: How early should a Buyer apply for a mortgage when looking for a house?
A: It doesn’t hurt to meet with lenders, whether it is a bank, mortgage broker or mortgage banker, before you enter into a real estate contract. In fact, educating yourself about the costs of financing a home often may help you determine how much of a house you can afford. Pre-qualifying for a mortgage is also a good idea because (i) Seller’s will be more comfortable entering into a contract with a pre-approved Buyer (which may be the “clincher” that “gets you the deal” over a competing buyer) and (ii) standard residential contracts only afford the Buyer approximately 5 days following the execution of the contract in which to apply for a loan and 30 days in which to receive final approval and/or loan commitment from the lender. Often your real estate attorney can refer to you lenders who can help meet your financial needs as well as the deadlines under the contract.
Q: Does a Seller have to make all the repairs listed under the Buyer’s Inspection Report?
A: The terms of the Contract will provide the answer. The Buyer should employ a licensed inspection company to inspect the property and prepare a written inspection report for the parties, and such report must be delivered to the Seller under the time guidelines set in the Contract. Once the Seller receives the inspection report, they are customarily obligated to make non-cosmetic repairs as set forth under the contract. Also, depending on the contract, the Seller may only have to make repairs up to a specific monetary limit and, if the repairs exceed that amount, the Contract will control the parties’ rights.
Q: How does a Buyer know if the Seller really has title to the property being sold?
A: A search in the public records of the title to the subject property is prepared and analyzed by the Buyer’s attorney to determine who holds title. Often, the contract will provide for one party to prepare a title insurance commitment and, after the closing, a title insurance policy, on the subject property.
Q: What happens if the parties are not able to close by the closing date in the contract?
A: If the contract includes a “time is of the essence” provision, the contract’s closing date is a firm one; if not, then a “reasonable” time will be applied. Of course, there are other contract terms that may affect the occurrence and timing of the closing date.
Q: How does a closing take place if any of the parties are out of town on the closing date?
A: Closing real estate transactions can be done either in person or by mail away. If either the Buyer or Seller will be out of town on the date of closing, they will need to notify the closing agent as soon as possible so that the closing agent can coordinate any of (i) a pre-closing signing, or (ii) a mail away of the closing documents (including the loan documents).
Q: How can the Seller protect itself and ensure that the Buyer is acting in good faith?
A: By taking certain measures at the time the contract is executed. If the Buyer does not need financing to close the transaction, then the contract should not provide a way for the Buyer to opt out for lack of financing. If the Buyer needs a loan, then the Contract should provide that Buyer make application for the loan promptly, provide Seller with proof of application immediately, and diligently pursue the financing. The Contract should require that Buyer place in Deposit an adequate amount of money, and that the Buyer conduct its inspections promptly.
Q: What exactly happens at closing?
A: Closing is the process in which title is actually transferred from Seller to Buyer. Seller executes all documents transferring title to the property to Buyer and Buyer signs loan documents, if applicable. Parties should always bring photo identification with them to the closing. Seller must bring all keys, garage door openers and other pertinent information for the Buyer. Buyer must bring the funds necessary to close the transaction, either in the form of a cashier’s check or wire funds prior to closing.
Q: Who pays what at closing?
A: The Contract will control who pays costs at closing. However, typically, Buyer is responsible for all costs related to the loan, including bank fees, escrow, if applicable, title insurance for the lender and Buyer (depending on location of property), survey, recording fees for the mortgage and taxes on the mortgage/note, and attorney’s fees. Seller is generally responsible for realtor commissions, title searches, transfer taxes on the deed, and its attorneys’ fees. Who pays the Buyer’s title insurance premiums is often determined by the county in which the property is located.
Q: What Happens Prior to the Closing of a Home?
A: There are several steps that need to take place in any real estate transaction prior to a closing appointment. Only after the following steps are completed will the closing take place:
· A purchase agreement needs to be finalized.
· A home inspection needs to be approved.
· An appraisal of your home needs to be completed.
· The mortgage application is completed and approved.
Q: Which Party handles Title and Closing Costs?
A: The responsibility for title and closing costs is negotiated as part of the real estate transaction. The responsibility will vary based on the individual sale. In most cases, the buyers and sellers will split the costs associated with the title and closing costs.
What Do I Need to Bring to the Closing?
· Identification will be needed at the closing: A government-issued identification card such as a driver’s license or a passport. In some cases, two different forms of identification are required.
· Additional paperwork may be required at the closing, such as proof of homeowners insurance, the results of a home inspection and other legal documents needed for the transaction.
· Your spouse should accompany you if you are married. A form of identification from your spouse will be needed.
· A cashier’s check should be brought to the closing in the total amount of the down payment and closing costs. Your mortgage lender will provide you the final amount prior to the closing, allowing you to prepare the check from the bank.
Q: What Can I Expect at the Closing?
A: Expect the closing to last for about an hour. The length of time the appointment will take may vary based on the complexity of the transaction and the availability of funds. Both parties will be required to sign off on several different documents during the appointment.
The closing agent will be available to explain the details of all the documents you are signing and answer any questions.
Q: What Documents Are Signed at the Closing?
A: You will be signing many different documents on the day of your closing, including:
· Title Transfer: This document transfers the ownership of the home from the previous owners to you.
· Truth-in-Lending Statement: This document details the fine print of your mortgage loan, and your mortgage company by law is required to provide you with it at the closing.
· Title Insurance: Title insurance protects you as well as your lender from any issues regarding the title of your home.
· Mortgage Loan Documents: These documents will finalize the approval of your loan and will give you the necessary financing to purchase it.
Q: What will my real estate agent do for me?
A: Too much to list, but a short list would be:
1. Real estate agents act as a consultant and offer up specialized advice on specific properties and neighborhoods that their clients may be considering.
2. They negotiate on behalf of their clients. They should be able to broker an agreement between parties while building in safeguards to protect their clients, if the deal goes south.
3. An agent will facilitate the contract through closing. Contracts are extensive and have many timelines that must be adhered to. The agent can ensure all deadlines are met and closing happens on time without costly delays.
Q: Who pays the commission fees and how much do I owe you?
A: The commission fee will be a percentage of the home's sale price — typically 6% — that's then split as payment to both the buyer's and seller's agents and their companies. However, the exact percentage paid is negotiated on a case-by-case basis, so it may vary.
In a traditional sale, the seller will be responsible for paying the entirety of the commission fee at settlement. (The buyer's portion of this fee is usually accounted for in the sale price and unofficially rolled into their mortgage payment.) That said, with more unusual purchases like short sales, foreclosures, and auctions, sometimes the buyer will have to pay the fee upfront.
Q: How much of a down payment do I need?
A: Most buyers assume you still need to have 20 percent for a down payment and that is not true anymore. These days, most mortgage lenders are now offering conventional loans with as little as a 5 percent down payment to those who qualify and FHA Loans are still offering their 3 percent down payment.
The specific rates and programs available to you will vary according to your market and unique financial situation, so you should absolutely talk it over with your lender. But, that's a much more realistic ballpark to start with.
Q: How much should I offer?
A: It depends. I like to tell my clients to look at a variety of factors:
First, look at how the home is priced compared to similar properties. Your agent can help you get a list of these together and it will give you a realistic starting place.
Next, find out how long the home has been listed. (If the home has been on the market for a while, the seller will probably be more open to negotiation than if the home is newly on the market.)
Finally, be realistic about your local market conditions. If it's a seller's market and homes have been going above asking price, you need to be prepared to price your offer competitively.
Q: What are contingencies? Should I include them in my offer?
A: Contingencies are anything that needs to occur in order for the deal to continue moving forward. They can be things like inspections, the receipt of deposit monies, or obtaining a mortgage commitment. Nearly anything can count, as long as both the buyer and seller agree to it. Sometimes, in competitive markets, there's pressure to leave contingencies like inspections out of your offer. However, this is really a personal decision. Ask yourself whether you'd feel more comfortable getting the house without knowing exactly what repairs will be needed or if you'd feel better going into the deal with certainty, even if it means potentially losing out to someone else.
Q: Should I have the seller make repairs or reduce the sales price?
A: I always tell my clients that it's best to have the seller make the repairs on structural issues (roof, foundation) and mechanical issues (hvac, plumbing). These big ticket items will usually still need to be taken care of, even if your deal falls through and there can often be complications. Let the seller deal with those risks and headaches!
If the issue is minor, something cosmetic or that you can live with for a while, I recommend getting an estimate done for the cost of the work and asking the seller to reduce the sale price accordingly.
Q: How do I know the property value will increase?
A: Although there are no guarantees, there are clues and historical data that are indicative of future performance. One thing that drives home values in the DC metro area more than anything else is the addition of “walkability” and commercial/retail space.
If you know the area is changing and is going to increase in density or desirability, you are likely to see an increase in value over time, perhaps more than other areas. I always tell my clients to not go on hearsay, but look at projects that have actually gone through the planning, development, and funding stages.
Being near transit is also a good indicator that your value will increase over time. The good news about the DC market, in general, is that our population is increasing, our unemployment is low, and our economy is booming. That is a recipe for an increase in value over time.
However, you still need to buy smart — each neighborhood, block and/or building can be different and it’s important to understand that you don’t overpay.
There is an old saying that says you make money in real estate when you buy, so focus on that and you’ll be fine when you sell.
Q: Should I put a deadline on an offer?
A: This is a tough question to answer and really depends on the specific situation of the home you are bidding on.
In more competitive neighborhoods, most sellers want to give their home full market exposure to get the highest price possible. That means sellers tend to have their own deadline for any and all offers. If a seller is not anticipating multiple offers or perhaps just wants less inconvenience or a need for a quick sale, moving quickly with an offer and having a deadline for a response can be a useful strategy.
If you are going to put in a deadline, make sure to give one that allows for enough time for the seller to respond, but not long enough for another offer to swoop in.
Again, it depends on the particular situation. I have found that 8-12 working hours (not sleeping hours) is often a good time period for a deadline. Often times, this could mean avoiding a bidding war.
But you’ll have to make it worth the seller’s while to want to take their home off the market quickly—perhaps a higher price than asking and favorable terms such as no or short contingency periods.
In some situations, a deadline will not make the seller respond, so be prepared for that outcome as well!
Q: Is it worth it to find something faster when interest rates are low?
A: No! Don’t let interest rates dictate your time to buy a home. We are still in a period of historically low-interest rates and they aren’t expected to spike any time soon.
A slight increase in your interest rate is not going to make the home you want unaffordable. And, just like buying and selling other investments, such as stock, timing the market is never a good idea.
Buy and sell when the time is right for you. Speak with an expert about perhaps which month is best, but always go based on your own timeline and schedule.
One thing I know for sure—there will always be homes to buy. And, when interest rates rise a lot, that often times leads to a slight cooling of prices.
Q: How do I get a good deal?
A: Good question and one I focus on for each and every one of my clients! I always say, you make money when you buy in real estate, so making sure you buy right is HUGE.
The one and only way to make sure you are getting a good deal is to look at the specific neighborhood, building or block you are buying in and compare your home to what has sold over the last six months to a year. There will be a range in price depending on specific location (for example, a basement unit will sell for less) and condition (just renovated will sell for more). Compare the home you want to buy with what has sold recently to make sure you are not overpaying.
Also get information from your agent about whether it’s a sellers’ market or a buyers’ market, and make your offer accordingly. The longer a home sits on the market, the more likely you can get a lower price. And please keep this in mind—just because something is “cheap” doesn’t mean it’s a good deal. Be sure not to make this crucial mistake!
Q: If the house I want is $20k over my price range, does that mean I can’t afford it?
A: Maybe, maybe not… I tell my clients to focus on your monthly payments, not just on a purchase price. By doing this, you’ll know what you may or may not be comfortable paying for a home every month.
In other words, focus on the fact that you want to pay, say, $2,500 per month on your new home and NOT on a somewhat arbitrary price point. Why? Because for every $10,000 change in price, your monthly payment only goes up about $50 per month. When you look at it that way, you might be able to afford the home of your dreams or that home you just fell in love with. So, that extra $20,000 price tag equates to an extra $100 per month. Is that something you can handle? If so and it’s a home that has everything you’d ever want, go for it…as long as it doesn’t break the bank or make you need to change your lifestyle in any way that is uncomfortable.