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Buyers, this will likely happen too you

You will not be told how much money to bring to closing until the day of your closing and many times only hours or minutes before the closing
The dates on your contract will change, perhaps multiple times
You will become anxious or nervous
You will become irritated or annoyed about frequent and last-minute paperwork requests with seemingly impossible deadlines
You will negotiate 2-5 times on this transaction, including the purchase price, the inspection, potentially the appraisal, and the final walk-thru
You will want to tell your friends and family about your experience on social media sites – Don’t!
The mortgage company will pull another credit report on you days before—or even the day of—your closing

Questions from Home Buyers:

What are the benefits of owning vs. renting?
holding-house-vs-moneyPurchasing a home can be a very smart financial decision. When you pay rent, you are paying to have a roof over your head, and that’s about it. When you pay your mortgage, you are making an investment. Equity is the difference between what your home is worth and what you owe on it, and can be a very powerful financial tool. Generally speaking, a home appreciates in value which doubles the bang for your buck. Additionally, mortgage interest paid is tax deductible, which can save you money come tax season. This is especially true during the first couple of years of home ownership, as a larger portion of your mortgage payment is actually interest on the loan as opposed to principal payment. To learn more about the benefits of owning, we recommend you speak to your accountant or financial advisor. Owning also means not having to deal with landlords and the rules that come along with renting. You’re free to decorate and change the place as you please because it is your home, not someone else’s.

What do I need to have in order to purchase a home?
As you’ve probably heard, buying a home is the biggest investment most of us will make in our lifetimes. If you have the following items, you are probably financially ready to purchase a home.

1. A steady, reliable source of income: most lenders require a buyer to have worked in the same position or industry for at least two years before they will approve them for a loan.

2. Good credit: you will also need to prove that you have been able to keep up on payments on financial obligations you’ve committed to in the past and present. Knowing your credit score can give you a leg-up in knowing whether or not you’re prepared to purchase.

3. Ability to maintain savings: lenders like to see that you are financially responsible enough to plan for the future by having a decent sized savings account. Some loans require as little as 0% down, but having a down payment of 5% or more makes the process much easier, faster, and in the long run, cheaper because you will not be paying interest on whatever you can put down.

4. Few existing outstanding debts: If you’re already financially tapped, chances are you will not have the income to pay back a loan. Try to have as few payments as possible on things that can be paid off, such as car payments, credit cards, or personal loans.

5. Ability to pay a mortgage every month, and still afford to eat: Lenders use something called a “debt-to-income ratio” to decide how much you could afford to borrow. Your income will need to be enough to ensure that they will get paid and that you will not fall behind on your other obligations, including every day living expenses.

What are the benefits of pre-approval?
Meeting with a lender is step one when preparing to purchase. They will help clarify what kind of loan fits your financial needs, how much money you can afford to borrow, and essentially, how much home you’ll be able to buy. Alternatively, they may tell you that you are not in a position where it would be smart to buy, and they can offer helpful advice as to how to get yourself better situated. If approved, your lender will supply you with a pre-approval letter, which can be a very powerful tool to have. It communicates to your REALTOR that you have done some work and are sincerely preparing to purchase a home, and comes in very handy when you are ready begin the purchasing process, as your REALTOR will oftentimes send it along with your offer to express to the sellers that you are a serious buyer.

What costs are involved with purchasing a home?
It can be easy to get swept away in the romanticism surrounding the purchase of one’s first home, but it is always important to be aware of and keep in mind all of the real-life costs that are involved. Begin by looking at how much of a down payment you can afford, if you can afford one at all. The more you put down on a property, the more comfortable your lender will be with lending to you. There are loans that allow you to proceed with a purchase with no down payment, but those come with costs of their own in the form of private mortgage insurance (PMI) to protect the lender in case you default on your payments. Once you have your down payment amount, you can begin assessing your finances to decide how much of a mortgage payment you can afford. Its important to note that a mortgage payment is not only the repayment of the principal amount that your borrowed initially. It also contains the interest the lender is charging you, your homeowner’s insurance, and, if you choose to have them escrowed, your taxes. You will also want to have a set amount of money ready to go for an earnest money deposit (EMD) when you get to the point of making an offer on a home. The need for EMD is described in a subsequent question below. You will need to be prepared to pay for an inspection and an appraisal, which usually run around $500 each (depending on how thorough you want the inspection to be). Inspection isn’t required by lenders, but we very highly recommend having one done. Spending a couple hundred dollars now may save you thousands, or tens of thousands in the future. Lastly, you will have closing costs with the bank. These generally come in at about 3% of your loan amount and cover things like escrow fees, origination fees, credit report fees, etc. To get a more accurate idea of how much it will cost to purchase a home, we recommend speaking to a mortgage consultant.

Why is an earnest money deposit necessary?
Simply put, the earnest money deposit (EMD) is the buyer’s way of telling the seller that they are a serious buyer. By putting some of their own “skin” on the line, both parties are ensured that the other is taking the execution of the contract seriously. For example, a buyer who has made their EMD cannot simply pull out of a purchase agreement for no good reason, or they will risk losing it. In such a case, the sellers get the money as a sort of compensation for the time that their home was unavailable for other potential buyers. If everything goes smoothly and the deal closes, the EMD goes toward they buyer’s home purchase costs. While things are processing, it is held by either the title company or broker in a non-interest bearing trust account for safe keeping.

The question of how much money should go into an EMD depends on the cost of the home for sale. For smaller purchases, a sum of about $500 tends to be enough for the sellers. For larger purchases, sellers sometimes ask for a grand or more because so much more is on the line. An EMD can also be a good bargaining tool, with the assumption being that if they are willing to put down more money up front, they must really want the home and will do everything in their power to ensure the contract executes with as little trouble as possible. Buyers like that are very attractive to sellers.

There are often provisions in a purchase agreement protecting both the buyers and the sellers with regards to the EMD. An offer is often “contingent” upon certain conditions that need to be met on the side of the buyer (most often; a satisfactory inspection and financing approval), meaning the buyer has time to ensure the property is in as good condition as was portrayed by the sellers and that the bank will come through with money with which to complete the sale.

What does “pending” mean?
When a home is “pending,” it means that there is an accepted offer on the home, and the buyer is currently going through the process of purchasing the home. “Pending with contingency (PWC)” means that there are conditions that need to be met before the contract can be executed and the sale completed. Most often this is the inspection and financing contingency, but it could also be pending a sale on the buyers home. Once the buyer has had a chance to ensure that the condition of the property is acceptable to them and the bank has decided (usually after an appraisal) that they are willing to lend the buyer the money for the purchase, the home usually changes to “pending” which just means they are waiting for title work to be completed and the closing date to be set. PWC homes are on their way to being sold, which means sellers often times will decline showings while the contingent offer is being processed. If you are interested in a pending home, don’t count on it, but ask your REALTOR to contact the listing agent and ask them to inform you if the current deal falls through. A smart listing agent will keep you name handy just in case, giving you a leg up in case anything happens. In the end, focusing on “active” listings is the best way to search for realistic options.

How many homes should I look at before making an offer, and what should I look for during the walk through?
looking-at-houseThe answer to the first part of this question really does not exist; at least not in a way that a general FAQ on a real estate website can express. Everyone is different, some people look at one house, make an offer, and become homeowners. Others need to look at 30+ properties before they feel prepared to make an offer. The best thing to do is to spell out what you are looking for, decide where you are willing to compromise and what qualifies as a deal breaker. Research the properties that interest you beforehand. Ask your Realtor to find out about the home before you waste your time, your Realtor’s time, and the seller’s time looking at homes that didn’t really fit your preferences in the first place. When you do find a home that peaks your interest, the following are good areas to keep in mind while doing a walk through:

1. Exterior damage: Check the roof condition, siding, paint job, and yard condition. These are all items that could come with large costs if repairs are needed down the road.

2. Interior condition: The key with the interior of a home is to try to avoid being distracted by “cosmetic” issues; things like paint color, carpet condition, etc. These things can be changed at a relatively low cost to the buyer. Focus on searching for structural issues such as plumbing, electrical issues, an appliances if they are negotiable, and age of larger items like the furnace and water heater. Be sure to get a copy of the seller’s disclosures for review. It is against the law for a seller to knowingly keep information about disrepair of a home. It is worth noting that if you decide to make an offer on the home, an inspection will generally be completed, so don’t feel like you need to dirty yourself in the crawl space to check the plumbing on an initial walk through. There will be plenty of time to ensure condition is acceptable.

3. Use all of your senses: Look at the layout of the home and make sure you like it. Check the basement for water issues and mold. Flip the light switches, flush the toilets, run the faucets, touch anything that can be tested and make sure it works correctly. Listen for strange noises when the heat comes on, or creaks in the floor when walking around. Be aware of the smell of the home. Odor can be a difficult thing to get rid of even when personal items of the home are removed. Cigarette smoke, cat urine, sewage, and gas smells are odors that can be more difficult to remove. You may even want to taste the water, if applicable, and make sure you will not need to spend unplanned money on a water purification system. The last idea might be better addressed by asking your Realtor to find out the history of water usage at the home to find out if the water is safe to drink.

4. Be aware of the land and other surroundings of the home: Does the land have flooding issues? Is it near any noise-producing places like a train track?

5. Decide on your deal breakers: If you must have granite counter tops and are not willing to install them yourself, do not waste anyone’s time (especially your own) by looking at a home that doesn’t have them. Make a list of requirements and deal breakers, do your research to ensure you’re spending your valuable time on properties that are worth it to you.

6. Lastly, get a home inspection: a professional will know exactly what to look for and where, and will provide you with a comprehensive report for you to review and decide if the home is still worth pursuing.

How much should I offer?
Consult with your agent on this. Many factors play a role in this decision such as the sellers’ reason for selling, lending regulations, location, market conditions and more. A good agent will be familiar with the inventory in his/her market place and can offer valuable insight as to a good opening offer. Keep in mind sellers can be offended by “low-ball” offers, it is important to find the sweet spot to get the lowest offer in without turning them off completely. If this happens you can kiss the chance at getting the property for a lower price goodbye. A listing agent must by law deliver every single offer, but the seller doesn’t have to engage in negotiations if they do not wish to. Don’t let this happen to you, consult with your agent and come up with a good game plan to get the best price on your new home without insulting the seller.

What happens at closing?
Closings can be done at the bank, title office or real estate office, or they can also be done via overnight mail for buyers and sellers who are not able to physically be at the closing. Closings are generally facilitated by the title company and done at the bank in which the buyers has chosen to lend with. Cash sales and other closings are usually done at the title office.

At the closing we will meet at one of the predetermined locations above with the buyers, sellers, real estate agents and the lender. The lender will usually take the buyers back first to sign all the lending documents, this usually takes about 20-30 minutes. Once that has been done, everyone will get together and the real estate documents will then be signed. This only takes 5-10 minutes as long as you don’t find it necessary to read every document top to bottom. If you do prefer to be more thorough with your review of legal documents, most of the items can be given to you in preliminary form. Any and all questions can be answered by the title company.

Lastly, after everything has been signed, keys will be exchanged. This time is best used to speak with the buyers and seller to exchange information about the house, neighbors, extra mail that might be coming and often times exchange contact information if you have questions about your new house.

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