Frequently asked questions
What's 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 get 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 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).
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 an 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.
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.
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.
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 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.
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).
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.
How Do You Figure Out The Value of My House?
Regardless of whether you’re buying a home, selling a home or trying to do both at the same time, understanding the seller’s market will help give you an edge over the competition. A seller’s market means there’s more demand for homes than there is supply, and it’s what we see in most real estate markets today.
What is a seller’s market?
Regardless of whether you’re buying a home, selling a home or trying to do both at the same time, understanding the seller’s market will help give you an edge over the competition. A seller’s market means there’s more demand for homes than there is supply, and it’s what we see in most real estate markets today.
– The average time it takes a home to go from “listed” to “sold” shrinks. In the past, a home might have taken 11 weeks to sell. But in today’s market, the average time on the market is just 3 weeks.
– Some homes may never be officially listed at all. When the market is this hot, some houses are sold through “pocket listings” (in which an agent may first look to their personal network for a buyer) or private deals, as opposed to publicly listing the home.
– Increases in homebuying can signal an overall healthier economy, too, which may cause mortgage interest rates to rise.
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.
When Should I Sell My Home?
Another popular question to ask a Realtor is when should I put my home on the market. This is one of my favorite questions from home sellers. Why? I will answer honestly, while most agents will always say “right now.” It is still easy to spot an agent that gives advice based on what’s best for them.
Of course, you want to sell when you are likely to get the best possible results. But when is that? The answer is complicated. Generally speaking, the best time to sell is when you are ready. There are advantages to selling in every season, despite what some agents may try to tell you.
Spring is undoubtedly considered the most ideal in many circles, but that does not mean you can’t get great results in summer, winter, and fall. You just need an agent who knows how to sell year-round. They are out there, so if you want and need to sell in a season that isn’t’ spring, know that you can do so and be happy with the results.
You can learn the tips for selling a house in each of the seasons of the year. Whether you are selling in the spring, summer, fall, or winter, you’ll get some excellent advice for each of the time frames you might choose to sell your property.
If time is of no consequence, then sure, Spring is probably the best time of year to sell. If I was selling my own home and had no time constraints, that’s when I would do it.
How Do I Get My Home Ready to Sell?
An excellent question for any seller to ask a Realtor is, “what should I do to get my house ready for the market?” There is a lot of work to be done before you list your home.
Everything must be done behind the scenes before allowing buyers to look at your home and start asking questions.
That way, when you finally open the doors, you are prepared to make a sale then and there—and don’t need to do a bunch of stuff that you overlooked.
Your agent is the best-qualified person to help you identify what needs to be done before you sell. Keep in mind that every home is different, so the advice you get for your home might be different than the information another seller would get.
That being said, there are some things that almost every seller needs to do. These include:
- Clean things up. No one wants to buy a dirty house. Or, in reality, only bargain seekers are going to be highly interested in a cluttered, messy home because they assume they can get a great deal from an as-is seller. If you want reasonable offers, you need to remove clutter and clean it thoroughly.
- Declutter and rent storage if necessary. When selling a home, first impressions and appearance can make or break how much you’ll put in your pocket. It’s wise to declutter your home as much as possible. A few great ways to do that are having a donation pick-up or renting a storage pod or storage unit.
- Make needed repairs. Broken door handles, missing tiles, stained carpets—there are probably several little jobs that need to be done around your house before you list it. The more of these small, cheap fixes you make, the more desirable your home will be. Proper home maintenance shows you care for your property. There may also be big jobs that need to be done. Wait to talk to your agent before you invest in any major repairs to be sure that doing so will benefit your sale as you expect. Doing your part before the home is listed for sale is also a side benefit for being ready for the house inspection.
- Take great pictures. The photos on your listing are the first thing that most buyers are going to see. You want them to be good, and it takes talent and practice to produce those kinds of pictures. Your agent should either be skilled at taking real estate pictures or know someone who is. That way, your listing looks as good as possible and shows the best side of your home. See some great tips for shooting your real estate photos.
How Do You Figure Out The Value of My House?
If you have never sold a house before, this is a great question to ask a real estate agent.
What real estate agents do and what home appraisers do are a bit different. The result, however, is getting to what a buyer will most likely pay for a property.
Both appraisers and real estate agents use comparable sales or “comps” to determine fair market value. Real Estate agents will perform what’s called a comparative market analysis.
More than likely, the report generated will include the following:
- Closest homes in similarity that have sold close to the property.
- Similar homes are currently under contract but haven’t closed yet.
- Competing properties that are currently for sale in the general price point.
The most important data is what has sold. The least important is what is currently for sale. The price for these homes can change at a moment’s notice. You never want to hang your hat on what someone thinks their home is worth.
The analysis that your real estate agent performs will compare your house to other properties that have sold. The evaluation will include the following points of interest.
- The size of the home, or more commonly what’s referred to as the square footage. While size is a crucial variable, unskilled agents will use this as the end all be all in comping properties. Using square footage to value properties is a sure-fire recipe for disaster.
- The style of the home – for example, is it a colonial, contemporary, or a raised ranch.
- The number of bedrooms.
- The number of bathrooms.
- The condition of the property.
- The amenities such as central air, central vac, alarm system, sprinkler system, and a whole host of others that affect value.
- The age of the house.
- Ages of mechanical and structural components such as roof, heating, and cooling systems.
- The desirability of the lot.
- The appeal of the neighborhood or school district.
How Are List Price and Sale Price Different?
The list price is the price you list the home for sale. It is the reasonable goal you set for your sale, one you hope to get close to as you make the transaction. The sale price is the price that you actually sell the home for after negotiations. A terrific agent should be able to help you set a price that will be close to the sale price.
A word of caution – many less desirable real estate agents will present their market analysis to sellers without giving a seller a list and sale price. Your real estate agent should be setting proper expectations from day one.
The best agents will suggest you list at X with a probable sale price of Y. One of the essential skills of a real estate agent is accurate pricing. Agents who are worth their salt will be on the money with the price.
Should I buy or continue to rent?
Buying a home can be a very solid investment. This being said, renting can also be a better option for some, depending on the circumstances. The current interest rates are incredible. A 30-year FHA mortgage can be locked in at a rate of around 3.5%. Since the interest rates are so low, it actually can be cheaper to pay a mortgage right now than paying rent.
There are questions that you should ask yourself before deciding to buy a home. One of the most important things to consider is the length you plan on staying in a home, if you were to purchase. If the answer is only a few years, it’s likely the better decision is to continue renting. Another question to ask yourself is whether you are ready to take on the additional “responsibilities” of owning a home. When owning a home there will be general home maintenance that should be done, are you ready for that?
Buying a home is a great option in many cases, but not always.
Can I find a rent-to-own property?
Can you find a needle in a haystack? Of course you can, but the probability isn’t very high. The same can be said about a rent-to-own property. A common question from home buyers is whether rent-to-owns exist or whether an owner would consider that option. They are out there, but there are somethings that you need to know before agreeing to a rent-to-own.
When an owner is offering “rent-to-own” as a possible financing option, they are taking on a high risk since in most cases, a rent-to-own buyer has a credit score that is not impeccable. Since an owner is taking a higher risk the terms for a rent-to-own must be considerably favorable for the owner. This often leads to less than favorable terms for a buyer. When looking at a rent-to-own as an option you can expect to provide a considerable amount of money down and a higher interest rate than what a lender is currently offering.
If you’re able to purchase a home by financing through a bank or lender, you will be better off because the terms will be more favorable.
What do I need to pay before I move in?
One month of rent, the security deposit, pet deposit if applicable, and any short term lease fees (if applicable) will all need to be paid in certified or cleared funds prior to you receiving keys for your new home.
Can a landlord raise my rent during my stay?
Landlords are allowed to raise the rent once the lease has expired. If you decide to stay in the same apartment next year, you should read your new lease carefully and make sure the rates haven’t gone up. If they have, see if you can negotiate with your landlord. If you are renting a month-to-month apartment, then rent increases are more likely to occur. In this case, landlords can raise the rent every month if they wish. But it’s important to note that many states require a 30 day notice before the rent is officially raised. This will give you time to find a new place if you cannot afford the new rent price.
What is my security deposit for?
The security deposit is a set amount of money that the landlord takes from you as collateral for the structural integrity and cleanliness of the house. In other words, this money is set aside by the landlord to inspire tenants to take good care of their rental property, and if you don’t, it gives them the opportunity to recoup those losses.
What is the difference between a month-to-month and a fixed-term lease?
It is very important to know the difference between these two terms, as they will determine how long you’ll stay at a place and sometimes even the rent price. A fixed-term lease is an agreement that states the tenant will remain in the apartment or home for a pre-determined amount of time — usually a year. Month-to-month leases also tend to have higher rent prices because the landlord is not guaranteed income for the next month. Unless you are in a precarious or time-sensitive situation, it’s often a better financial call to go with the fixed-term lease.