Let’s face it, if you’ve never bought a home, the process can seem a bit daunting. And even those home buyers who have been through the process a couple of times will find that it has become more time-consuming and complicated. So for the benefit of those who are thinking about buying a home, I present you with the top 10 most frequently asked questions posed by buyers who are totally confused.
1. WHERE DO I BEGIN?
ANSWER: Meet with a lender.
I know, I know – you want to look at homes. And lots of them. Meeting with the numbers guy or gal is not high on your priority list. But do yourself a favor; get pre-approved for a loan first. It costs nothing, takes only a couple of minutes, and you’ll be better equipped to make a solid offer on a home that is backed up by a pre-approval letter. If you overlook this initial step, you run the risk of wasting lots of time looking at the wrong priced properties not to mention, making offers on properties that you’ll never be able to purchase.
2. HOW DOES A REALTOR® HELP ME?
ANSWER: Where do I begin!?!?!
A REALTOR® is your most valuable asset when buying a home. The transaction itself is extremely complicated with lots of paperwork, disclosures, and terminology that is foreign to you. They will walk you through every part of the home buying process. They will educate and inform you of all your options. They will represent you throughout the transaction and beyond. And when the transaction veers off-course, they will get it back on track. Remember – you are purchasing a large asset. Make sure you have someone in your corner.
3. WHAT DOES A REALTOR® COST?
ANSWER: 97% of the time – nothing.
In most cases, you do not have to pay your REALTOR® anything to help you purchase a home. Sellers that have their homes listed in the Multiple Listing Service (MLS) will pay their REALTORS® a fee, and then those listing agents pay buyers’ agents for bringing the buyer and facilitating the transaction. If you or your REALTOR® find a home that you want to purchase that is off the market or is being offered by a For Sale by Owner (FSBO), you would be responsible for compensating your agent; however, your agent will first seek compensation from the seller and if they agree, your side of the ledger will read ZERO. You will know before you even look at the home whether you will be responsible for that fee. In other words, there will be no surprises. Sigh.
4. DO I HAVE TO SIGN A BUYER’S AGENCY AGREEMENT?
ANSWER: No – but you should.
Before I get into why you should, let’s explain what a Buyer’s Agency Agreement is? It’s an agreement that allows an agent to represent a buyer in a real estate transaction. When signed, the agent owes their buyer care, obedience, accounting, loyalty, disclosure, and confidentiality. If your agent is working with you without a signed document, they actually are representing the seller. So anything that you say or do can be shared with the seller. Example: You don’t sign a Buyer’s Agency Agreement but look at homes with an agent anyway. You find a house that you fall in love with and ask your agent to submit an offer on your behalf. When discussing the offer, you mention in passing that you would like to offer $200,000 on the house, but if you have to, you’ll go up to $205,000 because it’s everything you’re looking for in a home. That innocent little, off-the-cuff remark will now be shared with the seller. That’s just one disadvantage of not signing this document. Your agent can explain other advantages.
5. IS IT HARD TO GET A MORTGAGE?
ANSWER: Depends on your viewpoint.
If you were a buyer about seven years ago, all you had to do was fog a mirror and chew gum at the same time. Those days are gone. Too many people who couldn’t handle their own checkbooks were getting loans for houses they couldn’t afford. Today, if you take the time to listen to your lender and provide the information that they are looking for in a timely manner, the process is bearable. Keep in mind that your lender is on your side. They are trying to package your financial information in such a way that an underwriter (i.e. decision maker) will be confident that you will be able to repay the loan. So when your lender contacts you a half a dozen times after your original loan application and asks for additional information, don’t take it personally. What does a lender ask for? Download a copy of the standard mortgage application here. Take the time to fill it out and compile the information before meeting with your lender. Trust me, the application process will go a lot smoother.
6. WHAT DOES MY CREDIT SCORE HAVE TO BE?
A 580 credit score, or higher, is recommended to qualify for a mortgage. The higher the score, the more credit worthy you are. That said, minimum credit scores for mortgages are constantly changing. As indicated earlier, the first step in the home buying process is to meet with a lender and get pre-qualified. Lenders will provide the best source of information about today’s lending requirements. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a copy of your credit report, at your request, once every 12 months. Go to annualcreditreport.com to take advantage of this FREE service. Don’t worry – just checking your report won’t adversely affect your score.
7. HOW MUCH MONEY DO I NEED?
ANSWER: Probably not as much as you think.
When you meet with a lender (see Question #1), they can review a wide variety of financing options to fit your needs. There are conventional, Federal Housing Administration (FHA), Veterans Administration (VA), United States Department of Agriculture (USDA), and Pennsylvania Housing Finance Agency (PHFA) loans just to name a few. Each program has its own down payment requirements and qualification standards. For instance, you can obtain a USDA loan with zero money down and have the seller pick up a large portion of your closing costs which essentially gets you into a home for almost nothing. However, the home needs to be located in certain designated areas to qualify. Many people put off buying a home because they mistakenly think you need a minimum of 20% down. Totally false.
8. HOW MANY HOMES SHOULD I LOOK AT BEFORE MAKING A DECISION?
ANSWER: There is no perfect number.
In the latest edition of the National Association of REALTORS® Profile of Home Buyers and Sellers, the average home buyer’s search took ten weeks. Notice the word ‘average.’ That means some buyers took more time; some less. The biggest mistake that I find that buyers make is delaying making an offer on a property because they feel they haven’t seen enough homes. If your real estate agent is doing their job, they will show you the best homes that fit your needs and financial parameters first. The longer you look at homes, the more likely you are to encounter warts (i.e. close to a busy street, leaky basement, etc.). If you find a home you like, move on it. Chances are that other buyers who are looking in the same price range are arriving at the same conclusion that you are. If you wait until you’ve seen the entire marketplace and then come back to that perfect home that you saw on the first weekend, chances are it’s gone.
9. WHAT SHOULD I OFFER ON A HOME?
ANSWER: What it’s worth.
Sure you want to get a good deal and haggling over price is the American way – Right? Well,too many buyers believe that sellers always overprice their homes so that they can leave some room for negotiation. I can’t tell you how many times this negotiation strategy has blown up in a buyer’s face. If you like a home, have your agent research comparable homes that have sold over the past six months. Ask them their opinion regarding the list price. Is the home in good condition? How long has the home been on the market? Are the prices in an area moving up or down? Do you know if the home has been shown a lot? Put all these factors into the hopper before making a decision. I always ask my clients who are thinking about low-balling a seller, “If I get back with you tomorrow and the house sold to another buyer because they had a better offer, are you going to be disappointed?” If the answer is “Yes” – well – you know where I’m going with this.
10. WHAT HAPPENS AT THE SETTLEMENT TABLE?
ANSWER: If the transaction has been handled properly, you have fun.
In the state of Pennsylvania, a title company or attorney handles the myriad of paperwork that goes along with settling on a home. They will have most of the documents ready to go – you just need to show up with your best penmanship in tow because you’re going to sign a stack of stuff. You’ll have to sign mortgage documents, legal disclosures, utility transfer cards, and more. You will be provided a Closing Disclosure (CD) a couple days before settlement so you’ll know exactly how much money to bring to the settlement table. Make sure you bring a certified check for that amount. After the seller receives their proceeds (if any), they will sign the deed to the property over to you along with the keys to the house. And just so the entire world knows that you now own the house, the closing officer will record the deed at the courthouse in the county where the property is located. Congratulations! You are officially a homeowner.
All the best!