The 9 most common home-buyer questions & answers
Whether you’re a first time buyer or a fourth time buyer, the questions seem to be the same. Here’s a quick guide that can help you see the whole picture.
1. What’s the first thing I should do if I want to buy a house?
Answer: Get pre-approved for a mortgage
Actually, the first thing most people really do when they start thinking about buying a house is look at them. It’s fun to look at houses and dream of owning your own. And that’s fine, but don’t get too excited until you’ve contacted a mortgage professional and gone through the rigorous process of getting pre-approved for a loan.
Whatever you do, don’t make an offer on a home without being fully pre-approved. Get a letter from your lender in hand as proof, so that you can include it with your offer. If by some chance a home owner were to accept your offer without proof of mortgage approval, and you later discovered the bank wouldn’t give you a loan, the experience could be emotionally and financially draining.
Where Can I Find a Good Lender?
Ask your friends and your real estate agent for recommendations to lenders. Then prepare to dig through your financial life for a week or so as you get the paperwork together for the pre-approval process. It’s worth it.
Cross Country Mortgage – Peter Frangoss
2. How Long Does it Take To Buy a Home?
Answer: Between 26 and 50 days (30 on average from acceptance of offer to keys in hand)
The time elements that go into buying a house include:
- Finding a home (can take some people 6 months or more)
- The offer period (can take 3 to 7 days)
- The inspection period (can take 5 to 15 days)
- The loan approval period (can take 16 to 25 days)
- The closing period (can take 2 or 3 days)
If we ignore the time you’re looking for a house, and we ignore the possibility that you might have to make offers on several homes, and we just look from the moment you make an offer until you get the keys in your hand, the time can be as short as 26 days to as long as 50 days. The typical time between having your offer accepted by the seller and getting the keys in your hand is 30 days.
Problems can and do frequently arise during any of these periods, which can lengthen the process.
3. How Much Do I Have To Pay a real estate agent to buy a home?
Your agent’s fee will be paid out of the listing fees paid by the seller. In other words, the seller pays your agent. Your agent will ask you to sign a working contract (called a buyer-broker agreement or similar), giving them the right to represent you, and that will entitle the agent to collect a fee from the listing proceeds.
4. Do I need to use a real estate agent to buy a house?
Answer: No, but why wouldn’t you?
Hiring a buyer’s agent is usually free to the buyer. So unless you’re dreaming of becoming a real estate agent yourself, it makes sense to contract with an agent to help you buy a home.
What are the advantages? At the beginning, most buyers see two advantages:
- Real estate agents can refer you to good lenders.
- Real estate agents can unlock doors and let you inside the homes you’re seeing online.
After that, most experienced buyers will tell you they can’t imagine how they would have done it without their real estate agent. Nothing a real estate agent does is rocket science by itself. So what do they offer you that you can’t do yourself?
Experience and specialized knowledge.
By working with someone who’s gone through this process dozens of times already, you’ll get a guide who’s going to save you time, money, and stress. It’s like traveling to a country you’ve never visited before and you don’t know the language. Sure you could figure it out on your own, and you might have some interesting experiences along the way. But what if you had a guide who could speak the language, who introduced you to locals, who knew how to get past the typical tourist traps and point out the secret places. Wouldn’t that be a more rewarding experience?
Furthermore, a real estate agent provides you a measure of protection. By having E&O Insurance, agents are not only saying they’re ethical, they’re backing that claim with financial and legal protections that extend to you.
5. Are real estate agents honest?
Answer: Most are
We hear the stories…so we know there are dishonest real estate agents out there. But 99.9% of us are as honest as you.
Real estate is a popular topic. Since we all live in houses, we’re all experts. But the kind of information that tends to rise to the top of social media are the bad experiences. When you consider that hundreds of thousands of properties are bought and sold all over the world every year, and only a relative handful land in the “shady” category, I think you can trust most agents.
But if you want to be sure, ask your agent for references. And then call those references and chat with them about their experience.
Also, analyze what you mean by “honest?”
I’ve encountered people who called their agent dishonest for bizarre reasons. For example, imagine this scenario: A buyer does a thorough home inspection. Everything is fine and he purchases the house. Two days later it rains cats and dogs, and suddenly the buyer’s new home is being overrun by ants. The buyer contacts his real estate agent. The agent checks the documentation the seller provided to see if there was a mention of ants. There was no mention of ants. It’s possible that the home seller knew ants would surface in a rain storm, but not provable. Now the ants are the buyer’s problem, because he owns the house. The buyer could sue the seller. But the real estate agent wouldn’t make this suggestion…why? Because by law, if the real estate agent offers anything that remotely smacks of legal advice, the real estate agent could lose his license. He’s not allowed to offer legal advice. Nothing can stop this disgruntled home buyer from venting his frustration on social media.
As you’re preparing to buy (or sell) a house, do your due diligence by getting references before you begin working with an agent. And remember that your frustration about a situation does not mean the agent was dishonest…just that the situation was aggravating.
6. What Kind of Credit Score Do I Need to Buy a Home?
Answer: 580 to 800 (620 is the lowest recommended)
You are probably aware that a higher credit score offers better lending terms (interest rate, closing costs). There are some lenders who will approve buyers with a 580 score, offering less attractive terms. The higher the score, the better the terms. Being financially responsible (as indicated by your credit score in this case), entitles you to better financial rewards.
If your score is below 620, you may want to raise it before buying. It may mean a difference of tens of thousands of dollars in your purchase price.
Talk to your mortgage professional for advice.
7. How Much Money Do I Need for a Down Payment?
Answer: Down payments vary from 0% to 20%
Some loans, such as the VA loan in the US, require zero money down. Other government-backed loans might offer 3% or 5% down payment loans, but these usually require additional mortgage insurance premiums.
The best terms are always going to be available when you put 20% or more down. However, if homes in your area average $500,000, it can be difficult to come up with $100,000 cash for a 20% down payment. Who has that kind of money? Well, if you own a house now, you might. And if you’re a rich sheik from Saudi Arabia, you might. Or if you’re someone who’s done reasonably well, saved every penny, and perhaps had a little windfall, you might.
Talk to your lender about options. In the days before the last real estate mortgage crisis, it was common for lenders to offer what they call 0-20-80 programs (or other percentages…5-15-80, etc.). That meant you’d make a down payment of the first number (such as zero). They’d give you a first mortgage of the last number (such as 80%). And the middle number would be a “second mortgage” (like 20%). Needless to say, this left the banks holding the bag when prices plunged, because there was no equity to fall back on…the buyer hadn’t “bought in” with any equity in the form of a down payment.
So today, banks require a down payment. The best you might be able to do is a low-down payment loan. Talk to your lender about the options available to you. Also ask your lender if there are any special financing incentive programs available to you based on your career or location.
Tips & Tricks To Save For DownPayment
8. What Other Fees Are There, Besides the Down Payment?
Answer: Up-front costs, loan origination fees, and closing costs
The origination fee and closing costs are expenses you pay when you close on the house. The origination fee depends on which lender is giving you the loan, and what your loan terms are, based on your credit. Origination fees will be between 1% and 4% of the loan amount. Closing costs will run between 6% and 8% of the loan amount, and will include a whole plethora of fees, including title insurance, pest treatment, and taxes.
Then there are up-front costs. These are mostly your inspection and appraisal fees. Appraisals run around $500. Inspectors will charge you $300 to $500 for a home inspection. More for big properties, less for smaller properties, like condos. Then there are specialized inspections. You may want to pay an up-front pest inspection fee, septic inspection fee, or pool inspection, for example. Inspections are at your discretion…but the idea is that if you have a reason to ask, then do it before you buy.
The total cash you need to buy is at least your Down Payment + Origination Fee + Closing Costs + Inspection Fees. For example:
- Price: $500,000
- Down payment 20%: $100,000
- (Loan amount: $400,000)
- 1.5% origination fee: $6,000
- 6% closing costs: $24,000
- Inspection fees: $1,000
Total cash needed: $131,000
Contact Paul Lessard (603) 644-4747
9. When do I get the keys?
Answer: At (or just after) closing, and not one second sooner
Closing means finalizing all the paperwork, which usually means signing the lender’s documents, title documents, and deed instrument.
“Closing” is the time when the lender has approved the loan and sent the final paperwork for you to sign. Closing can refer to the hour you meet to sign, and in some places, you will get the key right then. But closing can also refer to the moment the new ownership title is recorded with the city. So in some areas, you won’t get your keys until that has happened, which…if you sign your documents on a Friday, may mean Monday afternoon. Ask your real estate agent how closing works in your area. The timing for you to get your keys in hand are based on custom, not legalities.
Ready to Get Started?
Then I’m ready to meet with you by phone or in person for an initial consultation. That’s where I’ll answer all your questions and help you think of more that you might not even know to ask.
We’ll create a plan of next steps that will get you closer to your house purchase.