Buying real estate can be a complicated thing. You’re going to have a lot of questions along the way. Our team of buyer specialists have put together this list of FAQs to help you understand some of the real estate concepts and terminology you’re likely to encounter when you start searching for your dream home. If you want to know more about the process of homebuying, check out this flowchart that breaks the whole process down step-by-step.
If you have other questions, don’t hesitate to contact one of our buyer specialists. They’re experienced, friendly and ready to help you find just what you’re looking for.
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If you needed electrical work done on your home, you wouldn’t jump in and try to tackle it yourself, unless of course you’re an electrician. Lacking the experience to do that job properly, you would seek the assistance of a professional. It’s the same idea with a real estate transaction. The process of buying and selling real estate can be quite complex. Getting the paperwork completed correctly, ensuring inspections are carried out properly and negotiating repairs and deadlines are tasks best left to the professionals who understand the laws that govern real estate transactions.
Comparables or Comps are recently closed or listed homes that are similar in size, features and amenities and within close proximity of your home. Real estate professionals use comps to help you decide on a list price that is reasonable for your local market.
There is no worse feeling than falling in love with a home only to find you can't purchase it. A prequalification letter isn't a guarantee that you can get a loan. It is a preliminary letter from your lender stating that if all conditions are as reported and contingencies are met, you're likely to be able to close on a transaction for the amount stated in the prequalification letter. This is a great way to show a seller you're serious about a purchase and able to follow through. Many real estate professionals won't even show homes to a buyer who hasn't been prequalified.
When you've found THE perfect home, the next step will be to make an offer to the seller. Your real estate professional will help you complete a purchase agreement that spells out how much you're offering and the expectations of the buyer and seller as the transaction moves forward. The seller has the option to accept your offer as-is, reject your offer, or submit a counteroffer.
Earnest money is your initial financial commitment to purchase a home. It tells the seller that you're serious about your offer. The amount of the earnest deposit can vary depending on the asking price of the home, the type of financing being used to purchase the home and many other things. Earnest deposits can be as low as a few hundred dollars or as much as tens of thousands. Talk to your real estate professional about what is common in your area and price range.
Purchasing a foreclosure or short sale can mean getting a great deal on a home. There are however, some down sides as well.
- Competition for foreclosures can be fierce and often includes investors
- Foreclosures can be money pits to make livable and are often sold as-is
- Despite their name, buying a short sale can be a very, VERY long process
- You may put an offer on a short sale, wait a long time, and then the bank declines the offer
If you're considering the purchase of a distressed home, find a real estate professional who is experienced with these types of transactions.
The Real Estate Settlement and Procedures Act or RESPA allows the lender to decide which title company will be used to close a transaction. Often, buyers and sellers are unfamiliar with the title/escrow process so your real estate professional may suggest their preferred title company for closing. You can put this one under things that are negotiable between buyer, seller and lender.
There are countless mortgage programs available to home buyers, from Veterans to first time home buyers. Each program has different requirements for down payment. Your lender can help you choose the program that works best for your situation and tell you what the requirements are for that program. Generally, if you are putting less than 20% down you can anticipate paying private mortgage insurance or PMI.
The difference between what you qualify for and what you can afford can often be vast. The best way to determine affordability is to compare your monthly expenses and your monthly income. Experts recommend keeping housing expenses below 25-30% of your monthly income. When you talk to your lender, make sure they understand what you can afford and plan accordingly. Asking the bank to tell you what you can qualify for may put you in a home that is more than you can afford to keep. Remember to set aside some money for savings and for maintenance costs for your new home.
The title company is a neutral party handling title insurance and documents during a real estate transaction. They open an escrow account when a contract is executed between the buyer and seller. The escrow account will hold all deposits regarding the transaction including but not limited to:
- Earnest Money
- Fees for inspections and appraisals
- Closing Costs
The amount of these deposits can vary from one transaction to the next. Ask your real estate professional what's common in your area.
If you've found your dream home and the appraisal comes in low, you have a few options to consider.
- Bring cash to the loan to cover the difference
- Withdraw your offer
- Negotiate with the seller for a lower asking price
Talk to your real estate professional about which option is best in your situation.
Skipping an inspection, even on a new home purchase, can be a dangerous plan. Once closed, any items found to be in disrepair or non-working condition are now your responsibility. Having a home inspection by a licensed professional guarantees you have the opportunity to negotiate issues with the seller before you sign on the dotted line. Other inspections you might have done include:
- Wood Destroying Insects
- Lead Based Paint
- Dry Rot
Ask your real estate professional for a list of inspections commonly performed in your area.
You've found the home of your dreams and it's time to make an offer. You may be tempted to offer less than the asking price for the home. In some markets, this technique is acceptable and may even get you a great deal on your dream home. However, it is entirely possible that the seller has received other, full price offers on the home, the seller is unmotivated to sell or someone is offering cash. If this is the case, you risk the seller rejecting your offer without a counter offer or any further consideration.
Speak with your real estate professional when you're ready to make an offer. They can help you make a great offer without overpaying for the home.
Buying new or resale is a personal decision but there are some pros and cons to consider when making your choice. New homes are warrantied and generally have fewer major repair costs in the first 5-10 years. New homes allow the buyer the freedom of choice when it comes to colors and surfaces like counters, flooring and cabinets. They are often built in communities that include parks, pools or other amenities. The downside is, new homes are generally built on the outskirts of major areas which can mean longer commutes.
Resale homes aren't always in master-planned communities but are more likely to be near shopping, public transportation and major city services. Resale homes can be architecturally more interesting with original fixtures and features from when the home was built. A resale home is generally move-in ready on your closing date whereas a new home may take 4-6 months to be built.
A contingency is any item that can or will affect the ability to close a transaction. Contingencies can range from simple things, like the lender requesting employment verification, to complications like blemishes on the title. Quickly responding to these contingencies can help buyer and seller move a transaction along. A common contingency is needing to sell your existing home before purchasing a new home. This contingency is overcome only when the buyer receives an offer on their existing home. Most contingencies can be overcome and the deal closed. In the event a contingency can't be overcome, speak with your lender, real estate professional or escrow officer on how to proceed.
A Seller Property Disclosure gives the seller an opportunity to share important details about their home. Some things that might be included in a Property Disclosure are:
- Type of Foundation
- Type of Plumbing
- Water Supply
- Age and Type of Roof
- Presence of Fireplaces
- Rental Information
- Hazardous Material Presence
- Irrigation Rights
- Known Material Defects
The property disclosure is meant to provide the buyer with an overview of the systems and features of a home and is in no way intended to replace a full home inspection by a qualified individual.
If a home for sale has things listed as "does not convey" this means that whatever that item is, is not included with the sale of the home. Generally, anything affixed to the home, will automatically convey when the deed is transferred to the new owners. We usually recommend sellers remove any items that aren't going to convey but sometimes that's impractical. For example, a light fixture would be considered fixed to the home. It would be impractical to show a home without proper lighting so the seller may opt to leave the fixture in place but note that it does not convey.
The short answer is YES! There are plenty of reasons you should have a REALTOR® available to represent you through a new home purchase. The biggest reason is that working with a REALTOR® means your best interests are being considered.
The sales person in the new home office may sound like they are working for you but the fact is, that salesperson works for the builder and is trained to sell. The price you pay for a new home often includes a real estate commission fee so there is no additional cost to you for having someone represent you.