You’re interested in buying a home, which means you probably have a lot of questions about the process. While there are dozens of questions that any first-time home-buyer has, this is a quick rundown of the most common questions about home buying. Below you will find the answers to those questions to help you get a better understanding of what to expect.
Is it cheaper to buy than to rent?
That is the 20,000 dollar question! The short answer is yes – kind of. If you pay rent for the same length of, say, a 15-year fixed-rate mortgage, your monthly rent payment is likely less than the monthly mortgage payment on a 15-year mortgage. But at the end of those 15 years, as a renter you don’t own the property; while as a homeowner, you do.
One advantage of being a renter is that you do not have to pay for upkeep and maintenance. If you bought a home that needed massive amounts of repairs, you may end up spending more than the renter over those 15 years. Still, even after paying more, you have an extremely valuable asset when the home is paid off. It can be resold for more than what you paid for it and you have equity that you can borrow against that a renter does not.
Can I buy a home even if I have bad credit?
Today, since the housing collapse, lenders have tightened up credit standards. However, it is always best to speak with a mortgage lender to determine exactly what you can be approved for. There are a number of different loan types that don’t require a sterling credit score. In short, don’t rule out buying a home until you’ve talked to a professional.
How much do I have to put down on a home?
Generally a lender will require at least a 5% down payment on your home. That number increases the more expensive the home is. A good rule of thumb is to only buy a home when you are able to put at least 20% down up front. That will reduce your monthly mortgage payment, give you some equity right away, and will help you pay off the loan faster. Also, with a down payment of 20% and up, you likely won’t have to pay Private Mortgage Insurance (PMI). There are some programs, such as the VA Loan, that can require 0% down.
What costs are involved with buying a home besides the down payment?
First of all, there are closing costs, which typically are less than 5% of the price of the home. You’ll also want to factor in inspection and appraisal costs. If you buy a condo or buy a home in a planned community, you may have to pay HOA fees or condo board fees. Lastly, you will now have to pay property taxes…on the plus side you will be able to deduct those costs on your taxes at the end of the year!
Should I use an agent?
Yes! It is possible to buy a home without using an agent, but why not get an expert advice if you can get it? An agent negotiates the deal on your behalf, assists you through the financing process, and has up-to-date market information to get you the best deal.
You can save yourself a lot of stress and wasted energy by finding a trustworthy experienced agent. Agent is more than qualified to help you with the entire home buying process. Give her a call now to get answers to your specific questions!
Surviving Escrow and Closing
After you have found the home that you want, made the offer, and gotten the seller to accept it, you have two more hurdles left to clear before the home is yours. It can be a very tense period for both buyers and sellers – but it doesn’t have to be!
One way to survive escrow and closing is to understand the process. If you are using an agent for the transaction, they will help guide you through the process. If you are doing it on your own, you have to have a clear understanding of all of your and the seller’s obligations.
Either way, it doesn’t hurt to know what to expect. Here is what you need to know in order to not only survive escrow and closing, but to close the deal smoothly.
Escrow
By the time you are ready to put your earnest money deposit into escrow, you and the seller already have an agreement in place for the purchase of the house. That agreement includes contractual obligations that must be satisfied before the deal is finalized. While those things are being done, a neutral third party will hold your down payment in escrow until all terms are satisfied.
This is the step where money starts to change hands, specifically your money. Whatever earnest money deposit you settled on will go into escrow, and the process typically takes 30 days (sometimes more, sometimes less). A title company, escrow officer, or attorney usually is used as the intermediary who holds the money in escrow.
Funds do not get deposited until after all of the terms of your agreement have been satisfied. Still you will have to keep funds available in your account so that when you are ready to close, the deposit goes through. A bounced check could ruin the deal and give the seller an out if they are looking for one.
Contingencies
Two of the main contingencies written into almost all home purchase agreements are financial contingencies and inspection contingencies. There may be many other requirements listed in your contract. These are the hurdles that must be cleared before your escrow check gets cashed, the deal is closed, and the home is yours.
- Inspection Contingency: The inspection contingency basically allows you to back out of the deal if after the home is inspected some major issues that were not disclosed are discovered. This clause protects the buyer.
- Financing Contingency: The financing contingency is designed to guarantee that you have the funds to purchase the home. If you are waiting on a loan approval and your loan is not approved, the deal is off. That is why it is best to get pre-approved long before you get to this step. This clause protects the seller.
Closing
At the closing you meet with your agent, the seller’s agent, the seller, and all other interested parties. This is called the settlement or the closing. This is where all contingencies are verified, final documents are signed, and the deed is transferred. There are fees associated with the close, which are paid at the settlement. Typically closing costs are less than 5% of the cost of the home.
It is a good idea to get a title search done – in fact, this is often a requirement if you’re getting a mortgage – so that you can verify the validity of the title and make sure that there are no issues of ownership or liens on the property. Different localities have different requirements for transfer of ownership. Your agent will be able to help verify that you have met all of them.
If you are obligated to pay HOA fees, those will usually have to be paid before close. You will need to get the utilities turned on in your name. And you will have to have homeowners insurance in place. This can take some time; therefore, you should do it as soon as your agreement is in place. Proof of insurance is required at the settlement.
Once all parties have agreed that everything is copacetic, your escrow check gets deposited and you get the keys! You are now a homeowner – congratulations!