As a real estate agent or brokerage there are common questions we get asked. Our goal is to educate and guide our clients through the home buying and selling process. Below are answers to frequently asked questions:
1. What is the first step in the home buying process?
Getting pre-qualified for a mortgage is the first step of the home buying process. When you receive a pre-qualification OR a pre-approval you are aware of what your parameters are to purchasing a home.
Let’s dive in deeper:
When you speak with your lender you can determine how much money you’re able to finance. When you know how much home you are able to afford you can narrow down the properties to what is suitable for you. (Pre-approvals also help prevent disappointment caused by falling in love unaffordable homes.)
When you speak with your lender they will be able to help you determine what you are able to afford on a monthly basis. Knowing your budget will set guidelines for what homes you can afford rather than what you are approved for. The loan estimate from your lender will also show how much money is required for the down payment and closing costs. You may determine that you 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 accepting offers on a home – this is especially true due to the quality of our market. This is meant to keep out “Looky Lous” and protect the seller’s privacy.
2. How long does it take to buy a home?
From the start of your search to final closing table, the typical home buying process takes around 6-12 weeks. Once a home is selected and 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; typically 2-3 weeks.
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. This can be due to the inability to get an offer accepted or because there are several parties involved. 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. In Idaho our market has been ramped up for a few years. Our industry has adjusted and adapted to the quick turn around times, leaving the typical process staying consistent about 30-45 days.
3. What is a seller’s market?
In a sellers’ markets demand increases property value to benefit the seller. There are a few drivers of demand:
- Economic factors – when the local labor market heats up, it brings an inflow of new residents and in turn pushing up home prices due to the lack of inventory.
- Interest rates trending downward – This scenario improves home affordability, creating more buyers interest.
- A short-term spike in interest rates – This 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 – When there are 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.
4. What is a buyer’s market?
A buyer’s market is characterized by declining home prices and reduced demand. Economic disruptions are the most common reasons for a buyers market. A buyers market can also affect:
- Higher interest rates – 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 help buyers find affordable homes.
- Short-term drop in interest rates – Offer borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
- High inventory – Creates new subdivisions and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.)
- Natural disasters – Such as a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred.
5. What is a stratified market?
A stratified market happens where supply and demand differ based on the location or price range. For example, home sales for properties around $250k may be brisk while homes above $1.5M may be sluggish. This type of market can be present depending on the local economy, demand for homes, and the average income in the area.
6. How much do I have to pay an agent to help me buy a house?
Home shoppers pay little to no fees to an agent to buy a home.
Let’s dive in deeper:
During a transaction, there are typically 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 find their property and place an offer.
Agents who represent buyers (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.
7. 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. Customarily, individuals with lower credit scores may be required to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk.
8. How much do I need for a down payment?
Generally, most lenders require 3% of the purchase price, but this can differ depending on the credit score and program you and your lender decide to go with.
Let’s dive in deeper:
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 service members. 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% or less to be placed down if the borrower carries private mortgage insurance (PMI).
9. Should I sell my current home before buying a new one?
If the built-up equity in your current home will be applied to the down payment on the new home, naturally the former will need to be sold first, unless you acquire a bridge loan. Speak with a lender to determine what loan options work best for you.
Some home buyers decide to turn their current home into an investment property, renting it out. In that case, the current home will not need to be sold. However, your loan advisor will still need to evaluate your risk profile and credit history to determine whether making a loan on a new home is feasible while retaining title to the old home.
Buyers often have a short time frame to sell their current home when relocating to a new city because of a job transfer. If you are moving but taking a position with the same employer, check to see if they offer relocation assistance to help offset some of the costs.
10. How many homes should I view before buying one?
That’s up to you! For sure, home shopping today is easier today than ever before. The ability to search for homes online and see pictures, even before setting a foot outside the comfort of your living room, has completely changed the home buying game. Convenience is at an all-time high. But, nothing beats visiting a home to see how it looks and ‘feels’ in person.
11. What is earnest money?
When you make an offer on a home, your agent will ask for a check to accompany it (checks are the same as cash, and the deposit is typically 1% to 2% of the purchase price). Earnest money is made in good faith to demonstrate – to the seller – that the buyer’s offer is genuine. Earnest money essentially takes the home off the market to anyone else and reserves it for you.
The check (or cashiers check) is deposited in a trust or escrow account for safekeeping. If a deal is struck, the earnest money is applied to the down payment and closing costs. If the deal falls through, the money is returned to the buyer, as long as the buyer meets the requirements stated in the contract.
Important: if the terms of a deal are agreed upon by both parties, but then the buyer backs out, the earnest money may not be returned to the buyer. Ask your agent about the ways to protect your earnest money deposit and the ways to protect it – such as offer contingencies.
12. How long can the seller take to respond to my offer?
Written offers should stipulate the timeframe in which the seller should respond. Giving them twenty-four hours should be sufficient.
13. What if my offer is rejected?
Sellers are legally able to accept or reject an initial offer. But there a third path that is quite common, sellers can initiate a counteroffer.
Until you receive a notification your offer has been denied, you are still in the game. You and your agent will need to review the counteroffer to determine whether it meets your needs prior to acceptance. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual being that negotiations are a part of what Realtors do as a matter of routine. Each revision should bring both parties closer together on the terms of the deal.
14. Should I order a home inspection?
We highly recommend a home inspection even on brand new homes! Home inspections are required if you plan on financing your home with an FHA or VA loan. For other mortgage programs or when you pay cash, home inspections are not required. When you complete a home inspections you become aware of any defects in the home prior to purchasing it. Home inspections bring peace of mind to one of the biggest investments of a lifetime.
15. Do I need to do a final walk-through?
It’s not required, but this is definitely a good idea! Final walk-throughs give buyers a chance to make sure nothing had changed since their first visit. If repairs were requested, as part of the offer, a follow-up visit ensures that everything is squared-away, as expected, per the terms of the contract.