What is the first step of the home buying process?
Getting pre-approved for a mortgage is the first step of the home buying process. Getting a pre-approval letter from a lender gets the ball rolling in the right direction.
Here’s why:
First, you need to know how much you can borrow. Knowing how much home you can afford narrows down online home searching to suitable properties; thus no time is wasted considering homes that are not within your budget. (Pre-approvals also help prevent disappointment caused by falling in love unaffordable homes.)
Second, the loan estimate from your lender will show how much money is required for the down payment and closing costs. You may 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 showing homes - this is especially true at the higher end of the real estate market; sellers of luxury homes will only allow pre-screened (and verified) buyers to view their homes. This is meant to keep out "Looky Lous" and protect the seller’s privacy. What’s more, by limiting who enters their home, sellers are given extra security from potential thieves trying to case the home (like identifying security systems, locating expensive artwork or other high-value personal property).
How long does it take to buy a home?
From start (searching online) to finish (closing escrow), buying a home takes about 10 to 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.
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. That’s because several parties involved in the transaction get behind when business suddenly picks up. 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. Lender turn-around times for loan underwriting can also slow down. If each party involved in a deal takes a day or two longer to get their work done, the entire process gets extended.
What is a buyer’s market?
A buyer’s market is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, like: Economic disruption - a big employer shuts down operations, laying off their workforce.
Interest rates trending higher – 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 buyers find better deals.
Short-term drop in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
High inventory – a new subdivision and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.)
Natural disasters - a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred
How much do I have to pay an agent to help me buy a house?
Home shoppers pay no fees to an agent to buy a home.
Here’s why:
For most home sales, there are 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 search and find the home for sale.
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. Conversely, home shoppers with lower credit scores may need to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk.
How much do I need for a down payment?
Homebuyers usually only put down 3 to 5% on a home. That’s because several programs don’t require big down payments. A longtime favorite, the FHA loan, requires 3.5% down. What’s more, some programs allow down payment contributions from family members in the form of a gift.
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 servicemembers. USDA loans are only available to low to-middle income buyers in USDA-eligible rural areas.
Conventional loans typically require a 5% down payment. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI). With a Conventional loan a 20% or more down payment can be made to forego private mortgage insurance (PMI). 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.
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.
We recommend driving by the home first to ensure that you like the neighborhood and curb appeal. If you still like it at the point, then let’s schedule a showing!
What if my offer is rejected?
Sellers can flat-out accept or reject an initial offer. But there is a third path that is quite common, sellers can initiate a counteroffer. Remember this: a deal isn’t dead until it’s dead. So, if a counteroffer is given by the seller, you’re still in the game. You and your agent just need to review it determine whether the counteroffer is acceptable. If so, then approving it seals the deal immediately. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual and 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.
Should I order a home inspection?
Yes! Home inspections are required if you plan on financing your home with an FHA or VA loan. For other mortgage programs, inspections are not required. However, home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections bring peace of mind to one of the biggest investments of a lifetime.
What is a seller's market?
In sellers’ markets, increasing demand for homes drives up prices. Here are some of the drivers of demand: Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can be built. Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for first time home buyers who can afford bigger homes as the cost of money goes lower. A short-term spike in interest rates - 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 - 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.
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. 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.
