Questions home buyers ask #1
Can I make a lowball offer?
When it comes to a home being sold with commission, buyers can go as low as 25% to get the home they want, but when the homeowner is selling without commission, you need to keep in mind that the seller has likely done their homework and has the Comparative Market Analysis to prove it.
You should also do your homework; before you visit a home you are interested in buying, find out how much homes in the area are selling and have sold for. Arm yourself with this information when it comes time to negotiate.
Questions home buyers ask #2
Can I buy a home without a Buyer’s agent?
It really depends on what your needs are. If you know the area well in regards to schools, crimes, sales history and the like, or are up for doing your homework on it, then you may not need a buyer’s agent.
As well, if the seller is selling their home without commission, then they may be more comfortable dealing directly with you. Also keep in mind that some sellers may factor the cost of a buyer’s agent into their asking price.
If however, you are not very familiar with the area and would feel more comfortable with assistance, then a buyer’s agent may work for you. You will have to do your homework in this scenario as well. Ask the buyer’s agent how familiar they are with the area, how many people they have helped to buy a home in the last two years, and test their sense of understanding of what you’re looking for.
Questions home buyers ask #3
Which type of mortgage is best for me?
There are fixed-rate mortgages and adjustable rate mortgages, to break things down in layman’s terms. The rate refers to the amount of interest you have to pay for borrowing.
Fixed mortgage rates allows you to lock in an interest rate for a set amount of time, no matter how the market fluctuates. This is great because you can potentially lock in at a phenomenal rate, but on the other hand, you may lock in only to watch interest rates hit an all-time low.
Many are comfortable with a fixed rate because they know their monthly mortgage payments will remain stable over the years, making their monthly cash flow more predictable. The downside, however, is that lenders charge a higher rate of interest for fixed-rate loans because if interest rates shoot up, they lose the opportunity to make more money.
If you plan on living in your home for many years, then a fixed rate makes sense.
Adjustable-rate mortgages means that the rate you pay changes according to fluctuations in the market. Advantage? Lenders charge a lower rate for such loans because you take on some of the risk. Initially, this makes your monthly payments lower.
If rates rise, however, there is a limit to how much an adjustable rate can rise, often to no more than two percentage points a year, with a cap of six for the life of the mortgage. If you are willing to endure the ups and downs of refinancing on an annual basis, then you may come out on top.
Questions home buyers ask #4
What does a lender base my mortgage amount on?
At the end of the day, your credit report plays a major role in your ability to get the loan, but other factors are at play as well.
Your job, how long you have had it and how secure it is plays a factor. As well, your debts incurred from school loans, car payments and credit cards, to name a few, come into play.
There are two formulas looked at that go into deciding your loan fate. First is the housing ratio, which includes a mortgage payment, taxes, insurance and maintenance – the magic number is 36%.
The second formula is your total-obligation ratio, this involves housing expenses as well as other loans and debts. The magic number here is 42%. While they are negotiable, exceeding this number drastically will certainly not bode well for you.
Questions home buyers ask #5
How much should my down payment be?
While you are allowed to put as little as 5% down on a home purchase, ideally, you would have enough for at least a 20% down payment, taking into account the closing costs that equal to about 5% of the purchase price, and have enough liquid left to cover three months’ worth of house expenses.
Keep in mind that you need to have a stellar credit score in order to land a 5% down payment on a home. A small down payment also means that you will need to get mortgage insurance.
Questions home buyers ask #6
How soon after I apply for a mortgage will I get the money?
With the assumption that you have been pre-approved for a mortgage, it can take up to 10 business days to get the loan, depending on how simple or complicated your application was and how busy the lender is.
Keep in mind that you don’t just cut you a check and trust that you will make the payment; this only happens once you seal the deal. It is worthy to note that lender offers tend to expire after about 45 days, so don’t sit on the approval or you will lose it.
Questions home buyers ask #7
How can I trust the home seller? What if there are defects with the home?
You won’t know really know for sure, so the best way to protect yourself is to hire an experienced (read: certified) home inspector to check the house’s structure and systems.
The cost of a home inspection costs up to $500. It is important that you have the home inspected before signing the contract and putting down a deposit. Otherwise make sure that you include a condition in the offer to purchase that stipulates that the purchase is subject to the approval of a professional home inspector.
And don’t depend solely on the inspector; sniff around and look for defects like water damage, turn faucets on and off, flush toilets, check the basement for dampness, and turn lights on and off.
Questions home buyers ask #8
What happens once I’ve reached a deal with the seller?
Once you’ve come to an agreement on price and settled on the offer to purchase, it’s time to get your real estate lawyers involved to seal the deal officially. Now is when the cash and ownership switch hands.
Be sure to read the documents to ensure that what was included in the home price (appliances, light fixtures, window treatments, etc.) is listed in the documents. After the closing is over, don’t forget to change the locks.
Questions home buyers ask #9
Are there any tax breaks I can benefit from?
If you didn’t know it, real estate taxes are tax deductible. While it may not sound like much, it actually adds up to a nice return, especially considering that what you are paying on a mortgage in the first few years is actually mostly interest.
Consult your financial advisor for more advice about this and take full advantage of tax deductions.
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