Answers to Frequently Asked Questions
Buying
- How do I know for sure how much home I can afford?
- What should I ask about each home that I look at?
- How do I know I'm getting the best value for my money?
- When I've found the home I like, how do I make an offer?
Selling
- How long should it take to sell?
- How do I price my house?
- What is "Fair Market Value", and how do I determine mine?
- How flexible should I be about the asking price?
- How important is advertising?
Financing
- What is a mortgage, and what are the benefits of different kinds of mortgages?
- How much of a down payment will I need to buy a home?
- What are the steps involved in the loan process?
- What does my monthly mortgage payment include?
- What is the difference between pre-qualifying and pre-approval?
Buying
HOW DO I KNOW FOR SURE HOW MUCH HOME I CAN AFFORD?
We’ve found that affordability is probably the single biggest concern of today’s first-time home buyers. Given the wide range of media coverage regularly devoted to the issue, it’s not surprising that many young families wonder how long it will take them to afford their first home.
Our advice: Don’t sell yourself short. Talk to your real estate agent. A good agent is committed to honestly and responsibly working with you to determine your affordable price range. There are many financing options available today, and some include low down payments. Your agent will help find an option that fits your budget, and you may be surprised at just how much home you can afford.
WHAT SHOULD I ASK ABOUT EACH HOME THAT I LOOK AT?
As a rule of thumb, ask any questions you have about specific rooms, features, or functions. Pay particular attention to areas that you feel could become “problem” areas – additions, defects, areas that have been repaired. And above all, if you don’t feel your question has been answered, ask until you do understand and are satisfied. In most cases, your real estate agent will be able to provide you with detailed information about each home you see.
HOW DO I KNOW I’M GETTING THE BEST VALUE FOR MY MONEY?
A professional appraisal is the best way to tell if a home is priced fairly. A real estate appraisal is an unbiased opinion of a property’s value based on its style and appearance, construction qualify, usefulness, and other factors, including the value of comparable properties nearby.
When you apply for a mortgage, the lender will have a professional real estate appraiser perform an appraisal of the property. This is a safeguard that ensures you won’t pay more than the property’s appraised value.
WHEN I’VE FOUND THE HOME I LIKE HOW DO I MAKE AN OFFER?
When you’ve found a special house you want to call home, you’ll probably feel excited and a bit nervous. Let the agent know you’re ready to write an “offer to purchase” – a written document that declares how much you will pay for the home provided that certain conditions are met. Because it’s a legally binding contract that you will sign and date, it may be a good idea to have a lawyer review it before you sign, or within the grace period noted in the contract.
This is the time when it is most important for you to keep in mind that the agent is the agent of the seller (unless you are working with a “buyer’s agent” – where you, rather than the seller, will actually be paying the agent’s commission). As the legal agent of the seller, the agent is obligated to help the seller get the best price and he will report to the seller any confidence you share. It’s best to make your offer without sharing with the agent your willingness to offer any higher price if the seller does not accept your offer.
Your offer should have a time limit for the sellers to accept it, reject it, or make a counter-offer. If a counter-offer is made, you’ll have some time to respond. Often, several offers go back and forth until an offer is accepted, or one party decides to end negotiations.
Selling
HOW LONG SHOULD IT TAKE TO SELL?
Average listing times vary from 30 to 180 days, according to market conditions in a particular region, town, or even neighborhood; and of course, price, terms, condition, location and exposure play an even greater role. Selling in any market is easier if you keep time on your side. Most professionals will tell you that allowing yourself at least six months will put you in a position to get a better return from their marketing efforts.
HOW DO I PRICE MY HOUSE?
In a word, realistically.
Today’s residential real estate market is no place to look for easy profit. The fact is, prices have generally leveled off from their peak during the 1980’s. That’s not to say you can’t get what your house is worth. You just have to be realistic about its value, and price it accordingly. A good place to start is by determining the fair market value.
WHAT IS "FAIR MARKET VALUE," AND HOW DO I DETERMINE MINE?
Simply put, the fair market value of a house is the highest price an informed buyer will pay, assuming there is no unusual pressure to complete the purchase. It is usually not the asking price.
To get an estimate of fair market value, call a local broker and ask for a Competitive Market Analysis (CMA) of your house. Most brokers will provide this service free of any charge or obligation.
The analysis will give you a realistic figure based on the most salient points of the local real estate market. It should provide information about recent sales of similar houses, including how much they sold for and how long it took. The broker’s price opinion is very helpful in determining the right asking price.
HOW FLEXIBLE SHOULD I BE ABOUT THE ASKING PRICE?
Most buyers also leave room for negotiation when they make an offer. Thus, a certain degree of flexibility is usually called for on the part of both the buyer and the seller.
While it is ultimately your decision to accept or reject an offer, or present a counter-proposal, a good agent can be of great assistance to you during the negotiating process. In fact, negotiation is one of the valuable skills an agent can offer you. As negotiations proceed – whether in writing, face-to-face, or by phone – your agent should advise you of your options in responding to each offer from the buyer. Even without such advice, a cool, rational manner in what is often a long, emotionally-charged process will usually net you a significantly higher price.
HOW IMPORTANT IS ADVERTISING?
Advertising remains one of the most important components of the marketing process. But again, it’s not as simple as it used to be, at least not in the hands of a good broker.
Many people don’t realize how costly advertising can be – a single page of photo listing ads run by a local real estate office in your local newspaper can cost anywhere from several hundred to several thousand dollars. Yet it’s a far more cost-effective way to go than the three or four-line classified ad you would probably run if you were selling the house yourself. Here’s why:
Your classified ad requires a prospective buyer to find it amidst the dozens of others on the page, and be impressed enough by its message to call in response. In contrast, the broker’s ad is designed to “find the buyer” – with its large size and easy-to-read layout, the eye-catching photographs and professionally written descriptions, plus the fact that it includes not just one, but several houses for sale.
How does the inclusion of other houses benefit yours? The power of numbers, plain and simple. Fewer than 5% of buyers actually purchase the first house they call about. When they call to respond to the broker’s ad, on the other hand, they’re likely to be shown a number of houses similar to the one they initially express interest in seeing.
And that’s just advertising in the local newspaper. Brokers today, especially larger ones, employ a variety of other proven advertising methods, including magazines, radio, TV and direct mail.
Financing
WHAT IS A MORTGAGE, AND WHAT ARE THE BENEFITS OF DIFFERENT KINDS OF MORTGAGES?
Simply put, a mortgage is a loan that a home buyer obtains directly from a lender to purchase real estate. The mortgage is a lien on the property that secures a promissory note (promise to repay the debt) that states the terms of the loan, including the interest rate, and the number of payments. The most popular mortgages available to home buyers today can be divided into two general categories: those which offer fixed interest rates and monthly payments, and those where one or both of those factors are adjustable.
Fixed rate/fixed payment loans are more traditional, and remain the most popular home financing method, currently accounting for about two-thirds of all residential mortgages. Their advantages are well-known: You always know what your monthly principal and interest payment will be, so your basic housing cost will remain unaffected by interest rate changes until the mortgage is paid off.
Mortgages that entail flexible rates and/or payments have grown in popularity in recent years, primarily during periods of high interest rates and/or rapidly rising home prices. Many, including the popular ARMs (Adjustable Rate Mortgages), offer lower-than-market initial interest rates that allow buyers a measure of affordability unavailable in fixed-rate loans. The tradeoff may be higher interest rates and higher monthly payments later on.
The “Mortgages at a Glance” table on the following page provides a brief synopsis of some of today’s most popular mortgages, their benefits and drawbacks. To find out about any one of them, talk to your mortgage lender or your ERA Real Estate Specialist.
HOW MUCH OF A DOWN PAYMENT WILL I NEED TO BUY A HOME?
The amount of money that a buyer must put down at closing depends on the loan-to-value ratio – the percentage of the property’s appraised value or sales price (whichever is less) that a lender is willing to loan.
For example, if a property is appraised at $100,000 and the lender is willing to loan $90,000, the loan-to-value ratio is 90%. The buyer’s down payment is the remaining $10,000. Because the loan-to-value ratio is a percentage, the higher the sales price of a house, the higher the down payment.
A down payment of 20% has been the benchmark for conventional financing, but today, many options are available, some requiring as little as 5% down. Your mortgage expert can help you determine which down payment option is right for your and your budget.
WHAT ARE THE STEPS INVOLVED IN THE LOAN PROCESS?
The information your lender needs is not much different than what is needed when you apply for a major credit card: Names and addresses of your employer and bank account numbers and balances.
The lender will also need other financial information such as installment payments, auto loans, charge cards, and department store accounts. The location and description of the property also are required. Your lender will verify this information with your present and past employers, order a routine credit report on your current and past accounts, and order a professional appraisal of the property you’re wanting to purchase.
Allow yourself two to four weeks to complete the application process. Then once all the verifications have been completed, your lender will underwrite and approve the loan. Overall, the time from the date of application to the date of move-in is generally three to four weeks for conventional loans and five to seven weeks from the date of application for FHA and VA loans.
WHAT DOES MY MONTHLY MORTGAGE PAYMENT INCLUDE?
The bulk of your monthly mortgage payment goes toward paying off the principal and interest of your loan. In addition, most lenders require that you pay a sufficient amount to cover your local real estate tax, plus your homeowner’s or hazard insurance. This amount is placed in an escrow account, from which your lender then pays your tax and insurance bills as they come due.
WHAT IS THE DIFFERENCE BETWEEN PRE-QUALIFYING AND PRE-APPROVAL?
Pre-qualifying for a mortgage up to a certain amount is an increasingly popular practice among buyers who don’t want to worry about going through the approval process after they’ve found the home they want. It’s a verbal exchange in which the lender tells you in advance approximately how much money the buyer is able to borrow, based upon the information you provide the lender on your debt and income.
