Below are some frequently asked questions about buying and selling real estate. If you can't find an answer to your question, please email me your question and I will promptly respond.
How much house should I buy? How much can I afford?
The answer to this has a lot to do with your income and the amount of your debt load. As a rough rule of thumb, most home buyers purchase houses that cost between 1 1/2 and 2 1/2 times their annual income. For example, a home buyer earning $40,000 per year would buy houses costing between $60,000 and $100,000. There is, however, a degree of variation due to the individual market prices of the area in which you are interested. In some areas, there may not be houses available within that range, so you may need to spend a bit more. In general, however, your monthly mortgage payment cannot exceed approximately 28%-29% of your gross monthly income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-40% of your gross monthly income. These ratios will depend on the type of mortgage for which you are applying.
Do I really need to use an Agent to buy a house?
No. Should you use an Agent to buy a house? Probably, for two reasons. First, in virtually all situations, the buyer does not pay a commission, so the services of an Agent working for you are paid for by the seller. Second, without an Agent, you may be missing valuable representation of your interests. See the Agency section below. Many visitors to this Web Site skip the information on the Agency page and may be leaving themselves unrepresented.
How do I know if I am getting a good deal on a mortgage?
In a word: Compare. There is a good deal of variation in the mortgage market, not only from week to week, but from lender to lender. Many newspapers list current mortgage rates for your local area in their Real Estate sections, often on Saturday or Sunday. Check them. Your real estate agent should also be able to offer you several mortgage company contacts.
What First Time Buyer Programs are available?
There are literally hundreds of different programs available, depending on your location (city, state, or province) and the mortgage source that you use. The requirements and benefits vary greatly from program to program. Consult your Agent or your local housing authority for more information.
How much will my closing costs be?
The amount of closing costs will depend on what items are customary for buyers and sellers to pay for in your area. Traditions vary greatly from one area of the country to another. In some areas, for example, the buyer pays for title insurance. In other areas, it is the responsibility of the seller. In still other areas, the cost is split between buyer and seller. Your Agent can give you specific information on the items that are customarily paid for by buyers in your area. In addition, the amount of closing costs will depend on the amount of points you will be paying with your mortgage loan, since these are generally paid for up-front. (A point is 1% of your mortgage loan amount).
How much should I offer for a house?
There is no simple answer to that question, since each property stands on its own. A particular house may be overpriced (you should make an offer BELOW the listing price), "on-the-money" (you should make an offer at or just below the listing price) or under priced (you should grab it before someone else does!) Your real estate agent should provide you with a market analysis of recently sold homes in the area you are considering and help you arrive at a fair price for the home you are considering.
What about foreclosures? Can you save a huge amount of money here?
Save money, usually. A huge amount of money, occasionally. In many cases, though, these will be homes that need work, sometimes a great deal of work.
Should I spend the money to have a home inspection?
Absolutely. The $200 to $500 that a professional home inspection costs could be the best money you ever spend on your house. Not only does the home inspection seek out any defects (and gives you some peace of mind), the home inspector will often give you tips on maintaining and repairing your house. Your real estate agent can provide you with several home inspection companies. Be sure to check with the local BBB about any complaints against the company you choose.
What is an appraisal? Will I need one?
An appraisal is an opinion of value of the home you want to purchase. Virtually every lender will require some sort of appraisal before the loan is approved.
What is "seasoning"?
A lender or mortgage company will require that any open accounts be "seasoned" for certain periods of time. This means that they must be open and have acceptable payment histories for a period of time, generally 12 to 24 consecutive months. The more seasoned accounts with clear payment histories you have, the higher your FICO scores will be making it easier and cheaper for you to obtain a mortgage.
There is also "seasoned" funds required to close a loan. This means that if you paying a down payment and/or closing costs, the funds need to show on your bank statements for a period of time, usually 3 months. Not all loans will require seasoned funds to close.
About Real Estate Agency
One of the most common misconceptions that is shared by a large number of home buyers is that when working with a Real Estate Agent, he or she will "automatically" represent you as a buyer. As we will discuss, unless this is specifically disclosed in writing, in all probability the Agent will be representing the seller.
The traditional relationship (probably going back to when the first thatched hut was sold by someone other than its owner) has been that a Real Estate Agent's primary loyalty was to the seller of the property. This relationship was in effect whether the Agent was the listing agent or working with a buyer. This situation caused many home buyers to be confused: they assumed that the Agent that had been driving them around showing them houses for the last 3 weeks was representing them. In reality, the Agent was representing the owners of the houses they saw, and was bound to reveal to those owners any information he or she knew about the buyers.
Buyer Agency, which is almost universally available now, changed all that. The buyer now often has a choice in representation: the Agent with whom they were working could continue to represent the seller in the transaction, or the Agent could represent them as buyers. The buyer is now able to compete on a more level playing field.
Although there are state to state variations (please verify the situation in your particular locality), the following is a basic summary of the types of agency, and who the Agent represents.
SELLER AGENCY: The "default" situation. Unless disclosed to the contrary, all Agents involved in a Real Estate transaction (and their Brokers--with whom a listing agreement is actually with) represent, and owe their allegiance, to the seller. If you contact an Agent who has a property listed, that Agent will always represent the seller. In this case, the seller pays the commission due to the listing broker.
BUYER AGENCY: When an Agent represents the buyer, that Agent "rejects" the implicit seller agency and thus owes loyalty to the buyer. In this case, the buyer will pay the buyer agent’s broker a pre-determined commission. If the seller agent’s broker is offering a commission to the buyer agent broker, this amount is usually applied to the commission the buyer owes the buyer broker at closing.
DUAL AGENCY: This occurs when 2 Agents--or the same Agent--working for the same Broker each represent a buyer and a seller in a transaction. This situation must be disclosed to both the buyer and the seller. Privileged information (e.g. the price that a buyer will pay or a seller will sell at) cannot be disclosed to the other party without the express permission of that party.
What it means to you
If you leave the agency question "as-is", your Agent will automatically represent the seller in the transaction (although it is very likely that they will suggest Buyer Agency.) If the Agent does not represent the seller, in most areas you can opt for Buyer Agency. If the house in which you are interested is listed by the same Broker as your Agent, then you have an automatic Dual Agency situation. To sum it up, if you want full representation and it is available, insist on Buyer Agency.
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