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FAQ

Frequently asked questions

Intrinsic Real Estate Group


Selling

What are closing costs?


Closing costs are expenses incurred by buyers and sellers when the ownership of the property is transferred. These are usually negotiable items as to who will be responsible for their payment. Examples of closing costs include recording fees, documentary fees, real estate commission, taxes prorations, settlement fees, and title insurance.




What is Title Insurance?


Title Insurance insures a buyer that he or she is getting clear title to the property without any liens or encumbrances. A title insurance company researches the county records to see what has been recorded on the property. The title commitment will show what loans need to be paid off and what restrictions, if any, are on the property. The cost is determined by the sale price and varies with insurers. Typically, the seller pays for the policy, and any endorsements required by the buyer’s lender are usually a buyer’s responsibility.




What are comparables or “comps”?


Recently sold properties that are similar in size, location, and amenities to the home for sale are considered “comps”. You may hear this word when an appraiser or Realtor is helping to determine the fair market value of a property.





Buying

What is a good number of homes to tour prior to making an offer?


The best answer is “as many as it takes to find a home that works for you”. Purchasing a home will most likely be the single largest investment you will make, so it is important to make sure you find a home that meets your current and future needs. It’s best not to look at just one home, but also not to look at more than 6 or 7 in one day. It’s common to confuse the features if you view too many in one day. Bring a notepad and pen and take notes on your likes and dislikes of each home.




What is meant by a debt-to-income ratio?


A debt-to-income ratio is important to your lender. To figure out where you stand on the ratio, you must first understand the meaning of the figure. Lenders use various ratios, but the most common is 28/36. The first number, (also known as the front-end-ratio) is the percentage of your gross monthly income that you could comfortably afford to spend on your housing payment. This figure includes escrow for taxes and insurance. The second number, (also known as the back-end-ratio) is the percentage of your gross monthly income that should be spent on all long-term monthly debts combined.




What is included in a home’s square footage?


Square footage includes finished, heated space, also known as “livable space”. Garages, unfinished basements and attics, for example, are not included when calculating a home’s square footage. Hallways and closets are included when determining a home’s square footage, however.




Is there an easy rule of thumb to determine how much money can be borrowed to buy a home?


Lenders look into your credit rating, debt/income ratio, and many other documents to determine how much you can borrow. In addition, loan qualifications have been changing over the last year or so. As a rule of thumb, you’ll need to determine your gross income (before taxes) for all people that will be on the loan (borrower and co-borrower). Multiply this number by 2 to 2.5 This will give you a general idea of what you might qualify for. If you have a large down payment combined with little to no debt, the lender may believe that you can afford a more expensive home than this rule of thumb.




What is “earnest money”?


Earnest money is something of value (called “consideration”) that a buyer puts forth to bind an agreement, such as the sale of real estate. Earnest money is forfeited by the buyer if he or she fails to carry out the terms of the contract. It’s up front money from a buyer to show a seller that the buyer is serious about the purchase. The money is usually deposited into an escrow account and is usually applied toward the buyer’s down payment.




What are closing costs?


Closing costs are expenses incurred by buyers and sellers when the ownership of the property is transferred. These are usually negotiable items as to who will be responsible for their payment. Examples of closing costs include recording fees, documentary fees, real estate commission, taxes prorations, settlement fees, and title insurance.




What is a loan commitment letter?


A loan commitment letter is given by the lender to the borrower stating the terms under which the lender has agreed to the loan. This is often considered “loan approval” which will allow the buyer to proceed with consummation of the real estate purchase.




What is Title Insurance?


Title Insurance insures a buyer that he or she is getting clear title to the property without any liens or encumbrances. A title insurance company researches the county records to see what has been recorded on the property. The title commitment will show what loans need to be paid off and what restrictions, if any, are on the property. The cost is determined by the sale price and varies with insurers. Typically, the seller pays for the policy, and any endorsements required by the buyer’s lender are usually a buyer’s responsibility.




What are comparables or “comps”?


Recently sold properties that are similar in size, location, and amenities to the home for sale are considered “comps”. You may hear this word when an appraiser or Realtor is helping to determine the fair market value of a property.




What is Homeowners Insurance?


Also known as “hazard insurance”, homeowners insurance covers losses caused by fire, hailstorms, or other casualty on the property. Lenders usually require the buyer to have insurance in an amount equal to or greater than the loan amount. Flood insurance is required by the lender if the property is in a flood hazard area/flood plain. Condominiums and townhomes are somewhat different, as certain items may be covered by the homeowner’s association fees.




What are home warranty plans?


Home warranty plans can be purchased at the time a home is bought. They usually cover major items in the home such as the furnace and appliances. It is not a replacement for homeowners insurance, but can provide additional coverage for some items.




Should I talk with a bank before looking at homes?


The answer to the question is YES! There are tons of reasons why you should talk with a bank and get pre-approved before looking at homes. First and foremost, talking with a bank before looking at homes can help you understand exactly how much you can afford. There is no reason to look at homes that are listed for $250,000 if you can only afford up to $200,000. If you’re a first time home buyer, talking with a bank before looking at homes is strongly suggested, as there are many first time home buyer programs available. These programs can vary from state to state and county to county, so knowing exactly what’s available to you, is critical. Another important reason to talk with a bank before looking at homes is so you understand exactly what costs are associated with buying a home. There are many home buyers who don’t understand the difference between a down payment, pre-paid items, and escrows, which can be thoroughly explained by a mortgage professional. A mortgage professional can give you advice on the type of financing you should be looking to obtain and also whether or not you should request the seller to contribute towards your closing costs, also known as a seller’s concession.




Should I buy or continue to rent?


Buying a home can be a very solid investment. This being said, renting can also be a better option for some, depending on the circumstances. The current interest rates are incredible. A 30-year FHA mortgage can be locked in at a rate of around 3.5%. Since the interest rates are so low, it actually can be cheaper to pay a mortgage right now than paying rent. There are questions that you should ask yourself before deciding to buy a home. One of the most important things to consider is the length you plan on staying in a home, if you were to purchase. If the answer is only a few years, it’s likely the better decision is to continue renting. Another question to ask yourself is whether you are ready to take on the additional “responsibilities” of owning a home. When owning a home there will be general home maintenance that should be done, are you ready for that? Buying a home is a great option in many cases, but not always.




Can I find a rent-to-own property?


Can you find a needle in a haystack? Of course you can, but the probability isn’t very high. The same can be said about a rent-to-own property. A common question from home buyers is whether rent-to-owns exist or whether an owner would consider that option. They are out there, but there are somethings that you need to know before agreeing to a rent-to-own. When an owner is offering “rent-to-own” as a possible financing option, they are taking on a high risk since in most cases, a rent-to-own buyer has a credit score that is not impeccable. Since an owner is taking a higher risk the terms for a rent-to-own must be considerably favorable for the owner. This often leads to less than favorable terms for a buyer. When looking at a rent-to-own as an option you can expect to provide a considerable amount of money down and a higher interest rate than what a lender is currently offering. If you’re able to purchase a home by financing through a bank or lender, you will be better off because the terms will be more favorable.




I own a home, should I buy another before selling my current home?


There is truly no concrete “correct” answer to this question. There are pro’s and con’s to buying a home before selling your current home and the same can be said about selling your current home before buying another. Buying a home before selling your current home The biggest benefit to buying a home before selling your current home is the fact that you have a suitable property lined up. This can reduce the stress and pressure of having to find a home once your current home is sold. This however also can create disappointment and heartbreak. If you are unable to purchase a new home without having to sell your current home, you’re purchase offer is going to be contingent upon sale and transfer of title of your current home. If your current home does not sell in a timely manner, this can lead to you getting “bumped” by a non-contingent buyer and you losing out on the home you’re looking to purchase, which can be devastating. Selling your current home before buying a new home The time it takes to sell your current home is unpredictable. There is no crystal ball that exists that can tell you exactly how many days it will take. Selling your current home before buying a new home will put you in an ideal position to negotiate on the new home you’re purchasing due to the fact you are purchasing without the sale contingency of your current home. One risk of selling your current home without buying a new home first is the chance of not being able to have a place to live. There are options if your current home sellers before buying another though. A “rent-back” can sometimes be negotiated with the buyer of your current home. A “rent-back” would allow you to retain possession of your current home for a certain number of days after closing at the expense of paying the buyers mortgage. A “rent-back” allows for additional time to find a new home.




Do I really need a Realtor when buying a home?


When buying a home, it’s strongly recommended you have a Realtor. There are many reasons why you should have a Realtor represent your best interests when buying a home. Keep in mind, all Realtors are not the same! When choosing a buyers agent, make sure you know how to properly interview prospective Realtors when buying a home. Attempting to buy a home without a Realtor can really make the home buying process more difficult. Having a Realtor is always recommended when buying a home. One thing not to do when buying a home is calling the listing agent because you don’t want to “bother” your Realtor. This is one thing that real estate agents hate.




Who pays the Realtor fees when buying a home?


One reasons why buyers ask the question about the need of having a Realtor when buying a home is because they don’t understand who pays the Realtor fees when buying a home. There are no guarantees, however, in most cases the seller pays the Realtor fees.




How is the neighborhood/area?


When buying a home, a common question home buyers have is regarding the neighborhood/area. As a real estate professional, there are rules against steering and providing personal insight into specific areas and neighborhoods. This doesn’t mean that your Realtor cannot provide you with tips to help you choose the right neighborhood when buying a home. Many buyers wonder about the growth of the local economy, crime statistics, taxes, and local amenities. If you have a top Realtor when buying a home, you should be able to receive all of the pertinent information to allow you to make an educated decision on areas and neighborhoods.




How are the schools?


This is another question that Realtors should tread very lightly with. There is no doubt that schools impact property values. Just like tips for selecting a neighborhoods, a top Realtor should be able to provide you with names or websites where you can find information on the local schools so that you can determine whether or not the schools are acceptable to you or not.




How much should I offer the sellers?


When buying a home, you are the only one who can determine how much you should offer a seller. Certainly it’s suggested you ask for your Realtors advice and thoughts, but ultimately you are the only person who can determine how much you should offer.




How long does the seller have to respond to my offer?


There is not a standard answer to this question. A purchase offer will have a “life.” The “life of the offer” can vary from 12 hours to 3 or 4 days. There are many circumstances that can effect the length of the “life of the offer.” Your Realtor should know how long of a “life” to give to your offer. If you’re looking to purchase a home that is newly listed and the possibility of multiple offers exists, a shorter life is recommended. If the home you’re looking to purchase has been on the market for 3 months and the seller is located out of town, a 2 day “life” maybe necessary and/or recommended.




What if my offer is rejected?


When a purchase offer is submitted to the seller there are generally four possible responses. The first is an accepted offer, the second is a counter offer, the third is a rejected offer, and the final is an offer that is not responded to. If your offer is rejected, meaning the seller says no and doesn’t counter, you have the right to place another offer. It’s not very common an offer is rejected or not responded to, unless a seller is offended by a low-ball offer.




Do I have the option to have any inspections?


When buying a home, you have the option to perform several types of inspections. The purchase offer you write can be contingent upon a satisfactory home inspection, pest inspection, chimney inspection, radon test, and many other inspections. In most cases, it’s recommended that when buying a home, you at the bare minimum have a home inspection. There are home inspection findings that are more common than others, however, no two homes are the same so it’s a great idea to get the home inspected.




Do I need to do a final walk-through?


As a buyer, you have the option to perform a final walk-through. Is a final walk through a requirement? NO. Is a final walk through necessary? YES. Generally when buying a home several weeks go by between when you last walked through your home. Lots of things can change during that time. When doing a final walk through a few things you should check is that furnace is working, the toilets are flushing properly, and there is hot water.




When is the closing date?


When buying a home, the excitement level is extremely high. It’s important to understand that the closing date in the purchase offer is a target and not a guarantee. Before you hire the movers and take time off from work, know that the closing date in the contract isn’t necessarily the date you will own your new home. Many buyers will ask their Realtor this question, however, it isn’t up to the Realtors when a closing will be. The attorney’s are the ones who have to set the closing date and time.




What 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 get 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 an 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.




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.





Investing


Joining Our Company


Referring Someone


Home Ownership

How can I build equity into my house?


You can build equity in three ways. First (and easiest) is from market appreciation. Second, when making your monthly mortgage payment, try to send a little bit more. This will go directly to the principal of the loan, rather than the interest. Be sure your lender knows to put the extra toward principal, and not the next month’s payment. Even an extra $50 per month can quickly build equity, as well as knock years off of your loan. The third way to build equity into your house is to make improvements. There are a variety of ways to remodel and make positive changes to the interior and exterior of your home. One of the best ways is to add square footage/living space.




What is Homeowners Insurance?


Also known as “hazard insurance”, homeowners insurance covers losses caused by fire, hailstorms, or other casualty on the property. Lenders usually require the buyer to have insurance in an amount equal to or greater than the loan amount. Flood insurance is required by the lender if the property is in a flood hazard area/flood plain. Condominiums and townhomes are somewhat different, as certain items may be covered by the homeowner’s association fees.




What are home warranty plans?


Home warranty plans can be purchased at the time a home is bought. They usually cover major items in the home such as the furnace and appliances. It is not a replacement for homeowners insurance, but can provide additional coverage for some items.




What are some examples of home projects that will increase the value of my home?


Making home improvements that add value to your home are a smart investment. But over improving real estate can be like pouring money down the drain. Too often homeowners make improvements that fit them specifically, which narrows down the market for resale. While it’s important to enjoy the amenities of the home in which you live, it’s still essential to think about potential resale of the property. When you improve your home, you get value in two ways—the economic value that comes when you sell the home, and the enjoyment value you get now. You may enjoy a $20,000 walk-through garden, but a new owner may see high maintenance and less time to enjoy boating at the lake. Some improvements never pay off such as hot tubs, swimming pools, trendy paint colors, elaborate gardens, or high-end fixtures. The more the home is customized for you, the less likely it will be acceptable to a potential buyer. To maximize the salability of your home, stay neutral. Replacing carpet and painting interior and exterior surfaces provide some of the best increases in selling price per dollar invested. Other less expensive projects that provide a good return are cleaning and uncluttering a home, and making sure that the home is light and bright through both natural and artificial light.





Real Estate Terms

How big is an acre?


An acre of land is an area of land equal to 43,560 square feet. It is often compared to the size of a football field (without the end zones). One square mile is equal to 640 acres, called a “section”.




What is the MLS?


MLS stands for Multiple Listing Service. It’s a network of real estate listings in an area, where buyers can (through a Realtor or the Internet) view what is available in their price range, and with the features they are looking for. It is a system usually run and supported by the local Real Estate Board that has details of almost every home, land, and business listed for sale with a real estate agent.




What does DOM mean in the MLS?


DOM stands for “Days on Market”. This number allows buyers to see how long the property has been for sale. Some people believe that the longer a property has been on the market, the more motivated a seller might be.




What is “earnest money”?


Earnest money is something of value (called “consideration”) that a buyer puts forth to bind an agreement, such as the sale of real estate. Earnest money is forfeited by the buyer if he or she fails to carry out the terms of the contract. It’s up front money from a buyer to show a seller that the buyer is serious about the purchase. The money is usually deposited into an escrow account and is usually applied toward the buyer’s down payment.




What are real estate “contingencies”?


Contingencies are “what ifs” in a real estate purchase and sale contract. They allow a buyer or seller to void the contract if certain items aren’t met. Examples of real estate contingencies are appraisal, inspection, house sale, and loan approval contingencies.




What is a real estate broker, and how does this differ from a real estate agent?


A real estate broker is an agent who is authorized to open and run his/her own agency. All real estate offices must, by law, have one principal broker. A seller’s agent is a real estate agent that works solely on behalf of the seller and owes duties to the seller, which include utmost good faith, loyalty, and fidelity. However, the agent must disclose to potential buyers all adverse material facts about the property, which are actually known by the broker. A buyer’s agent is a real estate agent that works solely on behalf of the buyer and owes duties to the buyer, which include the utmost good faith, loyalty and fidelity. The buyer is legally responsible for the actions of the agent when that agent is acting within the scope of the agency. The agent must, however, disclose to potential sellers all adverse material facts concerning the buyer’s financial ability to perform the terms of the transaction. A transaction broker is a real estate agent that assists the buyer or seller or both throughout a real estate transaction with communications, advice, negotiation, contracting and closing, without being an agent for either party. When you are talking to a Realtor to help you purchase or sell your home, be sure to discuss the subject of agency.




What is an appraisal?


An appraisal is an estimate of the value of a piece of property by a licensed, trained, and experienced individual called an appraiser. They are usually required by a lender to determine how much the property is worth in ascertaining how much they will loan on the property.




What is a real estate closing?


An appraisal is an estimate of the value of a piece of property by a licensed, trained, and experienced individual called an appraiser. They are usually required by a lender to determine how much the property is worth in ascertaining how much they will loan on the property. The closing is the culmination of everything in a real estate transaction. It’s where the title, known as the deed, transfers from seller to purchaser. Closings may be held at a title company, or at the real estate agent’s office. The title company researches the chain of title to the home. Assuming the title is clear, all inspections are satisfactory, and all contingencies have been met, the title company (closing/escrow agent) will facilitate the closing by providing an explanation of documents to be signed, collection of and disbursement of funds, and a last minute check by the title company to make sure that a clear title to the property will be transferred.




What does the Real Estate Settlement Procedures Act (RESPA) require?


An appraisal is an estimate of the value of a piece of property by a licensed, trained, and experienced individual called an appraiser. They are usually required by a lender to determine how much the property is worth in ascertaining how much they will loan on the property. The Real Estate Settlement Procedures Act requires the lender to disclose certain information about a loan, including the estimated closings costs and Annual Percentage Rate.




What are Covenants, as they relate to real estate?


Webster defines a covenant as “a formal binding agreement”. When property is recorded at the county Courthouse, covenants become “deed restrictions” that pass with transfer of ownership of the property. Also known as CC&Rs (covenants, conditions, and restrictions), these documents should be read thoroughly prior to entering into a home or land purchase agreement. That shed, fence, or guest home may not be allowed. When purchasing land, watch for minimum building square footage on proposed homes. However, some people prefer the freedom of having no deed restrictions. Although most newer subdivisions have adopted covenant controls, there are many areas without them. If such controls are objectionable, covenant controlled areas may be places to avoid. The Real Estate Settlement Procedures Act requires the lender to disclose certain information about a loan, including the estimated closings costs and Annual Percentage Rate.




How is a Realtor different from a real estate agent?


“Realtor” is the symbol of a professional in the real estate business. Many people use the term Realtor synonymously with ‘real estate agent’ or ‘salesperson’. This assumption is incorrect. Not every real estate agent is a Realtor. Realtor is a designation that applies to one who pursues continuing education, abides by a strict Code of Ethics, stands for private property rights, and opposes discrimination in housing. You may be aware that Realtors are required to hold a state real estate license, but there are many other designations that a well-educated Realtor can hold. To become a licensed real estate agent, one must meet minimum requirements outlined by state statutes. To renew a real estate license, the state’s real estate commission requires that an active agent take a required number of continuing education courses every three years. A Realtor organization is based upon a Code of Ethics to which each member agrees to adhere. Within the Code are provisions that govern fair housing, professional conduct, and advertising. Realtors also work as “watchdogs’ for legislation that negatively affects private property, property taxation, and real property rights in relation to buying and selling land and homes. Realtors are the true professionals in real estate.




What are home inspections?


When purchasing a home, it is important to perform a thorough assessment of the home’s structure, equipment, and surroundings. Real estate purchase contracts provide appropriate language to protect buyers from purchasing a structurally unsound home, while at the same time protecting sellers from liability. An inspection can be made by an inspection service company, or a buyer may choose to inspect the home him or herself.




What is the opportunity zone?


The launch of the qualified opportunity zone program means that in return for rolling over profits from the sale of capital assets like real estate or company stock in certain economically designated areas, investors can delay paying capital gain taxes on those profits through 2026. Opportunity zones are similar in some ways to 1031 like-kind exchanges, which permit real estate investors to defer taxes on gains from the sale of a property by reinvesting the proceeds from the sale in another property within 6 months.




What is a short sale?


Before getting involved with a short-sale, it’s important you understand exactly what it is and what to expect from a short sale. The easiest way to understand a short sale is the sale of a home in which the proceeds from the sale are less than the balance of debts secured by liens against the property and the home owner cannot afford to pay the liens in full. Before purchasing a short sale, you should consider things such as the time it can take for a short sale response, the fact that a foreclosure is still possible, and that many short sale properties are in disarray. Short sales are not impossible to buy but you must be patient and be in no immediate rush to move.




What is a foreclosure?


Believe it or not, foreclosures can actually be a smoother transaction than a short sale. A foreclosure, sometimes referred to as a REO, is a property that is owned by a lender. If you’re considering the purchase of a foreclosure, it’s important to understand that most are sold “as-is.” Foreclosures, if not purchased by an owner occupant, are often purchased by investors, fixed up, “flipped,” and sold to a owner occupant.




What is an earnest money deposit?


An earnest money deposit is also frequently referred to as a good faith deposit. When a buyer purchases a home, they provide the seller’s real estate company a deposit to hold in their escrow account. The primary purpose of this deposit is to show a seller you are serious about purchasing their home. The amount that is deposited is subtracted from the final figure that a buyer pays at the closing table. In most cases, the larger the deposit, the stronger a purchase offer looks to a seller.




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.




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.




What is a stratified market?


A stratified market happens where supply and demand characteristics differ by price point, in the same area (typically by city). For example, home sales for properties above $1.5M may be brisk (seller’s market) while homes under $750k may be sluggish (buyer’s market). This scenario comes along every so often in West Coast cities where international investors - looking to park their money in the United States - buy expensive real estate. At the same time, home sales activity in mid-priced homes could be entirely different.





Mortgage

What is mortgage life insurance?


Mortgage life insurance is optional and is usually term life insurance that is obtained in the amount of the loan on the home. Paid for by the buyer/borrower, it is usually taken out in an amount that will pay the house loan off, if the buyer dies.




What is mortgage insurance?


Also known as private mortgage insurance (PMI), it is insurance to cover the lender on the mortgagee. This coverage is typically required on loans where the buyer is borrowing more than 80% of the value of the property.




What are prepayment penalties?


A prepayment penalty is a penalty fee charged to the borrower for paying off a mortgage early, thus allowing banks (or owners, if they do the financing) to still make money off of the loan. Most loans these days do not have prepayment penalties, but it is advisable to check into this before signing any loan paperwork.




What does it mean to be prequalified for a loan?


When you are prequalified, the lender gives you an estimate but does not formally commit to giving you a loan. Sellers often want to see that a buyer is prequalified for a loan, before they agree to accept the buyer’s purchase offer. The Real Estate Settlement Procedures Act requires the lender to disclose certain information about a loan, including the estimated closings costs and Annual Percentage Rate.




Should I talk with a bank before looking at homes?


The answer to the question is YES! There are tons of reasons why you should talk with a bank and get pre-approved before looking at homes. First and foremost, talking with a bank before looking at homes can help you understand exactly how much you can afford. There is no reason to look at homes that are listed for $250,000 if you can only afford up to $200,000. If you’re a first time home buyer, talking with a bank before looking at homes is strongly suggested, as there are many first time home buyer programs available. These programs can vary from state to state and county to county, so knowing exactly what’s available to you, is critical. Another important reason to talk with a bank before looking at homes is so you understand exactly what costs are associated with buying a home. There are many home buyers who don’t understand the difference between a down payment, pre-paid items, and escrows, which can be thoroughly explained by a mortgage professional. A mortgage professional can give you advice on the type of financing you should be looking to obtain and also whether or not you should request the seller to contribute towards your closing costs, also known as a seller’s concession.




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?


The national average for down payments is 11%. But that figure includes first time and repeat buyers. Let’s take a closer look. While the broad down payment average is 11%, first time homebuyers usually only put down 3 to 5% on a home. That’s because several first-time home buyer 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. 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% down if the borrower carries private mortgage insurance (PMI).





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