Frequently Asked Questions: Buyer Edition
Buying a home can be intimidating and overwhelming. We decided to answer commonly asked questions (and more!) below.
🤔 Does it cost money to use a Realtor? How does commission work?
Traditionally the seller agrees to the commission that will be paid to the agent that is working for them. The buyer will almost never write a check to pay a broker, and the agent working for the seller is paid out of the proceeds of the sale.
🤔 What are the upfront costs of buying a home?
Inspection – Inspection costs vary based on the size of the home, and the services the inspector is providing. For a standard home inspection for a condo in the city or a single-family just outside of it, a buyer should budget $400-600.
Appraisal – expect to pay about $400.
Downpayment – The largest chunk of money that you will pay, your downpayment is broken up into two earnest money and a final payment. You’ll need to bind your offer with earnest money typically $1000-5000. The remainder of the downpayment will be brought to closing as certified funds.
🤔 How much do I need for down payment?
This is an interesting question because there are actually some loan programs out there that require 0% down! There are a number of first-time buyer programs that require between 3-5% as well. This would be a good area to speak to a local lender. If you don't have one, we an refer you to one our trusted lenders!
🤔What's the difference between assessed, appraised, and market value?
Market Value: This is what a buyer is willing to pay for a property.
Appraised Value: An appraisal takes place if there is financing being obtained on a home. Basically, a lender wants to be sure that the home is worth what the buyer is paying. Appraisers traditionally will select 5-6 comparable properties that have sold in the immediate area and add or subtract value based on the finishes, overall condition, and basic specs of a property. If the property does not appraise, the lender may deny the loan.
Assessed Value: An assessment is done for tax purposes. The city assessors’ office places a value on each property in the municipality each year in order to ascertain what the tax on each property should be.
🤔 Where do my offer check and deposit go?
Typical title companies hold earnest money for real estate transactions. Your earnest money is protected by contingencies, such as an inspection and/or financing contingency. These contingency periods expire on specific dates, but should there be any issues with either prior to the contingency date put forth in your offer, the earnest money would be released.
🤔 What is a bidding war?
Our current market conditions are simply a function of supply and demand, because of this, there are often multiple buyers bidding on the same one property, which creates a "bidding war".
Oftentimes, when there are a numerous offers, the listing agent will work with their seller to narrow the field to 3-5 of the strongest offers and circle back to those buyers for a “best and final”. This gives an opportunity for the seller to communicate their most desired terms and for the top offers to improve their position before the seller makes a final decision. It’s very important to discuss goals with your agent after signing a Buyer Agency Agreement so they are able to effectively advise you while keeping your investment goals in mind to avoid making a decision that could negatively impact your financial future.
🤔 Why shouldn’t I wait to buy once the market cools down?
As interest rates continue to rise, buying power decreases. When you look at the overall cost of interest rates rising, for every .5 rate increase, it represents an additional 5.5% that you'll be paying each month.
🤔 What do I need for a pre-approval?
A solid pre-approval can certainly give you the leg up on competing offers, so it’s important to be ready when it comes to working with a lender. Your pre-approval is the lender saying you can afford “X” after taking a quick glance at your financial situation.
In order to be best prepared for getting pre-approved, begin compiling the following items:
1. Tax returns for the past two years
2. Pay stubs for at least three months. If you are changing jobs or relocating, a copy of your offer letter
3. Bank statements for the past three months
4. Other asset/income statements, such as 401k, retirement accounts
5. If obtaining money from a third-party (friend or family member), a gift letter
6. An idea of your credit score and monthly debts – student loans, car loans, ect
7. If you have a mortgage already, a couple of months statements may be needed by your lender
8. If you are divorced, a copy of your divorce decree and documentation of any child support or alimony may be necessary.