Frequently
Asked Questions for Buyers
1. How
much money will I need for a down payment?
2. What is Earnest Money?
3. What are contingencies?
4. What kind of insurance will
I need?
5. What is ‘closing’
and what are closing costs?
6. What is ‘Pre-approval’
and how is it different from ‘Pre-qualification’?
7. What are
disclosures?
8. Is buying a home from a builder
different from buying a home from a homeowner?
1. How much money will I need for a down
payment?
A down payment is the cash you deposit
towards the purchase of a home. The larger the down
payment, the less you need to borrow. Historically,
Buyers were urged to put down at least 20% of the
total cost of a home as a down payment. In today’s
favorable market, Buyers can often choose a down
payment amount based on their available cash, and
in some cases, choose to borrow the entire cost
of a home purchase (called a 100% loan). In most
cases, down payments of less than 20% will require
Private Mortgage Insurance (PMI).
There are also down payment assistance programs
for certain types of Buyers, such as first-time
homebuyers and veterans, which are sponsored by
government or private agencies. Leo Lawrence Real
Estate has an extensive referral network of Mortgage
professionals to assist you with the process
of determining the down payment that is right for
you.
{back to top}
2. What is Earnest Money?
Earnest money is a sum provided to
the Seller by the Buyer upon acceptance of a Residential
Sale Contract as a good faith commitment and intent
to purchase. It is a negotiable term in the Sale
Contract. Depending on the area of the sale, certain
amounts may be more or less customary. A larger
earnest deposit often represents a stronger offer
to the Seller. Earnest money is credited toward
the purchase of the home at closing, and is held
in escrow by the Title Company until that time.
{back to top}
3. What are contingencies?
Contingencies are protections built
into a Residential Sale Contract. They are conditions
that must be met in order for the sale of a home
to be completed. When satisfied, these contingencies
help to reduce the risk associated with the scheduled
transfer of ownership and possession. There are
typically 3 types of contingencies in a Residential
Sale Contract:
- Financing: This provision
allows the Buyer to attempt to secure financing
as part of the Residential Sale Contract. The
Buyer is required to proceed in good faith and
cooperate fully with the Lender, including a
timely loan application and payment of required
fees. If it is determined that the Buyer cannot
secure financing before the expiration of the
Financing Contingency, they must notify the
Seller in writing and the Contract is terminated.
- Inspection: This allows the
Buyer an opportunity to have a licensed, qualified
inspector visually inspect the major structural
and mechanical components of the property and
provide the Buyer with a written report of findings
at the Buyer’s expense. Professional inspections
are always recommended. If the Buyer is not
satisfied with the inspection results or is
simply not satisfied for any reason regardless
of the inspection results, he/she must furnish
a written Inspection Notice and all written
inspection reports to the Seller or Seller’s
agent within the time specified (typically ten
days) in the Contract. The notice may inform
the Seller that the contract is terminated,
or it may identify certain requirements that
would satisfy the Buyer and allow the Contract
to proceed. The Seller may then accept these
requirements, or negotiate new terms to continue
the sale.
- Title and Survey: This provides
the opportunity for the Buyer to investigate
the condition of the title to the property.
This is often a service provided by the Title
Company, which handles the closing. Title insurance
and a boundary improvement survey are recommended
in order to protect the Buyer against liens
and other defects affecting the property.
{back to top}
4. What kind of insurance will I need?
Homeowner’s Hazard Insurance
is required by lenders in order to receive a loan.
Most lenders require the actual policy and paid
receipt for the first year’s premium at least
ten days prior to closing.
{back to top}
5. What is ‘closing’ and what are closing
costs?
A closing is the exchange
of deed for the purchase price. At this time, the
Buyer signs all documents required by the lender
to receive a loan on the property. Closings are
usually held at the office of a title insurance
company. The Buyer and Seller are not required to
close at the same title company, and usually the
Buyer closes first.
The Buyer’s closing costs
consist of any lender’s fees, escrow (advance
payment) of your property taxes and insurance for
the next year, and any costs charged by the title
company. Lender’s fees may include costs for
appraisal, survey and a loan origination fee. You
may request a ‘Good Faith Estimate”
from your lender in advance of your closing to detail
any lender’s fees you may be required to pay.
The title company fees may include cost of title
research and recording and filing fees.
{back to top}
6. What is ‘Pre-approval’ and how is
it different from ‘Pre-qualification’?
Pre-approval
means that a Buyer has consulted with a lender and
has provided the necessary information to complete
the process. This information includes a credit
report. After reviewing the information, the lender
issues a pre-approval letter. It is beneficial to
a Buyer to have a pre-approval letter before looking
for a home, as the process can be time-consuming,
and many Residential Sales Contracts require pre-approval
within a very short time of a contract being accepted.
Pre-qualification means
that a Buyer has spoken to a lender and the lender
states that the Buyer should be able to purchase
a home within a certain price range based on a limited
amount of information. Pre-qualification differs
from pre-approval in that a credit report has not
been reviewed; a Buyer will still have to go through
the process of being approved by the lender before
purchasing a home. Pre-qualification can be useful
at the start of the home-buying process, however,
to provide a ‘ballpark’ idea of what
the Buyer can reasonably afford without a considerable
investment of time. Click here
to quickly and easily apply for Pre-qualification.
{back to top}
7. What are disclosures?
The Seller’s Disclosure statement
is the Seller’s written statement of any known
defects, pertinent facts, or other known conditions
regarding the property that could affect the Buyer’s
decision to purchase the property. The Buyer should
carefully read this statement and address any concerns
within the terms of the contract.
{back to top}
8. Is buying a home from a builder different from
buying a home from a homeowner?
Not really. The builder is considered
the Seller of the property. It is always in a Buyer’s
best interest to be represented by a Realtor, rather
than a builder’s agent. Leo Lawrence Real
Estate will work for your best interests, not the
builder’s. We have worked with many homebuilders
and are familiar with the process. Be aware that
if you visit a new
home construction site or model home and express
interest without mentioning that a Realtor represents
you, many builders will refuse to allow your Realtor
to assist you later. Consult with an agent at Leo
Lawrence Real Estate before visiting a new home
site, and make sure to let the builder know that
we are working for you before speaking to the builder’s
agent.
{back to top}
|
