It’s no secret that purchasing a home is a big step — especially if it’s your first home. With that said, if you know what to expect, it doesn’t have to be overwhelming or confusing and can actually be an enjoyable process. Below we have gone over some common first time homebuyer FAQs and linked our First Time Homebuyer FAQ’s Sheet to help answer any questions you might have!
Our Top First Time Homebuyer FAQ’s Answered
- How do I know if it’s time to buy instead of rent? If you know where you want to live, have a steady and secure income, and are ready for the responsibilities of homeownership, then it’s a great time to invest in property.
- How much do I need to save up for a down payment? A conventional loan down payment is usually 20% of the sales price, but other types of financing require as little as 3.5% to 15%. A mortgage lender can tell you what types of loans you qualify for.
- How do I know if I qualify for a loan and how much I can afford? Contact a mortgage lender to get pre-approval for a loan. The lender will ask you some basic questions about your income and debts and can tell you what amount you can be approved for, and how much your mortgage payments will be.
- What does the lender need from me to give me a loan? Usually, you are asked to provide your last two tax returns to show proof of income. You should also provide recent bank and credit card statements and proof of your current pay rate. You will also be asked for your social security number so they can run a credit check.
- What’s the difference between pre-approved and pre-qualified? While often used interchangeably, these terms don’t mean the same thing. Pre-qualification is an estimate of what you may be approved for based only on the verbal information you provide. Pre-approval means the lender has verified your income and debt information and run a credit check.
- How do I know which mortgage option is right for me? Your mortgage lender is the best person to advise you on this question. Their products and qualifications change from time to time, so they would know best what products are available to meet your needs.
Searching for a Home
- What should I do when I see a house online that I like? Call your buyer’s agent: the agent you are working with to find your home. It’s best that you work with one real estate agent throughout your search because that person learns what you like and dislike and will invest a lot of time vetting properties for you. That person also represents your best interests only. When you call the agent advertising the home, you are dealing with the seller’s agent, so, while they can assist you, they are also trying to get the best price for the seller.
- Can you show me a house if it’s not your listing? Absolutely. As a buyer’s agent, I can show you any house listed in our MLS system, and I will contact FSBO sellers on your behalf. As mentioned above, working with me as your buyer’s agent ensures that your interests are protected.
- How do we write an offer? When you find the property you want to make an offer on, I will run a Comparative Market Analysis (CMA) to help you determine a fair offer amount. I will also guide you through the additional terms of the contract, such as the escrow amount, closing date, and any additional terms you want to be added to the offer. I will write the offer on a contract form and submit it to the seller’s agent.
- What if I want to back out of a contract? You always have the right to back out of the purchase, but you may lose your escrow deposit. If the contract is contingent on a property inspection, you usually have the right to cancel for any reason during the inspection period. Once the inspection period has passed, you cannot back out and keep your deposit unless the seller agrees, or an additional term has not been met.
- What happens if there are other offers on the house I love? If a seller receives multiple offers on their home, usually their agent will inform the buyer’s that multiple offers have been received and the buyers have another opportunity to alter their original offer to present their “highest and best” offer. Keep in mind that many factors may influence the seller in addition to the offer price, such as the down payment amount, closing date, and inspection terms.
- What happens when my offer gets accepted? Once both parties have agreed on all terms and signed the contract, your escrow deposit must be made and you should schedule the home inspection. Your lender will receive a copy of the contract and will begin processing your mortgage application.
We’re Under Contract!
- What does “under contract” mean? Under contract means that all parties have agreed on terms, have signed the contract, and the signed contract has been delivered to both buyer and seller. Payment of the escrow deposit is expected but is not a requirement to make a binding contract.
- What is escrow? The escrow money, escrow deposit, or good faith deposit is money that is offered with an offer, or as soon as an offer is accepted, to show the seller that you are serious about moving forward with the purchase of the home. Because you forfeit this deposit if you back out of the purchase for any reason not allowed for in the contract, the larger the escrow deposit, the more seriously your offer is taken.
- Do I need an inspection? We always recommend that you have a home inspection done. In the scheme of things, paying a few hundred dollars to have peace of mind that there are no hidden dangers or problems is well worth the money.
- How much are inspections? The cost of the home inspection depends on the size of the house and additional inspections requested, such as swimming pool, septic tank, termites, insurance four-point (HVAC, plumbing, roof, and electrical,) wind mitigation, and radon. An average home inspection, without additional inspections, is about $300.
- What if my loan doesn’t get approved? If you have gone through the pre-approval process and have been forthcoming with all the information requested by your lender, it’s unlikely you will be turned down, but it does happen. Make sure you do not change jobs, purchase big-ticket items on credit, take out a car or boat loan, or open any other new credit accounts while your mortgage is being processed. If your loan does fall through, talk with your lender about changing to a different loan type.
- When can I start moving? When you have the keys! When you are financing your purchase, it takes four to six weeks for your loan to be processed. Once the lender gives the all-clear, closing is scheduled. You will sign your loan documents and both parties will sign documents transferring ownership to you. Unless other arrangements have been agreed upon by both parties, the sellers should have completely vacated the home when they sign the closing papers. You can have your belongings ready to move, and a moving company scheduled before you go to closing. At closing, you will receive the documentation you need to provide utility companies with proof of your new residence.
For a copy of our full First Time Homebuyer FAQs Sheet to have this information on hand, plus Vocab and more! Click (HERE) to download your free copy!
If you are thinking about buying a home this year and aren’t sure if you will qualify for a mortgage, there are several actions you can take to improve your chances of being approved for the amount you wish to borrow.
Lenders look at more than just your credit rating. They want to know that you have a steady income and are responsible with your money. Before you start home shopping, take some time to make sure you are fiscally stable.
- Stay at your present job. The bank will want to see, at minimum, your last two tax returns. If you want to buy a home this year, it’s not the time to start over in a new industry. If you are just getting started in the professional world, you may need to work a while longer in order to show a history of steady income.
- Put off buying a new car. Be careful about buying big-ticket items like a new car or boat or on credit until after you have closed on your home.
- Pay down credit debt. If you are carrying a balance on credit cards, work hard to pay those down or off. Try not to use credit cards if you can’t pay the balance off monthly.
- Pay your bills on time. Incurring late payments will reflect poorly on your credit report, so keep track of deadlines or set up automatic payments before they are due.
- Save up cash for a down payment. You have a better chance of being approved for a lower amount, so try to save up for a down payment to reduce the loan amount.
- Say no to cosigning for others. Now is not the time to cosign on any loans with family members or friends.
- Throw those credit card offers away. Each time you apply for credit, the provider will pull your credit history, which affects your score.
Let’s not sugarcoat it — buying your first home can be intimidating. But owning your home is such an incredibly rewarding feeling. If you’re thinking about buying a home, now is a great time! Rates are low, and inventory is high. Give us a call or txt us at 440.558.8841 and let us guide you every step of the way.