Getting pre-approved is the first step of the home buying process. Getting a pre-approval letter from a lender gets the ball rolling in the right direction. This lets you know how much you can borrow. Knowing how much you can afford narrows down home searching to suitable properties, thus no time is wasted considering homes that are not within your budget. Once you get the loan estimate, you’ll also see how much money is required for the down payment and closing costs. Ultimately, this will give you a clearer picture of what is financially required. 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. In the higher end markets, most sellers will require their listing agent receive a copy of the buyer’s pre-approval.
Under normal market conditions, the average time to complete the sale of a home is 45 to 60 days. Though, well-prepared home buyers have been known to purchase properties faster than the averages. 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.
Home shoppers pay little or no fees to an agent to buy a home. For most home sales, there are two real estate agents involved in the deal: one that represents the seller and another who represents the buyer. Listing brokers represent sellers and charge a fee to represent them and market the property. Marketing may include advertising expenses such as radio spots, print ads, television and internet ads. The property will also be placed in the local multiple listing service (MLS), where other agents in the area (and nationally) will be able to search and find the home for sale. Agents who represent buyers (a.k.a. buyer’s agent) are compensated by the listing broker for bringing home buyers to the table. When the home is sold, the listing broker splits the listing fee with the buyer’s agent. Thus, buyers don’t pay their agents.
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 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.
When you make an offer on a home, your agent will ask for a check to accompany it (checks are the same as cash, and the deposit is typically a small percentage of the purchase price). Earnest money is made in good faith to demonstrate – to the seller – that the buyer’s offer is genuine. The check (or sometimes cash) is deposited in a trust or escrow account for safekeeping. If a deal is struck, the earnest money is applied to the down payment and closing costs. In most cases, if the deal falls through, the money is returned to the buyer.
Yes! Home inspections are required if you plan on financing your home with an FHA or VA loan. For other mortgage programs, inspections are not required. However, home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections bring peace of mind to one of the biggest investments of a lifetime.