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FAQs for Buyers

FAQs for Buyers


Here are some Frequently Asked Questions and Answers to them …

1. Should I rent or buy a home?
2. Why do I need a loan pre-approval?
3. What’s the difference between list price, sales price & appraisal value of a home?
4. How can I make a strong offer on my dream home?
5. Why do I need a home inspection?
6. Do I have to pay for my buyer agent’s services?
7. How can I prepare financially to buy a home?
8. Why do I need homeowners insurance?
9. What’s the difference between the “market value” and the “replacement cost” of a home?
10. What is a foreclosure?
11. How much home can I afford?
12. How much will I have to pay in closing costs?
13. What’s the difference between an Assessment and an Appraisal and a Home Inspection?


 

1. Should I rent or buy a home?

If you’ve heard it once, you’ve heard it a million times: Buying a home is the smartest financial decision you can make! The old cliché is absolutely true. In almost every situation, you’ll get more bang for your buck if you buy a home.
Unless your rent is extremely low or you plan to move in less than three years, buying is probably the best choice. Why? First of all, home owners enjoy some valuable tax benefits. Secondly, if you lock in your monthly mortgage with a fixed rate loan, you’ll take comfort knowing that your housing expenses will not skyrocket in the future. Renters rarely have that advantage because their monthly rent could increase at almost any time. Thirdly, a home is smart investment that could yield a substantial profit when you decide to sell it down the road. That’s because the value of your home will likely increase over time.

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2. Why do I need a loan pre-approval?

Every home buyer should get pre-approved for a loan before they start shopping around for a home. Not only will it assure that you’ll be able to secure a loan when you find your dream home, but it will also give you negotiating leverage. If a seller knows you’ve already been approved for a loan, they’ll be more likely to take your offer seriously. Plus, if you’ve already been pre-approved or pre-qualified for a certain amount, you won’t be tempted to buy a house you can’t realistically afford.

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3. What’s the difference between list price, sales price & appraisal value of a home?

The list price, or “advertised price,” is the amount the seller is asking for the house. Sellers often ask for more than what they actually hope to get—and sometimes, they ask for less. But for the most part, the list price is pretty close to what the seller wants. If you think the list price seems too high, take a look at comparable sales prices in the community. This will help you reach a fair price.
The sales price is the amount of money a buyer would realistically pay for a property. This price is often affected by market fluctuations and other factors.
On the other hand, the appraisal value is how much the property is worth according to a certified appraiser. An appraiser takes many factors into consideration, including the condition of the property, comparable sales in the area, projections for future value, any extra upgrades or additions the home may offer.

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4. How can I make a strong offer on my dream home?

Making an offer on a home can be confusing, stressful and downright terrifying. However, with a knowledgeable real estate agent at your side, it is possible to make a strong offer that fits your budget.
Although you may be tempted to make a low-ball offer, it’s important to be realistic. Do some research, and work with your real estate agent to come up with a reasonable figure. Take a look at recent sale prices of other homes in the area.
If you’ve been pre-approved for home loan, include that information in the financing terms of your house offer. That way, the seller knows that you are a serious buyer who has the funds to back up a house purchase. This gives you a leg up on other potential buyers who have not have been pre- approved.
You should also include a property inspection clause in your home offer. Let’s say your offer is accepted, but upon inspection you find out that the house is infested with ants or the roof needs major repairs. Who will pay the thousands of dollars for repairs? With this clause in the contract, you will be able to reopen negotiations with the seller if you learn that the house needs work after inspection.

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5. Why do I need a home inspection?

You can’t judge a book by its cover. This old saying holds true for houses, too. Even an incredibly beautiful house that appears to be in mint condition could be hiding some serious cracks in the foundation. That’s why before you purchase any home, you should hire a professional home inspector to meticulously examine the property. Buying a home is the biggest purchase most consumers ever face. As with any other major investment, you should know every tiny detail about the product you plan to buy before you sign on the dotted line. It takes a trained eye to spot these potential problems—and that’s exactly what a home inspector does.

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6. Do I have to pay for my buyer agent’s services?

As a buyer, you typically do not have to pay for a Realtor’s services. Your Realtor will receive a percentage of the proceeds of the house sale. This means that your Realtor is technically not getting paid until you buy your home. Be aware of your Realtor’s time. And be loyal which means don’t use multiple Realtor’s at one time because only one will get paid for the service they provide.

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7. How can I prepare financially to buy a home?

Before you dive into house-hunting, you should take a few steps to ensure that you’re financially prepared to buy. Here are three important financial tips for home buyers:

Start saving: Before you start shopping around for a home, try to save up for a sizeable down payment. The goal is put down at least 20 percent so you can avoid paying mortgage insurance. Even if you have to cut way back on your spending or take on a second job, it will be well worth the effort. The higher your down payment is, the lower your house payments will be.
Budget wisely: Before you even start talking with mortgage lenders, you should carefully calculate your home buying budget. Ask yourself these questions: How much can I qualify for on a home loan? How much can I realistically afford to pay? If I were to face a family emergency, would I have enough money to cover it and the mortgage payments? Once you’ve determined your budget, you should shop around for a mortgage to see what various lenders can offer you.

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8. Why do I need homeowners insurance?

Because your home is probably the biggest investment you’ll ever make, you’ll want to take measures to safeguard that valuable investment. The best way to protect your home investment is through homeowners insurance.
However, you shouldn’t settle for just any insurance policy. The type and amount of insurance you need depends on your specific home, what’s in it and your personal requirements. Before you purchase a homeowners insurance policy, read all the fine print so you know exactly what the policy covers.

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9. What’s the difference between the “market value” and the “replacement cost” of a home?

While you may be tempted to purchase just enough homeowners insurance to cover the market or resale value of your home, this may not be enough. While the market value may be enough coverage for some homeowners, that’s typically not the case.
Your home’s market value is not the same thing as what’s known as its “replacement cost.” The replacement cost of your home is the amount of money you would need to rebuild your home to its previous condition if a loss were to occur. This amount is different from your home’s market value, purchase price or the outstanding amount of your mortgage loan.
When property values are low, the market value of your home is probably much lower than its replacement value. Therefore, you should not always use the market value to determine how much insurance coverage you need.
Your homeowners insurance company can calculate the replacement cost of your home based on the following:
Square footage of your home
Type and quality of your home’s construction
Any updates, special features or add-ons to your home
Quality and cost of materials used in your home
As you shop around for homeowners insurance, ask each insurance company for a policy quote that includes the full replacement cost of your home.

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10. What is a foreclosure?

When a homeowner is behind on their mortgage payments, the bank will record a notice of default against the property. If the owner still fails to pay, the bank holds a trustee sale, and the property is sold to the highest bidder. The financial institution will usually set the price of the foreclosure somewhere near the loan amount.
While homebuyers can score an incredible deal on a foreclosure, buying a foreclosure property can be extremely complicated, risky and frustrating. Typically, you have to buy a foreclosure “as is,” which means there is no warranty on the condition of the property. If you find serious issues with the home, you cannot request repairs from the seller.

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11. How much home can I afford?

During the mortgage pre-approval process, your lender will contact your bank, your employer, the credit bureaus and other financial institutions to verify your income, assets, debts and credit history. Based on this and other information, they will estimate how much mortgage you can afford. If everything checks out and the lender sees you as a low risk, they will issue you a letter stating that the loan of a certain amount is approved for a specified amount of time.
Generally, lenders don’t want you to spend more than 28 percent of your gross monthly income on a mortgage payment. Lenders will also look at the housing expense-to-income ratio, which is determined by calculating your projected monthly mortgage cost, property taxes, insurance and if applicable, condominium fees. Your expense-to-income ratio should fall somewhere between 28 and 33 percent. If it’s much higher, you probably cannot afford the house.

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12. How much will I have to pay in closing costs?

Closing costs can vary depending on a number of factors including whether you employ a real estate lawyer or notary to prepare your closing documents – called conveyance. Ask your lawyer or notary for a good-faith estimate. For estimating purposes, you can budget for about $500 – $1200 depending on whether you’re paying cash or receiving funding from a mortgage lender.

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13. What’s the difference between an Assessment and an Appraisal and a Home Inspection?

Assessment: An assessment is the value that your taxing authority uses for determining the amount of taxes on your home.  This assessment may be done with a drive-by look at your property, or a more detailed inspection.  This may be adequate, but it may not reflect an accurate market value of your property today.

Appraisal: An appraiser is often hired by a bank or by an owner for the uses of determining the current market value.  An appraiser will do a very detailed extensive research of the area, neighbourhood and specific property.

Inspection:Everyone should have a home inspection before purchasing any property, including new construction.  The price is approx. $425 + but it can save you thousands of dollars!  The most important thing is to select a certified inspector of your choice and to be there at the time he or she makes the inspection.  The inspector’s job is to go over the home with a fine tooth comb and when presented with the report, don’t be alarmed. Some things are to be expected, such as outdated electrical systems in older homes and minor settlement in foundations and walls.

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