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Home Buyer
Frequently Asked Questions - FAQ
Why should I buy instead of rent?
You’ll love the feeling of having something
that’s all yours - a home where your own personal style will tell the world
who you are. A thriving vegetable garden in the backyard, a tiled entryway, a
yellow kitchen...when you own, you can do it all your way!
But there’s more to owning a home than personal
satisfaction. You can deduct the cost of your mortgage loan interest from your
federal income taxes, and usually from your state taxes, too. And interest will
compose nearly all of your monthly payment , for over half the number of years
you’ll be paying your mortgage. This adds up to hefty savings at the end of
each year. And you’re also allowed to deduct the property taxes you pay as a
homeowner.
If you rent, you write your monthly check and it’s
gone forever. Another financial plus in owning a home is the possibility its
value will go up through the years.
How do real estate Agents/Brokers get paid?
Buyers usually do not pay a fee to their Agent. If the Broker is working for the Seller as a Listing Agent, then the fee is always
paid by the Seller. If the agent is working with a Buyer as a Buyer Broker or a Transaction Broker, then the fee is usually paid to
the Selling Agent by the Listing Agent, which is actually just a portion of the fee that the Seller is paying. The Listing agent is
agreeing to coop a percentage of the commission that the Seller is paying them with the Selling Agent for procuring the Buyer.
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Who represents who in a real estate transaction?
There are five types of agency relationships in Colorado:
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Selling Agent: The agent represents the Seller only. Fiduciary duty is to the Seller only.
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Buyer Broker: The Agent Represents the Buyer only. Fiduciary duty is to the Buyer only. There must be a written agreement
between the Buyer and the Agent to establish this relationship. The Buyer Broker may represent the Buyer and still be paid by the
Listing Agent.
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Transaction Broker: The Agent does not represent either party and acts as a Facilitator. A Transaction Broker must disclose any
material facts known to both parties and may not make certain statements that could damage either party. This type of agency
relationship occurs usually when the Listing Agent finds a Buyer for their listing. The Listing agent will change their relationship
with the Seller from a Selling agent to a Transaction Broker.
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Dual Agent: The Agent is representing both parties. Most Brokers do not offer this type of agency because their can be
conflicts of interest.
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Subagent: In the past, most Agents who were working with Buyers would be considered Subagents of the Seller. Even though
an Agent would be showing a Buyer homes, they were actually working for the Seller. This has changed and most Sellers do not want
Subagents because they have additional liability if the Subagent makes false statements.
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How much money will I need to buy a home?
Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come
up with enough money to cover three costs: earnest money - the deposit you make on the home when you submit your offer, to prove to
the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must
pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.
When you make an offer on a home, the listing broker will put your earnest money into an escrow account. If the offer is accepted, your
earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The
amount of your earnest money varies.
The more money you can put into your down
payment, the lower your mortgage payments will be. Some types of loans require
10-20% of the purchase price. That’s why many first-time homebuyers turn to VA
or FHA for help. FHA loans require only 3% down - and sometimes less.
Closing costs - which you will pay at closing -
average 2-4% of the price of your home. These costs cover various fees your
lender charges and other processing expenses. When you apply for your loan, your
lender will give you an estimate of the closing costs, so you won’t be caught
by surprise. Click here
to check out the mortgage calculators. They will give you a good idea of
how much you can qualify for.
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What is Earnest Money and how much earnest money do
I have to put down?
Earnest money is money that you give to the Seller to show good faith of your intentions to complete the purchase. The listing agent will
present your earnest money to the Seller at the same time your offer is presented. Earnest money is usually in the form of a personal check
but can be cash or a promissory note.
The listing Broker is required to deposit the earnest money into an escrow account within 24 hours of your accepted offer. No sooner and
no later. At the time the listing Broker lists the property, the Seller decides how much earnest money they will ask the Buyer to put up.
Your agent should know how much the Seller is requesting. Earnest money is negotiable.
In the Denver metro area, we typically see most Sellers asking for an average of 1% of the purchase price. Your earnest money is
credited towards your down payment & closing costs at closing. Obviously, the more money you give, the more serious you seem to the
Seller, since you are taking a greater risk.
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How could I lose my earnest money?
Basically, if you don't perform. There are provisions in the contract to get you out of the deal with your earnest money if you can't
qualify for the mortgage loan, find the condition of the property dissatisfactory or if you can't get clear title. These provisions must be
followed to the letter of the contract or you could lose your earnest money.
What is the first step to take when buying a home?
You should meet with a Mortgage Broker or Mortgage Banker to get your loan. Some home buyers will start looking for a home before
they even know how much they can afford. The best thing you can do is to have your loan already approved when you start looking at
homes. This way if you see a home you really like, you'll know you can afford it and you'll be in a much better position to negotiate.
If there are multiple offers on a home, your offer will look much better if you are pre-approved.
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How good does my credit need need to be to buy a home?
You don't have to have perfect credit or any credit at all. If you have no credit, you can use your rental history and utility
company bills, along with your job history to get a loan. If you've had some bad credit, even bankruptcy or foreclosure, you may still
be able to buy a home. Some government programs will allow you to get a mortgage loan after some time has passed since a bankruptcy or
foreclosure. If you've had some judgments or liens, you will probably have to pay those off before you can buy a home.
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Should I use a real estate broker? How do I find one?
Using a real estate broker is a very good idea.
All the details involved in home buying, particularly the financial ones, can be
mind-boggling. A good real estate professional can guide you through the entire
process and make the experience much easier. A real estate broker will be
well-acquainted with all the important things you’ll want to know about a
neighborhood you may be considering...the quality of schools, the number of
children in the area, the safety of the neighborhood, traffic volume, and more.
They will help you figure the price range you can
afford and search the classified ads and multiple listing services for homes you’ll
want to see. With immediate access to homes as soon as they’re put on the
market, the broker can save you hours of wasted driving-around time.
When it’s time to make an offer on a home, the
broker can point out ways to structure your deal to save you money. He or she
will explain the advantages and disadvantages of different types of mortgages,
guide you through the paperwork, and be there to hold your hand and answer
last-minute questions when you sign the final papers at closing. And you don’t
have to pay the broker anything! The payment comes from the home seller - not
from the buyer.
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What do I need to take with me when I apply for a mortgage?
If you have everything with you when you visit
your lender, you’ll save a good deal of time. You should have: 1) social
security numbers for both your and your spouse, if both of you are applying for
the loan; 2) copies of your checking and savings account statements for the past
6 months; 3) evidence of any other assets like bonds or stocks; 4) a recent
paycheck stub detailing your earnings; 5) a list of all credit card accounts and
the approximate monthly amounts owed on each; 6) a list of account numbers and
balances due on outstanding loans, such as car loans; 7) copies of your last 2
years’ income tax statements; and 8) the name and address of someone who can
verify your employment.
Depending on your lender, you may be asked for other information.
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What will my mortgage cover?
Most loans have 4 parts: principal: the
repayment of the amount you actually borrowed; interest: payment to the
lender for the money you’ve borrowed; homeowners insurance: a monthly
amount to insure the property against loss from fire, smoke, theft, and other
hazards required by most lenders; and property taxes: the annual
city/county taxes assessed on your property, divided by the number of mortgage
payments you make in a year.
Most loans are for 30 years, although 15 year
loans are available, too. During the life of the loan, you’ll pay far more in
interest than you will in principal - sometimes two or three times more! Because
of the way loans are structured, in the first years you’ll be paying mostly
interest in your monthly payments. In the final years, you’ll be paying mostly
principal.
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In addition to the mortgage payment, what other
costs do I need to consider?
Well, of course you’ll have your monthly
utilities. If your utilities have been covered in your rent, this may be new for
you. Your real estate broker will be able to help you get information from the
seller on how much utilities normally cost. In addition, you might have
homeowner association or condo association dues. You’ll definitely have
property taxes and hazard insurance. Taxes and insurance are normally rolled
into your mortgage payment. Again, your broker will be able to help you
anticipate these costs.
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How do I know which type of mortgage is best for me?
There are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage.
In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage, which normally is 30 years. The advantage of a
fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it.
Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments
usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year.
The adjustment is tied to a financial index, such as the U.S. Treasury Securities index. The advantage of an ARM is that you may be able to
afford a more expensive home because your initial interest rate will be lower.
There are several government mortgage programs
that might interest you, too. Most people have heard of FHA mortgages. FHA doesn’t
actually make loans. Instead, it insures loans so that if buyers default for
some reason, the lenders will get their money. This encourages lenders to give
mortgages to people who might not otherwise qualify for a loan. Talk to your
real estate broker about the various kinds of loans, before you begin shopping
for a mortgage.
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When I find the home I want, how much should I offer?
Your real estate broker can help you here. But
there are several things you should consider: 1) is the asking price in line
with prices of similar homes in the area? 2) Is the home in good condition or
will you have to spend a substantial amount of money making it the way you want
it? You probably want to get a professional home inspection before you make your
offer. Your real estate broker can help you arrange one. 3) How long has the
home been on the market? If it’s been for sale for awhile, the seller may be
more eager to accept a lower offer. 4) How much mortgage will be required? Make
sure you really can afford whatever offer you make. 5) How much do you really
want the home?
The
closer you are to the asking price, the more likely your offer will be accepted. In some cases, you may even want to offer more than the
asking price, if you know you are competing with others for the house.
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What will happen at closing?
You’ll sit at a table with your broker, the
broker for the seller, probably the seller, and a closing agent. The closing
agent will have a stack of papers for you and the seller to sign. While they
will give you a basic explanation of each paper, you may want to take the time
to read each one and consult with your agent to make sure you know exactly what
you’re signing. After all, this is a large amount of money you’re committing
to pay for a lot of years!
Before you go to closing, your lender is
required to give you a booklet explaining the closing costs, a "good faith
estimate" of how much cash you’ll have to supply at closing, and a list
of documents you’ll need at closing. If you don’t get those items, be sure
to call your lender before you go to closing. Be sure to read your booklet on
settlement costs provided by your lender. It will help you understand your
rights in the process. Don’t hesitate to ask questions.
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