Q. Should I rent or buy?
A. To determine whether it makes sense to rent or buy, list reasons for and against each. Can you afford the mortgage payment? Do you need a tax break? Estimate the return on your capital investment. Consider your lifestyle and how long you plan to live in the area. Are you frustrated that your rent payment is building equity for your landlord, not you? Do you want to take advantage of appreciation and possibly hedge inflation?
Q. What can I afford?
A. Generally your mortgage payment, taxes and insurance (PITI) should not exceed one third of your gross monthly income. Contact a lender to determine what type of loan is best for you and how much you can afford. Desktop underwriting technology now allows lenders to issue pre-approvals in minutes!
Q. How much money will I need to put down?
A. Some financing programs require little or no money down. Be prepared for costs in addition to a down payment. Earnest money or a good faith deposit will generally be required when an offer is made and will be deposited in an escrow or trust account upon contract acceptance. Earnest money should be significant enough to demonstrate that a buyer is serious. Other costs may include credit report, appraisal fee, loan application fee, inspection fees, origination fees, title fees, escrow fees and homeowner's insurance.
Q. How can I buy with little money down?
A. A number of loan programs are available that require little or no money down. FHA requires 5 percent or less down. VA for qualified veterans offers zero money down. First-time homebuyer programs, state, community and certain conventional programs are sources of little or zero down options. It may also be possible to finance costs or negotiate seller assistance to minimize cash needed to close.
Q. What are the biggest challenges of buying a home?
A. Paperwork! You may sign and initial over a hundred times to complete the process. The number of decisions to make and time involved will surprise many buyers.
Q. How will I find a home?
A. These days, buyers find out about homes for sale through a variety of sources. Eighty-six percent of buyers use a real estate agent during their search, often supplementing that information with the Internet (65%) and newspapers (49%).
Q. Will I save money buying a For Sale By Owner?
A. Most home buyers and sellers believe that a For Sale By Owner transaction will save them the real estate commission. And it may. But a real estate transaction is a complicated process. Many do-it-yourself buyers and sellers have found the cost of a poorly managed transaction to be far greater than the perceived commission savings.
Q. How do I make an offer to buy a home?
A. Your offer needs to be in writing. Verbal offers to buy are not binding to buyer or seller. Many purchase offers are a minimum of five pages and some are much longer. Seek professional assistance, and take time to understand the documents. Ask questions. Obtain and review all available and required disclosures. Your offer will not only address price. Typically, it will include financing contingencies, inspection clauses, deposit amounts, seller warranties, closing and occupancy dates, and personal property. Contingency clauses may provide for return of earnest money if the contingency is not satisfied. The offer should be written and reviewed with great care as it may result in a binding contractual agreement.
Q. Should we come in with a low offer? We can always go up.
A. Homes that are priced right and in market ready condition sometimes sell for the asking price and more. A low offer may insult the seller, resulting in a break-down of negotiations. Ultimately, the sale price of a home will be affected by terms of the contract, market conditions and seller motivation. Understand the value of property and the market. Make realistic offers and negotiate favorable terms.
Q. Do I need disclosures, inspections and a home warranty?
A. Most states have mandatory property condition disclosures for properties sold with the assistance of a licensed real estate professional. Federal laws require the disclosure of known lead-based paint hazards when selling or renting homes. Disclosure forms require sellers to answer certain questions regarding known property conditions. Disclosure forms are not a substitute for inspections. An inspection is an independent examination by a professional to discover unknown conditions that neither the buyer nor seller are aware of. It may take a few hours and cost a few hundred dollars, but inspections can save you time and money in the long run. The purchase contract should identify who will be responsible for correcting these defects. If not, the contract may be voided or renegotiated. A home warranty provides protection for unexpected repairs during a certain warranty period. It does not cover pre-existing defects and is limited to items stated in the warranty. Not all warranties are alike. Compare the cost, deductible, items covered and effective dates of the warranty.
Q. Should I use a Real Estate Agent?
A. Buying a home is a complex process. That's probably why 89% of homebuyers who use a real estate agent would definitely use or consider using their agent again.
Your real estate agent has a network of professionals including lenders, appraisers, accountants, inspectors, attorneys, title companies, insurance agents and contractors to assist you in a smooth transaction. Your agent can help you obtain financing and provide you with information and guidance. Your agent can help you negotiate and assist you in managing the purchase process. Select a licensed professional that will be a capable business partner. Select an agent that specializes in the area you want to live in. Select an agent that can handle all aspects of your transaction. They should demonstrate knowledge, expertise and integrity. Ultimately, they can save you time, energy and money.
Statistics used throughout this section are from The National Association of Realtors® 2003 Profile of Homebuyers and Sellers.