Being a real estate agent comes with the daily task of answering a variety of questions related to buying and selling homes. Clients are naturally curious about the ins and outs of the real estate world, and it's an agent's responsibility to guide them through the intricate process. While some questions are unique, others arise more frequently than others. If you're a first-time homebuyer or a repeat buyer in need of a refresher, here are the answers to some of the most commonly asked questions.

1. What is the first step of the home buying process?

Getting pre-approved for a mortgage is the first step of the home buying process.

Here’s why:

First, a pre-approval will help you to determine the amount you can borrow to purchase a home. This will help you narrow down your online search to properties that are within your budget, avoiding the disappointment of falling in love with a home that is unaffordable.

Second, the loan estimate from your lender will identify how much money is required for the down payment and closing costs. You may need additional time to save up money, liquidate other assets, or request gift funds from your family. Regardless, this will give you a clear understanding of the financial requirements.

Finally, getting pre-approved for a mortgage shows that you are a serious buyer to both the seller and your real estate agent. In fact, most real estate agents will require a pre-approval before showing homes, especially at the higher end of the market.

2. What's the Difference Between Pre-qualification and Pre-approval?

Pre-qualification is a preliminary assessment of your financial situation based on self-reported information. Pre-approval, on the other hand, involves a thorough examinations of your financial background by a lender. Sellers often prefer buyers with pre-approval, as it indicates a higher likelihood of a successful and timely transaction. It also gives you a clear understanding of your budget and strengthens you negotiating position.

3. How long does it take to buy a home?

The home-buying process, from initial online searches to finalizing the sale, typically takes around 10 to 12 weeks. After selecting a home and having an offer accepted, the escrow period takes 30 to 45 days in normal market conditions. Factors influencing the timeline include mortgage approval, home inspections, and negotiations. Cash buyers who are well-prepared may purchase properties even faster.

4. What is a seller’s market?

A seller’s market occurs when the demand for homes exceeds the supply, giving sellers a significant advantage in real estate transactions. Several key characteristics define a seller’s market:

• Low inventory – In a seller’s market, there are fewer homes available for sale than there are potential buyers. This scarcity of inventory puts sellers in a favorable position, as buyers often have limited options.

• High Demand – Increased demand from buyers, whether due to economic factors, low-interest rates, or other market conditions, contributes to a seller’s market. Multiple buyers may be interested in the same property, leading to competitive bidding and potentially higher sale prices.

• Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for first time home buyers who can afford bigger homes as the cost of money goes lower.

• A short-term spike in interest rates - may compel “on the fence” buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) gets eroded.

5. What is a buyer’s market?

A buyer’s market is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, like: Economic disruption - a big employer shuts down operations, laying off their workforce.

• High inventory –There are more homes for sale than there are buyers in the market. This abundance of choices empowers buyers to be more selective in their home purchase.

• Decrease in home prices: Due to higher supply and lower demand, home prices may stabilize or even decrease. Sellers may need to be more competitive with pricing to attract buyers

• Interest rates trending higher – the amount of money the people can borrow to buy a home is reduced because the cost of money is higher, thus reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals.

• Extended Days on Market (DOM): Homes tend to stay on the market for a longer duration without receiving offers. Sellers my find it challenging to sell their properties quickly, and are therefore more likely to negotiate the price.

6. What kind of credit score do I need to buy a home?

The majority of loan programs require a FICO score of at least 620. This is because borrowers with higher credit scores pose less risk to the lender, which often results in a lower down payment requirement and better interest rates. Conversely, individuals with lower credit scores may need to more money upfront or to accept a higher interest rate to compensate for the risk taken on by the lender.

7. How Can I Improve My Credit Score to Secure a Better Mortgage Rate?

To boost your credit score, pay bills on time, reduce outstanding debt, and correct any errors on your credit report. Avoid opening new credit accounts before applying for a mortgage, as this can temporarily lower your score. A higher credit score typically results in a lower interest rate, saving you money over the life of your mortgage. Consult with a financial advisor for personalized advice.

8. How much do I need for a down payment?

The down payment on a house is typically a percentage of the home’s purchase price, and the amount can vary. Traditionally, a 20% down payment was standard, but today, there are various options to suit different financial situations.

Here’s a breakdown:

1.    Conventional Loans: Many lenders still recommend a 20% down payment for conventional loans. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI).

2.    FHA Loans: The Federal Housing Administration (FHA) offers loans with lower down payment requirements, often as low as 3.5%

3.    VA Loans: If you’re a qualified veteran or active-duty service member, VA loans can allow for 0% down payment.

4.    USDA Loans: The United States Department of Agriculture (USDA) offers loans with no down payment for eligible rural and suburban homebuyers.

Other Considerations:

·      Down Payment Assistance Programs: Some regions provide assistance programs that can help cover part or all of the down payment for qualifying buyers.

·      Private Mortgage Insurance (PMI): If your down payment is less than 20%, you may be required to pay for PMI, which protects the lender in case of default.

Ultimately, the right down payment for you depends on your financial situation, loan type, and goals. Consulting with a mortgage advisor can provide personalized guidance based on your specific circumstances.

9. What is earnest money?

Earnest money, also known as a good faith deposit, is a sum of money provided by a buyer to a seller to demonstrate their serious intent to purchase a property. This deposit is typically given when the buyer submits an offer and is a way to show commitment to the transaction. The amount varies but is often a percentage of the home’s purchase price, commonly ranging from 1% to 3%.

Once the offer is accepted, the earnest money is held in an escrow account, usually by a real estate brokerage or title company. It’s crucial to note that earnest money is not an additional cost; instead, it forms part of the buyer’s total funds to close. If the sale successfully proceeds to closing, the earnest money is usually applied toward the buyer’s down payment and closing costs.

In the event that the buyer backs out of the deal without a valid reason stipulated in the contract, they may risk forfeiting the earnest money to the seller. Conversely, if the seller fails to meet certain conditions outlined in the contract, the earnest money may be returned to the buyer. The specifics regarding handling of the earnest money are typically detailed in the purchase agreement, and both parties should thoroughly understand these terms before entering into a real estate transaction.

10. Should I sell my current home before buying a new one?

Whether to sell your current home before buying a new one depends on various factors, including your financial situation, market conditions, and personal preferences. Here are some considerations to help you make an informed decision:

Financial Considerations:

·      Down Payment: If you need the equity from your current home to make the down payment on the new one, selling first is typically necessary.

·      Bridge Financing: If you can’t sell before buying, explore options like bridge financing to cover the gap between purchasing your new home and selling the old one.

·      Market Conditions: In a seller’s market, you home may sell quickly, but finding a new one might take longer. In a buyer’s market, it might be easier to find a new home, but selling could take more time.

Practical Considerations:

·      Temporary Housing: If you sell first, you might need temporary housing, adding to your moving costs. Conversely, buying before selling means you might carry two mortgages for a period.

·      Negotiating Power: Selling first gives you more negotiating power as a buyer. You won’t be under pressure to sell quickly, allowing you to make strategic decisions.

Person Preferences:

·      Comfort Level: Consider your comfort level with uncertainty. Some prefer having a new home secured before selling, while others are comfortable with the potential of a brief interim period.

·      Contingencies: If you sell first, you can make an offer on a new home without a home sale contingency, making your offer more attractive to sellers.

11. How many homes should I view before buying one?

The number of homes you should view before making a purchase is subjective and can vary based on individual preferences, market conditions, and personal circumstances. Rather than setting a specific number of homes to view, focus on finding the right one. It’s not uncommon for some buyers to find their dream home early in the process, while others may take more time. Quality is more important than quantity. If you’ve viewed several homes and haven’t found the right fit, reassess your priorities with your real estate agent. Adjusting your criteria or exploring different neighborhoods may lead to better options.

In summary, there’s no set rule on the number of homes you should view. It’s more about finding the right property that meets your needs and feels like home. Working closely with a real estate professional can streamline the process and help you make an informed decision.

12. Should I order a home inspection?

Yes, getting a home inspection is a smart and highly recommended step in the home buying process. A home inspection is conducted by a qualified professional who assesses the condition of the property, identifying potential issues that may not be apparent during a casual walkthrough. A home inspection is a valuable investment that can save you money and future headaches. It’s an essential tool for making an informed decision and ensuring the property meets your expectations.

13. Do I need to do a final walk-through?

A final walk-through is a vital step in the home buying process. It typically occurs a few days before the closing, allowing the buyer to inspect the property’s condition and ensure that any agreed-upon repairs have been completed satisfactorily. While a final walk-through may seem like an additional step, it serves as a crucial measure to protect your interest and ensure a smooth transition in homeownership. Work closely with your real estate agent to schedule and conduct the walk-through, addressing any concerns or issues that may arise before the closing day.