1. What’s the first step in buying a home – Get Pre-Qualified. Though the answer seems obvious, it’s not always the first thing that people think of. They get excited about their decision to buy a home and want to go straight to the fun – house hunting. However, the first step in getting ready to look for a home to buy is getting pre-qualified so you know what you can afford. This way you know what your budget is, in what price range you should be looking, and the kind of homes that are available in that price range.
2. How many homes should I view? – There is no right or wrong answer here. Some people find their dream home on day one, while others house hunt for months before finding their future home. The problem with where we live – Prescott, Arizona – is the hot market right now. If a home is good (in a desirable area, in good shape, and reasonably priced), then it will not last long. This is also where it helps and is very beneficial to you as the buyer to already be pre-qualified – so that when a good home comes on the market, you are ready and able to jump on it.
3. How do I search for homes? – You can search for homes by viewing the MLS listing system, which is available on Prescott Area Association of Realtors website here, or you can look on other real estate websites such as Realtor.com and Zillow.com, though these aren’t always the most up to date. Working with your Real Estate agent is also a great way to search for homes and stay on top of new homes that hit the market within your criteria (price, number of bedrooms, number of stories, garage spaces, lot size, etc).
4. How much do Real Estate Agents charge? – Typically, as the buyer, you aren’t paying a real estate agent to help you find your future home. The seller of the home you choose to purchase pays their real estate agent a percentage of the home’s sale price. That agent then pays the buyer’s real estate agent (your agent) for bringing in the buyer. A standard commission might be 6 percent of the home’s sale price, which is split between the seller’s agent and the buyer’s agent, but this may vary from state to state and even agency to agency.
5. How much should my down payment be? – This depends on the type of loans you qualify for and which one you choose. Most lenders will require at least a 3% down payment, but this will be accompanied by a certain loan program. FHA loans require a minimum of 3-5% down. The percentage you are required to put down will depend on your credit history, the type of property, and several other factors, so it isn’t just one set number for everyone. In 2014, the average down payment was 14 percent, though again, this varies on each real estate transaction.
6. How long does the Home Buying Process Take? – This depends entirely on what has been agreed upon between you and the seller, and also what the loan and title companies can accommodate. We have seen Escrows as short as 10 days for those buyers and sellers looking to close very quickly. However, we have also seen Escrows last nearly three months in cases where the buyer needed to sell their home before buying this new home, or the seller needed to find another home to live in before closing on the sale of this home – and other reasons such as these. It really just depends on the situation and what is agreed upon, though typically the average Escrow lasts 36 days.
7. What does my credit score need to be? – Most loan programs require a FICO score of at least 620. Some few loan companies will accept a lower credit score, maybe in the mid 500s, but the higher your credit score the better. This way you are seen as less risky by the lender (aka you will pay your mortgage every month) and will be given more advantages (allowed a lower down payment, a better interest rate, etc).
8. What is a seller’s market? What is a buyer’s market? – The market being one for sellers or buyers is categorized as such depending on whom it favors. In a seller’s market there is a high demand for homes, which then drives the market up, therefore favoring the seller who is able to sell their home for more money. This is the type of market that Prescott is currently in (for information on that and why Prescott is in a seller’s market, click here to read our previous blog about it). A buyer’s market is one where home prices are declining and the demand has been reduced, therefore favoring the buyer who can buy a nicer home for less money. This can happen due to increased inventory (having built more homes to accommodate the low inventory, which then reverses the problem), or for a number of other reasons.
9. Should I sell my current home before buying my new home? – This all depends on your situation and what the lender will allow. If you need the built-up equity in your current home to help with the down payment on the new home, obviously the former will need to be sold first. Some home buyers decide to turn their current home into an investment property, making it a rental home or something like a VRBO. In that case, the current home will not need to be sold. However, you will need to check with your lender to see if you are able to do this. They will still need to evaluate your risk profile and credit history to determine whether making a loan on a new home is feasible while retaining title to the old home. In other words, are you financially able to carry two home mortgages if you cannot get your old home rented or sold in a timely manner?
10. What is Earnest Money? – Earnest money is a check you deposit with a trust or Escrow company after you have an accepted offer on a home. This is typically 1-2% of the sale price of the home and is made in good faith to demonstrate your intent is genuine. The home will then be marked “pending”, which means there is a contract being processed for the home’s purchase, and it is reserved for you. The earnest money is commonly applied to the down payment and closing costs, or is returned to the buyer if the deal falls through. Sometimes, however, depending on the agreement made, the seller retains the earnest money if the buyer backs out.