What is ‘Earnest Money’? How much do I need to put aside?
Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and the greater the amount will have the benefit to show the strength of your offer. Minimally $1000 is recommended. If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.
What should I do with an initial offer?
This is where your real estate agent guides you and gives you advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home’s condition, how long it’s been on the market, financing terms, and the seller’s situation. By the time you’re ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller may often go back and forth until they can agree on a price.
How do I make an offer?
Your real estate agent will assist you in making an offer, which will include the following information:
- Complete legal description of the property
- Amount of earnest money
- Down payment and financing details
- Proposed move-in date
- Price you are offering
- Proposed closing date
- Length of time the offer is valid
- Details of the deal
Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.
Do I need to be there for the inspection?
The inspector needs privacy during the inspection so that he is not distracted, predisposed to errors. After the inspection is complete however, although it’s not required, it’s a good idea to be there when the inspection is completed. Your agent will communicate when to be there. The home inspector will give you a presentation and the inspector with your agent will discuss problem areas and make recommendations on what needs to be addressed and/or negotiated. This is a great opportunity to hear an objective opinion on the home from several subject matter experts and it is a great time to ask questions. The inspector will also give you maintenance suggestions.
It’s a good idea to have an inspection on most homes and your agent will advise you whether its indicated. Even new homes can have several little issues. When you sign a written offer your agent will most likely include conditions of sale and one will specify that you have the right to perform a home inspection in a certain amount of time usually about 10 days. Or, you may waive or exclude your right for an inspection clause in the offer when negotiating for a home.
An inspection clause will also establish that there will be an expectation that on the seller that problems may need to be addressed before you purchase the house. Such inspection clauses gives you an “out” on buying the house if serious problems are found or gives you the ability to renegotiate the purchase price if repairs are needed.
What does the home inspector do?
An inspector checks the safety of your potential new home and focus especially on the structure, construction, and mechanical systems of the house and will make you aware of only repairs that are needed.
Generally, an inspector checks (and gives estimates for repairs on) the electrical & plumbing system and the roof and foundation. Included in this are waste disposal, the water heater, the insulation and ventilation, the HVAC system, the water source, the potential presence of pests, doors, windows, ceilings, walls, floors, and roof. Thermal imaging is commonly used. Be sure to hire a home inspector that is qualified and experienced and your agent will recommend several.
The inspector does not evaluate cosmetic issues and is not intended to give you an opinion on whether you’re getting good value for your money. The process is not intended to ‘pick the house apart’.
How many homes do I need to view before I make an offer?
There isn’t a set number of houses you should see before you decide. Visit as many as it takes to find the one you dial into. On average, homebuyers see about 15 houses before choosing one and may return to one several times. A good agent will identify what you’re looking for even before you start looking, but it’s always a good idea to reaffirm often with your real estate agent about everything you’re looking for as you’re looking.
What should I look for when walking through the home?
In addition to comparing the home to your minimum requirement and wish lists, you may want to consider the following:
- Is there enough room for both the present and the future?
- Are there enough bedrooms and bathrooms?
- Is the home structurally sound?
- Do the mechanical systems and appliances work?
- Is the yard big enough?
- Do you like the floor plan?
- Will your furniture fit in the space? Is there enough storage space?
- Imagine the home in good weather and bad – will you be happy with it year round?
Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.
How easy it to get a loan?
Getting money for buying a home today may be tough. The Federal government has recently introduced stricter rules. But if you have some basic requirements you should be able to qualify. The lender will consider your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to your future housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. Closing costs will be needed (legal fees) and they’re taken into account. When determining your maximum loan amount, the lender also considers the cash you have available for a down payment (5% is minimally needed) and your credit history (scoring 650 minimally is generally acceptable). Your agent will recommend a good lender who will make the process comfortable and convenient.
Qualifying for a mortgage – before you look – is always the best idea to avoid disappointment. Its also a good idea to provide the agent with who is representing your financing so that the agent can expedite closing processes if an offer is accepted. However, note that the financial process is always private and confidential without the agent knowing any specific details.
How does renting and purchasing a home compare?
The two don’t really compare at all and mostly differ. The advantages of renting is being generally free of most maintenance responsibilities and not having to have a large downpayment.
By not renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for many aspects such as termination or renovation notices which may be inconvenient.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that’s an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities, like insurance, real estate taxes, and upkeep, all which can be substantial. Purchasing a home is the avenue to wealth because you build equity. But you are also given freedom, stability, independence, and security when you own your own home and they are all significant positive advantages.
How do I know I am ready to buy a home?
You can find out by asking yourself some questions:
- Do I have a steady source of income (usually a job)? Have I been employed on a regular basis for the last 2 years – do I have a record of several T4’s? Is my current income reliable?
- Do I have a good record of paying my bills?
- Do I have money saved for a down payment?
- Do I have minimal outstanding debts?
- Do I have only one or affordable large payments like for a car?
- Do I have the ability to pay a mortgage every month, plus additional costs?
- Do I have a significant other who can provide some collateral to assist and add strength to the application?
If you can answer “yes” to these questions, you are probably ready to buy your own home.