It has been brought to my attention by many buyers that finding information on the buying process is quite tricky. Not that there aren’t thousands of articles out there, but they aren’t very helpful- not quite specific enough. This guide for buyers and what to expect when buying aims to specify the “Need to Knows” of the buying process based on the most commonly asked buyers’ questions.
How much money do I need for a down payment?
It does depend on your type of loan- FHA, VA, Conventional, Jumbo- they all have different requirements, as well as the type of home- primary, secondary, investment, but in my experience, the most common is Conventional as low as 3% down. If you are buying a primary residence, you can put as little as 1% down on some loans, BUT buyer beware, sellers often favor offers that have higher down payments as they see the buyer as more qualified/less of a risk of the loan being denied.
Another thing about lower down payments is that most loans will also have PMI, primary mortgage insurance, or MIP- same type of thing. PMI can cost you a few hundred dollars more a month if you are below a 20% down 80% mortgage scenario. There are ways to reduce or eliminate PMI; you will need to discuss with your lender.
When is money exchanged or due?
To begin a transaction, once your contract is accepted, you will need to deposit your earnest funds. An earnest deposit is a portion of your down payment, typically 1% of the purchase price. So if you are buying a $400,000 house, your earnest will be $4,000 and is generally due within 24-48 hours of the contract acceptance. If you have a down payment of 3% in this purchase or $12,000- the $4,000 that you put into escrow as earnest funds is deducted from that amount, so your remaining down payment is $8,000.
The remainder of the funds is due at closing or close of escrow, which is the end of the transaction. As a side note to earnest and down payments, your lender will need to see where the funds are coming from or “source” your funds, so they need to come out of your account or have a gift funds letter attached to them. Basically, they can’t just appear in your account with no explanation.
How much is an inspection?
It depends on the size of the house, but they start at around $450 and move up as square footage moves up. Termite inspections are approximately $60+, and either include a warranty (if no termites are found) or a treatment plan with costs. Pool inspections are separate and are usually around $75-$100. You may also want to do a sewer inspection whether the home is old or new, this is an important one and can cost anywhere from $250-$350.
Depending on the findings of your home inspection, you may want to have specialists out to the property to look at various areas of concern- like the roof, plumbing, foundation, etc. These all vary in cost and depend on who you call.
How much are Realtor fees?
In a typical residential real estate transaction, the seller is the party that pays the realtor fees, so the buyer does not pay an additional amount for their realtor’s services. Some brokerages charge a small fee to the buyer, which will be included in the closing costs, but typically no charge.
Should I work directly with the listing agent?
I would recommend having your own representation when buying so that you have someone with your best interests as their #1 priority. When you work directly with the listing agent, who has a duty to the seller, your representation becomes limited as the agent becomes a “dual agent.” Dual agents need to treat both parties with honesty but lose their ability to negotiate on your behalf and often have their hands tied when it comes to giving you advice. Of course, each situation is unique and you as the buyer get to make that call.
Do I need an agent if I’m buying a new construction home?
I would recommend having your own representation, as in the above scenario, the new home sales agent works for the builder, so they do not represent you. In new home sales there is typically a price for the home, the lot and then upgrades. When you have your own agent, they may be able to negotiate a better price and or amount for upgrades.
Do different realtors differ in service pricing?
Some agents may ask for a retainer fee or to be compensated if working on a “for sale by owner” transaction as the buyer representation, but generally, the buyer’s agent is offered a commission split paid for by the seller’s broker. It’s important to clarify this with your agent before you get started. When shopping for the right agent, look at their areas of expertise and read up on reviews. Meet for coffee to see if it’s the right fit before you start the process.
What are a buyer’s closing costs?
Closing costs are all the costs associated with the purchase or sale of a home. You will have lender fees for the loan, title fees, up front costs like homeowners insurance premiums, up front mortgage insurance, HOA fees and property taxes – these will all be paid at the end of the transaction and handled through escrow. During the transaction you will have inspection fees and appraisal costs.
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