Finding your dream home is an exciting and significant life milestone.
One of the most crucial aspects of this journey is knowing the right questions to ask, which will empower you with the information you need to make informed decisions and help ensure that you avoid surprises down the road. Use this guide to help you navigate the homebuying process, make informed decisions, and secure the home that truly suits your lifestyle and objectives.
What is the difference between pre-qualification and pre-approval?
Pre-qualification gives a ballpark figure of your borrowing power, while pre-approval provides a detailed assess-ment of your creditworthiness and ability to repay the loan. Although helpful, a pre-qualification isn’t seen as being as serious as pre-approval.
Pre-approval involves a lender investigating your income, assets, credit history, and debts before providing you with an amount they believe you can afford. Pre-approval confirms to sellers that you’re serious about buying their home and that you can secure a mortgage. Being pre-approved can be extremely valuable in a competitive market, as it will help you stand out from the other homebuyers.
How much will I need for a down payment?
The amount you’re required to put down will depend on several factors, including the loan type you select and whether you’re a first-time buyer. For example, specific government-backed loans like Veterans Affairs (VA) or US Department of Agriculture (USDA) loans do not mandate down payments. Conversely, Federal Housing Administration (FHA) loans necessitate a 3.5 percent down payment, and conventional loans for first-time buyers can be as low as 3 percent. However, many buyers opt to put down more, such as 20 percent, to reduce how much they have to borrow. Your lender can provide details on different options and assess your eligibility for each to help you determine which loan and down payment amount is right for you.
What credit score do I need to get a loan?
Generally, a credit score of 620 is the minimum standard for securing approval for a conventional loan, while FHA, VA, and USDA loans often have more flexibility in this regard. However, your credit score is not the be-all and end-all when applying for a mortgage. Lenders evaluate your credit score, and debt-to-income ratio, and weigh factors like your employment history, income, and many other elements to assess your ability to make complete and punctual mortgage payments.
Do I need to hire an attorney to buy a home?
While some states mandate the involvement of a real estate attorney, it’s not a requirement in most. Nevertheless, working with one can be highly beneficial during the homebuying process. They will meticulously examine your contract for accuracy, ensure no detrimental clauses are present, verify that you receive a clear title without any liens or encumbrances, and represent your interests in negotiations, particularly when addressing home inspection concerns.
How many homes should I see before I buy one?
There is no fixed number. The amount of available homes that align with your financial and lifestyle preferences can vary based on location and the current market conditions. For example, if you’ve been conducting an online search with no luck and a home matching your criteria suddenly pops up, it might be better to move on it quickly. On the other hand, if you have a larger inventory to choose from, you may prefer to visit multiple homes before deciding.
What is a seller’s disclosure?
In residential property sales, sellers must disclose issues that may materially affect the property’s value but may or may not be readily observable. You should always obtain one before signing the purchase agreement to ensure you can be confident of the property’s condition.
What does it mean to have a contingency?
Purchase agreements may include different contingency clauses that protect you or the seller. These clauses often relate to securing financing, a satisfactory home inspection, a clear title, and an acceptable appraisal. Any of these factors may affect the ability to close on a home; contingencies give both the buyer and seller the right to void the contract if an issue can’t be resolved without penalties or legal problems.
Should I get a home inspection?
Purchasing a home is likely one of the most significant investments you’ll ever make. A home inspector can uncover problems and help ensure the home is structurally sound and has no underlying issues affecting its future value. Furthermore, an inspection can serve as a valuable bargaining point with the seller if repairs are necessary.
What is an escrow account?
Typically overseen by a third-party entity, an escrow account holds your earnest money or deposit for safekeeping until closing. This ensures that the funds get disbursed under the sales contract terms. In addition, your mortgage servicer will hold and manage the funds designated for property taxes and homeowners insurance in an escrow account for the duration of your loan.
How many days does it take to close on a home?
Depending on your or the seller’s needs, you can reasonably expect a thirty- to forty-five-day time frame. Occasionally, unforeseen circumstances, like delays in lender financing, outdated financial documents, or appraisal-related issues that require resolution, can extend the closing.
How much money should I allocate toward closing costs?
These costs can vary depending on your down payment, loan interest rate, property taxes, and the specific closing date. However, as a general rule of thumb, you can expect to pay 3 to 6 percent of the loan amount.
How long does it take to get a loan commitment?
Typically, it can take twenty to forty-five days to receive your mortgage commitment letter after submitting your initial application. This timeline, though, assumes that you diligently provided all the necessary documentation to your lender in a timely fashion.
What is a loan commitment letter?
After your loan application successfully clears the underwriting process and fulfills all its conditions, your lender will furnish you with a conditional loan commitment letter, signifying your ability to proceed with the closing process. However, your lender will conduct a final credit check one to two days before closing, at which point, they will provide the final OK to close on the property. It’s important to note that you should be careful with your finances during this time to ensure no new negative marks impact your score.
What happens if I want to back out of buying the house?
If you change your mind before the contingency period ends due to issues like a problematic home inspection, a low appraisal, or loan approval difficulties, you may be able to cancel and get your earnest money back, minus service costs, depending on the contract’s terms and timing. However, if all contingencies have been met and on time, you are bound by the contract, and terminating it could result in losing your deposit and facing possible legal consequences.
Knowing the right questions to ask can help you navigate the homebuying process successfully. Be sure to contact your real estate agent, who can provide you with the information you need.