Getting pre-approved for a mortgage is the first step of the home buying process. Getting a pre-approval letter from a lender gets the ball rolling in the right direction. Here’s why: First, you need to know how much you can borrow. Knowing how much home you can afford narrows down online home searching to suitable properties, thus no time is wasted considering homes that are not within your budget. (Pre-approvals also help prevent disappointment caused by falling in love with unaffordable homes.) Second, the loan estimate from your lender will show how much money is required for the down payment and closing costs. You may need more time to save up money, liquidate other assets or seek mortgage gift funds from your family. In any case, you will have a clear picture of what is financially required. Finally, being pre-approved for a mortgage demonstrates that you are a serious buyer to both your real estate agent and the person selling their home.
From start (searching online) to finish (closing escrow), buying a home takes about 10 to 12 weeks. Once a home is selected, the offer is accepted, the average time to complete the escrow period on a home is 30 to 45 days (under normal market conditions). Though, well-prepared home buyers who pay cash have been known to purchase properties faster than that. Market conditions are a major factor in how fast homes are sold. In hot markets with a lot of sales activity, buying a home may take a little longer than normal. That’s because several parties involved in the transaction get behind when business suddenly picks up. For example, a spike in home sales increases the demand for property appraisals and home inspections, yet there will be no increase in the number of appraisers and inspectors available to do the work. Lender turn-around times for loan underwriting can also slow down. If each party involved in a deal takes a day or two longer to get their work done, the entire process gets extended.
In sellers’ markets, increasing demand for homes drives up prices. Here are some of the drivers of demand: Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can be built. Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for first-time homebuyers 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 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. Low inventory – fewer homes on the market because of a lack of new construction. Prices for existing homes may go up because there are fewer units available.
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. Interest rates trending higher – the amount of money 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. Short-term drop in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes. High inventory – a new subdivision and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.) Natural disasters – a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred.
Most loan programs require a FICO score of 620 or better. Borrowers with higher credit scores represent less risk to the lender, often resulting in a lower down payment requirement and better interest rate. Conversely, home shoppers with lower credit scores may need to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk.
The national average for down payments is 11%. But that figure includes first time and repeat buyers. Let’s take a closer look. While the broad down payment average is 11%, first-time homebuyers usually only put down 3 to 5% on a home. That’s because several first-time homebuyer programs don’t require big down payments. A longtime favorite, the FHA loan, requires 3.5% down. What’s more, some programs allow down payment contributions from family members in the form of a gift. Some programs require even less. VA loans and USDA loans can be made with zero down. However, these programs are more restrictive. VA loans are only made to former or current military service members. USDA loans are only available to low to-middle income buyers in USDA-eligible rural areas. For many years, conventional loans required a 20% down payment. These types of loans were typically taken out by repeat buyers who could use equity from their existing home as a source of down payment funds. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI).
If the built-up equity in your current home will be applied to the down payment on the new home, naturally the former will need to be sold first. Some home buyers decide to turn their current home into an investment property, renting it out. In that case, the current home will not need to be sold. However, your loan advisor 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. Buyers often have a short time frame to sell their current home when relocating to a new city because of a job transfer. If you are moving but taking a position with the same employer, check to see if they offer relocation assistance to help offset some of the costs.
That’s up to you! For sure, home shopping is easier today than ever before. The ability to search for homes online and see pictures, even before setting a foot outside the comfort of your living room, has completely changed the home buying game. Convenience is at an all-time high. But, nothing beats visiting a home to see how it looks and ‘feels’ in person.That’s up to you! For sure, home shopping is easier today than ever before. The ability to search for homes online and see pictures, even before setting a foot outside the comfort of your living room, has completely changed the home buying game. Convenience is at an all-time high. But, nothing beats visiting a home to see how it looks and ‘feels’ in person.
When you make an offer on a home, your agent will ask for a check to accompany it (checks are the same as cash, and the deposit is typically 1% to 2% of the purchase price). Earnest money is made in good faith to demonstrate – to the seller – that the buyer’s offer is genuine. Earnest money essentially takes the home off the market to anyone else and reserves it for you. The check (or sometimes cash) is deposited in a trust or escrow account for safekeeping. If a deal is struck, the earnest money is applied to the down payment and closing costs. If the deal falls through, the money is returned to the buyer. Important: if the terms of a deal are agreed upon by both parties, but then the buyer backs out, the earnest money may not be returned to the buyer. Ask your agent about the ways to protect your earnest money deposit and the ways to protect it – such as offer contingencies.
Written offers should stipulate the timeframe in which the seller should respond. Giving them twenty-four hours should be sufficient.
Sellers can flat-out accept or reject an initial offer. But there a third path that is quite common, sellers can initiate a counteroffer. Remember this: a deal isn’t dead until it’s dead. So, if a counteroffer is proffered by the seller, you’re still in the game. You and your agent just need to review it to determine whether the counteroffer is acceptable. If so, then approving it closes the deal immediately. Keep in mind, offers and counteroffers can go back and forth many times; this is not unusual and negotiations are a part of what Realtors do as a matter of routine. Each revision should bring both parties closer together on the terms of the deal.
The short answer is, we as Real Estate Professionals always advise that having an inspection on a home is a good idea. However, there are other factors that can sway a buyer away from doing an inspection. If the market is a very fast-moving and competitive market with multiple offers on homes, many buyers will make the decision to present their offer on a home without allowing for an inspection and accepting the condition of the home the way it is. When offers come in on a property without an inspection called out, the sellers tend to look very favorably at those offers compared to another that comes in and asks for an inspection. Bottom line...if it's a very competitive seller's market, you will find in many cases that inspections are not being done. Please note, that lenders DO NOT require inspections to be performed. It is widely thought that an inspection is required but this is not the case. It is completely up to each buyer.
It’s not required, but it’s a darn good idea! Final walk-throughs give buyers a chance to make sure nothing had changed since their first visit. If repairs were requested, as part of the offer, a follow-up visit ensures that everything is squared away, as expected, per the terms of the contract.