Frequently Asked Questions – Buying a Home

 

How much money do I need to buy a home?

A buyer is responsible for a down payment and closing costs. There are many different loan programs available with varying down payment options.  They vary depending on your credit score and debt to income ratio and income level.  There are some as low as zero down.  Most common is a minimum of 3.5% down.   Closing costs are typically between 2 and 3% of the sales price.  You will want to talk with your lender to find out exactly how much is needed.

What are closing costs and how much are they?

Closing costs when buying a home consist of a mortgage origination fee (commission to the lender), Title, Title insurance, Escrow, Prepaid Taxes, Prepaid interests, Homeowners Association transfer fees, document and recording fees.  Typically they are between 2% and 3% of the purchase price.

What is the minimum Down Payment needed to buy a home?

There are some down payment assistance programs and a USDA program that have Zero Down.  There are certain qualifications needed

An FHA loan requires a minimum of 3.5% down

A Conventional loan typically requires 5% down but some lenders have a 1% or 2% program.

 

What types of Down Payment Assistance is available for buying a home?

The Washington State Housing Finance Commission offers  the Home Advantage Program and the House Key Program

Pierce County Down Payment Assistance Program

Seattle Down Payment Assistance Program

What is an earnest money?

An earnest money deposit is a good faith deposit made up front at the time of putting an offer on the home. It is held by either the real estate company representing the buyer or held at escrow until closing.   Its purpose is to show a seller how serious a buyer is about purchasing a property.  In many cases the larger the deposit the larger the stronger the purchase looks to a seller. 

Do I really need a real estate agent when buying a home?

If a property is listed for sale, yes you need to have a real estate agent to purchase the home.  The sellers have signed a contract which includes commission for their agent representing them (listing agent) and for the buyer’s agent (another agent)– who represents the buyer who will purchase the home.  So, typically the services of a real estate agent are free for a buyer.

If a property is not listed you do not have to have an agent but most people find it beneficial to have an agent.  Real Estate Agents know the market, they have a wealth of knowledge on market data and trends to help negotiate the best deal, There is a ton of paperwork involved that they do for you, They know the process.  There are many behind the scene issues that get solved by agents that many buyers/sellers never see.

Why shouldn’t a Buyer use the Listing Agent to purchase a home?

The Seller has already signed a contract which pays for a buyer’s agent to represent the buyer– other than their listing agent. The Listing agent represents the Seller and the Seller’s best interest.  They do not represent the buyer (unless they become a dual agent).  Many buyers think it will save them money.  It could help with negotiation on pricing but be careful, if the listing agent does not represent you they may not negotiate inspections, closing costs, or other items on your behalf.  It could cost you more in the long run.  

Do I need a real estate agent when buying new construction?

It is always best to have your own representation.  The Agent in the model home represents the seller and the seller’s best interest. They do what is needed to get the home sold for the seller.  They do not always make sure the buyer is receiving everything needed on their end or help guide the buyer through the process.

Who pays for the real estate agent fees when buying a home?

A very common question is who pays real estate agent fees when buying a home.  – In most cases the seller pays for real estate agent commissions for both the seller side and the buyer side

Do I have to have an inspection when buying a home?

A home inspection is not required but highly encouraged

How much is an inspection when buying a home?

Each inspector has different rates but you should plan to spend between $400 to $700 for a home inspection – depending on which options you choose.  Inspectors typically charge based on square footage and what type of inspection they will be performing.

Is the inspection and appraisal the same thing?

No, an inspection is for the buyers purpose and knowledge.  The appraisal is a requirement of a lender to be sure they are making a wise lending decision.  They are insuring the home is being purchased at or below the price that the buyer and seller agreed to and there are no safety hazards at the home.

How long does it take to close a home?

The length of time to close a home depends on if and what type of loan is being used to purchase the home and if there are contingencies, liens, judgments, etc to clear.   

A cash purchase with no contingencies can close in a few days.   A conventional loan purchase typically can close in 20-30 days

An FHA loan purchase typically can close in 30-45 days

Do I have to pay for my taxes and insurance with my mortgage payment?

Most lenders require you to have an escrow account that will hold enough reserves to pay for your taxes and homeowners insurance.

What is a short sale?

A Short sale is when the proceeds from the sale of a home are less than the amount owed by the owner including all debts and liens.

What is a foreclosure?

A foreclosure is what happens when a borrower fails to pay a mortgage.  It is a legal process for the owner of the lien – typically a bank to take back possession.

Standard amount is 1%-2% of the purchase price.  The earnest money deposit gets applied to down payment and closing costs at closing – it is not additional money needed.

 

Do I have the option to do any inspections?

If a buyer includes an inspection contingency in their offer to purchase, they are allowed inspections of the property and improvements of the property.  It includes inspections at buyers option and expense.  Examples of inspections: Structural, mechanical and general condition, compliance with building and zoning codes, inspection for hazardous materials, pest inspections, soil/stability inspections, sewer inspections.

 

What happens if the appraisal comes in low?

If an appraiser determines the value of the home to be lower than the agreed upon sales price by the buyer and seller there are a few things that can happen.

Seller can match the price of the appraiser’s value – this is the most common

  • Buyer can pay the difference between appraised price and sales price.   – this is not as common (unless we are in a highly appreciating market) because many buyers have a difficult time justifying paying more for a home than what an appraiser says it is worth.
  • The Transaction can be cancelled – if the seller does not want to match the appraised value and the buyer does not or cannot make up the difference in value then the transaction can be cancelled.  The buyer would be entitled to his/her earnest money back, typically.
  • There is an option of a reappraisal or reconsideration of value by the same appraiser or another appraiser acceptable to the lender. - this is very difficult to do and rarely occurs.

 This would be at the seller’s cost and the lender may elect to not accept a reappraisal or reconsideration