Violet Crown Realty’s Top 21 Frequently Asked Questions!
- How do I know if I’m ready to buy a home?
You can find out by asking yourself some questions:
- Do I have a steady source of income or a job? Have I been employed on a regular basis for the last 2-3 years in the same field? Is my current income expected to continue?
- Do I have a good history of paying my bills on time?
- Do I have minimal outstanding long-term debts (car payments, student loans & credit cards)?
- Do I have money saved for a down payment?
- Do I have the ability to pay a mortgage every month, plus the additional costs of homeownership?
- Am I planning on living here for the next 2-3 years?
If you can answer “yes” to these questions, you are probably ready to buy your own home.
- How does purchasing a home compare with renting?
Renting vs. Owning is like comparing apples to oranges. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to take advantage of tax benefits, build equity, 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 housing. (Enclosed is a Renting vs. Owing comparison chart.)
Owning a home has many benefits. When you make a mortgage payment, you are building equity; that is an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities – mortgage interest, real estate taxes, and others. Given the freedom, stability, and security of owning your own home, most people feel the costs are worth it.
- How does the lender decide the maximum loan that I can qualify for?
The lender considers your debt to income ratio, which is a comparison of your gross (pre-tax) income to your housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA (Federal Housing Administration), monthly mortgage payments should be no more than 29% of gross income. The mortgage payment, combined with non-housing expenses, should total no more than 41% of gross income. (This ratio is shown as 29/41.) The ratios used for a Conventional loan are 28/45, VA is 41 combined. The lender also considers cash available for down payment and closing costs, credit history & other factors when determining your maximum loan amount.
- How can I determine my housing needs before I begin the search?
Your home should fit the way you live, with spaces and features that appeal to your whole family. Before you begin looking at homes, make a list of your priorities: location, condition and size. Do you want to be close to certain schools? Your job? To public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements as well as a “wish list”. “Non-negotiables” are things that a house must have, while a “Dream List” covers things that you would like to have but that aren’t essential. (See your “To Do” tab for the Buyer “Get to Know You” form.).
- What should I look for when deciding on a community?
Select a community that is in your price range that will allow you to best live your daily life. Many people choose areas based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a more suburban community? When you find places that you like, talk to people that live there. They know the most about the area, and they will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable and at home.
- How can I find out about local schools?
You can get information about school systems by contacting the city or county school board or the local schools. You can also access national data or Alamo Title’s school data online at: http://nces.ed.gov/ (national) http://PublicSchools.VioletCrownRealEstate.com & http://PrivateSchools.VioletCrownRealEstate.com
- How can I find out how much a home is worth in certain neighborhoods?
Ask us! We will do a Comparative Market Analysis (CMA) on the house you are interested in by accessing sales within the past six months of similar homes (size, age, condition & location) maintained on the Multiple Listing Service database. This will help you determine what price you will offer on the house & expected price.
- Is an older home a better value than a newer one?
There isn’t a definitive answer to this question. You should look at each home for its individual characteristics. Generally, older or remodeled homes may be in more established neighborhoods, offer more ambiance, and have well-established landscaping & trees. People who buy older homes, however, should be prepared for more home maintenance, possible updating and repairs. Newer homes tend to have more modern floorplans, systems, are usually easier to maintain, and may be more energy-efficient. People who buy newer homes often don’t want to worry about a lot of upkeep and repairs, yet may have to spend money on blinds, paint & landscaping.
- Do I need a Realtor when purchasing a new home from a builder?
The on-site sales agent’s job is to represent the builder’s best interest. JoAnne has earned her Accredited Buyers Representative (ABR) designations, and her team’s job is to represent your best interest, not the builder’s. Since she grew up as the daughter of a builder, JoAnne has a lot of experience in the process. Some builders advertise incentives to Realtors that are not made public, this would allow some additional negotiation for you.
Many people ask if they can get a better deal if they buy a new home without an agent. The answer is also No. Builders pay the Realtor’s commission out of their marketing budget, and it does not affect the sales price or incentives the builder is offering, which comes out of their construction budget. Because we have worked with most builders in town, we will be a great asset to have when negotiating the price and selecting options that will make your home practical and comfortable, as well as making sure you are treated honestly and fairly.
- What are discount points and how do they work for me?
One Discount Point equals 1% of the loan amount. For example, suppose your sales price is $300,000 and you’re getting a loan, putting 5% down and the builder or seller is offering 2 points toward your closing costs. The value of these discount points would be calculated as follows:
$300,000 (sales price) x 0.95 = $285,000 (loan amount)
$285,000 x 0.02 (points) = $5,700 (dollar value of points)
Depending on what the lender will allow, “points” can be used to lower the sales price or interest rate, toward closing costs, upgrades or repairs. The most common way for points to be used is for interest rate reduction or toward Closing costs & Pre-paids (setting up new escrow account, or up front fees) Your loan officer can help determine what will work best for you. If a builder offers points, beware of hidden fees!
- How many homes should I consider before choosing one?
There aren’t a set number of houses you should see before you decide. We do a lot of work ahead of time to filter down homes so that they matches your criteria as best as possible. We also initially eliminate homes that we believe would not be as good of an investment. If you spend time online previewing homes, don’t be surprised if one of the first homes you see is the one you want to buy. Be sure to communicate often with us about everything you’re looking for. Tell us what you do and don’t like about each home you see. Drive by potential homes and see if you like the neighborhoods ahead of time. This will allow us to use our time efficiently.
- What if I don’t find the “Perfect Home”?
Remember, the perfect home has never been built! That is why we’ll make use of your “Non-negotiable List,” “Top 5 Criteria list” and “Dream List.” We’ll focus on looking at houses that have the non-negotiables. If they have some of the features and characteristics of your “Dream List,” that will be an added bonus!
- How do I make an offer?
We will write an offer that will include the following information:
- Your full legal name, as you want it to appear in public records & on your title policy.
- Complete legal description & mailing address of the property
- Amount of Earnest Money (which is applied to the amount of money you are putting down at closing)
- Down Payment and financing details
- Price & Terms you are offering
- Proposed Closing Date & Possession Date, if different.
- Number of days for your Option Period & Financing Contingency Period
Remember that a Contract (purchase agreement) depends on negotiating acceptable terms with the seller, not just making an offer. The Effective Date is the day that all parties have signed and initialed the contract. The agent will fill in this date on the signature page of the contract. The Option Period begins the NEXT day and lasts the number of calendar days stated in the contract. The title company will deliver a Receipted Contract to you after the earnest money has been deposited in an escrow account for this property.
- What is Earnest Money? How much should I set aside?
Earnest Money is the amount of money put down with the offer to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price. If your offer is accepted, the title company deposits the earnest money right away, and it becomes part of your down payment. If the offer is rejected, your money is refunded to you. If you “opt-out” (terminate) during your option period or financing contingency period, you get your earnest money back, but not the option fee.
- What is a “Home Warranty,” and should I consider one?
Home Warranties (Residential Service Contracts) are used with resale home and offer you protection for a the first year against potentially costly problems like unexpected repairs on appliances or home systems, NOT covered by homeowner’s insurance. Warranties are becoming more popular and are now written into the purchase contract. When negotiating a contract on a resale home, we will ask the seller to pay up to a certain amount for a home warranty (~$450).
- What does a home inspector do, and how does an inspection figure into the purchase price of a home?
An inspector checks the safety of your potential new home. Home inspectors focus especially on the structure, construction, and mechanical systems of the house. He will make you aware of any repairs that may be needed. The inspector does not evaluate whether or not you’re getting good value for your money and is only inspecting what he can see; they do not disassemble things for a closer look. Generally, an inspector checks these items and tells you everything this is not up to CURRENT building codes for new construction:
Electrical System Doors HVAC System
Plumbing and waste disposal Windows Hot Water Heater
Ceilings Walls Insulation & Ventilation
Floors Roof Foundation (general observations)
Potential presence of Pests Water Systems Appliances
Be sure to hire a home inspector that is qualified and experienced. You will select an inspector and will set up the date & time of the inspection. Find out if the inspector has access to the lockbox or not & notify us. The contract has an Option Period in it that gives you a way to either: A.) Renegotiate the purchase price if repairs are needed or B.) “Opt out” of the contract if serious problems are found. Let us recommend an inspector!
- Do I need to be there for the inspection?
It’s not required, but a good idea, if possible. We suggest people only attend the final part of an inspection to allow the inspector to thoroughly perform his work without distraction. Following the inspection, they will walk through the entire house and report & be able to answer questions about what has been observed and any problem areas. This is the best time to ask general maintenance questions or clarify things found in the inspection. The inspector will email you & us a copy of the inspection for our records. We will review it and decide if there are any “deal breaker” issues, or things we need the seller to address. Our requests at this point are usually guided by the initial negotiation and contract price on the home.
- Is the home located in a flood zone?
We will ask the listing agent or the builder this question, and the title company will confirm it. If you purchase a house that is in a flood plain, the lender will require flood insurance as a condition of the loan. Work with an insurance agent to construct a policy that fits your needs. Flood insurance is normally an additional $70/month.
- What should I look for during the final walk-through?
This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems previously discovered that you now find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix things that were damaged after our contract was written.
- What items make up closing costs?
Closing costs are normally based on the following expenses:
- Attorney’s or escrow fees (yours and your lender’s if applicable)
- Property taxes to cover the tax period to date (a “pre-paid” expense) & to set-up your escrow account
- Interest paid from the closing date to the last day of the month. (This is also a “pre-paid” expense.)
- Loan origination fee (which covers the lender’s administrative costs – usually 1% of the loan amount)
- Survey & Appraisal fees
- Document preparation & county recording fees
- Title insurance (yours and your lender’s)
- What is PMI?
PMI stands for Private Mortgage Insurance. There are privately owned companies that provide:
- Mortgage insurance to borrowers
- Guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine the borrower’s eligibility.
Mortgage insurance is a policy that protects lenders against some or most of the losses that can result if a borrower defaults on a home mortgage. PMI is required for borrowers who are making a down payment of less than 20%. PMI can be avoided by getting a combination of two loans, usually a 1st mortgage of 80% and a 2nd mortgage of 5,10 or 15%, with the remainder as your cash down payment. Ask your lender for more details.
- When do we start? (bonus question!)
Traditionally, if you have a lender pre-approval in place, it takes about 30-45 days from the day you go under contract until the day of closing. It would be unusual to see a closing date of longer than 45 days since it opens the seller up to additional risk. Look at your timeframe and decided when you ideally would like to close on your home. We will back up about 45 to 60 days and begin your house hunting at that time. If you start too soon, then you will see homes that meet your criteria, but you may not be in a position to move forward on them. It is a good idea to begin looking online at the homes in your price range right away. This will help you develop “market clarity” and allow you to be a more educated buyer. Ask me about setting up a Client Gateway to the Austin MLS service! Also look at our Sample Timeline Calendar for more information.