First Time Buyers
First time buyers typically have a lot of questions about the home buying process – it’s a totally new experience for them. Here are answers to some frequently asked questions.
What should my first serious steps be?
Use a mortgage calculator to get an idea of the price range you can afford; then find a good real estate agent who will be able to guide you towards lenders with good rates and good service. Different types of financing packages are available, which will affect the price of the home you can afford. The financing options change often. A mortgage person at a bank will give you its bank rates; a good mortgage broker, who works with many banks, will give you a much broader picture and will be much more accessible, even evenings and weekends.
What is a pre-approval letter?
When you meet with a mortgage consultant, you will need to provide him with sufficient personal and financial information to get a pre-approval letter. The letter will state the amount of money the lender will give you, based on basic information you have given the consultant, which he has verified. The pre-approval letter is beneficial to you because when it accompanies an Offer to Purchase, it gives the Seller more assurance that you can afford the property and the Seller will consider your offer more seriously. This pre-approval letter is not a commitment by the lending institution to give you the loan; it merely gives a financial guideline of what you can afford in writing, based on a credit check, etc. Before a bank issues a commitment to lend you the money, the bank would need to know the exact property you had decided to buy; would verify additional financial and personal information; would send a licensed appraiser to evaluate the property; etc. You are not obliged to get your loan from the person who gave you the pre-approval letter. By all means, shop around for good rates and good service.
How much ready money will I need to buy a home?
There are 3 initial payments to make: a $1,000 check with the Offer to Purchase; a larger amount, about 2 weeks later, usually between 5%-10% of the purchase price when signing the Purchase and Sale Agreement; the remaining agreed-upon amount, if any, with the loan from the bank at the closing.
Are my deposits protected?
Your deposits are protected by contingencies within the Offer documents. When your Offer is accepted, the $1,000 check is deposited into an escrow account at the listing firm of the property. When your agent presents the initial offer, only a copy of your check is included with the Offer; your check remains with your agent. If your Offer is not accepted or if you withdraw from the Offer because of a bad inspection, for example, your check will be returned to you. When you sign the Purchase & Sale Agreement, your Offer and “P&S” deposits are protected by your mortgage commitment, which you will get from the lending institution.
Who prepares the forms?
Your agent will complete the Offer to Purchase forms with input from you regarding dates and amounts. The draft of the Purchase & Sale Agreement is prepared by the Seller’s attorney; your attorney adds language to protect you. When both attorneys agree on the document, you and I receive a copy of it for our perusal and any input—all of these changes are done easily by email. The attorney for the lending bank prepares the closing documents and keeps in contact with you, your attorney and me.
What does the mortgage payment include?
Most loans have three parts: principal (the re-payment of the amount you borrowed); interest (payment to the lender for the money you borrowed); and property taxes (the tax the town assesses on your property). The lender will send you a monthly bill to cover these three components, and each invoice will indicate the amount you are paying for each segment of the loan.
In addition to the mortgage payment, what other costs do I need to consider?
Mandatory on a house and increasingly on condominiums, too, lenders are requiring homeowners insurance to insure the property against loss from fire, theft and other hazards. Prior to the closing, the bank will want to see proof that home insurance is in place. The three parts of the mortgage payment mentioned above, plus the cost of insurance, are often referred to as PITI. If your purchase is a condominium, there will be monthly common fees and you will want to consider “Tenant” insurance. Your personal utilities, which you pay for whether you rent or own, will be influenced by the property you purchase. Your lender and your attorney will be able to enumerate the other charges involved.