Buyer FAQ's

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Your Offer Price

Q:  Is there harm in paying more for the home than the current market value would suggest? 

A:  It depends on your motives for buying, your time perspective and your financial ability.  If you really are tight on budget, then you need to buy only what you can afford.  However, if you can afford the amount you overpay, then it is not a big deal.  The reason is that if you have to overpay in order to acquire the home – “to control the property” in real estate terms – then that is what you need to do.  If you are unwilling to pay slightly more, then you may never own the home and never have the enjoyment that you desire.   “Buyer’s regret” often is as painful as “Buyer’s remorse”.

Q:  Is a low offer a good idea?

A:   While your low offer in a normal market might be rejected immediately, in a Buyer's market a motivated Seller will either accept or make a counteroffer.  Full-price offers, or above, are more likely to be accepted by the Seller. 

Q:  Should your offer price be affected by prevailing interest rates?

A:  The “going” interest rate may be important to your decision to buy.  Most people who buy a home, buy to the extent that they can afford the monthly payment.  Often this is limited by the lender, according to ratios that lenders follow.  Thus, to a large extent buyers buy to the level that they are allowed to buy.  Lenders will factor the interest rate (cost) into their monthly payment calculations.

Making An Offer

Q:  What is the difference between list price, sales price and appraised value?

A:  The list price is a Seller's advertised price, a figure that usually is only an estimate of what the Seller wants to get for the property. The sales price is the amount the property actually sells for.  The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.

Q:  Whose obligation is it to disclose pertinent information about a property?

A:  In most states the Seller and his/her agent are required to disclose all facts materially affecting the value or desirability of the property, which are known or accessible only to them.  This might include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises; any death within three years on the property; and any restrictions on the use of the property, such as zoning ordinances or association rules.

Q:  What are the standard contingencies?

A:  Most purchase offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.

What Can You Afford?

Q:  What is the standard debt-to-income ratio?

A:  A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.

Q:  What can I afford?

A: The price you can afford to pay for a home will depend on six factors:

  1. Gross income
  2. The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
  3. Your outstanding debts
  4. Your credit history
  5. The type of mortgage you select
  6. Current interest rates

Appraisals & Market Value

Q:  What is the return on new versus previously owned homes?

A:  Any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy.  One survey by the National Association of Realtors shows that resale homes do have an edge over new homes.

Q:  What's a house worth?

A:  A house ultimately is worth what someone will pay for it.  Everything else is an estimate of value.  To determine a property's value, most people turn to either an appraisal or a comparative market analysis.   An appraisal is a certified appraiser's estimate of the value of a home at a given point in time.  A comparative market analysis is a real estate broker's or agent's informal estimate of a home's market value, based on sales of comparable homes in a neighborhood.

Q:  What standards do appraisers use to estimate value?

A:  Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value.

Q:  Can I find out the value of my home through the Internet?

A:  You can get some idea of your home's value by searching the Internet.  A number of websites and services are available but neither of these services produce official appraisals.  They also don't factor in market nuances or other issues a certified appraiser or real estate professional might in assessing the value of your home.

Q:  What are the standard ways of finding out how much a home is worth?

A:  A comparative market analysis and an appraisal are the standard methods for determining a home's value.

Q:  What is the difference between market value and appraised value?

A:  The appraised value of a house is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process.  Market value is what price the house will bring at a given point in time.  A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

Property Taxes

Q:  Are property taxes deductible?

A:  Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

Q:  Are taxes on second homes deductible?

A:  Mortgage interest and property taxes are deductible on a second home if you itemize.  Check with your accountant or tax adviser for specifics.

Q:  What is an impound account?

A:  An impound account is a trust account established by the lender to hold money to pay for real estate property taxes, and mortgage and homeowners insurance premiums if they also are impounded, as they are received each month.  The property taxes are paid by the Trustee either twice per year or annually (once per year).

Q:  Do all loans require impound accounts?

A:  If you are taking out a FHA or VA loan, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan.  Most conventional loans do not require an impound account.

Q:  How is a home's value determined for property taxes?

A:  A tax assessor of the city or county will determine the assessed value of the home for levying the property tax.  This will be done according to formulae that are applied by the assessor to all homes in the region.

Escrow and Closing Costs

Q:  What are closing costs?

A:  Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home.  They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes.  Unless, these charges are rolled into the loan, they must be paid when the home is closed.

Q:  How can I save on closing costs?

A:  Closing costs can average 1 to 2 percent of a total home purchase price.  But there are ways to save:

  • Negotiate with the Seller to pay all or part of the closing costs.  The lender must agree to this as well.
  • Get a no-point loan if possible.
  • Get a no-fee loan if possible.
  • Get Seller financing.  This kind of arrangement usually does not entail traditional loan fees or charges.
  • Rent the property in which you are interested with an option to buy.  That will give you more time to save for the upfront cash needed for the actual purchase.
  • Shop around for the best loan deal.  Each direct lender and each mortgage brokerage has their own fee structure.

Q:  Why do I need a title report?

A:  As much as you may want to believe that the home you buy is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property