Welcome to the Frequently Asked Questions (FAQ) Page. Here, we have tried to answer the most common questions visitors to our web site may have.
If you find that your question is not answered on this page, please e-mail us at Advantage Realty or call us at (785) 483-5853.
What do I need to know about saving for a home?
The first thing to understand about buying a house is that you don’t have to have all the cash saved up in order to make your purchase. If you have a steady job and a reasonable credit history, there is a good chance that you can find a home lender who will lend you most of the purchase price of your new home. Home loans typically are offered in amounts of 80%, 90% and 95% of the price you are paying for the house. You are expected to pay the remaining amount in cash from your own savings.
Because real estate has proved to be such an excellent investment, and lenders expect that your home will be worth more in the future, the interest rate you can obtain on a home loan is one of the best around. Today you can borrow a home loan – fixed at the same rate for many years – at substantially less than the prime rate.
Finally, home loans are available to be repaid over terms of usually 15 or 30 years. The shorter term loan offers a slightly lowered interest rate – it’s better financing than you can get on just about any other investment.
How much house can I afford?
First, determine your gross monthly income. This will include any regular and recurring income that you can document. You can also use unearned sources of income such as alimony or lottery payoffs. And if you own income-producing assets such as real estate or stocks, the income from those can be estimated and used in this calculation.
Next, calculate your monthly debt load. This includes all monthly debt obligations like credit cards, installment loans, car loans, personal debts or any other ongoing monthly obligation like alimony or child support. Use the minimum monthly payment for calculating monthly credit debt obligations. You don’t have to consider a debt at all if it is scheduled to be paid off in less than six months.
Although every lender has slightly different formulas, here is a rough idea of how they look at the numbers. Typically, your monthly housing expense, including monthly payments for taxes and insurance, should not exceed about 28 percent of your gross monthly income. If you don’t know what your tax and insurance expense will be, you can estimate that about 15% of your payment will go toward this expense. The remainder can be used for principal and interest repayment.
Your proposed monthly housing expense and your total monthly debt combined cannot exceed about 36% of your gross monthly income. If it does, your application may exceed the lender’s underwriting guidelines and your loan may not be approved.
What should I keep in mind when looking at homes?
The housing market is complicated because the stock of homes for sale is always in flux. It is important to know as much as possible about the choices in preferred markets, and the way to do that is by working closely with a local realtor who has a good “lay of the land.”
It’s important to list the features and benefits you want in a home. Consider such things as pricing, location, size, amenities (extras such as a pool or extra-large kitchen) and design (one floor or two, colonial or modern, etc.).
It’s also important to consider your priorities. What features are most important to you? For instance, would you trade fewer bedrooms for a larger kitchen?
Lastly, consider your needs in several years. For instance, if you’ll need a larger home, maybe now is the time to buy a bigger house rather than moving or expanding in the future.
Most buyers’ first consideration is the number of bedrooms. Additional purchase and resale considerations include:
- Deciding whether you want a home that’s a newly constructed home, an older home or a home that requires some work – a “fixer-upper”
- Houses with three or more bedrooms generally have more appeal than two-bedroom/one-bath houses, and therefore have more appreciation potential
- Homes with “curb appeal” (a well-maintained, attractive and charming view-from-the-street appearance) are the easiest to resell
- When resale is a possibility, the best investment potential is traditionally found in a less expensive, more moderately sized home on the street – rather than the most expensive house on the street, or anything that is unusual or unique.
- While house hunting, it’s a good idea to make notes about what you see because viewing several houses at a time can be confusing.
Act decisively when you find the home that’s clearly right for you. This is particularly important after a long search or if the house is newly listed and/or under-priced.
Am I buying the right home?
Don’t let your emotions overrule a reasonable assessment of whether a particular home really meets your needs. Following, are a few of the questions you should ask yourself before you rush into a commitment to buy:
- Are you comfortable with the monthly payments you’ll be obligated to make?
- Is the down payment within your means?
- Will you have enough cash to pay transaction costs and moving expenses?
- If the house needs major repairs, remodeling or redecorating, can you save the necessary funds within a reasonable time period?
- Does the home need a new roof, extensive upgrading of the electrical wiring, new plumbing?
- Will you be able to meet the financial challenges and live with the mess and inconvenience while the home is being brought up to your expectations?
- Size and configuration
- Is the house the right size for your needs?
- Does it have the right combination of bedrooms, bathrooms and other living areas?
- Does the house have central heat and air?
- If the house has two stories, are you comfortable with the idea of walking up and down stairs every day?
- Is the design and architecture of the house too modern or too traditional for your preferences in furniture and home furnishings?
- Resale potential
- If you wanted to sell your home, or were forced by unexpected circumstances to sell it, how easy would it be to find a ready, willing and able buyer?
- Are the amenities that seem attractive and desirable at the time of purchase, likely to prove to be more headache and less pleasure than I anticipated (swimming pool, high-maintenance ornamental trees, expensive hardwood floors)?
How do I make an offer?
A written proposal is the foundation of a real estate transaction. Realtors have a variety of standard forms that are kept up to date with the changing laws. When you use a realtor these forms will be available to you. Realtors cover the questions that need to be answered during the process. Certain disclosure laws must be compiled with by the seller, and the realtor will ensure that this takes place. After the offer is drawn up and signed, it will be presented by your realtor.
If your offer says “this offer is contingent upon (or subject to)” a certain event, you’re saying that you will only go through with the purchase if that event occurs. For example:
- The buyer obtaining specific financing from a lending institution. If the loan can’t be found, the buyer won’t be bound by the contract.
- A satisfactory report by a home inspector “within 10 days after acceptance of the offer.”
Earnest money is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show “good faith.” This will become part of your down payment.
As a buyer, you will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that’s that, and the sellers could not later change their minds and hold you to it.
You may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject it or to even make your own counter offer.
Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal.
What should I expect during the closing process?
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.
Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. Deeds, loan papers and other documents are prepared, signed and filed with local property record offices.
Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed.
What are the costs associated with a home loan?
Closing costs are the actual expenses that the lender incurs in the origination of a new home loan. Some of the costs are related to your loan application, such as the expense of newly updated credit reports on all applicants. Other fees are related to the house itself, such as the appraisal of the property. Others are payment to the lender for processing your application, such as the loan origination fee. This area of expenses is charged to the buyer, and often runs between 2 and 3 percent of the amount being borrowed.
Loan discount points are a form of prepaid interest. One discount point is exactly equal to one percent of the amount being borrowed. It is paid in cash at closing to the lender as a form of interest. Discount points have the effect of lowering the stated interest rate you will pay on the loan you obtain.
Finally, there is the issue of prepaid items. An escrow account is nothing more than a savings account that the lender holds. Every month you will, in addition to your regular loan payment, deposit a sum for property taxes and for home owners insurance into this account. And when the next bill comes due for taxes or insurance, your lender will make the payment for you. On the day of your purchase, you will be required to set up an escrow account with about 9 months worth of taxes and about 2 months worth of insurance payments. In addition, you will have to pay for the first year’s insurance policy in full.
Are there mistakes I can avoid in my home finances?
Don’t choose the wrong mortgage: Investigate all your options, then lay your choices side-by-side and do the math, making sure to compare worst-case scenarios.
Don’t confuse “pre-approved” and “pre-qualified” with a loan commitment: When you are “pre-qualified,” the lender is making an educated guess about how much you can borrow based on information you’ve provided. When you are “pre-approved,” the lender has verified everything you have told him or her and is offering to lend you up to a given amount at current interest rates – under certain conditions. Final clearance and a check at closing – a loan commitment – are subject to an appraisal satisfactory to the lender, good title, a last-minute credit check and other verifications.
Don’t have too much credit: Excessive credit is almost as bad as no credit or even bad credit. Postpone any big ticket purchases until after you buy your house.
Don’t lie on your loan application: Exaggerating your income on a mortgage application or putting down other untruths can be a federal offense.
Don’t hide if you can’t make your payments: The worst thing you can do is ignore phone calls and letters from your lender when you are behind on your payments. Lenders are the enemy only if you give them no other choice.
Don’t skip a home inspection: Independent home inspectors examine houses from stem to stern.
Don’t hire just any agent to sell your house: All real estate agents are not the same.
Don’t fail to check out a remodeler: Reputable remodelers don’t solicit door-to-door, and they don’t cut price. Check out a potential contractor thoroughly.
Don’t pay too much up front: If a contractor asks for more than a third of the contract price as a down payment, chances are something’s wrong. Never give a contractor cash.
Don’t burn your mortgage: Make a copy and burn that instead. Keep all you loan documents in a safe place.