Common Questions When Buying a House
by Brandon Cornett
What's an ARM loan? Do I need a home inspection? How much should I offer? Do I need to use a real estate agent? These are just a few of the common questions people ask when buying a house for the first time. In truth, home buyers usually have dozens of questions on how the process the works, and it's easy to understand why.
So in this article, I've compiled a list of some of the most frequently asked questions when buying a house, along with my responses to each question.
1. How do I start the process?
Before you contact a real estate agent, apply for a home loan, or start the house-hunting process, you need to get your financial house in order. For starters, set up a home buying budget to see how much you can afford to spend on a mortgage payment each month. There are plenty of mortgage calculators online you can use for this purpose.
I also recommend getting copies of your credit reports from all three reporting bureaus, and reviewing those reports for errors. If you find mistakes, you need to dispute them through the website of the company that produced the report (Experian, TransUnion or Equifax). Such errors can lower your credit score, which could make it harder to get qualified for a home loan.
Third, you should start saving your cash. This will help toward your down payment, closing costs, and other expenses associated with the home buying process. The more you can save, the better. That's why I've put this tip at the top of the list. Now let's move on to some other common questions when buying a house for the first time.
2. Do I need a real estate agent?
This is really up to you. I usually refrain from telling people that they do or don't need an agent. Instead, I'll tell you what a real estate agent would do for you, and you can then decide if you're comfortable doing those things by yourself.
An agent will help you with four parts of the process. He or she will help you (A) find a house that meets your needs, (B) evaluate the home and the asking price, (C) make an offer on the home, and (D) negotiate with the sellers if it comes to that. Another benefit to having an agent is that you can get answers to all of your questions when buying a house, from someone who has been through the process many times.
If you're buying for the first time, or in a new city you're not familiar with, it's probably a good idea to have professional help. Likewise, if you have doubts about your ability to perform the four tasks mentioned above, you might want to hire a real estate agent.
3. What type of mortgage loan should I use?
I'll give you my own personal views on the subject. If you think you'll be staying in the home for a good while (longer than five years), it's best to choose a fixed-rate mortgage loan. This will keep your interest rate the same over the entire life of the loan. If you're only going to be in the home for a few years, and you're fairly certain of this, then you might want to choose an adjustable-rate mortgage (ARM) loan to save money.
What you want to avoid is using an ARM loan when you're going to stay in the home and keep the mortgage for many years. This means you'll either have to refinance before the ARM resets, or face the uncertainty of a rising interest rate. Adjustable mortgages were a key factor that led to the housing crisis that wrecked our economy in 2008 - 2009. So you should learn everything you can about the different loan types, and choose accordingly.
4. How do I find a home?
If you've decided to use a real estate agent, he or she will assist you with the house hunting process. Most agents have access to the Multiple Listing Service (MLS), which is basically a big database with property listings. When a home is listed for sale by a selling agent, it gets entered into the MLS. So this system is one of the easiest ways to find homes for sale.
In the past, the MLS used to be one of the only places to go for this kind of information. But not anymore. Today, there are dozens of real estate search engines you can use to find homes for sale in your area. Here's a review of popular search engines you might want to check out.
You can also find houses for sale the "old fashioned" way, by looking in your local newspaper and by driving through neighborhoods. In most cities, the weekend edition of the newspaper will have an expanded real estate section with a lot of property listings.
5. How do I evaluate the seller's asking price?
This is another common question people have when buying a house, and with good reason. After all, nobody wants to overpay for a home. It's important to understand than an asking price is exactly that -- it's what the seller is asking for the home. But that doesn't mean it's a realistic price. In fact, it's pretty common for sellers to overprice their homes due to the emotional value they place on it.
So the question becomes, how can you validate the price before making an offer? Once again, this is a key area where a real estate agent can help you. The key concept here is "comps," which is short for comparable sales. A real estate agent will pull a list of recent sales in the area, with an eye out for comparable homes similar to the one you're looking at. This will help validate the seller's asking price.
There are also a number of websites online that offer home value estimates, which is another way to get a feel for the average selling price in an area. But unlike a full property appraisal, these websites do not factor in the upgrades to a home, the way a full appraisal would. So they're not as accurate as a home appraiser's evaluation. Still, they might be useful to you. Here's a review of five popular home value websites you might want to read.
6. How do I apply for a mortgage loan?
This is another frequently asked question when buying a home for the first time. Applying for a loan is pretty straightforward. But getting approved for the loan is another thing entirely. To get started, you would simply submit an application with one or more mortgage lenders. You won't know the interest rate they're willing to offer until you submit an application. After that, the lender will review your credit score, debt-to-income ratio and other factors in order to approve (or deny) your application, and to offer you an interest rate.
Some people mistakenly think they will automatically qualify for the best rates being advertised by the lender. But this is not the case. A lender will only give their best interest rates to the best qualified customers (i.e., those borrowers who have excellent credit). So in order to calculate the full cost of a loan, including the interest, you'll need to submit your paperwork and get pre-qualified by the lender.
If you'll be buying a house in the near future, it's a good idea to start rounding up your financial paperwork. This includes your pay stubs and W2's for the last couple of years, financial statements, etc. These are the first things a lender will ask for when you apply.
Once you have these things rounded up, I recommend applying online for a mortgage loan. It saves you a lot of time and allows you to compare offers from multiple lenders. Use the "Mortgage Quotes" box at the top of this website to get started.
What questions do you have?
If you have questions about buying a house that aren't answered above, feel free to email them to us. We do not provide specific one-on-one financial advice, but we can answer your question here on the blog for the benefit of all readers.
About the Author: Brandon Cornett is the creator of the Home Buying Institute and several other consumer-education websites, including The Agent Network.
What's an ARM loan? Do I need a home inspection? How much should I offer? Do I need to use a real estate agent? These are just a few of the common questions people ask when buying a house for the first time. In truth, home buyers usually have dozens of questions on how the process the works, and it's easy to understand why.
So in this article, I've compiled a list of some of the most frequently asked questions when buying a house, along with my responses to each question.
1. How do I start the process?
Before you contact a real estate agent, apply for a home loan, or start the house-hunting process, you need to get your financial house in order. For starters, set up a home buying budget to see how much you can afford to spend on a mortgage payment each month. There are plenty of mortgage calculators online you can use for this purpose.
I also recommend getting copies of your credit reports from all three reporting bureaus, and reviewing those reports for errors. If you find mistakes, you need to dispute them through the website of the company that produced the report (Experian, TransUnion or Equifax). Such errors can lower your credit score, which could make it harder to get qualified for a home loan.
Third, you should start saving your cash. This will help toward your down payment, closing costs, and other expenses associated with the home buying process. The more you can save, the better. That's why I've put this tip at the top of the list. Now let's move on to some other common questions when buying a house for the first time.
2. Do I need a real estate agent?
This is really up to you. I usually refrain from telling people that they do or don't need an agent. Instead, I'll tell you what a real estate agent would do for you, and you can then decide if you're comfortable doing those things by yourself.
An agent will help you with four parts of the process. He or she will help you (A) find a house that meets your needs, (B) evaluate the home and the asking price, (C) make an offer on the home, and (D) negotiate with the sellers if it comes to that. Another benefit to having an agent is that you can get answers to all of your questions when buying a house, from someone who has been through the process many times.
If you're buying for the first time, or in a new city you're not familiar with, it's probably a good idea to have professional help. Likewise, if you have doubts about your ability to perform the four tasks mentioned above, you might want to hire a real estate agent.
3. What type of mortgage loan should I use?
I'll give you my own personal views on the subject. If you think you'll be staying in the home for a good while (longer than five years), it's best to choose a fixed-rate mortgage loan. This will keep your interest rate the same over the entire life of the loan. If you're only going to be in the home for a few years, and you're fairly certain of this, then you might want to choose an adjustable-rate mortgage (ARM) loan to save money.
What you want to avoid is using an ARM loan when you're going to stay in the home and keep the mortgage for many years. This means you'll either have to refinance before the ARM resets, or face the uncertainty of a rising interest rate. Adjustable mortgages were a key factor that led to the housing crisis that wrecked our economy in 2008 - 2009. So you should learn everything you can about the different loan types, and choose accordingly.
4. How do I find a home?
If you've decided to use a real estate agent, he or she will assist you with the house hunting process. Most agents have access to the Multiple Listing Service (MLS), which is basically a big database with property listings. When a home is listed for sale by a selling agent, it gets entered into the MLS. So this system is one of the easiest ways to find homes for sale.
In the past, the MLS used to be one of the only places to go for this kind of information. But not anymore. Today, there are dozens of real estate search engines you can use to find homes for sale in your area. Here's a review of popular search engines you might want to check out.
You can also find houses for sale the "old fashioned" way, by looking in your local newspaper and by driving through neighborhoods. In most cities, the weekend edition of the newspaper will have an expanded real estate section with a lot of property listings.
5. How do I evaluate the seller's asking price?
This is another common question people have when buying a house, and with good reason. After all, nobody wants to overpay for a home. It's important to understand than an asking price is exactly that -- it's what the seller is asking for the home. But that doesn't mean it's a realistic price. In fact, it's pretty common for sellers to overprice their homes due to the emotional value they place on it.
So the question becomes, how can you validate the price before making an offer? Once again, this is a key area where a real estate agent can help you. The key concept here is "comps," which is short for comparable sales. A real estate agent will pull a list of recent sales in the area, with an eye out for comparable homes similar to the one you're looking at. This will help validate the seller's asking price.
There are also a number of websites online that offer home value estimates, which is another way to get a feel for the average selling price in an area. But unlike a full property appraisal, these websites do not factor in the upgrades to a home, the way a full appraisal would. So they're not as accurate as a home appraiser's evaluation. Still, they might be useful to you. Here's a review of five popular home value websites you might want to read.
6. How do I apply for a mortgage loan?
This is another frequently asked question when buying a home for the first time. Applying for a loan is pretty straightforward. But getting approved for the loan is another thing entirely. To get started, you would simply submit an application with one or more mortgage lenders. You won't know the interest rate they're willing to offer until you submit an application. After that, the lender will review your credit score, debt-to-income ratio and other factors in order to approve (or deny) your application, and to offer you an interest rate.
Some people mistakenly think they will automatically qualify for the best rates being advertised by the lender. But this is not the case. A lender will only give their best interest rates to the best qualified customers (i.e., those borrowers who have excellent credit). So in order to calculate the full cost of a loan, including the interest, you'll need to submit your paperwork and get pre-qualified by the lender.
If you'll be buying a house in the near future, it's a good idea to start rounding up your financial paperwork. This includes your pay stubs and W2's for the last couple of years, financial statements, etc. These are the first things a lender will ask for when you apply.
Once you have these things rounded up, I recommend applying online for a mortgage loan. It saves you a lot of time and allows you to compare offers from multiple lenders. Use the "Mortgage Quotes" box at the top of this website to get started.
What questions do you have?
If you have questions about buying a house that aren't answered above, feel free to email them to us. We do not provide specific one-on-one financial advice, but we can answer your question here on the blog for the benefit of all readers.
About the Author: Brandon Cornett is the creator of the Home Buying Institute and several other consumer-education websites, including The Agent Network.
Labels: buying
posted by Brandon at
2:38 PM
