Homebuyer Questions! I know you have lots of them. And rightly so! This is probably the biggest purchase you’ll ever make in your lifetime. You want to know everything you can about the process, what to expect, and how to make the best decision for you and your family.
Luckily, I’m here to help you. I’ll answer some of the most common home buying questions that come up during the process, and give you additional resources to help you learn even more about buying a home. So whether you’re just starting out on your home buying journey or are almost ready to close on your dream home, read on for answers to some of your most pressing homebuyer questions.
Table of contents
- #1 – What are the First Steps to Buying a Home?
- #2 – What if I am Self-Employed?
- Homebuyer Question #3 – What Kind of Mortgage is Best?
- #4 – What is the Difference in PMI, MIP and Mortgage Insurance?
- #5 – Will a Student Loan Affect My Ability to Get a Mortgage?
- #6 – Can Parents Loan Their Children the Down Payment Funds?
- #7 – What About Buying a Foreclosure or Short Sale?
- #8 – What Are Closing Costs and Who Pays Them?
- Homebuyer Question #9 – What is an Escrow Account?
- #10 – Is a Home Inspection the Same as an Appraisal?
- #11- What Does a Home Warranty Cover?
- #12 – How Long Does it take to Buy a House?
- #13 – What is Earnest Money and Can I Get it Back?
- #14 – What is Title Insurance? Major Homebuyer Question!
- #15 – Do the Appliances Stay?
- #16 – What if the House Needs Repairs? Who Pays?
- #17 – Do I have to Get a Survey?
- #18 – How Do I Know About Crime in the Area?
- Homebuyer Question #19 – Can I Buy a House Without a Realtor?
- #20 – How Do I Know if the House is in a Flood Zone?
- #21 – Do I Have to Join the HOA?
- #22 – What’s the Insurance Implication if the House has a Swimming Pool or Wood Stove?
- #23 – Is it a Good Idea to Buy a House that has been ‘Flipped’?
- Homebuyer Question #24 – Who Pays the Realtor Commission?
- #25 – How to Buy a Home in a Strong Seller’s Market? Another Major Homebuyer Question Right Now.
#1 – What are the First Steps to Buying a Home?
This is the big homebuyer question because there are so many things to consider. But, by far the first thing to do is get your finances in order. If you’re planning on getting a mortgage, check your credit score. The main credit reporting agencies are Equifax, Experian and TransUnion. You can check your FICO scores there, and work toward correcting any mistakes.
Now, you’ll want to choose the best Realtor! A friend or relative isn’t always the best choice here, because mixing business and personal relationships can sometimes cause problems. Read my eye-opening article on choosing a Realtor. The person you choose to represent you will be an invaluable resource during this time.
Work with your Realtor to find the best lender for your situation. I’ve not had good results with on-line lenders because there doesn’t seem to be much accountability. Every time you call to check on something, you get connected to a different person. I like to use local lenders that have been around awhile. They keep me and the buyers ‘in the loop’ all through the process. And, if there is a problem, we know where the ‘buck stops’.
You’ll definitely need a pre-approval letter. This really isn’t an ‘approval’ – but more of a ‘pre-qualification’ letter. It usually says that the lender has done preliminary qualification checks such as income, credit report, time on the job, etc. And that you can get a loan up to a determined amount as long as nothing changes in the meantime.
*Tip – Did you know you can ‘lock’ your credit report? It’s easy to do and can help protect you from identity theft! Your report will be ‘locked’ from inquiries, but if you want to use credit – simply unlock it. Just contact the 3 credit report agencies and it only takes a few minutes
#2 – What if I am Self-Employed?
This is a whole new subject. If you are self-employed, you will need to provide the past 2 years tax returns. It’s human nature to want to take every deduction you can on your tax return – but the lender can only use what you have reported. If you have less than a 2-year record, it will be difficult to get mortgage financing.
These days, many people have a ‘side hustle’ to earn extra money – and this small business income can be used as long as it fits the 2-year requirement.
Your lender may want additional documentation such as bank statements, and profit-and-loss statements, etc. It may also make a difference on the type mortgage you choose. Conventional financing and ‘portfolio’ loans from the bank could be different from government insured loans. Again, talk with your lender (or several lenders) about this.
Homebuyer Question #3 – What Kind of Mortgage is Best?
This is a common homebuyer question. It depends on your specific situation. Discuss these programs with your lender to see which program best fits your needs. Most loans these days are on fixed rates – so avoid adjustable rate loans if you possibly can.
- Conventional – A popular loan program with no limits on the dollar amount, so you can get ‘jumbo’ loans. The down payment is usually higher than government insured loans. If you can do it, try to put down at least 20% to avoid PMI (Private Mortgage Insurance). This is costly and will surely add a chunk to your monthly payment. When your equity reaches the 20% level, you can ask that the PMI be eliminated.
- FHA – Government insured financing. The down payment is as low as 3.5%, but again if you put down less than 20%, you will have MIP (Mortgage Insurance Premium). This is basically the same as PMI, except they no longer eliminate it when you reach 20% equity. MIP is an upfront fee as well as a monthly fee and is based on the down payment. It’s higher at 3.5% – lower at 5-10%-15%, etc. FHA Loan Limits have recently changed. Be sure to read my latest article to see the new limits. The appraisal is more stringent with an FHA loan.
- VA – This a zero-down program for veterans. This loan doesn’t have PMI or MIP – but it does require a chunk of change in the “VA Funding Fee”. This can be rolled into the loan – but it is high. The appraisal is one of the most stringent.
- USDA Rural Housing – This is for lower income people and there is a limit on the price of the home. Lower down payment and a lower rate in many instances.
- THDA – Tennessee Housing Development Agency provides down payment assistance.
#4 – What is the Difference in PMI, MIP and Mortgage Insurance?
Both PMI and MIP are fees that you pay for the lenders benefit in case you default. It’s basically mortgage insurance. I’ve had people ask if this pays off the house if you die, and the answer is NO! This is strictly for the lender’s benefit.
There is mortgage insurance that you can buy that will pay the house off in case of death, but it’s basically a life insurance policy. I would recommend that if this is something you want to have in place – then just buy an additional life insurance policy. The rate on a mortgage protection policy stays the same – but the coverage decreases as you pay off the loan.
#5 – Will a Student Loan Affect My Ability to Get a Mortgage?
Yes, it can! It will affect your debt-to-income ratio, so make sure to discuss this with your lender. I’ve had it affect parents who had signed with their children for student loans. Even though the children were paying the student loan payment, that payment was still calculated into the parents debt-to-income ratio. Because they were co-signers. It would be the same for any loan they had co-signed for.
#6 – Can Parents Loan Their Children the Down Payment Funds?
Another good homebuyer question. Yes, they can! The lender will have strict guidelines when this happens. The parents have to prove that they have the money available and that they don’t expect it to be paid back. It must be a ‘gift’. The lender will ask for the needed documents.
#7 – What About Buying a Foreclosure or Short Sale?
Foreclosures and short sales can be good deals, but they can also be a ‘money pit’. Think about all the emotions that occur during this time, people are stressed, depressed and many times angry when they are in foreclosure. Everything is uncertain at this point. Their lives are upside down. Even rational people have a hard time handling it. I’ve seen homes where the previous owners have taken a gallon of paint and just walked through the house pouring it on everything including brick fireplaces. I’ve seen plumbing where someone has put concrete mix down the drain and poured water over it. Holes in drywall is common. How about a swimming pool that won’t hold water? Once, it took men in wetsuits going over every inch of the liner to find a slit purposely made in the vinyl that was extremely hard to find. I can go on and on – but you get the picture! This is a major homebuyer question
There are several types of foreclosures. You can buy them from banks, HUD or the VA. One thing I’ve noticed is that people seem to think they are the best deals. And there can be good deals, but from what I’ve seen is that they are listed in MLS at market price. They only time they are discounted is when they’ve been on the market for a long time. The longer on the market – the lower the price.
This isn’t typically a homebuyer question…but, here’s the deal. HUD listings are available through the local MLS or you can go to the HUD Homestore to find them. But, they usually don’t have the utilities turned on. This means that if you want to do an inspection, you have to turn on the utilities at your expense, and then turn them back off after your inspection. If they are winterized, they will want them re-winterized. Also – HUD doesn’t usually do any repairs, so the cost of these will be on you as well. But, what if the appraiser orders repairs and HUD doesn’t want to make them? Do you make the repairs before closing in order to close? What if something happens and you don’t close? See my point??
If you like to ‘flip’ houses, you will most likely have a line of credit at the bank or just pay cash for them. Homes in bad condition are usually priced below market value just because of the work necessary to fix them up. But, people who want to buy a foreclosure to live in should be aware of and prepared for potential problems.
In my experience, it’s better to find a home that has a ‘real person’ as a seller – someone who can be negotiated with. Someone who might be willing to make those needed repairs.
#8 – What Are Closing Costs and Who Pays Them?
This homebuyer question always comes up. Closing costs for the buyer are simply costs associated with getting the mortgage loan. The costs vary, but your lender is required by law to give you a close estimate on the charges. You will have to sign that you have received these documents. I usually tell people to figure on 4% of the loan amount to cover these fees. It won’t be exact, but it is a good estimate. This estimate includes the escrow set up of homeowners insurance and real estate taxes.
- Origination Fee
- Appraisal Cost
- Credit Report
- Title Search
- Title Insurance
- Attorney Closing Fees
- Homeowners Insurance
- Real Estate Tax Pro-ration
- HOA Transfer Fees
- HOA Fee
- Home Warranty
- Tax Service Fees
- Realtor Fees
- Processing Fees
- Underwriting Fee
- Pest Inspection
- Flood Certification
- Courier Fee
- Recording Fees
- State Transfer Taxes
- Wire Transfer
This article is aimed toward homebuyer questions, but the seller also has their own set of closing costs which include Realtor commission and attorney fees. They sometimes pay for the title search and policy.
The seller is allowed to pay up to 6% of the buyer closing costs. Depending on the state of the real estate market, the seller is sometimes willing to pay these fees or we can also build them into the offer as long as the appraisal will be sufficient. If money is tight, it’s sometimes better to build these costs into the offer. We can put a pencil to it and see if the available cash might be better served as a down payment to reduce the PMI or MIP costs. This is why you want a really good Realtor on your side because things like this can make a big difference in your monthly out-go.
Homebuyer Question #9 – What is an Escrow Account?
An escrow account is an account set up to pay your homeowners insurance and real estate taxes. To set it up requires funds equal to one full year of homeowners insurance, then 1/12 of the amount will be added to you house payment every month. In this manner, the mortgage company will pay your homeowners when it comes due again. The same with real estate taxes. I can’t give you an exact amount here because it depends on the month you close in relation to the month the taxes are due. Usually they will require the taxes to be pro-rated at closing, then funds equal to 3-4 months taxes will be used to set up the tax escrow. After this is done, then 1/12 of the yearly tax amount will be added to your house payment. Just like the homeowners insurance – your real estate taxes will be paid by the mortgage company on your behalf when they come due.
Not all mortgages require an escrow account, but if you don’t have one – you’ll be responsible for a large payment for yearly taxes and insurance. Most people seem to want it added to their house payment so they don’t have to worry about it.
#10 – Is a Home Inspection the Same as an Appraisal?
NO! The appraisal is done for the bank’s benefit to make sure the value is there to justify them loaning you the money. You get to pay for it though! This is another homebuyer question that frequently comes up. The appraisal is ordered through the bank. It can run anywhere from $350-$1,000 depending on the appraiser and the property. I just had to pay $750 for my own appraisal because it was out in a rural area, and hard to find comps.
A Home Inspection is for your benefit. You hire an inspector of your choice and he will set an appointment to inspect the house. It usually takes 3-4 hours and you are welcome to attend if you wish. I always attend these as well. The inspector checks out things that he can visibly see like the roof, attic and crawl spaces, windows, appliances, etc. He obviously can’t inspect what he can’t see. He usually doesn’t go too far with the HVAC other than air temperature and obvious visual inspection. If the HVAC system is a concern, you should hire an independent HVAC contractor for a full inspection.
You will receive a full report with photos and recommendations. We then take this report and decide on which repairs we expect the seller to make.
#11- What Does a Home Warranty Cover?
A home warranty is usually for a 1-year duration and covers the systems of the house. It’s like anything else, the cost depends on the coverage you want. There is basic coverage for interior plumbing, water heater, electrical, heating, etc. Then you can choose to add optional coverage for swimming pool pumps, well pumps, septic tanks, major appliances, etc. Many times the air conditioner is optional. For any service call, you can expect to pay a $50-$60 charge. Then the technician sends the report to the warranty company who then decides if the item can be repaired or if it should be replaced.
*TIP – If you ever have a problem, don’t attempt to fix or repair it yourself because you will void the warranty. The best thing to do is just call the 800# and tell them it’s broke. The less said the better.
The cost of basic coverage runs from $400-$600/yearly depending on the warranty company you choose. I usually ask the seller to pay for the 1st year. Then the company will likely contact you toward the end of the year to see if you want to continue the coverage.
#12 – How Long Does it take to Buy a House?
If you’re paying cash, you can close within just a few days. But, if you’re getting a mortgage loan, expect it to take 4-6 weeks.
#13 – What is Earnest Money and Can I Get it Back?
Earnest Money is simply funds to show the seller that you are serious. The larger the earnest money deposit, the stronger the offer. This earnest money deposit is credited to you at closing.
The only way you could lose the money is if you simply decide to change your mind. Think about if you were the seller and had already bought another house, hired a moving company and maybe already moved out. Wouldn’t they be entitled to some compensation for all the inconvenience if you change your mind?
#14 – What is Title Insurance? Major Homebuyer Question!
Title Insurance is required on all mortgage loans. As part of the closing process, the closing company orders a title search. This involves going to the court house and researching the property to make sure there are no outstanding liens or ‘clouds’ on the property. Once this is cleared, the title company issues a title insurance policy that guarantees you a clear title.
There are two policies involved – one for the bank, which covers the amount of the loan, and an owners policy which would cover the entire value of the property.
If you sell the property within (I believe it’s 20 years)…you usually get a discount on these costs by providing the original policy to the closing company. Check with them to make sure. This expense used to be paid by the seller, but more often these days, the buyer is expected to pay for it.
#15 – Do the Appliances Stay?
The listing sheet will tell you what appliances the seller has decided to leave. It’s usually the built-in kitchen appliances like the stove, dishwasher, and microwave. Some sellers leave the refrigerator and washer/dryer. Or they can be included in the offer and are usually agreed upon.
One thing to remember is if there is a 2nd kitchen or bar area where those appliances will need to be agreed upon.
#16 – What if the House Needs Repairs? Who Pays?
I always ask people to confine their repair requests to structural or safety issues. Cosmetic things shouldn’t be included. In this current 2021/2022 market, repair requests are being waived – but in a normal market, the seller usually makes these repairs.
Be careful about this because if you don’t asked for a licensed contractor to do the repairs, you just might get a less-than-acceptable outcome. If you know what I mean?
#17 – Do I have to Get a Survey?
No – not usually. If it’s a residential lot, you can easily locate the iron pins at the corners with a metal detector. If it’s a large parcel or farm, it would be advisable to get a survey.
One thing – if you want to build a fence, you will need to know the exact property line location. Even then, it’s good to come inside the line about 12″ or so just in case there is ever a homebuyer question.
#18 – How Do I Know About Crime in the Area?
You can’t always tell by looking at the neighborhood these days. Check it out for yourself! Talk with some neighbors and they’ll be sure to tell you all about it. Or go down to the police department or sheriff’s office to get some information.
You can also check CrimeGrade.org. Put in the zip code and you’ll quickly see where the crime areas are located.
Homebuyer Question #19 – Can I Buy a House Without a Realtor?
Absolutely! But, you won’t have any professional advice or representation. This is a huge investment – one of the largest most people make in a lifetime. Don’t leave it to chance…especially when the Realtor isn’t going to cost you anything extra!
#20 – How Do I Know if the House is in a Flood Zone?
This is a really good question. Being in a flood zone is not where you want to be! The expense of flood insurance is high not to mention the mess and upheaval to your lives. There is a flood certification done as part of the closing process. But, this is done toward the end. By that time, you’ve already spent a lot of money on the appraisal, home inspection, pest inspection, etc. I always check the flood maps as soon as you are interested in a property. Because, it’s much better to know right up front before spending all the money on inspections.
**TIP – Did you know there are different types of flood insurance. I had a friend that was flooded a few years ago and the claim was denied because he had the house rented out. And the policy didn’t cover investment property. He probably didn’t know there were different policies. Sometimes we don’t even know what questions to ask, do we?
DO YOU KNOW THE DIFFERENCE IN STORM DAMAGE AND FLOOD DAMAGE? It can make a big difference in your insurance!
Storm damage is from rain coming down – and Flood Damage is from rising water.
#21 – Do I Have to Join the HOA?
Yes, if you buy a property in a community that has an HOA in place! There is an HOA Transfer Fee as well as a monthly/quarterly fee. The costs depend on the amenities offered by the subdivision. And you are legally required to follow the rules. Be sure to read my post on HOA Rules. Talk to some neighbors and see what they think about the association. Depending on who’s in charge, it can be a real nightmare if they are a go-by-the-book, nit-picking kind of person.
Did you know there can be HOA’s inside HOA’s? True Story. I was once involved in a purchase in a large community in Franklin. The buyer was an investor and we made no secret of it. I checked and found that the property had been rented before and the listing agent even sent us someone who wanted to rent the house. But guess what? After closing, the buyer contacted a leasing agency to handle the lease and was told they couldn’t do it. Because, there was another HOA just for that small section where the house was located and it was against the rules to rent it. The seller deliberately concealed this fact – even his agent wasn’t aware of it. Needless to say, it went to court. All this was so unnecessary if he had only been honest.
#22 – What’s the Insurance Implication if the House has a Swimming Pool or Wood Stove?
A swimming pool should always have a fence around it for safety. Discuss this with your insurance agent to see if a fence is required. I believe it should also have an alarm in case someone falls in the water.
A wood stove is usually covered under the homeowners policy if it was installed under the manufacturer’s guidelines. It would be a good idea to check with the seller to see if they have any documentation about the stove installation. Or, if you install one – be sure to keep all the paperwork.
#23 – Is it a Good Idea to Buy a House that has been ‘Flipped’?
It depends on who did the ‘flipping’. Some people go in and do the very minimum – mostly cosmetic, neglecting structural issues. Be assured that they want to make as much profit on the ‘flip’ as possible. There are classes teaching people how to make the most money on a flip. Check them carefully!
Homebuyer Question #24 – Who Pays the Realtor Commission?
Usually the seller. When the agent takes a listing, the commission amount (percentage) is set at that time. The property then goes into the MLS and available for all agents to show. When a buyers agent writes an offer and has it accepted, then they are paid (usually half the total commission) at closing. If the listing agent writes the accepted offer, then they are paid the entire commission. Very seldom is there any additional charge to the buyer.
#25 – How to Buy a Home in a Strong Seller’s Market? Another Major Homebuyer Question Right Now.
We currently have a very strong seller’s market in the Nashville area. It’s crazy. I wrote an offer for a property in East Nashville last week, and there were 31 offers for it. 31! We offered $40,000 over and still didn’t get it. Here are some tips if you really want the property:
- You are most likely going to have to offer more than the asking price – how much depends on the area.
- You can consider offering with no inspection contingencies or repairs.
- Offer the fastest closing you can.
- If you offer more money, you will most likely have to deal with an appraisal gap. This means that if the house doesn’t appraise for the offer price – you will have to pay the difference between the offer price and appraisal amount in cash. This is over and above your down payment. And you’ll need bank statements to prove that you have that much extra cash available.
- You will almost always offer to pay the title search and policy.
- You could offer to pay the seller’s closing costs.
- Some people offer ball game tickets to the seller.
- I’ve even offered less commission for me and more to the listing agent to make it work for my buyer clients.
- Whatever you can do to make your offer more appealing to the seller.
Any more questions about the home buying process? I’ll be more than happy to help and guide you through every step of the way. Buying a home can seem daunting, but with an Exclusive Buyer’s Agent in your corner, it can be an exciting journey that leads to homeownership. I’ve been around the block a time or two and can anticipate many issues and problems before they become obstacles. I hope this information was helpful and answered some of your questions. Make it an awesome day and don’t hesitate to call me today with any homebuyer questions you have. 615-428-8500