Buying a Home can be one of the most confusing processes we go through in our lives.
Its up there with immigrating to another country, or doing your taxes when your self-employed. And if its your first time buying a Home, it can seem very daunting. In fact, this is the reason the whole real estate agent business exist, to guide buyers through the process when acquiring their Home.
But usually you wouldn't contact a Realtor unless you were seriously looking to buy a Home. Tons of people look at Homes online just because its fun right? Even looking around homes is fun. Humans are naturally curious, we like exploring things. We're all guilty of this, whether looking local or not.
Zillow - one of the major sites for viewing online housing listings, reported 196 million monthly unique users in 2019, and 8.1 annual billion, (8,100,000,000) visits in 2019. So even with this much interest in Real Estate, why is there so many questions from your average Joe? Who knows?
Either way, here are 13 Frequent Questions about buying a Home.
How much Down-payment do I need?
Ah, the scariest part of buying a Home. That giant pile of cash you have to throw at someone to get a mortgage right? Wrong. Depending on what loan you apply, or qualify for, you can actually have $0 down-payment. Yes, $0.00.
While this isn't as well-known or even well used, it is still very much available to a lot of areas. There are a couple of loans that cover this most notably;
- USDA Loans - similar to FHA Loans, this is a goverment backed loan by the US Department of Agriculture, mostly used for rural areas or, areas that qualify for lower than the average income. The $0 Down program starts at 620 credit scores and up.
- VA Loans - Pretty self explanatory, also goverment backed loans for veterans that dont require downpayment and have more lenient credit scores.
What does government-backed mean?
This doesn't mean your loan is from the government, it means the government insures the loan, so your lender can take more of a "risk" and approve someone that might not necessarily get approved with a conventional loan.
Now, being a Home-Builder we've ran into some very interesting situations. But one re-occurring thing we've noticed is certain lenders or mortgage brokers straight up LYING to their clients. I've personally experienced this when asking about exploring a USDA Loan, I've had the response "No sorry the USDA ran out of money earlier this year."
This is a lie, nothing more to it. And if your lender tells you this, run for the hills. Drop them. They can't run out of money, because they're not giving away money. They're insuring the loan. We have people go USDA Loans last November, so again make sure your lender is actually trying to cater to you. Don't let them bully you into taking whatever is available. Know your worth, friend.
One of the most popular loan types is FHA. And you guessed it - its government backed. FHA Is great because its perfect for most first-time home-buyers, with only a 3.5% Required down-payment, which is very affordable to most people with a little saving, and the interest rates are appealing too. Especially with the current record-low interest rates in the housing markets now.
Tldr; explore your options, & you dont need tens of thousands down to buy a home.
Is Buying a Home cheaper than Renting?
This is one great because nobody has a general answer. Its completely relative on what you can afford, and where you live.
For example, if you live somewhere like LA, California, your average rent is going to be 3k a month. Where as owning for the same amount would be around 5-10k. Its a pretty no-brainer in urban areas similar to Los Angeles and New York. However, buying a home in a more rural or country area is a different story. Renting is more expensive the further you go from the city, - that and you're obviously going to get more bang for your buck in the country.
I'll give an example on that last statement, a apartment in London City Center, UK can run upwards of $500,000. You can get a ranch with 5 Acres for that in Texas, again its relative. We have an article with a little more in-depth information on renting vs owning, so I'll leave that here and move on.
Tldr; Ask yourself what your looking for, how long you're gonna stay there for, and do your research.
Do I need a Realtor to buy a Home?
Do you need one? Should you probably use one? Maybe.
If you're absolutely set on buying a re-sale (a previously owned home,) I would strongly recommend using a Realtor - unless you know the process or have bought a Home before. If you're buying new construction, depending on the Builder- you don't really need one, since the process is likely going to be coordinated by the Builder anyway. Also, building a Home uses a different contract to buying a previously owned, for obvious reasons. At ASGi Homes, we personally use a "TAB" Contract (Texas Association of Builders) and some agents might not be up to date on this, since it updates frequently, and exists in different versions.
Real Estate Agents also cannot provide you with legal advice. This is strictly again the rules, and could lose them their license. So if you're looking to them for more advice on what would be the best financial move, unfortunately they probably aren't going to be able to help.
Tldr; If you're buying resale, unless your confident I'd probably using a realtor. If new construction, maybe ask your builder or do a little research.
If I'm pre-approved for a loan, can I just go and buy a Home?
Unfortunately, no. Although getting approved feels like your dad just gave you his credit card and said go find something you like, it doesn't work that way. The only way to move that fast would be if you were paying in full cash, which is unlikely.
When you're buying a Home, it must go through something called an "Appraisal" which is essentially a professional, looking at the house and determining its worth. The reason this is done is so that both you and your lender isn't paying more than the home is worth. You're essentially having it valued.
If you actually read through the snoozefest about loans above, you remember the government backed loans we talked about? Loans like those, and a lot of others also must also pass inspections on the Home.
Why do you need an inspection and appraisals? Imagine you decided to buy a Home for $100,000. But the inspector finds the house IMMEDIATELY needs a new roof, which will cost $20,000. That house is now worth $80,000. Its again for yours and, the lenders protection. These inspections and appraisals are usually done a week or two prior to closing on your home. Do I need a inspection on my home?
Tldr; Unless you're paying cash, no, and we have to get a few things outta the way to make sure you're not getting ripped off.
Now we have a contract, can I buy furniture?
No. This could jeopardize your whole deal. Before you finally close, a lot of the time your lender will check your credit one last time, to make sure you haven't took out another loan that you can afford.
Generally, you want to sit in limbo while you wait to close your home. You dont want to apply for anything, make any large purchases, or take up loans or credit cards. Anything that can have a financial impact on you, should be avoided like the plague.
Now, do you have to worry about your credit getting pulled multiple times? I'll let AmCap, our preferred lender tell you about that with this video.
Tldr, dont make any big purchases or apply for any other loan types, or anything that can have a effect on your credit or financial situation until you're closed on your home.
How does interest work on my loan?
Theres a billion and one articles about interest and loans and things like that, so I'll try to keep this short and sweet. Generally on loans you'll see "3.57% Interest" or something similar about low rates. That 3.57% is broken down the following way: 3.57% of the total Home price, divided 12 times and payed for over 12 months. So for example;
Lets say your Loan is for $100,000, and your interest rate is 4.00%. Your interest is 4% of the full loan, ($4000) and that is to be payed over 12 months. So you pay $333 interest, every-month. This is built into your monthly payment, which in this example, would be about $700 a month in total for a 30 Year loan.
So that's how interest is calculated. You learned something today! :)
How much home can I afford?
Since we're on the topic of interest and monthly payments, one question is people guessing how much you can afford. With something that you're going to be paying off for 2 decades, you probably should have a little more of an idea of what you can afford. There's a few factors that go into this, and these can include;
- Interest Rate
- Tax Rate
- HOA/POA Fees *if applicable
These all play key parts on what you can budget in for your home. Interest rate we already discussed, tax rate depends on where you live. Rule of thumb is generally its going to be higher in urban areas or in cities. Our lender AmCap, recommends about 2% of your home price in taxes every year. HOA/POA are fees for community, this obviously only applies if you live in a community. Insurance is relative too, its going to be higher in certain areas, especially ones with higher crime-rate or in flood-zones. And last but not least, maintenance. This one is situational, and it can be a few hundred a year to costing thousands, to tens of thousands to fix. You can apply the same rule you do to cars, to Homes. The older the Home, the more likely you'll have to repair it over time.
All these are factors can play major roles in what you can actually afford. This is why having a good lender and doing your research is important. Your lender can tell you how much you'll be paying in these areas with interest, and you can find out what the tax rate and whether the homes your looking at are in HOA/POA's, and whether they'd need repairs in the near future or not.
Of course, going new construction and you could cancel out those maintenance costs, since you're covered by warranty.
What is earnest money, and how much does it cost?
Whew, okay this one can vary. Lets start on what earnest money actually is.
Earnest money, is similar to a deposit and is used in most major transactions like real estate -Eg Buying a Home. It's basically showing that you have "good faith" that you're serious about buying (Hence, Earnest) and the deal is solidified. Earnest money goes to the Title Company, NOT the seller or realtor. Once you close on your Home, you will get your earnest money back in full.
So how much is it? This depends on whether its a resale, the builder, and the home price. Most Home builders will either do 1% of the home price or $1000 as earnest money. Our earnest money is $1000, or if you apply with our lender its only $200 - which is a lot less, and helps people a LOT more.
This is a pretty brief summary, but heres more info if you're interested.
What kind of loan do I need?
For getting a mortgage, theres a few types of loans you can get. All of them have their pros and cons, but we're going to briefly cover the simple ones. In essence, theres no "must have" loan for most situations. Generally if you're a first time Home-Buyer, you'll get a FHA Loan. This is a loan that is insured by the government. Why FHA? They require low down payment, and are more lenient on credit scores. They're simply easier to get for new buyers, and they can have a fixed or fluctuating rate (we talked about this briefly above.) Another very popular option is a conventional loan, but these generally require a higher % down payment, but generally will offer lower interest rates.
All in all, its situation specific. Rather than spend time trying to find the perfect loan type, it'd be better making sure you get the perfect lender. They are going to know more about the loans your possibly interested, and they might be able to get you in a program you didn't even know existed.
Make sure you find a good lender first, rather than a good loan.
Property Taxes - How do they work?
Nobody likes taxes, and paying more taxes may put you off. But generally it'll balance it out. What do I mean? When you own your property rather than renting, you gain a tax break.
Both the interest and property tax you pay every month are deductibles for your tax return. Use this.
"Okay but how much can I deduct?"
For 2019 here are the standard deductions on your tax return.
- Single/ Married & Filing Seperately: $12,200
- Head of Household: $18,350
- Married Filing together or a Widow(er) with a dependent child: $12,400
This amount changes every year, so you'd need to lookup what the current deductions are for this year. Regardless, its a nice little bonus to owning your own place.
How much is maintenance on my Home?
Maintenance can be tricky to predict accurately what you might end up spending on your Home. There are a lot of variables that can increase or decrease what the annual cost could be made up of.
So, we're going to breakdown a few things that you might want to consider when you are budgeting maintenance on your Home.
Age. One of the biggest factors on your maintenance costs is going to be the Age of your Home. The reasoning for this is simple, and logical. Thing deteriorate over time - including Homes, which means the older your Home is, the more likely it is something will need either fixing or replacing. Chances are if your Home was built in the last decade or less you wont need to do many larger repairs other than touch ups and annual maintenance.
However if you buy a home in the 20 plus years age, you run the risk of Electrical needing replacing, plumbing, and if you're really unfortunate the roof or Foundation. Which can cost not thousands, but tens of thousands to replace.
Location. Another impact can be where you are located on the map. Again chances are if your Home was built more recently, your local authorities have building codes specific to that area due to the Weather. For example we, ASGi, building in a Humid climate have a specific
Well, that's it.
Congratulations, you made it all the way to the bottom of this page. If you enjoyed this article you can check out more on the left, or right here.
If you're interested in owning a new Home, be sure to get in touch with us.