1. I’m looking to buy a home.  Where do I start?

This is a long answer and I will be looking to do a blog post in the future on the home buying process.  The best place to start would be to contact us and we can detail out the steps in person or over the phone.

2. What is an appraisal and why does the bank require it?

An appraisal is an estimation of the fair market value of a home.It is performed by a licensed appraiser and usually in residential real estate the appraiser will compare your home to recently sold homes similar to yours to determine the value.  The bank requires an appraisal to ensure that they are not giving you too much money for the house that you are buying.  If you did not pay your mortgage and the bank was forced to foreclose, the bank wants to be sure that they can sell it for at least what you paid for the home.

3. What is a foreclosure?

When a person fails to pay their mortgage the bank will take back the home as collateral for nonpayment.  This is known as the foreclosure process.  A foreclosed home is a home that is currently owned by a bank that is trying to sell it to recoup their loses from the failed loan.  Generally foreclosed homes are less marketable because they are usually in worse condition than competing homes in the area.

4. What is a down payment?

A down payment is the amount of money that you plan to pay out of pocket towards to the total price of the home.  For example, if you plan to purchase a $200,000 home and you only take out a mortgage that is $160,000 the difference of $40,000 would be your down payment.  In this example you would be paying a 20% down payment [i.e. 40,000/200,000 = 0.2 or 20%].

5. Do I have to put 20% down to buy a house?

No.  There are plenty of existing loans that don’t require a 20% down payment.  There are loans that allow a buyer to put as little as zero percent down.  If you have questions about the type of loans available you can contact us and we can answer questions and help get you connected with a qualified mortgage broker.

6. What is PMI?

PMI stands for Private Mortgage Insurance.It is an insurance that is added to your payment every month.  This insurance protects the bank in case you do not pay your mortgage.  PMI typically costs between 0.5% to 1% annually of your total loan amount.  For example, if you took out a $200,000 loan then PMI could be 1% of that annually which is $2,000, or an additional $166.67 per month on your mortgage payment. When you put down less than 20% on a loan, the bank considers you to be at a higher risk of defaulting on the loan [not paying your mortgage payments].

7. What is earnest money?

Earnest money is a deposit on a home you plan to purchase.  This gives you credibility to the seller and also shows them good faith.  If you close on the property and buy the house then the earnest money will be credited back to you and deducted from the purchase price at closing.  If you do not close on the property you could be in jeopardy of losing your earnest money.  A good buyer’s agent will make sure that you are always making informed decisions and will warn you if you plan on taking any action that may jeopardize your earnest money.

8. What is a due diligence fee?

In North Carolina we use a due diligence system for the home buying process.  This can be thought of as purchasing time from the seller to do inspections and apply for a loan.In return the seller will agree to take the property off the market and not sell it to anyone else.  As the buyer, at the end of the due diligence period if for any reason you decide you no longer want the property you can walk away from the deal. Your earnest money deposit will be returned to you and you will have only spend the money that you paid the seller to take the home off the market [the due diligence fee].You also be out money if you paid a home inspector or some other contractor money during the due diligence process.

9. How much does it cost for me to work with you when I’m buying a home?

When you purchase a home you pay nothing out of pocket to the buyer’s agent.  Normally a seller pays a real estate agent to sell their home. The agent hired by the seller [the listing agent] then advertises to all other real estate agents via the MLS that if they bring a buyer the listing agent will pay them half of the commission.  We get paid by the listing agent at closing for bringing a buyer so the buyer pays nothing out of pocket.  We will be happy to assist you in your home buying process.

10. In mortgages, what’s the difference between pre-qualified and pre-approved?

Pre-Qualified is unverified.  The lender will ask questions and give you a loan amount based on whatever you tell them.  In the pre-approval process the lender will check credit and verify your income.  For obvious reasons pre-approval looks much stronger to a seller and puts you in a better negotiating position.

11. How much money will I have to come out of pocket with to buy a home?

For an estimate you can figure you will pay about 5% of the total home purchase price in closing costs.  On a $200,000 home purchase you may spend upwards of $10,000 depending on all these expenses.

12. What are closing costs?

All of the money that you pay towards buying a home [expect the down payment] would be considered part of the closing costs.  Once you have a property under contract you will start spending money on inspectors, attorneys, appraisers, surveyors, loan fees, insurance etc.  These costs can add up significantly.

13. Do I have to pay my closing costs out of pocket?

No.  There are ways to buy a house without paying your closing costs out of pocket.  I don’t advise trying to buy a home with no money, however, if you would prefer to use your money towards the down payment or possibly furnishing or updating the home you can ask the seller to pay the closing costs for you.  In a lot of cases we can usually negotiate this into the contract.

14. What does it mean if a house is under contract?

Once the buyer and seller have agreed on a price and terms for a real estate transaction, both parties sign a contract agreeing to those terms.  The contract basically ensures that the seller can’t sell the house out from under you while you are waiting to inspect the home or get a home loan.  If you are a buyer and a home says under contract that means that you will not be able to buy that house unless the buyer and seller decide not to complete that transaction.

15. What is a CMA?

A CMA is a comparative market analysis.  It is used to compare homes that have recently sold to a property that you are either buying or selling in order to get an estimate of the home value.  A good real estate agent will provide you with this data so you can make an informed decision when negotiating a real estate transaction.

16. What is the MLS?

The MLS stands for the Multiple Listing Service.  The MLS is a database of houses that Realtors submit their listings to.  Only licensed real estate agents have access to the MLS to edit and enter data, however, home buyers and sellers can search the MLS to look for properties. Listingbook.com is a great resource that allows you to search the Triad MLS with greater accuracy and manipulation.  You can sign up on my home page if you'd like us to get you a free listingbook account.

17. What is equity?

Equity is the difference between what you owe on a property and the amount of money you would net from the property if you sold it today.  If you could sell your home today and net $200,000 after paying all your closing costs and only owe a mortgage of $150,000 then you have $50,000 in equity.

18. Should I rent or buy a home?

This depends on your personal situation.  There are advantages to owning a home like building up equity and being able to write of your mortgage interest for tax purposes.  If you require the ability to move quickly or don’t see yourself in a specific area for a long time, renting may be the better option.