10 Most Common Home Buyer Questions

Buying a new home is exciting and confusing. There are a lot of steps to buying a home, and people have questions. These are the most common questions home buyers have, and the answers.

1. How do I get started? – The first step is to speak with a lender and get a pre-approval. This will tell you, and potential sellers, how much you can afford.

2. How long does it take to close on a home? – Typically, it takes about 30-45 days once contracts are signed to complete the lending, appraisal, and inspection processes.

3. What does my agent do? – A buyer’s agent will negotiate terms and manage the closing process from start to finish.

4. How much do I pay for a buyer’s agent? – Nothing. The seller’s agent gives the buyer’s agent a portion of their commission from the seller.

5. What credit score do I need to qualify? – A 620 FICO score or higher is required for most home loan programs. Talk to a lender for other options for lower scores.

6. How much money do I need for a down payment? – It varies. FHA loans start as low as 3% and most lenders offer standard programs for a 5% down payment.

7. What other fees will I need to pay? – Closing costs and loan origination fees will add another 2-4% to the costs.

8. What if I change my mind? – Your agent will work with you to build in contingencies for conditions, loan terms/approval, and other protections to allow you time to evaluate the home during escrow.

9. When do I get the keys? – Unless you’ve negotiated extra time for the sellers to move, you’ll get the keys at the closing.

10. What’s the best advice for home buyers? – Trust the experts and ask lots of questions. Buying a new home is exciting. Reduce any anxiety by finding a good buyer’s agent who can help you make the best choice for your needs.

Should I Use My 401k to Buy a Home?

Buying a home can be a financial stretch. With soaring home values and rising interest rates, many potential first time home buyers find saving for a down payment increasingly difficult. For many people, the main source of savings is in the form of a 401k and tapping into this resource for a home purchase is one way to find the down payment necessary to finance a new home; but should you use your 401k to buy a home? Experts are conflicted.

A 401k is a retirement savings plan offered by employers which takes pre-tax earnings and deposits it into an investment account for use in retirement. The money in a 401k account can be accessed by either taking out a loan against the balance or by a straight withdrawal. A withdrawal before the age of 59.5 is also subject to a 10% penalty.

Taking out a loan from a 401k account may be a viable option for potential home buyers. For one thing, a loan from your 401k should not count against your borrowing power. You also don’t need to qualify because you are borrowing from yourself. The amount you can borrow is limited, for example 50% of the balance, and typically must be repaid within 5 years. The other option is a simple withdrawal; the 10% penalty is incurred, but the value is not usually limited.

Saving for a down payment can be challenging. Using your 401k to help may be a great option. Speak with your financial advisor and see if this is the right financial move for you.

Building Equity With a Home Improvement Plan

Your home is typically the largest financial investment you’ll ever make. Over time, we expect the equity to increase through increasing property values and a decreasing mortgage balance. While homeowners recognize the need to maintain the home in good condition, one of the best ways to maximize your home equity is to create a plan for ongoing improvements and updates.

Often the interest in a remodeling project results from either an unexpected windfall or financing for a specific project but by planning for ongoing improvements, any homeowner can engage in updates to stay current with market trends.

As tastes change, homebuyers are attracted to new features. Outdoor kitchens, great room configurations, and home offices are just a few of the trends from the past few years. More timeless desires include more square feet, chef’s kitchens, and spacious bathrooms. To stay ahead of trends and build equity, smart homeowners should build a plan for continuous improvements.

In addition to developing a fund, build a road map for upgrades and enhancements. Consider the life span of major systems, such as the roof or HVAC systems; is end-of-life a good time to switch to solar energy? Kitchen styles change dramatically every 10 years on average. Start saving for a kitchen style change on the same schedule. Can be a complete remodel or simply a new countertop.

You may not plan to sell your home for years, but things change. No one wants to consider listing a home that is outdated, taking the financial hit that comes with it. Now is the time to plan for regular updates to build equity, and you’ll enjoy the benefits of the changes too

Getting Outbid? Strategies to Make Your Offer Stand Out and Get Accepted

Summer is traditionally a busy time for buyers and sellers. This year has been no exception—and with lower interest rates, many homebuyers are finding the competitive environment challenging. With multiple buyers competing for properties, even terrific offers are often being outbid. Fortunately, there are some things you can do to make your offer more attractive to the sellers and increase the chances of getting the property.

• Have Full Pre-Approval – A step beyond pre-qualification, a pre-approval involves submitting your full application to underwriting. Your lender will collect all your financial data and submit for review. This is stronger than a pre-qualification; a pre-approval requires the buyer to provide the proof of their ability to qualify for the loan.

• Increase the Earnest Money – Earnest money is the deposit held in escrow. While the contract will dictate how monies are disbursed in the event of a cancellation, increasing the amount offered can show the seller you’re serious.

• Add an Escalation Clause – In a bidding war, it can be difficult to know what to offer because you want to outbid the competition without going too high. An escalation clause is one way to automatically outbid the others. The clause typically offers an amount—$1,000 for example—higher than any verifiable offer up to a specific amount. This can ensure yours is the highest offer.

• Pay any Appraisal Shortage – When offering more than asking price, sellers become concerned about the appraisal coming in too low. If you are willing to pay over market value, include the amount of shortage you are willing to pay.

• Remove Inspection Contingency – This option can be tricky, but if you are planning a large remodel or are willing to tackle any defects found, then you can make your offer stronger by accepting the home as-is.

In this fast-moving, competitive real estate market, it’s important to make your offer stand out from the crowd. These strategies are great ways to demonstrate to the sellers that you’re serious about buying their home, increasing the chance of having your offer accepted.