Frequently Asked Questions for Buyers


1. How much money will I need for a down payment?

2. What is Earnest Money?

3. What are contingencies?

4. What kind of insurance will I need?

5. What is ‘closing’ and what are closing costs?

6. What is ‘Pre-approval’ and how is it different from ‘Pre-qualification’?

7. What are disclosures?

8. Is buying a home from a builder different from buying a home from a homeowner?

 

 

1. How much money will I need for a down payment?

A down payment is the cash you deposit towards the purchase of a home. The larger the down payment, the less you need to borrow. Historically, Buyers were urged to put down at least 20% of the total cost of a home as a down payment. In today’s favorable market, Buyers can often choose a down payment amount based on their available cash, and in some cases, choose to borrow the entire cost of a home purchase (called a 100% loan). In most cases, down payments of less than 20% will require Private Mortgage Insurance (PMI).

There are also down payment assistance programs for certain types of Buyers, such as first-time homebuyers and veterans, which are sponsored by government or private agencies. Leo Lawrence Real Estate has an extensive referral network of Mortgage professionals to assist you with the process of determining the down payment that is right for you.

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2. What is Earnest Money?

Earnest money is a sum provided to the Seller by the Buyer upon acceptance of a Residential Sale Contract as a good faith commitment and intent to purchase. It is a negotiable term in the Sale Contract. Depending on the area of the sale, certain amounts may be more or less customary. A larger earnest deposit often represents a stronger offer to the Seller. Earnest money is credited toward the purchase of the home at closing, and is held in escrow by the Title Company until that time.

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3. What are contingencies?

Contingencies are protections built into a Residential Sale Contract. They are conditions that must be met in order for the sale of a home to be completed. When satisfied, these contingencies help to reduce the risk associated with the scheduled transfer of ownership and possession. There are typically 3 types of contingencies in a Residential Sale Contract:

    1. Financing: This provision allows the Buyer to attempt to secure financing as part of the Residential Sale Contract. The Buyer is required to proceed in good faith and cooperate fully with the Lender, including a timely loan application and payment of required fees. If it is determined that the Buyer cannot secure financing before the expiration of the Financing Contingency, they must notify the Seller in writing and the Contract is terminated.

    2. Inspection: This allows the Buyer an opportunity to have a licensed, qualified inspector visually inspect the major structural and mechanical components of the property and provide the Buyer with a written report of findings at the Buyer’s expense. Professional inspections are always recommended. If the Buyer is not satisfied with the inspection results or is simply not satisfied for any reason regardless of the inspection results, he/she must furnish a written Inspection Notice and all written inspection reports to the Seller or Seller’s agent within the time specified (typically ten days) in the Contract. The notice may inform the Seller that the contract is terminated, or it may identify certain requirements that would satisfy the Buyer and allow the Contract to proceed. The Seller may then accept these requirements, or negotiate new terms to continue the sale.

    3. Title and Survey: This provides the opportunity for the Buyer to investigate the condition of the title to the property. This is often a service provided by the Title Company, which handles the closing. Title insurance and a boundary improvement survey are recommended in order to protect the Buyer against liens and other defects affecting the property.

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4. What kind of insurance will I need?

Homeowner’s Hazard Insurance is required by lenders in order to receive a loan. Most lenders require the actual policy and paid receipt for the first year’s premium at least ten days prior to closing.

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5. What is ‘closing’ and what are closing costs?

A closing is the exchange of deed for the purchase price. At this time, the Buyer signs all documents required by the lender to receive a loan on the property. Closings are usually held at the office of a title insurance company. The Buyer and Seller are not required to close at the same title company, and usually the Buyer closes first.

The Buyer’s closing costs consist of any lender’s fees, escrow (advance payment) of your property taxes and insurance for the next year, and any costs charged by the title company. Lender’s fees may include costs for appraisal, survey and a loan origination fee. You may request a ‘Good Faith Estimate” from your lender in advance of your closing to detail any lender’s fees you may be required to pay. The title company fees may include cost of title research and recording and filing fees.

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6. What is ‘Pre-approval’ and how is it different from ‘Pre-qualification’?

Pre-approval means that a Buyer has consulted with a lender and has provided the necessary information to complete the process. This information includes a credit report. After reviewing the information, the lender issues a pre-approval letter. It is beneficial to a Buyer to have a pre-approval letter before looking for a home, as the process can be time-consuming, and many Residential Sales Contracts require pre-approval within a very short time of a contract being accepted.

Pre-qualification means that a Buyer has spoken to a lender and the lender states that the Buyer should be able to purchase a home within a certain price range based on a limited amount of information. Pre-qualification differs from pre-approval in that a credit report has not been reviewed; a Buyer will still have to go through the process of being approved by the lender before purchasing a home. Pre-qualification can be useful at the start of the home-buying process, however, to provide a ‘ballpark’ idea of what the Buyer can reasonably afford without a considerable investment of time. Click here to quickly and easily apply for Pre-qualification.

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7. What are disclosures?

The Seller’s Disclosure statement is the Seller’s written statement of any known defects, pertinent facts, or other known conditions regarding the property that could affect the Buyer’s decision to purchase the property. The Buyer should carefully read this statement and address any concerns within the terms of the contract.

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8. Is buying a home from a builder different from buying a home from a homeowner?

Not really. The builder is considered the Seller of the property. It is always in a Buyer’s best interest to be represented by a Realtor, rather than a builder’s agent. Leo Lawrence Real Estate will work for your best interests, not the builder’s. We have worked with many homebuilders and are familiar with the process. Be aware that if you visit a new home construction site or model home and express interest without mentioning that a Realtor represents you, many builders will refuse to allow your Realtor to assist you later. Consult with an agent at Leo Lawrence Real Estate before visiting a new home site, and make sure to let the builder know that we are working for you before speaking to the builder’s agent.

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