Frequently Asked Questions from Buyers
Why should I buy instead of rent?
You should look at a home as an investment. As a renter, you will write your monthly rent check and it is gone forever. As a homeowner, you can deduct the cost of your mortgage loan interest from your federal income taxes and usually your state taxes as well. This will save you money each year since the interest portion will make up most of your monthly payment for the majority of the years of the life of your mortgage. You will also be able to deduct the property taxes you will pay as a homeowner. Finally, as you build equity into your home you will have something that is all yours; a home to call your own!
Do I need a Realtor?
The process of buying a home can be quite difficult and for most people it is usually the largest investment they will make in their lifetime. The services of a professional Realtor are invaluable. The numerous details and inspections can be a bit overwhelming and your real estate broker can negotiate and walk you through the process with ease. A real estate brokers will be knowledgeable about the neighborhood you may be considering, the quality of the schools, and what amenities would be located near the home. Real estate brokers will have access to the largest number of homes for sale in the area you choose and usually can make appointments for you to see the homes you would like to preview. This can save you hours of driving around! Count on your Realtor to guide you through the paperwork from submitting the offer to coordinating inspections, applying for the mortgage, and explaining the final closing statement. The best part is that as a buyer you do NOT pay the Realtor...the commission expense is almost always a seller’s expense.
How do I know what I can afford?
Your income and debt you have accumulated will be the determining factor of the amount the lender will allow you to spend on a home. A mortgage lender can evaluate your income and credit situation and give you an idea of what price range you can afford. View the link to our financing page for some local lenders in the Springfield area. Online mortgage calculators can also be very helpful in determining what you can afford. It is also best to get a pre-approval from a local lender before beginning your search for a home.
What is the difference between getting pre-qualified and pre-approved?
Getting pre-qualified is the first step in the mortgage process. You will gather the information of your overall financial picture, including your debt, income and assets to submit to a bank or lender. After the lender evaluates this information they can give you an idea of the mortgage amount for which you will qualify. Pre-qualifications may be done over the internet or on the phone, and there is usually no cost involved. Since this is fairly quick procedure, and based solely on the information you provide to the lender, your pre-qualified amount is not a sure thing; it’s just the amount for which you hope to be approved.
Next you will want to get pre-approved which is a more thorough search of your debt and credit. You will complete an official mortgage application (in some cases you may be required to pay an application fee), and then supply the lender with the necessary documentation so they can perform an extensive check on your financial background and current credit rating. From this search, the lender can tell you the specific mortgage amount for which you are approved and what interest rate you can expect to receive. With a pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below your approved price level. As you can imagine, this will put you at an advantage when dealing with a potential seller. Getting pre-approved for a mortgage also enables you to act quickly when you find the right home and decide to make an offer. Your Realtor will attach a copy of your pre-approval with any offer you submit.
Should I purchase a home warranty?
It is not necessary to purchase a home warranty, but it can provide a sense of security for having any issues covered within the first year of purchasing a home. A seller can also purchase the home warranty for the buyer as part of the negotiating in the offer to purchase. Most home warranties cover the repair or replacement of certain mechanicals or appliances in the home. Typically the term of a home warranty is one year from the date of closing, however this can be extended at an additional cost. The mechanicals that are typically covered include:
- Central Air and Heating Systems
- Water Heater
- Refrigerator
- Washer and Dryer
- Oven/Range
- Microwave
- Dishwasher
- Garbage Disposal
- Garage Door Opener
- Water Softener
- Other minor electrical devices
- Pool/Spa mechanicals (at an extra charge)
The age of your new home can be the determining factor if a home warranty is worth purchasing. The typical home warranty will range from $450-$550, depending on the amount of coverage, age of home and the size of the home being purchased. If the house is less than five years old, you may not find it necessary to purchase a home warranty, since most of the appliances and mechanicals are usually still in good working order during this time or under manufacturer warranty. However, if the house is anywhere from five to fifteen years old or older, a home warranty may be something you want to consider. Regardless of the age of the home, a home warranty can provide you with peace of mind. Sometimes choosing to pay a warranty deductible for repairs outweighs having to pay a larger amount in repairs or replacements, some of which can run thousands of dollars.
What are closing costs?
Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers the typical closing are: credit report, appraisal, home inspection, radon inspection, termite inspection, title fees, recording fees of the deed and mortgage, and possible loan origination fee. Your Realtor or lender can provide you with an explanation and approximate amount for each of these fees.
If you have other questions, please feel free to contact us my phone or email.
Another great resource for real estate questions is www.homebuyingsinstitute.com. It has lots of great information about buying a home, but it also has good information for sellers as well.