F.A.Q.

How much can I afford to spend on a home?
Many experts believe that you can afford to spend up to three times your gross annual household income. The price you can afford to pay for a home typically depends on these key factors:

Lenders analyze your income relative to your projected cost of home ownership and outstanding debts to determine the size loan you can have.

What is buyer brokerage?
Buyer brokerage involves an agent representing you as the buyer in a real estate transaction for a fee. Historically in the U.S., Realtors® represented sellers as a matter of custom. However, there is no legal or ethical barrier that prevents licensees from representing buyers. Just as a seller’s agent is hired to obtain price and sales terms sought by the seller, a buyer’s agent is hired to get the best possible price and terms for the buyer. In terms of buyer broker compensation, the agent and buyer negotiate fee for service. Traditionally, the buyer may compensate a buyer’s agent based on a percentage of home price, a finder’s fee or other disclosed terms. Otherwise, the buyer may pay his/her agent a percentage of the sales price of the home, or both the buyer and seller might compensate the buyer’s agent.

What are some of the typical things a buyer broker might do for a customer?
Apart from helping you find the right property, a buyer broker will negotiate the best terms and conditions, as well as contract provisions, most favorable to the buyer. Buyer brokerage assistance may also include helping the buyer obtain legal assistance to review proposed contracts or structural inspections to examine the property. Overall, a buyer’s broker will be the buyer’s advocate throughout the buying process.

How prevalent is buyer brokerage?
In the past, an agent representing the buyer was far more common in commercial or land real estate transactions. However, interest in buyer brokerage has increased substantially in the residential sector. Laws of agency are changing across the country, and buyer agency is more common.

Are “low-ball” offers advisable?
It depends upon market conditions. If it’s an unrealistic offer compared to the market value of the home, you stand a chance that the seller will not even bother to negotiate because you’re so far apart. Ask your broker to prepare a comparative market analysis to determine a realistic offer.

How do you choose between fixed and adjustable rate mortgages?
Risk is involved in selecting an adjustable rate mortgage, or ARM, because rates may go up. In contrast, a fixed-rate loan offers good protection against rising interest rates, but you are locked into the initial rate if interest rates fall.
Choosing between a fixed or adjustable rate mortgage is a matter of personal choice. The former offers stable payments while the latter offers lower initial payments. Consider, too, the length of time you plan to own the home. If you plan to move within three or four years, the ARM is preferable even if rates rise through the whole period.

Are there set interest rates for FHA and VA loans?
No, FHA (Federal Housing Administration) and VA (Veterans Administration) interest rates fluctuate just like conventional mortgages. It’s best to shop around.

What are the components of a monthly mortgage payment?
They are principal, interest, taxes and insurance, otherwise known as PITI. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged to borrow money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

When is private mortgage insurance (PMI) required?
It is typically mandatory if you put less than 20 percent down, to protect the lender against loss if you default. Effective for loans written on or after July 29, 1999, lenders must automatically cancel PMI when the mortgage balance is reduced to 78 percent of the home’s original purchase price.

Can I safely apply for a mortgage on the Internet?
More and more buyers enter the marketplace with their mortgage in place, including many who have been pre-approved or pre-qualified via the Internet. However, in some cases online lenders charge additional fees and in some cases fail to close in a timely manner.

What’s the difference between being pre-approved or pre-qualified for a mortgage, and what are the benefits of one over the other?
You can easily get a pre-qualification letter by calling a mortgage broker or lender and providing some basic financial information. Similarly, getting pre-qualified on the Internet is quick and easy. In contrast, a pre-approval letter involves verification of the information, which means that the lender will ask for documentation to confirm your employment, the source of your down payment and other aspects of your financial condition.  Indeed, getting a pre-approval may be more time consuming than getting a pre-qualification but carries far more weight. Sellers often prefer to negotiate with pre-approved buyers because they know that these buyers are financially qualified to get the financing they need to close the transaction. Moreover, a pre-approval letter lets your real estate agent know that you’re a well-qualified buyer who is serious about purchasing a home. These factors notwithstanding, pre-approval letters aren’t binding on the lender, are subject to an appraisal of the home you want to buy and are time sensitive.

How can I be sure that the home I purchase is in good condition?
One of the standard contingencies that should be put into an offer is an inspection contingency, which allows you to have professionals inspect the property to your satisfaction. Typically scheduled within a certain five-to-eight day window after the contract is signed, a home inspection is a thorough examination of the physical structure of a home – including, but not limited to, foundation, attic, basement, windows and doors, heating and cooling systems, electrical wiring and plumbing. A positive home inspection should increase your confidence that you are making a solid investment, and your agent can advise you about which inspections are recommended or required. Note: The home inspection is a buyer’s cost.

What are closing costs?
They are expenses – over and above the price of a home – incurred by buyers and sellers in transferring ownership of a property and can be substantial. Closing costs vary in different parts of the country and usually include a mortgage origination fee, an attorney’s fee, accrued taxes, an amount placed in escrow, and charges for obtaining title insurance and a land survey.