First time home buyer FAQs
14 min read
Written by Andrew Donald
on
A collection of the best questions we think home buyers should ask during the home buying process
Home buying
How long does the home buying process take?
From today you could be in a new home as short as 15 days depending on your lender and the seller.
Realtors, lenders and other parties in the transaction have a significant pressure to push you to buy fast as they only get paid at the end of the transaction.
From the day you decide to buy, the loan process can take between 30 or less days to complete.
What’s the first step I should take in buying a home?
Start with your finances, it should be your number one priority.
Without your finances in order it will be harder to make an offer, and when you do the time pressure will make the purchase higher stakes than it should be.
We recommend you speak with a lender you like early. They don't necessarily have to give you the best deal as most will match a competing offer from a worse vendor.
Ask them to walk you through a budget and understand your price range. Get them to provide a pre-approval which you can give to sellers to prove you are a worthwhile buyer.
What are all the steps to buying a house?
Here is the proper way to buy a house based on our years of experience with successful home buyers:
- Check your finances and get a pre-approval letter from a lender, use this time to iron out your optimal budget
- Work out the must haves and neighborhoods you are interested in
- Link up with a realtor if you choose to use one. Get to know them and set expectations.
- Subscribe to listings using services like the MLS, Redfin, Zillow, Trulia, and opinions from your friends, family and realtor (if you are using one)
- Start with open houses, even if you don't like the home, you learn a lot about what you might want or not want just by looking.
- Go to private showings on homes you are serious about.
- Use your agent to submit an offer, or request one from the service you use
- Ask your lender for more specific costs on your potential purpose and start the process to lock in your interest rate.
- Get your documents to your lender ASAP so any delays don't set you back
- Work with your lender to request inspections and appraisal on the home
- Sign documents and wire money to escrow.
- Get your keys & pop champagne
Should I sell my current home before buying a new one?
It depends, do you need the cash from the equity of your home in order to buy a new home?
Historically real estate, adjusted for risk has been the best long term investment
The best thing to do is to start a conversation with a loan officer who can show you your actual options. Online calculators miss the taxes, and regulations specific to your location.
How many homes do people normally view before buying one?
The industry average is around 8 homes.
We notice that most people cluster around 4-8, while a minority (the people Realtors truly fear) spend months searching and can see upwards of 50-60 homes before buying.
The more competitive the market, the more failed offers which skews this number up or down.
Pre approval
What is a pre-approval letter?
A pre-approval letter is a document from your lender stating an exact purchase price, loan amount you can borrow, assuming the documents you have provided are satisfactory in lending - not fraudulent, doctored, and can be easily verified.
Certain additional conditions will apply such as review of financial documents, appraisal, and title report. You will be able to provide this letter to any Realtor or seller directly.
How do I get a pre-approval letter?
It should be a quick conversation with a qualified lender.
Each lender might require a different but limited set of information to validate the amount you can borrow.
Roughly they will ask for your sources of incomes, debts and assets you will be putting towards the purchase.
You can get prepared for the call by having your last couple paycheques and 2 months of your bank statements as well as your tax return for the latest year.
With your permission they can start on your loan application (1003). Once your lender reviews the documents and the application they will then issue you a letter of pre-approval.
How long does it take to get a pre-approval letter?
A good pre-approval can take up to a few hours of verifying documents and getting things in line for you.
If you hear anyone telling you they can get you half a million dollar loan for checking your documents in 30 seconds, just know something is fishy or they didn't do a thorough job - which can lead to problems while in escrow.
At the end of the day a pre-approval is just a piece of paper saying that the lender is confident you can get a loan with the amount required to buy.
How much does it cost to get a pre-approval letter?
It’s free!
Whoever is charging you for a pre-approval is already taking advantage of you and may be adding other hidden fees along the mortgage process!
What's the difference between pre-qualified and pre-approved?
Pre-Qualified is when you tell the lender about your income, debts, and assets but you don't provide them with any evidence. We assume that you are telling the truth, therefore you are qualified but not approved.
Pre-Approved is when you tell the lender about your income, debts, assets and you provide evidence so that the underwriter has verified that what you say is true.
Commissions and costs
How do real-estate commissions work?
The seller of the home dictates how much commission will be split among the involved Realtors.
However, this commission is almost always 5-6%.
The listing agent will then list the property on the MLS (Multiple Listings Service), and within the listing page it will have a category detailing the buyer's side commission — usually 2.5%.
The commission is split between the realtors upon closing of the home.
How much do I have to pay an agent to help me buy a house?
The money is coming out of the seller's pocket but it's worked into your purchase price on what you offer. Sellers usually give 3% but sometimes you might see this at 2.5% or 2% depending on what that seller wants to offer.
Whoever is telling you that you as a buyer don't pay any commissions is lying because it is coming out of your purchase price. So technically you are the one who pays for it.
Shopping for Houses
When should I start shopping for houses?
Go to open houses as soon as you ask yourself this question just to see what they are like.
After that get pre-qualified or better, pre-approved with a lender.
Finally when you know your budget see every home that fits your criteria, at an open house if available, or a private showing if not.
When should I apply for a loan?
We think it should be one of the first steps. You get too many advantages for doing it early.
It’s free, and it allows you check where you are in terms of home loan options.
What should I look for when looking for houses?
After your criteria we recommend you really assess the value and how it fits into your budget.
Not only to ensure you will be comfortable, but also to be prepared to negotiate when it counts.
Deposits & Down-Payments
What is an earnest money deposit (EMD)?
This is also called a good faith deposit. It's typically 3% but can be less or more depending on what your Realtor says is acceptable.
By putting down this deposit you are telling the seller to take the property off the market and to stop marketing it to other buyers.
Is my deposit refundable?
It depends on your contract. The deposit can be either refundable or not.
Typically, you will want contingencies to protect your deposit.
Does my deposit get applied to my down payment?
Typically the deposit is held in escrow until you finalize your paperwork, and once done the deposit gets applied to the down payment.
What are the types of closings costs when buying a home?
- Down payment - the portion of the purchase you choose to cover.
- Third-party fees (Non-recurring fees) - Title, Escrow, Underwriting, and Inspections. No matter if you use us or anyone, these people are irreplaceable and you want to make sure you take care of them. Sometimes these fees are paid by the seller if you ask for them.
- Pre-paid Items (Recurring fees) - Interest, Pro-rated taxes, home insurance(s), and escrow account (impounds if you wish)
- Rate points: You will always get a rate that you don't have to pay for based on your scenario. You can pay to get a lower rate OR you can take a higher rate and the bank pays you.
Appraisal
Why do I need an appraisal?
Since the loan amount is based on the value of the home, the appraisal is needed so the lender ensures that they aren't lending you more than the home is worth.
It can be a big benefit during negotiations to help keep the seller in reality.
How much is the appraisal?
The range is usually between $475-800 depending on what kind of appraisal it is.
A standard appraisal goes for $500 but if you need rental surveys to see what market rental prices are in the area that's an additional $200.
If the structure of the home is bigger than 3500 square feet or has multiple units the appraisal will be more expensive.
This is all broken down once you sign your documents, it's the law that the fee is disclosed right off the bat.
If the appraised value of my home goes up, will this affect my taxes?
No, it will not be reported to the tax assessor.
The appraiser does not report the appraised value of anything they see in the home (e.g., illegal decks or additions, converted garages, etc.).
Can I use or transfer a recent appraisal?
In some cases you can transfer the appraisal depending on the investors and if they will allow it.
Though typically this report is generated for specifically one investor and that specific loan. Consult with your loan specialist they will have more information if that ever arises.
I know an appraiser. Can they complete my appraisal report?
Unfortunately, no.
All lenders have to use a third party appraisal management company that is following the laws of Home Value Code of Conduct (HVCC).
The lender places the order with the management company. The AMC (Appraisal Management Company) will randomly select an appraiser by lottery, that appraiser will go conduct his job without being influenced by anyone.
The appraiser will not be allowed to speak with the lender, borrowers, or homeowners.
Contracts & Negotiations
What if my offer is rejected?
Sellers reserve the right to not even respond if they don't want to. You have to hope that you put your best foot forward in order to garner their interest.
Ultimately, it’s your decision on how much you want to pay for the house, but the market will generally dictate what it’ll sell for.
What does a typical seller want to see with an offer?
Sellers want to make certain of two things: that you are capable of buying a home, and you can perform on your promise to buy.
- You will need to make an offer
- Provide proof of down-payment funds
- Credit scores
- Pre-Approval Letter from your lender
Inspections & Contingencies
What sort of inspections should I expect to organize?
Most houses usually just need a general home inspection.
From there the general home inspector will let you know if you need a specialist to come check out the roof, plumbing, structural, or electrical.
How long does an appraisal inspection take?
About 30 minutes. But scheduling with the appraiser can take a week or more.
We ask that you have all smoke detectors, carbon monoxide detectors working.
It also pays off to have the home presentable as the appraiser will take pictures to show why the home is amazing compared to others in the neighborhood.
If the property is in construction there might be a request to come back and make sure the property is finished with construction.
How do I choose an inspector?
We suggest you do some research and pick someone you are comfortable with.
Your lender will usually have a good suggestion they have worked with before.
You are under no obligation to use a suggested inspector.
What are contingencies?
The purpose of a contingency is to set extra requirements in order for the contract to be legally binding.
Contingencies depend upon your unique contract and negotiation, but typically you would want to have an inspection, appraisal, and loan contingency in place.
It’s up to you on what you decide to write an offer with, and how many days those contingencies should be.
Property Taxes
What is Mello-Roos tax?
A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District.
The district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services, which may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks, and police protection for newly developing areas.
The tax you pay is used by the district to make the payments of principal and interest on the bonds.
How do I find out if my property has Mello-Roos?
There's no public website, but you can ask your lender for specifics.
When are property taxes due?
Property taxes are collected in two equal installments.
- First installment: due on November 1st and delinquent on December 10th, representing July 1st through December 31st
- Second installment: due on March 1st and delinquent on April 10th, representing January 1st through June 30th.
How do I set up property taxes and insurance with my payment
If you are in the middle of a getting a loan, you should request this with your lender. They will need to make sure an "impound account" is a built so it starts with your first payment.
You can also set this up after your loan is closed, call your mortgage company, they will be glad to walk you through how to get this set up. There will be an upfront cost to set up your impound account.
What is an impound account?
An Impound Account is set up to more easily manage recurring bills such as your:
- Principal and Interest
- Property Taxes
- Home Insurance
An Impound Account is completely optional.
It's offered as a way to more easily manage your payments by paying into it on a monthly basis — instead of paying a lump sum yearly.
Home Insurance
When do I need to shop for insurance?
Start shopping for an insurance company as soon as you tackle your home inspections.
We urge you do this ASAP. Shopping around takes hours/days depending on whether you want to optimize for the best deal possible.
A good strategy is to ask your lender for a recommendation and get a competing quote.
Insurance companies will usually give you a great upfront deal if you negotiate it because the lifetime value of each customer is high as most people do not switch providers very often.
What is Replacement Cost?
Replacement cost is the amount the insurance company says it will cost to put your house back together in case something catastrophic occurs to the property, such as wildfire, tornadoes or earthquake.