Welcome to our Frequently Asked Questions page!
We have compiled some of the most common questions we receive from buyers and sellers as they begin their Homecoaster ride.
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FAQ FROM HOME BUYERS
FAQ FROM HOME SELLERS
How do I know how much I can afford?
Before beginning your Home search, you need to make sure your finances are in order.
You will want a strong credit score (most lenders will require a minimum FICO score of 620). The other important factor is your debt to income ratio. Add up all your monthly debt payments and divide that by your monthly gross income. If you are higher than 43%, you likely want to work to reduce your debt before applying for a mortgage.
You also need to work hard at stashing away cash for your down payment, closing costs, and leaving room for new home expenses (furniture, updates, etc.).
NOTE* It is important to understand that although your real estate agent may be well versed in mortgages, they are likely not financial experts and therefore are not your resource for financial advice. Lean on your financial adviser or lender to guide you on this particular question. They will review all of your finances and help you create a plan to make sure you are comfortable.
A standard rule of thumb is that your monthly mortgage payments should not take up more than 28% of your monthly gross income.
There are many mortgage calculators you will find online that will help give you an idea of what your monthly payments could look like at a particular purchase price. Here is one that I like from The Mortgage Reports.
Although there are mortgages that will allow less (many buyers put 5% down), aim to save 20% of the purchase price for your down payment. Also be prepared for roughly 2.5% of the purchase price for closing costs.
What is a mortgage?
A mortgage is a financial loan that you receive to purchase a home. If you saved enough to buy a house without a loan... congrats!! For those who cannot pay cash, they will apply for a loan from the bank to assist with their home purchase. There are different ways to structure a mortgage, which your bank or mortgage broker will help walk you through.
Don't be shy about asking questions when something is unclear to you!
Your mortgage payment on your house will traditionally include Principal, Interest, Taxes, and Insurance (PITI). Your PITI will all get lumped together into your monthly payment. Principal is the amount you borrowed. Interest is a fee you pay for the use of the lenders money. Taxes will depend on where you live and will include both the municipality tax and the school tax. Finally you will be required to have home owners insurance to protect your property from catastrophic damages.
What is home equity?
READ BLOG POST 'WHAT IS EQUITY AND HOW CAN I USE IT?'
When you purchased your home, you likely borrowed money from the bank (see above: mortgage). Although the bank doesn't technically 'own' your house, they do have an interest in the property until you pay them back. The bank uses your home as collateral for your loan so if you default on your payments, they have something of value to make sure they get their money back.
Think of home equity as the amount of the house that you actually own free and clear.
Let's say you have $200,000 left on your mortgage loan. However, your property has a market value of $275,000. Very cool! You have $75,000 of equity in your home.
How can you use your home equity?
1. Home Equity Loan - This can be tempting to use because you can get a large sum of money to use for almost anything. When you take out a home equity loan, you are giving the bank more collateral in exchange for cash.
A home equity loan (which typically offers low interest rates) allows you to take out a lump sum of cash. You also have the option of a Home Equity Line Of Credit (HELOC). HELOC is more like a credit card. You are pre approved for a certain amount, but only pay interest on what you use.
If you are considering drawing from your home equity, make an appointment to chat with your financial adviser about the best option for you.
2. Fund your next home purchase - If you are hoping to climb the real estate ladder into a bigger home some day, building your equity will help you reach that dream! When you sell, you can roll your equity into your next home purchase!
How do I choose the best location for me?
Location, location, location! Choosing your location can be challenging. However I honestly see it as a really exciting first step in your search. After you determine a reasonable home budget with your financial adviser, you should have a chat with your agent about which areas you can comfortably afford.
Spend time to explore each neighborhood. Take your dog for a walk through the streets and parks. Meet a friend for a cup of coffee at the local cafe. Schedule a date night at a local restaurant. Browse the local websites and Facebook community pages. If schools are important to you, spend some time researching school statistics and perhaps scheduling tours of the schools. Narrow down the top 2-3 neighborhoods you find most appealing to your personal lifestyle.
You can always update a house, but you can't change its location!
What are the risks associated with buying a home?
Like with any investment, there are risks with purchasing a home. When you own a home, you are the one responsible to maintain the roof, the landscape, and the systems.
Things WILL break. Systems WILL need to be serviced.
You must be prepared that although a home inspection is incredibly important and can catch many defects in the home prior to closing on the sale, there can be items that were missed or not seen! An inspector cannot see through walls. An inspector can not always catch when something that works great today may fail tomorrow.
Make sure you leave room in your savings to handle any unexpected surprises.
Another important reminder is that you have committed to making monthly payments to your lender (see above: mortgage). If you have a change in your financial status that affects your ability to make those payments, you may find yourself in a difficult position. Your defense here is to purchase below your approved amount and to work hard at building an emergency fund!
How do we know we are getting a good deal?
Building a strong team is the first line of defense against a bad deal. You need to trust that the professionals you surround yourself with are looking out for your best interest and are each doing their respective jobs.
Your real estate agent is responsible for researching the market value of the property. They will provide you with a report showing you comparable properties that have recently sold and advise you on their opinion of the subject property's price tag.
HOW TO FIND A REAL ESTATE AGENT
It is a good idea to talk to multiple mortgage brokers so you can compare fees and rates. This will give you confidence that you are receiving the best deal available.
Some states will require you to hire a real estate lawyer to review contracts prior to them being fully executed. If you are in a state that does not require an attorney review, you are still free to hire one. Often times, your agent/broker can recommend an attorney who specializes in real estate law.
Hiring a well respected and thorough property inspector is very critical in the process. Remember, your real estate agent is not a property inspector. It is not their expertise to recognize defects in the property. This is why you hire an inspector! I recommend to all my clients to plan to be present during the entire inspection and not to be shy about asking questions. Go ahead and shadow the inspector as they go through the property and ask anything and everything you need to.
Lastly, it is always a good idea to get a home warranty. Yes, you will be purchasing home insurance, but a home warranty will cover more common failures that your insurance will not. Warranty's typically will cover the systems and major appliances in the home. This could prove extremely helpful if something goes wrong with your HVAC system a few months after purchasing! If nothing else, it will give you the peace of mind that you should not have any major financial surprises while you are covered.
FAQ FROM FIRST TIME SELLERS
When is the best time of year to sell?
This actually varies depending on your particular location. When you first begin to consider selling, ask your real estate agent for some statistics for your neighborhood. Your agent should be able to easily show you numbers from the past 2-3 years and when the most properties went under contract (I recommend looking at when properties flipped from an Active listing to a Pending listing and not necessarily when they closed). If you are in the Greater Philadelphia or South NJ regions, we are happy to pull those numbers for you! EMAIL US
Life happens all year long... growing families, new jobs, weddings. When life happens, real estate happens. The best time to sell is when you are personally ready. However, many markets see the biggest surge in real estate activity during the spring months. Have your real estate agent help you to determine what month your area typically sees a surge of property's going under contract. If you would like to take advantage of the inflation of buyers in your area, then you should plan to begin prepping your home for sale 2-3 months prior to that 'sweet spot'. You then want to go live in the multiple listing server about 3-4 weeks ahead of the target month. Buyers are ready and waiting for the increase in inventory, so it is in your best interest to be ready to meet the demand!
What does home 'Market Value' mean?
The market value of your home is simply the price that someone will pay for it. It is different from a calculated appraised value, which can be obtained from a licensed appraiser. Factors such as a property's location, condition, size, and features will help determine the value.
You may personally feel that your home is worth a big number, but 'Market Value' is the price buyers with no sentimental attachment to the property are willing to pay.
When determining a recommended price for a property, real estate agents will study the recently sold comparable homes in the subject property’s neighborhood. An agent is looking at the sold price, days on market, and similar features. Your agent will give you a price range of where they feel buyers will be interested.
Pricing within the market value range is absolutely critical! Overpriced properties frequently end up selling BELOW true market value.
Why should I use an agent and not For Sale By Owner (FSBO)?
Working with a great real estate broker provides security, peace of mind, professional guidance, and property marketing.
Unless you have a strong understanding of real estate law, real estate property marketing, access to the mls, the knowledge and resources to create a comparative market analysis, or access to and understanding of the various contracts and documentation required throughout a transaction... it is not recommended that you try to list For Sale by Owner.
The knowledge to price your home correctly in order to be competitive in the market is crucial to a successful sale.
10 things most strong real estate agents will provide:
Help you to prepare your home for sale.
Refer you to qualified professionals as needed.
Guide you in pricing your home.
Have your property professionally photographed.
Enter your property into the multiple listing server (which includes writing the description, selecting photos, and confirming property details).
Provide a lock box, signage, and marketing material.
Use various techniques to market your property to prospective buyers.
Schedule and manage tours for your property.
Help you review offers; Negotiate offers and any inspection requests.
Process all that daunting paperwork.
Be Aware of the Risks of For Sale by Owner
Although there are some who have successfully sold FSBO, it definitely can be risky! The biggest set back is that those who choose to list FSBO are limiting their property exposure. Think about it... most buyers work with real estate agents. Agents are only allowed (typically a requirement from their broker) to show a property that is in the mls or that is offering a commission (would you work for free?). If you are listing FSBO and not offering a commission to a buyers broker, the buyer will be asked to personally compensate the broker if they are interested in purchasing the home. Often they would prefer to keep looking at other properties!
FSBO properties are known to sit on the market longer. Without an agent, a property simply does not get the same level of exposure. Many buyers are also skeptical of FSBO properties and stay away in fear of walking into a scam.
A Real Estate Transaction is a major financial and legal event. Would you represent yourself in the court of law when faced with a legal issue? Having the proper knowledge and understanding of the real estate transaction process is incredibly important to protect your assets.
What should I do to prepare my home for sale?
Remember that when you sell your home, you are selling a product. If you were going to sell your car, you would typically first take it for a tune up and get it detailed right? A house should be spruced up and tuned up before presenting it for sale.
Some homeowners will pay for a home inspection to see what items are flagged as defects ahead of listing. The buyers will likely also pay for an inspection and if defects arise, they will request for those to be addressed. So taking care of them ahead of time can help you get ahead of any major issues. It also is a fantastic marketing tool! Tell all the buyers about all the work that you recently did! Make sure all of your systems have been serviced and any obvious cosmetic eye sores are addressed.
It is also a good idea to have your real estate agent or a home staging professional walk your property with you. They will point out items that catch their eye. Selling homes is their business. They hear what buyers want, what excites them, what turns them off. Take their advise seriously even if you think their itemized list is silly!
The three big tasks to remember are to De-Clutter, De-Personalize, and Clean! Remember that buyers want to imagine themselves living in this house. Seeing your family photos and memorabilia can be distracting. Also, if they walk out of the showing with a long to-do list in their minds, it is unlikely they will be motivated to move forward. So take every showing seriously and make sure your presentation is at it's best.
“BUT I DON’T HAVE THE LIQUID CASH TO MAKE ANY REPAIRS!” You are definitely not alone in this boat! Many people know they have equity in their home and will walk away with a nice profit, but that doesn’t help them now. This is why Compass offers a program that will front you the cash now and you will repay what you use (interest free!) when the house sells. LEARN MORE ABOUT COMPASS CONCIERGE HERE.
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