Since launching the Home Buying Institute website back in 2005, I've received quite a few home-buying questions by email. As you might imagine, many of these questions came from first-time home buyers who are new to the process of buying a home.
I thought it would be beneficial to home buyers everywhere if I selected five of the most common home-buying questions I receive, and explored them in an article such as this. I've also listed the corresponding areas of HomeBuyingInstitute.com that cover these topics in more detail.
So here we go with five common questions when buying a home:
1. How do I find out my price range?
Determining a price range should be one of your first steps when buying a home. When you know how much you can comfortably afford each month, you'll save time during the house hunting process by only visiting properties within your price range.
To determine your price range, sit down and compare your monthly income to your monthly expenses (savings, credit card payments, car payment, quality of life, etc.). How much is left? Your monthly mortgage should be less than this amount. Now you can use an online mortgage calculator to break each sale price down to a monthly amount, and determine if that amount is inside or outside your comfort zone.
Section of Home Buying Institute: Self Assessment
2. Do I need a real estate agent?
Here's the short answer ... yes! If you are buying a first home, you should have a real estate agent. Buying a home is one of the biggest financial transactions you will ever make, so it's always wise to have professional help.
Your agent will help you find homes that match your price range and desired features. He or she will also help you validate the asking process (next item), write up the purchase offer, help you negotiate with the seller, and guide you through the rest of the home buying process.
Section of Home Buying Institute: Finding an Agent
3. How do I research the asking price?
The first thing to realize here is that it's called an "asking price" for a reason. The price set by the seller is never set in stone. It's what they are asking for, and you are free to make a counter-offer is you see fit. Your real estate agent will help you validate the asking price by looking at comparable, recent sales in the area. This will tell you if the asking price is reasonable or over-priced, based on current marketing conditions.
4. Which type of mortgage loan should I choose?
This question always presents a catch-22 for me. On one hand, I enjoy helping people by answering their home buying questions. On the other hand, I don't dare make a decision like this on behalf of a stranger. It's too important a decision for me to make for somebody else.
With that disclaimer out of the way, here's how you can choose the best type of mortgage loan for your situation. First, do some research on the basic types of home loans -- fixed rate, adjustable rate (ARM), balloon loan, etc. When researching the different mortgage types, pay attention to paragraphs that begin with: "This type of mortgage might be best for you if..." Generally, this type of statement is followed by a series of pros and cons that will explain the type of home buyer who might choose that option.
As a rule of thumb, if you're going to be in the home for quite a while (five years or more), it's probably a good idea to choose a fixed-rate mortgage. On the other hand, if you think you'll only be in the home for two or three years, you might want to choose an adjustable-rate mortgage to save money during your short time of ownership.
Section of Home Buying Institute: Types of Mortgages
5. What happens at the real estate closing?
Basically, the real estate closing (also known as a "settlement") is when property ownership transfers from seller to buyer. All remaining fees will be paid as well, and these are known as closing costs. The seller gets their portion of the payment (minus what they still owe on the mortgage), and the deed is transferred to reflect the new owner.
As a home buyer, the best you can do is save more money than you think you'll need at closing, just to be safe. You should also make sure you receive a HUD-1 statement (or "settlement statement") at least one day prior to the closing date. This document gives you an itemized list of the costs you'll be expected to pay at closing. The Real Estate Settlement Procedures Act (RESPA) requires that the closing / escrow agent provide this document at least one day before the real estate closing.
Section of Home Buying Institute: Closing / Settlement
Brandon Cornett is the publisher of Home Buying Institute.