Here are the answers to the real estate questions we get asked all the time!
What comes first, the loan or the home search?
Answer: The loan (pre-approval) – for several reasons. First, you don’t know how much you can spend on a home until the bank runs your credit and income to debt ratio. Often buyers think they can automatically get a mortgage for the same amount they are currently paying in rent, but banks have a formula they use and that equals how much they will loan you. It’s not always about what you can afford.
Also, you need to know your budget. Let’s be honest, most of us have a budget when we go shopping, we can’t just spend any amount – same goes for your new home. You don’t want to fall in love with a house, only to find out, you can’t afford it.
Finally, you want to submit your offer with a pre-approval from the bank, it makes your offer more appealing to the sellers. In the event that there are multiple offers (more than one buyer(s) wanting to buy the same home at the exact same time) it will make your offer stand out over another buyer that does not have a pre-approval from their bank yet.
Do I have to call the agent that is on the sign in the yard?
NO! Any licensed agent in the state can show you any home for sale in Iowa. (There are some exceptions but they are few and far between.) You get to choose who represents you, and buyers are by no means forced to use the seller’s agent.
What is earnest money?
Earnest money is like a deposit or down payment. It tells the seller that you are serious about wanting to buy their house. You are so serious that you are willing to put up your cold hard cash, and if you walk away from the deal – the sellers get to keep the money.
That being said, your offer can/should be contingent upon you getting the financing/mortgage approved through your lender. The home passing all inspections and that it appraises for the amount you have agreed to pay. If not, and it’s stated in your purchase agreement, then you can get your earnest money back.
Think of it like this – if you just get cold feet – but have no reason, other than your gut or change in circumstances, that you don’t want to buy the property – then you forfeit your money. Also note, you don’t HAVE to put up earnest money, it’s not “required” – but a lot of sellers expect it.
If everythings goes through, and you end up buying the house, then in the end you get your earnest money back at closing. This is the case most of the time, the house closes, everyone is happy, and you have a new house.
How much do I need to save to buy a house?
It depends – what kind of loan do you qualify for? Secondary market loans like FHA and USDA require little to no down payment (but you will still need closing costs – see next question). Conventional loans you will need 10% – 20% usually, but all banks have different programs.
Make an appointment with a couple of different lenders and ask them this question, that will give you a better understanding of what they can offer you.
How much do I need for closing costs?
This number will change with each type of loan, location, home value, insurance etc. The standard answer is between 3-6% of the purchase price of the home. So if you buy a $100,000 home, have $3,000 – $6,000 saved for closing costs. The lender you chose can give you an estimate of closing proceeds at the beginning of the mortgage process.
Do I need a home inspection?
The short answer is, that’s up to you! Your home is probably one of the largest purchases you will make in your life, do you feel it’s worth $400 – $500 to have someone go through the home you are about to purchase with a fine tooth comb? As a home buyer we expect some things to need minor repairs, afterall we aren’t all buying newly built homes, there will be wear and tear. Then again, what if there is something BIG that has been overlooked by the homeowner? These big things are the issues we want the home inspector to find.
