Buyer FAQs
When you’re buying a home, especially if it’s your first home, you have lots of questions. Don’t worry–we have lots of answers!
1. When I start visiting homes, what should I be looking for the first time through?
2. Is an older home as good a value as a new home?
3. Do I need to bring anything along when I’m looking at homes?
4. What should I ask Sandy & Bill about each home that I view?
5. What should I tell Sandy & Bill about the homes I view?
6. How many homes should I look at before I buy?
7. What should I think about when I’m deciding which community I want to live in?
8. Where can I get information about local schools?
9. How can I find out what homes are selling for in a given neighborhood?
10. I’d like to have a professional look at the home before I buy it. What does a home inspector do?
11. Should I be present during the inspection?
12. Do I need to talk to my insurance agent?
13. What is the “deposit” and how much money do I need?
14. Is there any way I can protect myself against emergency repair bills in my new home?
15. How do I determine the amount of my initial offer?
16. If I’m moving a considerable distance, is there any way I can gather information before I start traveling?
17. Should I move myself or use a moving company?
18. What is a mortgage and what are the benefits of different kinds of mortgages?
19. What are the different types of lenders, and how do I choose the right one for me?
20. Are there any mortgages especially designed for first-time buyers?
21. Can I get an FHA or VA mortgage?
22. How much of a down payment will I need to buy a home?
23. How does a lender determine the maximum mortgage I can afford?
24. What are the steps involved in the loan process?
25. What are “points”?
26. What is APR, and how is it calculated?
27. What does my monthly mortgage payment include? And what does PI and PITI stand for?
28. What are the respective advantages of 15-year and 30-year terms?
29. Do adjustable rate mortgages offer any protection against rising rates?
30. How can I find out what my property tax bill will be?
31. What can I do if I have a fixed rate loan, and interest rates go down?
32. What is the difference between pre-qualifying and pre-approval?
33. Can I pay off my loan early?
1. When I start visiting homes, what should I be looking for the first time through?
The house you choose will play a major role in your family’s life. A home is an excellent investment, but more importantly, it should fit the way you really live, with spaces and features that appeal to everyone in the family. At each home, pay close attention to these important considerations:
* Is there enough room for you now and in the near future?
* Is the home’s floor plan right for your family?
* Is there enough storage space?
* Will you have to replace the appliances?
* Is the yard the size that you want?
* Are there enough bathrooms?
* Will your present furniture work in this home?
* Is the location one you will be happy with and one that will make the home a good investment?
2. Is an older home as good a value as a newer home?
It’s a matter of personal preference. Both new and older homes offer distinct advantages, depending upon your unique taste and lifestyle. New homes generally have more space in the rooms where today’s families do their living, like a family room or activity area. They’re usually easier to maintain, too. However, many homes built years ago offer more total space for the money, as well as larger yards. Some people are charmed by the elegance of an older home but shy away because they’re concerned about potential maintenance costs. Most sellers are willing to purchase a home warranty for their buyer so make sure that you ask for one in your offer. A good home warranty plan will help protect you against unexpected repairs on your home’s systems and appliances for a full year or more after you move in.
3. Do I need to bring anything along when I’m looking at homes?
Bring a notebook and pen for note taking. Be prepared to “snoop around” a little. You will want to know as much as possible about the home you buy. Sellers understand that their home will be looked over pretty thoroughly.
Make sure to take notes on specific homes, which will make it easier to remember the specifics about each home. If you need to go back to a home for another look, Sandy and Bill will be happy to schedule an appointment. Be sure to ask any questions you have about the home, even if you feel you’re being nosy–you have a right to know. It’s important to know that the seller will supply the buyer with a Residential Property Disclosure, which will disclose any defects known by the seller.
Also, be sure to bring a camera and snap some pictures of all the homes you like. That’ll make it easier to remember specifics.
4. What should I ask Sandy and Bill about each home that I view?
As a rule of thumb, ask any questions you have about specific rooms, features or functions. Pay particular attention to areas that you feel could become problem areas–additions, defects, areas that have been repaired. In most cases, Sandy and Bill will be able to provide you with detailed information.
5. What should I tell The Humphrey Team about the homes I view?
Tell Sandy and Bill what you liked and didn’t like about each home you saw. It is important for them to really get a feel for what you’re looking for in a home in order to find your dream home. Don’t be shy about talking about a home’s shortcomings.
6. How many homes should I look at before I buy?
There is no set number of homes you should look at before you decide to make an offer. That’s why providing Sandy and Bill with as many details as possible up front about is so helpful. The perfect home may be waiting for you on your first visit. Even if it isn’t, the house-hunting process will help you get a feeling for the homes in the community and narrow your choices to a few homes that are worth a second look. It is extremely important for you to become thoroughly educated on the entire area before making a buying decision.
7. What should I think about when I’m deciding which community I want to live in?
Each community in Ventura County has its own unique personality. Sandy and Bill strongly believes it is very important for their clients to be educated on the characteristics of each community before making a decision as important as purchasing a home. Being acquainted with the specific characteristics of each community as well as becoming educated on what your money will buy in each of the areas will make the decision-making process easier. Knowing which communities have parks, community pools and/or playground facilities, convenient shopping and transportation, a track record of sound development and good planning, as well as specific details about schools are just a few considerations that are important to many people when they choose a community.
As for individual neighborhoods within a community or city, there is no better source of information than Sandy and Bill Humphrey. They know the people and the local communities, and chances are they can help you find a neighborhood that really fits your family’s needs. You will never feel rushed or pressured into making a decision before you are ready when working with Sandy and Bill.
8. Where can I get information about local schools?
Again, Sandy and Bill are perhaps your best source. They know where the local schools are, and can provide you with valuable information about school districts, including test scores, extracurricular activities, bus service and more. If you’re relocating, Sandy and Bill may even be able to put you in touch with teachers and principals when you visit the area. The nine years Sandy spent teaching, as well as the personal experience they had in raising their own children in the local area, will provide a wealth of information for you.
9. How can I find out the prices that homes are selling for in a given neighborhood?
Home sales are a matter of public record that can be obtained through the County Recorder’s Office or a title company. An easier way for you to get this information is to ask Sandy and Bill. If you’re interested in a particular home, they will be able to provide you with a “list of comparables”– sale prices of homes in your area that are roughly the same size and age as the home you are considering. This information, called a CMA or comparable market analysis, will give you a great deal of information including recent “solds” (homes that have closed escrow), “pendings” (homes currently in escrow), and active listings. Although there will certainly be some differences between the homes–the house next door may have an extra bedroom, or the one down the block may have a pool or other upgrades–it’s a good way to evaluate the seller’s asking price, especially since “full-listing” data can be printed out for you on all of the properties.
10. I’d like to have a professional look at the home before I buy it. What does a home inspector do?
For your own safety, and to make sure you’re getting your money’s worth in the home you choose, using a professional home inspector is highly recommended. A home inspector will check a home’s plumbing, heating, cooling, and electrical systems, look for structural problems, and check for roof leaks, etc.
Your home cannot “pass” or “fail” an inspection, and your inspector will not tell you whether he or she thinks the home is worth the money you are offering. The inspector’s job is to make you aware of repairs that are recommended or necessary and to familiarize you with the systems of the house.
A seller may be willing to accommodate your request to handle needed repairs, or you may decide that the home will take too much work and money. A professional inspection will help you make an informed decision.
In addition to the physical inspection, you may wish to have separate inspections conducted on the pool or roof. Generally (but not always) the seller will provide a termite inspection and will complete the necessary repairs to provide a “clear termite”. Talk to Sandy and Bill for information about these inspections and companies in the area that perform them. In choosing a home inspector, consider one that has been certified as a qualified and experienced member by a trade association. Sandy and Bill may refer you to several qualified inspectors.
Remember, the purpose of a home inspection is to help you learn things about the house that are not easily discoverable during your home tour. It is not intended to be a laundry list of minor repairs for sellers to complete.
11. Should I be present during the inspection?
Most of the time the buyer is not present for the actual inspection, but if you wish to be there during the inspection, you are certainly welcome. You should however, come by after the inspection is complete to hear just what the inspector has found as he examined every facet of the home. You’ll be able to clearly understand the inspection report, and know exactly what areas of the house need attention. Plus, you can get answers to many questions, tips for maintenance, and a lot of general information that will help you when you move into your new home. Most important, you’ll see the home through the eyes of an objective third party.
12. Do I need to talk to my insurance agent?
Yes, and the sooner, the better. If you need the name of some respected insurance agents, Sandy and Bill will be happy to give you some references. Once you’ve found a home, you will need to have homeowner’s policy that meets your needs. Simply put, your lender will not lend on your property unless you have an insurance policy in place. You’ll need to supply your insurance information to escrow prior to closing.
13. What is the “deposit” and how much money do I need?
When you sign an offer to purchase a home, you will be asked to immediately deposit a sum of money into escrow once your offer has been accepted. This is called your “deposit”, and it will remain in escrow and become a part of your down payment until your transaction closes. The deposit can be any amount of money although it is normally expected to be 3% of the purchase price. The purchase contract further specifies that your deposit is to be delivered to escrow within 3 calendar days from the date of acceptance. But keep in mind that if you back out of the contract after you have removed your contingencies, the seller may have a legal claim on your deposit.
14. Is there any way I can protect myself against emergency repair bills in my new home?
Yes. Home warranties offer you protection against many potentially costly problems not covered by your homeowner’s insurance. They’ve become increasingly popular in recent years, and for good reason. The coverage can save you thousands in the event of a major mechanical breakdown, at a time when your cash reserves have been depleted by your down payment and moving expenses. Feel free to ask the seller to purchase a home warranty when writing the offer to purchase. Most sellers are willing to provide such a warranty for their buyers.
A home warranty will give you the peace of mind necessary to feel comfortable in your new home. In most cases, the warranty plan will cover appliances, hot water heater, air conditioning units, electrical systems, garage door openers, plumbing systems, heating systems, faucets, ceiling fans and water softeners. Check with Sandy and Bill regarding the specifics of the home warranty plan. We will be happy to provide you with brochures on the plans offered by several different companies.
15. How do I determine the amount of my initial offer?
There is really no rule to use in calculating a realistic offer. Naturally, the buyer wants the best value and the seller wants the best price, but negotiations can be influenced by many factors, such as a seller who may be changing jobs and wants to sell quickly, or a buyer who really wants a specific home.
After you’ve looked at the home’s features, asked questions, checked comparables, and talked about it with Sandy and Bill, you should have a good idea of what the home’s value is in the current market. Consider what you can afford and make an offer that you consider to be fair.
Most buyers and sellers negotiate on price, with both sides “giving” a little until both agree. When the price is agreed upon, the paperwork will be initialed by both parties. At that point, you typically will begin the process of arranging for an inspection and applying for a mortgage.
16. If I’m moving a considerable distance, is there any way I can gather information before I start traveling?
Yes. Sandy and Bill are proud to be associated with some of the best relocation companies in the nation. Whether you’re moving across town, across the nation, or around the world, we can help. Our relocation networks are skilled in handling the special needs of families involved in the relocation process. We understand your needs, concerns, fears, anxieties and joys, but most of all, we know how to get you and your family from here to there with minimal stress and inconvenience.
And, our relocation network is made up of the top 5% of the industry. Rather than turn you over to a relocation director who will randomly assign you a Realtor in another location, we actually interview the best agents in your new locale (no matter what company they are with) in order to guarantee that you will receive the same level of service you have become accustomed to with Sandy and Bill.
17. Should I move myself or use a moving company?
In almost every case, you can save yourself time and energy by using a reputable moving company to help you move. Ask Sandy and Bill, friends, and co-workers for recommendations, and then get estimates from several companies. Don’t choose a mover based on price alone — consider the reputation and professionalism of the company, too. Work closely with the moving company to coordinate your timing and your move will be achieved with maximum efficiency.
18. What is a mortgage and what are the benefits of different kinds of mortgages?
Simply put, a mortgage is a loan that a home buyer obtains directly from a lender to purchase real estate. The mortgage is a lien on the property that secures a promissory note (promise to repay the debt) that states the terms of the loan, including the interest rate, and the number of payments.
The most popular mortgages available to home buyers today can be divided into two general categories: those with fixed interest rates and fixed monthly payments, and those where one or both of those factors are adjustable.
Fixed rate/fixed payment loans are more traditional, and remain the most popular home financing method, currently accounting for about two-thirds of all residential mortgages. Their advantages are well-known — you always know what your monthly principal and interest payment will be, so your basic housing cost will remain unaffected by interest rate changes until the mortgage is paid off.
Mortgages that entail flexible rates and/or payments have grown in popularity during periods of high interest rates and/or rapidly rising home prices. Many, including the popular ARMs (Adjustable Rate Mortgages), offer lower-than-market initial interest rates that allow buyers a measure of affordability unavailable in fixed-rate loans. The tradeoff may be higher interest rates and higher monthly payments later on.
19. What are the different types of lenders, and how do I choose the right one for me?
Before someone lends you the money to purchase your home, they’ll want to know a lot about you. And you’re entitled to know as much as you can about them, too.
Getting a mortgage is not just a one-time signing of documents, a handshake and a check. You will be depending on your lender to fund the loan as promised and on time, and over the life of the loan, to keep good payment records, pay your taxes and insurance (if included in your monthly payment), and many other continuing services.
Look for a lender that has the authority to approve and process your loan locally. It’s easier to obtain information on the status of your loan and discuss conditions directly with the person who will approve your loan, rather than some far away loan committee. It’s important that your lender know home values and conditions in your local area. And while bigger doesn’t always mean best, larger lenders do offer financial stability and qualifying procedures.
20. Are there any mortgages especially designed for first-time buyers?
Today, first-time buyers enjoy a number of mortgage options that make purchasing a home more affordable by minimizing down payments and keeping monthly payments as low as possible during the early years of the loan.
Most ARMs feature an interest rate that is often below market for the first year, and may only rise gradually after that. Loans insured by the Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA) have extremely low down payment requirements (0-5% of the purchase price), and often offer a below market interest rate. Similarly favorable terms can also be arranged with the help of Private Mortgage Insurance or PMI.
21. Can I get an FHA or VA mortgage?
Just about anyone can apply for an FHA-insured mortgage through banks and other lending institutions. They are particularly well-suited for buyers of moderate income–the low down payment requirements (as low as 3% of the purchase price) are matched by a relatively low maximum mortgage amount.
Similarly, VA-guaranteed loans often require no down payment for up to four times the amount guaranteed by the VA. These loans are reserved for active military personnel, veterans, or spouses of veterans who died of service-related injuries.
If there is a downside to these loans, it’s the qualifying process. Though you apply for government-insured financing through a lending institution, the Federal Housing Administration or the Department of Veterans Affairs must insure or guarantee the loan and may require specific documentation or procedures that are not necessarily required for conventional financing. Approval for these kinds of loans may take more time than is generally required for conventional mortgage approval. Additionally, FHA-required insurance must be added to your payment. Make sure the lender you select has approval authority by each of these agencies to ensure a quicker loan process. Sandy and Bill can guide you in selecting a lender.
22. How much of a down payment will I need to buy a home?
A down payment of 20 percent has been the benchmark for conventional financing. For buyers who qualify for conventional financing but can’t handle the high down payment requirements, lenders offer this financing with PMI, or Private Mortgage Insurance. Designed to protect the lender against default by the borrower, PMI allows you to obtain traditional financing with a down payment significantly lower than the standard 20 percent.
As with an FHA-insured loan, you must pay premiums for PMI coverage, which are determined by the lender. Moreover, PMI premiums are often lower than FHA insurance, and may be paid as part of your monthly mortgage payment, in annual installments, or in a lump sum at the time you obtain the loan. Your mortgage lender can help you determine which down payment option is right for you and your budget.
23. How does a lender determine the maximum mortgage I can afford?
The three primary areas lenders examine in determining the size of mortgage you can handle include your monthly income, non-housing expenses, and cash available for down payment, moving expenses and closing costs. There are a number of different ways lenders interpret these variables to estimate your mortgage capacity. The most popular method is detailed here. Most lenders feel a family should spend no more than 32% of its gross monthly income on housing costs, including the mortgage, insurance, and real estate taxes. Also, these housing costs plus your long-term debts (car loans, student loans, etc.) shouldn’t exceed 38% of your income. If your down payment is 10% or less, most lenders will tighten these restrictions even further. Some lenders may also include home maintenance costs and utility payments in their calculations.
24. What are the steps involved in the loan process?
The information your lender needs is not much different than what is needed when you apply for a major credit card: names and addresses of your employer, your salary, and bank account numbers and balances. The lender will also need other financial information such as installment payments, auto loans, charge cards, and department store accounts. The location and description of the property also are required. Your lender will verify this information with your present and past employers, order a routine credit report on your current and past accounts, and order a professional appraisal of the property you want to purchase.
Allow yourself two to four weeks to complete the approval process. Once all the verifications have been completed, your lender will underwrite and approve the loan. Overall, the time from the date of application to the date of move-in is generally four to five weeks for conventional loans and five to seven weeks from the date of application for FHA and VA loans.
25. What are points?
In real estate, the term “point” refers to 1% of the total mortgage loan amount. Buyers often pay lenders this supplemental fee, calculated in points, to get a better interest rate on a particular mortgage.
For example, a lender may offer you a choice of two 30-year mortgages: the first at 4.5% with no points, and the second at 4% with an additional two points. If the loan is for $100,000, those three points will cost you an extra $2,000 up front — but you’ll get a payback of significantly lower monthly payments ($477 vs. $506) for the lifetime of the loan.
Many lenders will advise you to pay the points for the better rate if you can afford it, especially if you plan on keeping the home for more than a few years. Like interest, the money you pay for points may be tax-deductible, and the investment may pay for itself through savings generated by lower monthly payments.
26. What is APR, and how is it calculated?
The Annual Percentage Rate is a calculated rate of interest for a loan over its projected life. This rate includes the interest, all points (which are considered prepaid interest), mortgage insurance, and other charges associated with making the loan that the lender collects from the borrower. The APR is calculated by a standard formula that all lenders use. This enables the borrower to comparison shop between lenders and/or loan products.
27. What does my monthly mortgage payment include? And what do PI and PITI stand for?
The bulk of your monthly mortgage payment goes toward paying off the principal and interest of your loan. (You may hear lenders refer to this as “PI,” for Principal & Interest). In addition, most lenders require that you pay a sufficient amount to cover your local real estate tax, plus your homeowner’s or hazard insurance. (You may hear this total payment referred to as “PITI”, or Principal, Interest, Taxes, & Insurance.) The taxes and insurance amount is placed in an escrow account by your lender, which they use to pay your tax and insurance bills. When shopping for a loan, it is important to ask the lender if the monthly payment you are being quoted is PI or PITI.
28. What are the respective advantages of 15-year and 30-year terms?
The 30-year fixed rate mortgage remains the standard mortgage, with an array of valuable benefits designed especially for buyers who expect to stay in their homes for longer than a few years. Because the borrower pays more interest than principal for the first 23 years, the tax deduction is substantial. And as inflation causes income and living expenses to increase, your unchanging monthly mortgage payments account for a relatively smaller portion of income as the years go by.
As you’d expect, a 15-year monthly mortgage means higher monthly payments than an equivalent 30-year loan … but not as much higher as you may think. At the same rate of interest, payments on the 15-year mortgage are roughly 20-25 % higher than a loan that takes twice as long to pay off. And one of the benefits of choosing a 15-year mortgage is that you can generally get a lower interest rate for an otherwise similar loan. Another advantage is faster equity build-up because a larger portion of your early payments are going to pay off principal. This makes the 15-year mortgage an ideal alternative for couples approaching retirement or anyone else interested in owning their home free and clear as quickly as possible.
29. Do adjustable rate mortgages offer any protection against rising rates?
Yes. ARMs and other variable rate or payment plans offer lower-than-market interest rates initially, but because they are tied to the interest rates of U.S. Treasury Bills or other indexes, interest rates later in the loan term may rise. However, many such loans offer built-in safeguards designed to minimize the effect of any rapid escalation in interest rates.
One such safeguard is the rate cap. Many ARMs include provisions for the maximum amount your rate can rise, both annually and over the life of the loan. For example, if your initial rate is 3.5%, the loan may include 1% annual and 5% lifetime caps … which means even if rates rise dramatically, you’ll pay no more than 4.5% next year, 5.5% the following year, and so on until a maximum rate of 8.5% is reached. ARMs will also allow your rate to decrease when the index to which it is tied goes down. As you might expect, decreases are usually capped as well.
30. How can I find out what my property tax bill will be?
In California, as a result of Proposition 13, property taxes are limited to 1% of the purchase price of your home. City and county assessments will add anywhere from an additional .1-.25% to your tax bill. Lenders typically use 1.25% as a general rule in determining buyer qualifications.
31. What can I do if I have a fixed rate loan and interest rates go down?
When interest rates drop significantly, the homeowner should investigate the financial advantages of refinancing. Essentially, this means taking out a new loan to pay off your existing loan. Refinancing may require paying many of the same fees paid at the original closing, plus origination fees. Most mortgage experts agree that if you can get a rate 2% less than your existing loan and you plan on staying in your home for at least 18 months, refinancing is a good investment.
32. What is the difference between pre-qualifying and pre-approval?
Pre-qualifying for a mortgage up to a certain amount is an increasingly popular practice among buyers who don’t want to worry about going through the approval process after they’ve found the home they want. It’s a verbal exchange in which the lender tells you in advance approximately how much money you are able to borrow, based upon the information you provide the lender on your debt and income.
Pre-approval goes a step further than pre-qualifying. It is an actual commitment to lend, provided that, when the borrower is ready to buy, he or she still meets all the qualifying conditions that were met at the time of conditional approval. We strongly recommend your getting preapproved, as it essentially gives your offer the same value as an all-cash offer.
33. Can I pay off my loan early?
If you can afford it, and are interested in the considerable advantages of having more equity and/or owning your home free and clear at the earliest possible date, the answer in most cases is yes. The FHA, VA, and even some states do not allow lenders to charge penalties for paying mortgages early or refinancing. In fact, many lenders now include space on monthly statements for borrowers to itemize any additional principal payment they wish to include with their regular payment. If you’re unsure about the rules governing pre-payment, review your mortgage agreement.
If you’d like to pay your loan off early, consider these options:
* Save extra every month. With the interest you earn on savings you may be able to make an extra payment at the end of the year.
* Pay an extra twelfth of your principal and interest payment monthly, and by the end of the year, you’ll make an extra payment.
* Or just send whatever extra you can every month.
Whichever method you choose, be sure to clearly indicate that the excess payment is to be applied to principal.
The Humphrey Team
2555 Townsgate Road Suite 200
Westlake Village, California 91361
Phone: (805) 499-8000
sandy@humphreyteam.com
bill@humphreyteam.com