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1. What is the difference between a “pre-qualification” letter and a “pre-approval” letter and why do I need one?
Pre-qualification consists of a discussion between a home buyer and a loan officer. The officer collects basic information regarding the customer's income, monthly debts, credit history, and assets, and then uses this information to calculate an estimated mortgage amount for the home buyer. The prequalification is not a full mortgage approval but estimates what a home buyer can afford.
A pre-approval is a comprehensive approach using basic information as well as electronic credit reporting. Preapprovals in most cases are true mortgage commitments. The lender commits to financing your home and indicates the total mortgage amount available to you.
By talking to a lender prior to looking for a home, you will find out how much you can afford and the assurance that your credit is okay.
If you have a pre-approval letter when you make an offer, the seller will know that you are qualified and you will have a better chance of having your offer accepted. Plus you will not waste time looking at homes you cannot afford.
We recommend speaking with a local lender, rather than an online lender. Local loan officers are familiar with local customs and programs which might be special to our area.
2. Can I buy a house even if I have had credit problems?
A credit score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes.
Lenders request a current score when you submit a credit application so they have the most recent information available. Therefore by taking the time to improve your score, you will be in a better position to get approved for a loan.
Improving your credit score is another good reason to talk to a mortgage loan officer before you start looking for a house. Your current credit score can affect whether you can get a mortgage
loan, what the interest rate and terms will be, and even things like your homeowner’s insurance.
But all is not lost if your score is low. Work with your lender and a credit counselor (one who does not charge for the service!) to repair your credit as soon as possible.
3. How can I find out how much house I can afford?
When meeting with a mortgage loan officer, he/she can help you answer this question. There are certain guidelines you must stay within to qualify for a loan. They look at your current income, your current expenses (debt), and the projected cost of a mortgage, taxes, and insurance.
Then they set a “maximum” house payment you are qualified for—and depending on the current interest rate, we can tell how much house you can afford. For example, let us say that you find out that you are qualified to pay up to $1000 a month for a total payment. The lender may estimate your property taxes at $100 a month and your homeowner’s insurance at $80 a month. That leaves $820 a month toward the mortgage principal and interest. If current rates are 6%, you can borrow about $135,000.
There is a lot more involved like Premium Mortgage Insurance (PMI), long term debts, etc but they will take everything into consideration and let you know how much they will loan to you. You definitely do NOT need to buy at the maximum of your allowance, but you will know the cap and not look at houses that you love but are priced over your limit.
The mortgage loan officer will let you know what the bank will charge to make the loan (called closing costs) and how much down payment you will need. It sounds a little complicated but your Realtor® can help explain it all and help you make a good, informed decision.
4. How much will I need for down payment and closing costs?
There is a wide range of what you might need, from 3.5% for an FHA loan to 20% down on a conventional loan if you do not want to pay Premium Mortgage Insurance. Sometimes you can ask the seller to contribute to those costs. Or you can obtain a “gift” from a relative. First-time buyers can sometimes find a program that will allow them to borrow these closing costs. Again, your Realtor® will be happy to thoroughly explain these things to you so you understand what is required.
With your price range in hand, you and your Realtor® will discuss your lists of “wants” and “needs”—from location to size, style, and age of home. You will think about the number of bedrooms and whether you prefer a garage or basement. Your Realtor® can give you website locations to look for yourself. You can drive by and check out the location and exterior of homes. You can take a Virtual Tour or look at photos online to see the inside.
You and your agent will select homes which match as many of your criteria as possible. Your agent will set up appointments with the sellers to show you homes at a time that is convenient for you. Remember, we can show you homes listed by ANY real estate company in the Mid-Ohio Valley. It is best to work with a single Realtor® to get the best service.
Take notes; sometimes it is difficult to remember after seeing numerous homes which had the “nice deck” and which had the “awful wallpaper.”
Perhaps you will “fall in love” with one of the first homes you see—and because you have been pre-approved, you can make an offer right away before someone else beats you to your dream home; or you can eliminate those homes which do not appeal to you and take a second look at the top contenders.
Your agent is working for YOU. He/she will not push you into making an offer until you are ready. We are patient and our goal is to find you a home that you will be happy to call yours.
6. How do I make an offer? How do I know how much to offer?
Your Berkshire Hathaway agent will be able to help you. The agent can provide you with a list of other homes which have sold in the area (called comparables.) Your agent has the legal paperwork required to make an offer-- Board of Realtors® uniform contract, lead paint addendum if needed, personal property/fixtures list, property disclosure form, agency disclosure information, etc.
Your agent will help you make your offer in writing and your agent will submit your offer along with your pre-approval letter and earnest deposit to the agent who has listed the house. The listing agent will talk with the sellers and the sellers will either accept or reject your offer or make you a counter-offer. Your agent will help you negotiate with the hope that you and the seller can find a “meeting of the minds”—a price and terms that are agreeable to both of you.
7. How do I know if there is something wrong with the house?
First of all, the sellers have completed a written Property Disclosure Form on which they list anything they know that is wrong and/or what repairs or improvements they have made to the home. You will be given a copy of this form before you make an offer.
Also, we strongly recommend that you get a Professional Home Inspection. This is a two-three hour long inspection by a licensed Home Inspector which he puts in writing and reviews with you in person. He looks the house over from attic to basement. He does his best to show you what major things he finds wrong with the home that you would want the seller to fix plus minor maintenance items that you will want to address after you occupy the home.
It is well worth the cost of the inspection! You might also want to get specific inspections by licensed professionals on such items as roof, chimney, furnace, or structure if you or the home inspector have any concerns about these issues.
Your offer on the home will have included a clause saying the sale is “subject” to inspections, so you will not be stuck buying a home if major things are found that are wrong that the seller will not fix.
8. What happens if there are two offers on the same house at the same time?
Although it does not happen often, it does happen. Sometimes when a house is “the best one for the money” at a particular time, more than one buyer is interested. If there are two or three offers, they will all be presented to the sellers and, since the house belongs to the sellers, it is ultimately their decision. It is not “first come, first served.” After all, put yourself in the seller’s shoes. If you were selling, you would want to know about every offer that is made.
Your Realtor® will help you make your offer as attractive as possible and if you already have that pre-approval letter, you may be a step ahead of the competition. Once the sellers have signed, however, they are legally bound to your contract. If another offer comes in later, the seller can accept it as a “back-up” offer in case your contract does not close.
9. What other items besides price are negotiated in the contract?
Just about anything is “negotiable” but the main things are the following:
(a) Possession- What date are the sellers going to move out? When can you move in? This can range from the actual day of closing (most common) to a month after the closing. It depends on what you and the seller agree upon.
(b) Personal property- What items remain with the home (such as stove, window treatments, or even the workbench in the garage) and what items are the sellers taking with them?
(c) Closing date- When will the sale close? Are you renting and need to close near the end of the month so you do not have to pay next month’s rent? Or does the seller have children who need to finish the school year? It is negotiable.
(d) Financing- You may want to ask the seller to help with your closing costs.
(e) Miscellaneous- Items specific to the particular home you are buying such as timber or mineral rights, lead paint inspection, survey, radon testing, pool or hot tub inspection, etc., are all negotiable. Your Realtor® will help you consider all possible items that you may want to negotiate.