Buyers
Buyers FAQ
  1. HOW DO I KNOW IF I AM READY TO BUY A HOME?
    You can find out by asking yourself some questions:
    • Do I have a steady source of income (usually a job)? Have I been employed on a regular basis for the last 2-3 years? Is my current income reliable?
    • Do I have a good record of paying my bills?
    • Do I have few outstanding long-term debts, like car payments?
    • Do I have money saved for a down payment?
    • Do I have the ability to pay a mortgage every month, plus additional costs?
    If you can answer "yes" to these questions, you are probably ready to buy your own home.
  2. HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?
    Pre-qualification is an informal way to see how much you maybe able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
    Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records mentioned in Question 47 (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
  3. HOW DOES PURCHASING A HOME COMPARE WITH RENTING?
    The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.
    Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.
  4. HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT I CAN AFFORD?
    The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, 4 should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
  5. HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE I BEGIN THE SEARCH?
    Your home should fit way you live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities - things like location and size. Should the house be close to certain schools? your job? to public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a 'wish list." Minimum requirements are things that a house must have for you to consider it, while a "wish list" covers things that you'd like to have but aren't essential.
  6. HOW CAN I FIND OUT HOW MUCH HOMES ARE SELLING FOR IN CERTAIN COMMUNITIES AND NEIGHBORHOODS?
    Your real estate agent can give you a ballpark figure by showing you comparable listings. If you are working with a REALTOR, they may have access to comparable sales maintained on a database.
  7. HOW DO I DETERMINE THE INITIAL OFFER?
    Unless you have a buyer's agent, remember that the agent works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your real estate agent's advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms, and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller may often go back and forth until they can agree on a price.
  8. WHAT CONTINGENCIES ARE USUALLY PUT IN AN OFFER?
    Most real estate offers include two standard contingencies: an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction and a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender. If the seller is to make any repairs to the property, they should also be written into the offer, along with any other specific arrangements made between the parties
  9. SHOULD I HAVE A HOME INSPECTION?
    The laws regarding Home Inspectors have changed recently. A real estate agent can no longer recommend a home inspector to you unless they are working as a buyer agent. Regardless, I highly recommend you hire a home inspector once your offer has been accepted. Their job is to make sure you are informed of any possible defects in the property that the Broker or Seller may not have known about. Usually, there is a Home Inspection clause written into the Offer to Purchase allowing you a certain amount of time to have any inspections done (usually 5-10 days). Inspections are almost always paid for by the Buyer.
    Good referral sources for home inspection services are friends, neighbors, or business acquaintances who have been satisfied with a home inspector. In addition, lawyers and mortgage brokers may also recommend a home inspector. The names of local inspectors can be found by searching the Division of Professional Licensure website at www.state.ma.us/reg/boards/hi/ , or in the Yellow Pages where many advertise under "Building Inspection Service" or "Home Inspection Service." 1
  10. WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY LOAN?
    The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $500,000, you could borrow up to $475,000 (95% of $500,000), and would have to pay,$25,000 as a down payment.
    The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy 1
  11. WHAT CAN I EXPECT TO HAPPEN ON CLOSING DAY?
    You'll present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
    Once you're sure you understand all the documentation, you'll sign the mortgage, agreeing that if you don't make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
    You'll pay the lender's agent all closing costs and, in turn,he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.