Have Questions?

1. What is earnest money & escrow ?     top

2. How much down payment is required?
3. Do I need to be pre-approved for a mortgage loan?
4. What's Title Insurance and who pays for it?
5. Should I have a home inspection?
6. What is the "Option Period"?
7. Can I buy my new home BEFORE I sell my current one?
8. Is a homeowners warranty a good idea?
   
    

What is earnest money & escrow?

When you are ready to make an offer to purchase a home, you will write a check for a meaningful amount to money. You are in fact showing good faith and an honest commitment to do everything you can to complete the transaction. That money is know as "Earnest Money". It is part of the total price you will pay for the house. It represents a portion of your cash investment in the house.

Since it's your money, you need an impartial, trustworthy party to safeguard it and make sure it gets properly disbursed as your home purchase transaction is completed. You need an escrow agent. When your money is "placed in escrow", it's placed in a safeguarded condition. Typically the Title Insurance company chosen to write the Title Insurance policy will act as escrow agent for the transaction and will also facilitate the closing process.

Only you can put your earnest money in jeopardy, if you don't comply with your responsibilities according to the terms of the purchase contract you agree to.

How much down payment is required?

The answer to this question is specific to you. It depends on a lot of things:

• your credit rating
• the amount of savings you have
• how much cash you want to invest in the property
• current interest rates

Typically you would start at the back. Start by deciding how much of a monthly house payment you are comfortable with, including taxes and insurance. Assuming a 30 year term and a reasonable interest rate, that will tell you the size of your mortgage. Compare that mortgage amount to the total cost of the house, including closing costs, and you have a fairly good idea as to how much down payment you will need to complete the transaction. Remember, your cost and income ratios will have to be within the guidelines established by the mortgage underwriter.

Typical down payment amounts are between 5% and 20% of the purchase price of the property. If you structure your finances so that your primary mortgage represents no more than 80% of the purchase price, it is possible you will be able to eliminate the cost of Private Mortgage Insurance (PMI). 

Do I need to be pre-approved for a mortgage loan?

In order to be in the strongest negotiating position possible, you want to be pre-approved for a mortgage loan. Obtain full lender approval, subject only to a valid purchase contract and satisfactory appraisal. Give the seller assurance that financing will not be an issue and that they can take their home off the market with confidence that the transaction will be completed.

If the home you want to purchase is as good as you think, chances are another buyer thinks so too. Being pre-approved can make all the difference in reaching an equitable agreement with the seller. 

Don't settle for just being pre-qualified.  Being pre-qualified doesn't tell you anything about your real borrowing power and it certainly doesn't give you any clout at the negotiating table.

What's title insurance and who pays for it?

In it's simplest form Title Insurance is added protection for the Buyer. If another person were to present a valid legal claim to the property, after the purchase, the Buyer is protected.

It is extremely rare that such claims happen, but Buyers' need to be confident when they purchase, that their interests are not in jeopardy. This assurance is so essential to a satisfactory purchase that it is reasonable to expect the Seller will pay the cost of Buyer's Title Insurance.

Should I have a home inspection?

A thorough home inspection should be completed by a reputable licensed inspector before the purchase of not only resale properties but also new construction.  The cost is minimal when compared to the investment, and the peace of mind is invaluable.  In many cases an additional inspection by a licensed heating & air conditioning technician is also a good idea. And you'll want to get a clean bill of health regarding "wood destroying" insects.

In some instances a motivated seller will have a general inspection performed before the property is listed. This allows the seller to address any deficiencies found and let prospects know about the updated condition of the property. It's a great way to prevent surprises at contract time.

What is the "option period"?

You've made an offer to purchase a certain house, the offer is accepted, you have a contract. But, wait a minute, you haven't even looked inside the attic, I mean really look. What is the condition of the water heater? Is the foundation in good shape? How about the roof? Questions, questions and more questions. They all need to be answered before you can be certain you've chosen the right house, the place you'll call HOME.

The "option period" is that block of time given to the Buyer, as a negotiated condition of the purchase contract, to have the necessary inspections performed, to confirm that the condition of the house is as expected. If a previously unknown condition surfaces, there is time to negotiate a solution with the seller. In the unlikely event common ground isn't reached, the buyer is free to terminate the agreement, without penalty.

Can I buy my new home BEFORE I sell my current one?

No, no a thousand times no.  Selling and buying a home is stressful enough. There is no need to create more difficulty.

In reality, it is almost impossible to put an acceptable purchase agreement on paper that is contingent upon the sale of your current home.  Waiting until your current home has a contract on it is another story. That approach can work.

First things first, concentrate on the sale of your present home, without creating undo pressure, so you can make good decisions and receive the highest price the market will offer.

While your current home is being marketed, keep up to date on available properties that meet your needs. It is certainly possible to coordinate a smooth transition from one home to another. Just don't get the horse before the cart.

Is a homeowners' warranty a good idea?

It's an excellent idea! Again it's a tool that strengthens the confidence a buyer has in deciding to purchase a certain property. With it, the buyer knows the cost to repair or replace a failed major component (dishwasher, water heater, a/c unit, etc.) is limited. In most cases, the seller will pay the premium in order to provide the value of that assurance. The policy lasts for one year and can be renewed.