7 Common Questions from 1st Time Buyers

1. “What type of fees should I expect?"

One of the first things that first-time buyers wonder about is how much it’s going to cost them to get into the housing market. Fees associated with real estate agent commissions and closing costs are all extra expenses that first-buyers should be aware of.

For starters, it’s typical that the seller will pay all commissions to the real estate agent, although there are exceptions in certain cases. But generally speaking, buyers typically benefit from the assistance of a real estate agent in the buying process while the seller typically picks up the tab.

Don’t forget that you will need to come up with an earnest deposit when putting in an offer on the home, as well as a down payment towards the mortgage. Of course these monies all go towards the entire purchase price of the home, but it’s money that needs to be collected up front.

After buying a home, there are plenty of closing costs that need to be added on top of the final purchase price of the property. Typically closing costs include:

• Loan origination and underwriting fees from lenders
• Lawyer fees for inspecting the contract
• Home inspection fees
• Property appraisal fees
• Title insurance
• Title search fees
• Escrow deposit

Of course, once you move in, there are a number of costs associated with carrying and operating your home, such as property taxes, property insurance, and utilities.

2. “How will I know if the property I buy has a lien on it?”

There are plenty of important steps that should be carried out before the contract is sealed. Among these steps is a title search on the property in question. Property liens are bothersome, and can put you in a compromised position if you end up assuming these issues upon the purchase of a home. A lien is essentially a notice attached to the property that shows that money is still owed. Whether it’s for contractor work that wasn’t paid in full, IRS liens for failing to pay back taxes, or property tax liens.

Having a title search conducted on a property before agreeing to buy it is a critical step in the process, as it can reveal if there are any outstanding liens on the property. Any type of lien is a negative trait on the title. Lenders will usually want to see clear title of a property before they loan out money for a mortgage. It’s unlikely that the lender will permit a loan until all liens on the property are removed.

3. “Should I choose a fixed-rate mortgage or variable-rate mortgage?”

The answer to this will depend on your specific financial situation and the current mortgage interest rate. Fixed-rate mortgages come with rates that do not change during the mortgage term. You basically lock into a certain rate for the term’s duration. On the other hand, an adjustable-rate mortgage comes with a rate that will fluctuate from day to day depending on the market conditions.

First-time buyers typically go with fixed-rate mortgages, as they like the peace of mind of knowing exactly how much they’ll need to pay every month. Having a predictable payment system is typically the more common route for those starting out in the real estate market. And if the rate is currently very low, that’s even more reason to lock it in.

However, if your plans are to sell in the near future, and the rate is predicted to go down some time in the near future, an adjustable-rate mortgage may be something to think about. Speaking with a mortgage specialist can help to clear up this question and help determine which route is best for you.

4. “How much do I need to put towards a down payment?”

These days, it’s possible for buyers to put no money down towards their mortgages. Other options, such as FHA loans that are backed by the Federal Housing Administration offer low down payment options with a little as 3.5% down.

Of course, the more that’s put towards the down payment, the smaller the loan amount will be, which means less interest will need to be paid overall. In addition, down payments less than 20% of the purchase price of the property will be subject to Private Mortgage Insurance (PMI), which is an extra fee added to your mortgage payments. This insurance is meant to protect the lender in case you default on your mortgage. PMI usually costs anywhere between 0.5% to 1% of the loan amount on a yearly basis. For a $200,000 loan, for example, this translates into as much as $2,000 per year, assuming a PMI fee of 1%.

5. “Should I get pre-approved for a mortgage?”

It’s highly recommended for first-time homebuyers to get pre-approved for a mortgage before embarking on a housing quest. One of the biggest reasons to get this letter is to find out exactly how much you can afford. There’s no sense in looking at homes that are listed for $350,000 when all you can realistically afford are homes listed in the $250,000 ballpark.

Having a pre-approval will also show sellers that you are serious about buying, and that you are likely financially capable of securing financing. This can come in very handy if there are other interested buyers in the home you are looking at, thereby increasing the competition. Having a pre-approval letter in hand can strengthen your offer.

6. “What if the sellers don’t accept my offer?”

It’s pretty common for the first offer to be rejected by sellers, but that doesn’t mean the deal is dead. The whole negotiating process revolves around counter offers. Sometimes the bantering can go back and forth multiple times before a price is finally agreed upon. If the seller fully rejects your offer - which means no counter offers are made - you still have the right to place a completely new offer. It’s not that common for a seller to flat-out reject an offer from the onset, unless they are put off by a low-ball offer.

7. “What happens at closing?”

Once an agreement is made between the buyer and seller, a closing agent will enter the picture. It is at this time that the agent will sit down with you and explain all the paperwork that needs to be signed so that you are aware of what you are signing. To make sure that you are comfortable with what needs to be signed, you can always enlist the help of your real estate agent to clarify things.

The lender will then provide documents explaining what the closing costs are, a "good faith estimate" of how much money will be needed at closing, and the paperwork required.

There is a lot that goes into buying a home, especially for the first time. Make sure you have an in-depth chat with your mortgage broker and real estate agent so you can go into the process armed with all the necessary information to make an informed buying decision.