Real Estate Frequently Asked Questions (FAQ)
- What is an appraisal?
- How much money do I need to buy a home?
- How much down payment do I need to buy a home?
- Can I apply for a loan before I've found a property?
- What is seller financing?
- How much should I offer?
- If I buy that home, how much will I pay in taxes?
- What types of mortgages are available?
An appraisal essentially gives value to your property. Appraisals should be conducted by qualified and certified appraisers. States are required by federal laws to establish minimum standards and licensing practices for real estate appraisers. Appraisals usually are performed on behalf of a buyer who is seeking to secure a loan from a bank or loan company, to buy the property.
A certified valuation of the property is required by banks and loan companies before they can process a loan application. An appraisal provides valuable information for either the buyer and/or seller, however the appraisers primary assignment is to guard the lender.
The appraisers should use their own opinion and experience to conduct a thorough examination of the property, and determine its value in monetary terms. A real estate agent can prepare a comparative market analysis (CMA), and give you a price opinion; this is not an appraisal, but it is a good indicator of the market value of the property.
-How much money do I need to buy a home?
It depends on a number of factors, including the cost of the house and the type of mortgage you get. You need to have enough money to cover the earnest money deposit, the down payment, and the closing costs.
When you decide to make an offer on a home, your real estate agent will put your earnest money deposit into an escrow account. If your offer is accepted, the earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you.
-How much down payment do I need to buy a home?
Depending on the loan program you are using, the minimum down payment required will vary. Lenders offer loans with various down payment options; until recently, there were a variety of programs with no down payment and low down payment programs, and it was relatively easy to qualify for them.
Right now lenders are requiring more strict conditions for such programs, and your credit score, your income, and debts you have will play a key role in the type of loan you get. If your credit is not good, you very well may have to put 20% of the price of the home.
Use our Down Payment Calculator and consider different values, it will help you explore your options. You may try our Mortgage Qualification Calculator, to estimate how much home can you afford with your income. When you buy a home, you also have to consider closing costs, property taxes, transaction fees, homeowners association charges, moving costs, and probably dozens of other associated costs.
-Can I apply for a loan before I've found a property?
Yes. In fact you are advised to do so. A pre-approval will take into consideration your personal information such as income, debt and credit history. This information will be used to determine your maximum loan amount. When you're pre-approved you will know your maximum price limit and will not waste time looking at homes you can not buy.
You have time to review different mortgage programs available, interest rates, etc. without pressure or fear of missing an opportunity on a home you really like. To secure financing in advance and obtaining a pre-approval letter also shows sellers and real estate agents that you're serious about buying, and when you find the right home you'll be ready.
When the buyer has difficulty qualifying for a loan to purchase a property, the seller can assist by taking a second note (or even financing the whole transaction, if the seller owns the home free and clear). It can also be used if the buyer doesn't have all the money necessary to complete the purchase, by ways of the seller giving a credit to the buyer against the purchase price, getting a note from the buyer, and a deed on the seller's favor.
An advantage for sellers is that they can fetch a higher price, and close on the property faster. A disadvantage is the risk involved, the seller should consider very carefully the buyer's capacity to pay.
This is often a difficult decision, you don't want to offer too much, and feel like you made a bad deal, or offer is too little, offend the seller, and loose the deal altogether.
Your real estate agent can provide valuable information about actual selling prices of similar homes in the area, how long has the property been in the market, if you are competing against other offers. Take into consideration if you will have to spend in renovations or changes to the home to make it the way you want it.
When writing your offer, first of all make sure you can afford making the payments involved in your financing. If you talked to your lender beforehand and obtained a pre-approval letter, you should know what is your maximum price, do not over-extend yourself. Next, ask yourself if the asking price realistic; your Realtor can provide you with a CMA (Comparative Market Analysis) and help you calculate the true market price of the home.
You should also ask yourself how much do you really want this home: if the answer is "a lot", remember that your chances are better if your offer is close to the asking price. Finally, remember it's a buyer's market now, be prepared to haggle and negotiate your price.
-If I buy that home, how much will I pay in taxes?
Your primary reference will be what the owner is paying now; this information is included in the listing information, or your real estate agent can find it for you. This will be only an estimate, since tax rates changes every year. If the seller has been living in the property for many years, you can expect to see a sizable increment in your tax bill next year.
Different cities in South Florida have different tax rates, some areas like Coral Gables or Miami Shores have higher millage rate than the rest. Another variable will be if you intend to live in the property as your primary residence or not.
If you will live in the property, you're entitled to a tax break called "Homestead Exemption", where $25,000 are deducted from the assessed value of the property. Considering these factors, and the millage rate of the city where the property is located, you can arrive at a good estimate of your taxes, or your real estate agent can prepare it for you.
-What types of mortgages are available?
There are many financing options for purchasing a home. The four types of mortgages that are most commonly used are:
(1) Conventional Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan. The lender obtains a legal title to the property (lien) in return for the payment of the amount of money lent to the buyer.
(2) FHA mortgage: A conventional mortgage which is insured in whole or in part by the Federal Housing Authority (FHA). This allows the lender to give you a better deal: easier credit qualifying, your down payment can be as low as 3% of the purchase price, and most of your closing costs and fees can be included in the loan.
(3) Adjustable Rate Mortgages (ARM): An adjustable rate mortgage offers a fixed initial interest rate and a fixed initial monthly payment. After the initial period is over, the rate and term of the mortgage can be modified at predetermined times under the agreement to reflect the current market mortgage rates.
(4) Purchase money mortgage: A home-financing technique in which a buyer borrows from the seller instead of, or in addition to, a bank. Also known as seller financing or owner financing. A first mortgage on the property has priority over any second mortgage on the property; the lender holding the first mortgage has a more secure interest in the event of a default since the obligations are paid first in the event of foreclosure and sale.
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