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Questions

FAQ's (Frequently Asked Questions)

Should I buy or rent?
How much money do I need to buy a home?
How much can I afford?
What are additional costs for owning a home?
How much should I offer for the house that I want?
What if the seller rejects my offer?
What happens during closing?
Should I get an inspection?


Should I buy or rent?
The decision whether to buy or rent a home can be a challenging one, especially for first time home buyers. For those who've never owned a home, understanding the pros and cons of both options is a must and you should never enter the real estate market with more questions than actual answers.

One of the biggest factors to consider is how long you plan on living in the area. If you work in a field that requires you to relocate every 3-5 years, renting would be a better option. On the other hand, if you don't have any plans to relocate from the area in the near future, buying a home would be a better alternative. For prospective buyers, the decision to purchase a new home depends on factors other than job stability such as real estate taxes, home appreciation, mortgage payments, insurance costs, etc.

Another factor to consider is the expected appreciation value of the home. The earlier you purchase a home, the faster the appreciation will work. When you rent a home, the monthly rent check is spent. Buying a home, on the other hand, is an investment because the value of the home will rise over time. Also, interest from the mortgage loan can be deducted from your federal income taxes as well as state taxes. In the end, you'll have your very own home that's truly yours - a home that expresses your individuality.

There are additional costs to consider for homeowners other than mortgage, insurance, and tax payments. The home may need minor or even major repairs once in a while. Someone will also need to take care of the landscaping and gardening, whether it is you or a landscaping company that you hire. Conversely, if you rent a home, the landlord is responsible for these additional costs of being a homeowner.

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How much money do I need to buy a home?
Whether or not you can afford a home depends on the type of mortgage you get as well as the cost of the home. You need enough money for earnest money, down payment, and overall closing costs.

Earnest money is the deposit that you will make to the seller which shows that you "earnestly" intend to acquire the property and the deposit amount will depend on a few factors but a good rule of thumb is to place a larger deposit than other potential buyers. If the seller accepts your offer, the earnest money will be applied towards the closing or down payment. However, if the seller does not accept your offer, the earnest money will be returned to you.

The down payment, which is usually 20% of the sale price on most standard loans, is required in order to receive the best possible mortgage interest rate. The larger the down payment, the lower your monthly mortgage payments will be.

Closing costs are miscellaneous costs such as loan processing fees, surveyor fees, state, county, or city transfer taxes, etc. associated with processing the paperwork to purchase a house. Typically, closings costs are 2-4% of the purchase price. The lending institution will give you an estimate for the overall closing costs.

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How much can I afford?
There are two ways to figure out if you can afford a particular home. One, the monthly home-related costs should be around 33%, also known as the housing expense ratio, of your gross monthly household income (income before taxes). Two, the mortgage loan should be no more than) 2.5 times your annual salary. These are recommended values and many factors can change these values but the qualified loan officer can give you a much better idea for these values.

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What are additional costs for owning a home?
The additional costs, other than mortgage and taxes, for owning a home are utility costs like electricity, gas, and water. A more precise figure for utility costs can be estimated by your real estate broker. There are also maintenance costs like roofs, appliances, carpet, etc. Roofs, for example, should be replaced every 15-25 years. Things do break and require replacements so take it into consideration and make sure to have some money set aside for repairs.

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How much should I offer for the house that I want?
There is no perfect answer since each property is different but the real estate broker is the perfect person to help you. You can, however, take a few things into consideration when making an offer. Is the house overpriced compared to similar houses in the area or is the house underpriced? If it's underpriced, try to purchase it as soon as possible before someone else does. In this case, if you really want the house, offer more than the asking price, if you have to. Has the home been on the market for quite a while? If it's been on the market for a while, the seller just might accept a much lower amount than the asking price. Again, the best thing is to consult your real estate broker for the offer.

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What if the seller rejects my offer?
It happens. You may have offered too little. There might be a competing buyer. There are many reasons but don't be discouraged. Your real estate broker is there to help you. You may have to negotiate back and forth until a deal is finally struck. While negotiating always keep in mind what you can afford and what you can't afford.

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What happens during closing?
Closing is the last step required before you can own your new home. It is a meeting where the seller's broker, your broker, accompanying real estate agents, and attorneys finalize the sale. A lot of paperwork is signed, the buyer makes the payment, and finally the seller gives the deed that transfers the title of the house to the buyer.

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Should I get an inspection?
You should most definitely get an inspection. Usually, the buyer will have to pay for the inspection which can vary from $200 to $500. A home is a huge investment and a professional inspector can reveal any defects that the house may have. The inspector will look at structural elements of the house, electricity, plumbing, appliances, etc. As a result of the inspection, you can request the seller to repair or pay for any defects.

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