Frequently Asked Questions

How much should you offer for a house?

When making an offer, you should consider the following factors:

  • The advertised price of the house.
  • What you can afford.
  • Prices for comparable houses.
  • Whether the local real estate market is hot or cold.
  • The seller's needs, like whether the seller needs to close quickly.
  • Whether the house is uniquely valuable to you.
  • How much you feel good about paying for a particular house.

What is a house "CLOSING"?

The so-called "closing" is the final transfer of the house to the buyer. It occurs after both the seller and the buyer have met all the terms of the contract and the deed has been recorded. Closing also refers to the time when the transfer will occur, such as "the closing on my house will happen on January 27 at 10:00 a.m."

The event referred to as the closing frequently takes place at the office of the professional who handles the transaction, such as a title officer or real estate lawyer.

How does seller financing work?

In rare cases, a seller will agree to loan you part or all of the money to buy the property. This can happen when you can't borrow enough money from a bank or commercial lender or when the seller wants to spread his or her income from the sale over a number of years. This can be carried out in one of two ways.

The first possibility is for the seller to take back a mortgage on the house. You, the buyer, sign both a promissory note (promising to repay the loan) and either a mortgage or a deed of trust (allowing the seller to foreclose if you fail to pay). In return, the seller signs a deed transferring title to you. Because you hold the title, you can sell the house or refinance. But you must keep making the agreed-upon payments to the seller.

The second and less popular possibility is for the seller to keep title to the property for as long as it takes you to pay off the loan. The contract you and the seller sign is known by various names, including “contract for deed,” “contract of sale,” “land sale contract,” or “installment sales contract.” It works like this: The contract states that the seller will keep title to the property until you pay off the loan. (You normally pay the loan off in a series of regular payments, similar to a standard mortgage.) After you pay off the entire loan, the seller signs a deed transferring title to you. Because the seller keeps the title over the life of the loan, you cannot sell or refinance the property until all payments are made and the title is transferred -- an obvious reason for the unpopularity of these contracts.

How Real Estate Agents Differ

In most states a real estate agent must disclose which party he or she works for--by default usually the home seller, and disclosure typically occurs during the first substantial contact with a home buyer.

Here's a brief look at some of the details you might hear during disclosure:

Seller's Agent

  • An agent working for the firm that holds a seller's listing. An agent working for a firm belonging to an affiliated or local Board of Realtors is called a seller's sub agent, and is in the same category.
  • The agent's loyalty is with the seller.
  • Buyers should not give confidential information to a seller's agent.
  • Assume any agent is a seller's agent unless you've signed a contract to change that status.

Buyer's Agent

  • An agent who has signed a contract to represent a buyer in a home search and sales transaction.
  • The agent's loyalties are to the buyer.
  • Buyer's agents should not disclose confidential information about the buyer to the seller or seller's agent.
  • Some buyer's agents work exclusively with buyers, taking no listings. Many Do Both.

Dual Agent

  • An agent who works for the firm that holds a seller's listing, and who has signed a contract to represent a buyer who wishes to purchase that listing.
  • The agent has a loyalty to both the buyer and seller.
  • Dual agency must usually be agreed to in writing by both the buyer and the seller.

Facilitator

In some states you will hear the term facilitator used to describe an agent who brings the parties together, but is not an advocate for either side.

Buyer's agent duties and loyalties

  • Home buyers should be able to expect loyalty and confidentiality from a buyer's agent.
  • The agent should promote your best interests and provide you with all available facts that could influence your decision about making an offer for a home.
  • A buyer's agent will offer research materials that help you make a realistic offer.
  • A buyer's agent should give you the "what if" scenarios about the clauses in a contract. The agent may recommend additional contract contingencies to protect your interests.
  • A buyer's agent should track and handle many of the day-to-day needs required to get to closing (such as inspections, helping you find a lender, tracking the progress of the loan, working with the closing attorney or agent).

Your Contract with the Agent

An exclusive buyer agency agreement normally ties you to one agent. That means in some cases you may owe the agent a commission even if you switch to another agent or agency. A non exclusive buyer agency lets you have multiple buyer agents without altering standard contracts, but some agents won't work in that capacity.

  • The contract should cover a specific time period agreeable to both parties.
  • The agreement should be in writing. It should outline the expectations of both the buyer and the real estate agent.
  • The agreement can be far-reaching or cover listings only in a specific geographical area.
  • The contract should address agent compensation. Buyer's agents are usually paid a portion of the seller's commission at closing, but not always. Ask how agents are paid in your area. What if you buy a for sale by owner property? Will you pay the agent's commission? If not, get it in writing now.

A buyer agency agreement is a binding contract. Be sure you understand every aspect of it before you sign.

When You Contact an Agent

  1. Verify that the agent can work as a buyer's agent.
  2. Ask the agent to explain the services you can expect if you make her your buyer's agent.
  3. Ask for a blank copy of the buyer agency contract and take a day or two to study it. If some aspects of the contract concern you, ask the agent to delete or alter them.
  4. Find out how dual agency is handled.
  5. Don't let anyone pressure you into signing an agreement that doesn't feel right.

The Bottom Line

Don't sign a buyer agency agreement until you know the agent is the right one for your needs. Some states allow agents to initially work under an oral buyer agency agreement, but you'll usually need to put it in writing before making an offer. 

An alternative is to allow the agent to work as a seller's agent until you feel comfortable signing an agreement. Do not disclose confidential information to a seller's agent.

What should a home buyer expect from a seller's agent?

Assume that any real estate agent is a seller's agent until you know otherwise. In most states, a real estate agent is required to disclose which party he or she represents at the first substantial contact with a home buyer–whether it's in person, by telephone, by mail, or in an email.

  • A seller's agent can help you find and purchase a property and may provide some of the same services as a buyer's agent, such as setting up your pest and home inspections and monitoring your progress from contract to closing.
  • A seller's agent must disclose material facts about a property. Material facts include things such as a leaky foundation or roof and other known structural problems.
  • A seller's agent cannot disclose personal information about the sellers or the seller's property, such as an impending divorce, foreclosure, or job change.
  • A seller's agent has a duty to get the best possible deal for the seller, so always assume that any information you give a seller's agent will be passed on to the seller. Never disclose your "top dollar" or any other confidential information to a seller's agent.
  • Working with a seller's agent may be a good choice if you do not wish to be tied to one agent.
  • Seller's agents are compensated at closing from the seller's commission.

When You Contact an Agent

  1. Ask if the agent represents the seller.
  2. Ask the agent to explain exactly what that means in relation to the tasks he can help you with.
  3. Ask if the agent can work as a buyer's agent or dual agent, then ask the agent to explain how services for those relationships differ.

What should home buyers expect from a dual agent?

A dual agent is a real estate agent who has signed a buyer agency agreement with a buyer who wishes to purchase a listing held by the agent's firm.

Dual agency often isn't intentional. Perhaps you called the agency and asked to see a listing held by another firm. You hired one of the agents as your buyer's agent, but then found that the first house wasn't the right one for your needs. Now you're looking at many other homes, including listings held by your buyer agent's firm.

Dual agents must be loyal to both the buyer and seller, so ask your agent to explain dual agency before it happens. Get all of the what-ifs. Find out exactly what you can expect from you agent should dual agency occur.

When dual agency is allowed, it must usually be agreed to in writing by all parties. Real estate laws differ, so ask about dual agency rules in your state.

Home Buyers Have Responsibilities, Too

We hear a lot of talk about real estate agents--what they should and shouldn't do and say, whether they represent buyers or sellers--but we don't hear too much about buyer responsibilities.

A successful real estate transaction requires cooperation from everyone associated with the sale. There are things you can do to help your agent, which in the long run gets you to closing faster and with fewer bumps along the way.

Get pre-approved by a lending institution.

  • You won't waste your time or the agent's looking at houses out of your price range.
  • If you find a house you like, you'll feel confident making an offer. If you have written proof, your agent can present it with your offer, making a powerful statement that you can truly buy the home.
  • You'll have a better idea how much to expect in closing costs.

Think seriously about your needs and wants.

It's sometimes difficult to find the ideal home. Evaluate your needs and wants to determine which items are most important to you. Convey that information to the agent.

Be honest with the agent.

How much personal information you give a real estate agent depends on your relationship with her, but no matter what the relationship is... be honest.

If you're working with multiple seller's agents, let them know so that their efforts don't overlap. It's a waste of everyone's time. You might lose an agent by making that admission, but it's best to do it now.

Don't ask your agent to do anything illegal.

That includes obvious tasks that might relate to fraud or deception. It also includes fair housing issues. Your agent must comply with fair housing laws.

Cooperate with the agent.

  • Don't judge listings by looking at MLS sheets. Sure, choose some of the houses you want to see, but let your agent make choices, too.
  • Don't refuse to keep a listing appointment just because you don't like the exterior. It's rude to drive away and it creates hard feelings. You don't have to spend a lot of time in the house, but do a walk-through.
  • Don't blindly follow an agent's directives, but do cooperate. If contracts must be signed, don't let them linger. Your verbal acceptance of a counter offer might be discarded if you take your time to sign.
  • Attend your home inspection and pest inspection if possible. You should be there to see and hear things firsthand.
  • Gather all paperwork needed to process your loan. Meet with the loan officer as required.
  • Choose your closing agent if that applies in your area. Work with your agent to make sure everything's ready for closing (switching utilities, obtaining insurance binders, etc.)

Closings don't just happen. They happen because at least one person is following through, often on a daily basis. The road to closing is a lot smoother if everyone involved cooperates.

I've had bad credit, and I don't have much for a down-payment. Can I become a homebuyer?

You may be a good candidate for one of the federal mortgage programs that are available. A good place for you to start is by contacting one of the HUD-funded housing counseling agencies. They can help you sort through your options. In addition, contact your local government to see if there are any local homeownership programs that might work for you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can't find it, contact your mayor's office or your county executive's office.

I'm a single mother. How would I go about buying a home?

Although you won't have the benefit of two incomes on which to qualify for a loan, there's no reason that you can't become a homeowner. Become familiar with the process, pick a good real estate broker, and think about getting pre-qualified for a loan. You might want to contact one of the HUD-funded housing counseling agencies in your area to talk through your options. And you also might want to think about buying a HUD home - they can be very good deals. Also, contact your local government to see if there are any local home buying programs that could help you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can't find it, contact your mayor's office or your county executive's office.

How much money will I have to come up with to buy a home?

Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.

When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your 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. The amount of your earnest money varies. If you buy a HUD home, for example, your deposit generally will range from $500 - $2,000.

The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That's why many first-time homebuyers turn to HUD's FHA for help. FHA loans require only 3% down - and sometimes less.

Closing costs - which you will pay at settlement - average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won't be caught by surprise.

How do I know if I can get a loan?

Use our simple mortgage calculators to see how much mortgage you could pay - that's a good start. If the amount you can afford is significantly less than the cost of homes that interest you, then you might want to wait awhile longer. But before you give up, why don't you contact a real estate broker or a HUD-funded housing counseling agency? They will help you evaluate your loan potential. A broker will know what kinds of mortgages the lenders are offering and can help you choose a lender with a program that might be right for you. Another good idea is to get pre-qualified for a loan. That means you go to a lender and apply for a mortgage before you actually start looking for a home. Then you'll know exactly how much you can afford to spend, and it will speed the process once you do find the home of your dreams.

How do I find a lender?

You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Shopping for a loan is like shopping for any other large purchase: you can save money if you take some time to look around for the best prices. Different lenders can offer quite different interest rates and loan fees; and as you know, a lower interest rate can make a big difference in how much home you can afford. Talk with several lenders before you decide. Most lenders need 3-6 weeks for the whole loan approval process. Your real estate broker will be familiar with lenders in the area and what they're offering. Or you can look in your local newspaper's real estate section - most papers list interest rates being offered by local lenders. You can find FHA-approved lenders in the Yellow Pages of your phone book. HUD does not make loans directly - you must use a HUD-approved lender if you're interested in an FHA loan.

In addition to the mortgage payment, what other costs do I need to consider?

Well, of course you'll have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. Your real estate broker will be able to help you get information from the seller on how much utilities normally cost. In addition, you might have homeowner association or condo association dues. You'll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, your broker will be able to help you anticipate these costs.

So what will my mortgage cover?

Most loans have 4 parts: principal: the repayment of the amount you actually borrowed; interest: payment to the lender for the money you've borrowed; homeowners insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders; and property taxes: the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year. Most loans are for 30 years, although 15 year loans are available, too. During the life of the loan, you'll pay far more in interest than you will in principal - sometimes two or three times more! Because of the way loans are structured, in the first years you'll be paying mostly interest in your monthly payments. In the final years, you'll be paying mostly principal.

What do I need to take with me when I apply for a mortgage?

Good question! If you have everything with you when you visit your lender, you'll save a good deal of time.

You should have:

  1. Social security numbers for both your and your spouse, if both of you are applying for the loan
  2. Copies of your checking and savings account statements for the past 6 months;
  3. Evidence of any other assets like bonds or stocks;
  4. A recent paycheck stub detailing your earnings;
  5. A list of all credit card accounts and the approximate monthly amounts owed on each;
  6. A list of account numbers and balances due on outstanding loans, such as car loans;
  7. Copies of your last 2 years' income tax statements; and
  8. The name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information.

I know there are lots of types of mortgages - how do I know which one is best for me?

You're right - there are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage, which normally is 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it. Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities index. The advantage of an ARM is that you may be able to afford a more expensive home because your initial interest rate will be lower. There are several government mortgage programs that might interest you, too. Most people have heard of FHA mortgages. FHA doesn't actually make loans. Instead, it insures loans so that if buyers default for some reason, the lenders will get their money. This encourages lenders to give mortgages to people who might not otherwise qualify for a loan. Talk to your real estate broker about the various kinds of loans, before you begin shopping for a mortgage.

When I find the home I want, how much should I offer?

Again, your real estate broker can help you here. But there are several things you should consider:

  1. Is the asking price in line with prices of similar homes in the area?
  2. Is the home in good condition or will you have to spend a substantial amount of money making it the way you want it? You probably want to get a professional home inspection before you make your offer. Your real estate broker can help you arrange one.
  3. How long has the home been on the market? If it's been for sale for awhile, the seller may be more eager to accept a lower offer.
  4. How much mortgage will be required? Make sure you really can afford whatever offer you make.
  5. How much do you really want the home? The closer you are to the asking price, the more likely your offer will be accepted. In some cases, you may even want to offer more than the asking price, if you know you are competing with others for the house.

What if my offer is rejected?

They often are! But don't let that stop you. Now you begin negotiating. Your broker will help you. You may have to offer more money, but you may ask the seller to cover some or all of your closing costs or to make repairs that wouldn't normally be expected. Often, negotiations on a price go back and forth several times before a deal is made. Just remember - don't get so caught up in negotiations that you lose sight of what you really want and can afford!