Jen and Maxwell’s Top 24 List of

“Not So Stupid Questions!”

1. How do I know if I’m ready to buy a home?

You can find out by asking yourself some questions:

Do I have a steady source of income (usually a job)?
Have I been employed on a regular basis for the last 2-3 years?
Is my current income reliable?
Do I have a good record of paying my bills?
Do I have few outstanding long-term debts, like car payments?
Do I have money saved for a down payment? (Some may qualify for 0 down and do not need the usual 3-5% down).
Do I have the ability to pay a mortgage every month, plus the additional costs?
If you can answer “yes” to these questions, you are probably ready to buy your own home.

2. How does purchasing a home compare with renting?

The two don’t really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.

Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that’s an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities – like insurance, real estate taxes, and upkeep – which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.

3. Do I need to get pre-approved before searching for a home?

There are two important reasons why it is important to be pre-approved before searching for a home. The first is you will save time and frustration by allowing yourself the peace of mind that the homes you are looking at are within your budget. Secondly, when we do write that offer to purchase, if you have a pre-approval letter, you have made yourself look to the seller like a cash buyer. What I mean is that if the seller has two offers to consider, yours and one that does not have a pre-approval letter with it, your offer will look more appealing to the seller, perhaps even if your offer is slightly lower.

4. How does the lender decide the maximum loan that I can afford?

The lender considers your debt to income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA (Federal Housing Administration) monthly mortgage payments should be no more than 29% of gross income. While the mortgage payment, combined with non-housing expenses, should total no more than 41% of income. The ratios used for a Conventional loan are 28/36, VA is 41 combined, and an FHA with a new construction home is 31/43. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

5. How can I determine my housing needs before I begin the search?

Your home should fit the way you live, with spaces and features that appeal to your whole family. Before you begin looking at homes, make a list of your priorities – things like location and size. Should the house be close to certain schools? Your job? To public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a “wish list”. Minimum requirements are things that a house must have for you to consider it, while a “wish list” covers things that you’d like to have but aren’t essential. Be sure to share these preferences with your Realtor.

6. What should I look for when deciding on a community?

Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a more rural community? When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable and at home.

7. How can I find out about local schools?

You can get information about school systems by contacting the city or county school board or the local schools. Your Realtor may be knowledgeable about schools in the area or you can check out the Texas Education Agency’s “School Report Card” at www.tea.state.tx.us.

8. How can I find out how much homes are selling for in certain communities and neighborhoods?

Ask Jennifer and Maxwell! They can give you a ballpark figure by showing you comparable listings. They have access to comparable sales maintained on the Multiple Listing Service database and can easily email them to you.

9. Is an older home a better value than a new one?

There isn’t a definitive answer to this question. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiance, and have lower property tax rates. People who buy older homes, however, shouldn’t mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture, and systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don’t want to worry initially about upkeep and repairs. Another factor to consider is that in today’s market, many new home builders are offering incredible buyer incentives to make it easy to get into one at 0 down.

10. Do I need a Realtor when purchasing a home from a builder?

Technically, no. But if you had to defend yourself in court, would you ask the prosecuting attorney to defend you? The on-site sales agents’ job is to represent the builders’ best interest. Jennifer and Maxwell represent you. Their job is to represent your best interest.

Many ask if they can get a better deal if they buy a new home without an agent. The answer is no. The builders pay the Realtor’s commission and it in no way affects the sales price or incentives the builder is offering. Jennifer was an on-site agent for 5 1/2 years and will be a great asset to have when negotiating the price, selecting options that will make your home practical and comfortable, and she will do the best she can to make sure you’re treated honestly and fairly.

11. What are discount points and how do they work for me?

Some builders talk about discount points when they’re talking about incentives. The definition of a discount point is that 1 point equals 1% of the loan amount. Say your sales price was $100,000 and you’re doing an FHA, 3% down loan. The builder is offering 4 points. Your loan amount would be 97% of the sales price or $97,000. The value of 4 discount points would be calculated as follows:

100,000 (sales price)
x .97

97,000 (loan amount)

97,000

x .04 (points)

$3,880 (dollar value of points)

Now how can the points work best for you? Depending on what the builder will allow, points can be used to lower the sales price, interest rate, closing costs, and/or pre-paids. The most common way for points to be used is for interest rate reduction. Your loan officer can best determine what will work the best for you based on your current financial needs. Keep in mind that there are limits to how many points the lender will allow the builder to give, so with builders that are offering 4 or more points, depending on the type of loan, you may need to use the leftover points towards reducing the sales price.

12. How many homes should I consider before choosing one?

There isn’t a set number of houses you should see before you decide. Don’t be surprised if the first home you see is the one you want to buy. If it’s not, just be sure to communicate often with Jen and Maxwell about everything you’re looking for. Tell them what you do and don’t like about each home you see. This will avoid wasting your time and it will help them help you find the right home.

13. What if I don’t find the “Perfect Home”?

Remember, the perfect home has never been built! That is why we’ll make your “wants list” and your “wish list”. We’ll look only at houses that have the things you really want and must have, and if they have some of features and characteristics of your “wish list” it will be an added bonus!

14. How do I make an offer?

Jen and Maxwell will write an offer which will include the following information:

Complete legal description of the property
Amount of earnest money
Down payment and financing details
Proposed move-in date
Price you are offering
Proposed closing date
Length of time the offer is valid
Details of the deal
Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer. It will be effective beginning the day after both parties have signed and initialed and it has been delivered to the title company.

15. What is earnest money? How much should I set aside?

Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price. If your offer is accepted, the earnest money is cashed and then it becomes a part of your down payment or closing costs. If the offer is rejected, your money is refunded to you. If you back out of the deal, you may forfeit the entire amount.

16. What are “Home Warranties”, and should I consider them?

Home warranties offer you protection for a specific period of time (ie. one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner’s insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped. When negotiating a contract on a re-sale, Jennifer and Maxwell will ask the seller to pay up to a certain amount for a home warranty. On new homes, the builder will provide a warranty.

17. What is the “option period”?

The option period is a period of usually 7-10 days for you to have the home you’re about to purchase inspected. This may include a general inspection, WDI or “Termite” inspection, septic, and / or well inspections depending on the property. You will give the seller a check that they will deposit right away for a nominal fee to take the house off the market during this time. The amount is usually about $100 for 7 days and $150 for 10 days. The amount will be credited to you, the buyer, at closing, but if you decide to cancel and not follow through with the closing, you will not receive the money back, but you will receive your earnest money back. By the time the option period is up, we can accept the house as it is and do nothing, or try to negotiate repairs. This will need to be done with an amendment to the purchase contract.

18. What does a home inspector do, and how does an inspection figure in the purchase of a home?

An inspector checks the safety of your potential new home. Home inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of any repairs that are needed.

The inspector does not evaluate whether you’re getting good value for your money. Generally, an inspector checks the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, the potential presence of pest, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced. Jennifer and Maxwell will be happy to arrange for an inspection of your home or you can choose one on your own.

In most cases the contract we will write has an inspection clause or “option period” in it that gives you an “out” on buying the house if serious problems are found, or gives us the ability to renegotiate the purchase price if repairs are needed. Some inspections are foreclosed or “HUD” homes in which the seller (bank) will not do any repairs. They usually have a period of 7 days though with no option fee for you to have the home inspected.

19. Do I need to be there for the inspection?

It’s not required, but it’s a good idea. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas, and it is the best time to ask general maintenance questions.

20. Do I need a Home Energy Audit?

If you’re buying a home in the city of Austin that is more than 10 years old, the Seller will be required to have an energy efficiency audit prior to listing their house for sale. This will cost the them about $200-$300 for the audit, and in some cases, since the future buyers’ (you) will read this report, there may be some repairs we would ask the sellers’ to make during the “option period”

21. Is the home located in a flood plain?

We will ask the listing agent or the builder this question, and later it will be confirmed by the survey. If you do purchase in a flood plain, the lender will require flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work with an insurance agent to construct a policy that fits your needs.

22. What make up closing costs?

Closing costs are usually made up of the following:

Attorney’s or escrow fees (yours and your lender’s if applicable)
Property taxes (to cover tax period to date – also called a “pre-paid”
Interest (paid from date of closing to up to 30 days before first monthly payment – also called a “pre-paid”)
Loan origination fee (covers lender’s administrative costs – usually 1% of loan amount).
Recording fees
Survey fee
First premium of mortgage insurance (if applicable)
Title insurance (yours and your lender’s)

23. What is PMI?

PMI stands for Private Mortgage Insurance or insurer. These are privately owned companies that provide mortgage insurance to borrowers, and guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility.

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%. There are ways of not paying the MIP (Mortgage Insurance Premium) by doing an 80/10/10 loan or 80/15/5. Ask Jennifer, Maxwell, or your loan officer for details.

24. What should I look out for during the final walk-through?

This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix them.

If you have any other questions or think of another one that should be on this list, please let us know!