Common Real Estate Questions from 1st Time Buyers
1) What is Private Mortgage Insurance?
Freddie Mac defines PMI as:
“An insurance policy that protects the lender if you are unable to pay your mortgage. It's a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.
Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”
Read More on Private Mortgage Insurance Here
2) What is Earnest Money Deposit?
Earnest Money is a deposit put down by the buyer upon Mutual Acceptance. Buyer's have 48 hours or less to deposit these funds or the contract is void. This action shows the seller the buyer's good faith in the transaction. In other words, the buyer is depositing funds in escrow to demonstrate they are serious about moving forward with the transaction while conducting inspections and obtaining financing.
3) Why do Interest Rates Matter?
The interest rate you secure when buying a house not only greatly impacts your monthly housing costs, but also impacts your purchasing power.
Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.
4) How Important is FICO Score?
The FICO mortgage score is the number that represents an individual's creditworthiness. Lenders look at this number to determine how likely you are to pay back your debts. Your credit score will ultimately what house you can buy, because it will determine how much the bank will lend to you to buy a house.
The FICO Score is used by the vast majority of lenders. Understand the make up, the components that increase or decrease your credit score, a few changes can drastically improve your score.
5) What are Closing Costs?
Closing costs are fees associated with your home purchase and home loan at the closing of a real estate transaction. The closing point is when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller.
6) What is a Short Sale?
In simple English, a short sale is when the seller is selling their property for less than they owe on the property. In other words, the bank will fall short on the mortgage loan, which is how it gets the name Short Sale.
Read More about Short Sales Here
7) What is an Appraisal?
An appraisal is 3rd party, expert estimate of the value of something. Speaking specifically to the real estate world, an appraisal is the written estimate of a property’s market value. The value is determined by a multitude of factors, the most common being recent sales in the area of similar properties, amenities, and the property’s physical condition.
8) What is a Pre-Approval & Why Does it Matter?
Pre-approved means you are approved for a mortgage loan up to a certain amount. This is sometimes confused with with Pre-qualified. There is a distinct yet subtle difference, which can be the difference between securing your dream home and heading back to search mode.