Q: How large a down payment should I make?
A: Ideally, you should purchase a home with a 20% down payment. 20% down is recommended because it’s a big enough cushion to protect lenders from default. However, there are numerous loan options with less than a 20% down payment. Some are even as low as 3% and VA loans are 0% down. See your lender to discuss what works best for you.
Q: Why do I need homeowner’s insurance?
A: Homeowner’s insurance is mandatory. When you purchase a home, your mortgage lender won’t allow you to close the purchase until you’ve demonstrated that you have proper homeowner’s insurance.
Q: What is loan prequalification?
A: A loan prequalification is an informal discussion between the borrower and the lender. The lender provides an opinion of the loan amount that you can borrow based solely on what you tell them. The lender doesn’t verify anything and is not bound to make the loan when you’re ready to buy.
Q: What is loan preapproval?
A: A loan preapproval is a much more rigorous process than prequalification. Loan preapproval is based on documented and verified information regarding your income, your liabilities, and the cash you have available to close on a home purchase.
Q: Why should I get preapproved?
A: Going through the preapproval process is a sign of your seriousness to buy a house. A lender’s preapproval letter is considerably stronger than a prequalification letter.
Q: What are points?
A: Points are up front interest and cost you money. Lenders charge points as a way of being paid for the work and expense or processing and approving your mortgage. One point is equal to 1% of the amount that you’re borrowing.
Q: Why should I pay to have a property inspected?
A: All properties should be inspected. Period. If you’re spending a lot of money for a property, protect your investment by having it inspected.
Q: What is a counteroffer?
A: It’s highly unlikely that the sellers will accept your offer as it’s originally written. Sellers use counteroffers to fine-tune the price, terms, and conditions of the offers they receive.
Q: Should you write a personal letter to the seller and include a photo of your family?
A: This is a good strategy! It can definitely benefit you do so when there are multiple offers on a home you’re interested in. This is a fairly new practice and has come about due to a shortage of homes for sale. Keep in mind that while realtors are to keep personal information confidential, the information you share might be revealed to your future neighbors. Often times, neighbors will ask the seller if they know who is moving in and some of the information you write may be shared. This is just something to keep in mind.
Q: What are escalation clauses?
A: An escalation clause is written into the agreement (also known as the offer) stating that you would be willing to pay an amount over the best offer (with a max) when there are competing offers. Seek legal advice if you are considering writing this to see if it’s the best option for you.