Buyer Frequently Asked Questions
Q. How do I know how much home I can afford?
A. The best way to understand how much home you can afford is to speak with a lender that you know, like, and trust. If you do not have one, your realtor should be able to recommend several for you to speak with. The lender will want to know your income, your debts, and your credit scores (you will need to give the lender permission to run them). This information will allow the lender to work up your financial profile and thereby determine how much money the bank will be willing to lend you.
Q. How much money will I need to buy a home?
A. The simple answer is – IT DEPENDS. It depends on a number of factors including:
- the purchase price of the home, and
- the type of loan that you get.
When you purchase a home, you need to have enough money to cover the costs of the down payment and any closing costs (costs associated with processing the paperwork to buy a home). Different loans require you to put down different down payment amounts. Closing costs typically average between 3-5% of the purchase price of the home. Prior to putting an offer on a home, your lender will provide you with a worksheet that estimates what your TOTAL costs to close would be – Down payment plus closing costs.
Q. Can I go look at homes before speaking with a lender?
A. Technically, YES, you can go look at homes before you speak with a lender. However, this is not recommended. Before going to visit homes, you want to understand first whether you can qualify for a loan, and if you can, how much you qualify for. Why would you want to spend time looking at homes that are outside of your price range, only to later become disappointed when you want to make an offer and the lender tells you that you do not qualify?
Q. What types of loans are available?
A. There various types of loans available.
- FHA (Federal Housing Authority) – Requires a minimum down payment of 3.5%. Other costs associated with this loan are the up-front mortgage insurance premium and the monthly mortgage insurance premium that is charged to the buyer for participating in this program. Seller can contribute up to 6% in closing costs assistance to the buyer.
- Conventional Loans – Require minimum down payments of 5%, 10%, 15%, 20% or more (varies with each lender). Monthly mortgage insurance may be required for down payment amounts less than 15%. Seller can contribute up to 6% in closing costs assistance to the buyer when the buyer’s down payment is 10% or greater. 3% closing costs assistance when the buyer’s down payment is 5%.
- VA (Veteran’s Affairs) – Available to active duty and retired veterans only, this program does not require the buyer to have a down payment. Seller can contribute up to 6% in closing costs assistance to the buyer.
- Doctor Loans – Currently only offered by a few banks, these loans are available only to MD’s.
In addition to the particular loan you choose, you can also select the duration of the loan – whether it be 30, 20, or 15 years, and whether you want a fixed or adjustable rate mortgage. Shorter mortgage durations result in higher monthly payments, but save you interest over the total life of the loan. With a fixed rate mortgage, your interest rate remains fixed for the entire term of the loan. With an Adjustable Rate Mortgage (ARM), your interest rate and monthly payments usually start lower than a fixed rate mortgage but can change either up or down according to a pre-determined schedule. NOTE: Speak with your lender about the specifics of each program and the associated pros and cons to help you select the right one for you.
Q. Do I need to have a down payment to purchase a home?
A. With the exception of the VA loan, all other loan types require that you have a down payment. FHA loan rates change and typically require a minimum down payment. Conventional loans can allow buyers to put down as little as 5%. It is always best to check with your lender regarding specific requirements and details of each program prior to looking at properties.
Q. What is included in the monthly mortgage payment?
A. Most loans are comprised of the following components that make up your total monthly bill:
- Principal repayment – the amount you actually borrowed;
- Interest – payment to the lender for the money you borrowed;
- Homeowners insurance – 1/12 of your home insurance bill which is used to insure your home against loss from fire, smoke, theft, and other hazards required by most lenders; and
- Property taxes – 1/12 of the property taxes you are required to pay.
For FHA loans, the banks also collect a Monthly Mortgage Insurance Premium, which is a requirement for participating in the FHA program.
NOTE: the banks collect your Home Owners Insurance and your property taxes as a convenience to you and pay them when the bills are due.
Q. Are there any other costs associated with the home purchase, other than the down payment?
A. In addition to the down payment, there are costs associated with processing the paperwork to buy a home. Typically known as “closing costs”, these costs can range from between 3-6% of the purchase price. Closing costs include such items as lender and title company fees, as well as the payment of real estate sales or transfer taxes that each jurisdiction collects when real estate transfers ownership. In addition to these fees, the bank will collect your per-diem interest owed from the date of settlement to the end of that month, as well as several month’s taxes and insurance to fund what is known as your escrow account. When you apply for your loan, your lender will give you an estimate of the closing costs.
Q. What is an escrow account?
A. An escrow account is an amount of money maintained at a lending institution to pay the annual taxes and insurance on mortgaged property. Approximately 1/12 of the estimated annual cost of taxes and insurance is paid into the account each month from the borrower’s monthly mortgage payment. Then the lending institution pays the taxes and insurance from this account when they are due. An escrow account is required by many lending institutions to ensure that the taxes and insurance premiums are paid on time.
Q. Other than purchase price, are there other financial factors that I need to consider when buying a home?
A. In addition to purchase price, you want to consider the property taxes that you will pay (even though these will be rolled into your mortgage payment) and other costs such as utilities, Home Owner Association/Condo dues, Water/Front Foot/Sewer charges, and costs to maintain the home. Average monthly utility costs can be found by calling your local utility (BGE – 410 685-0123) and the Condo/HOA dues and any Front Foot/Water/Sewer charges will be disclosed by the seller. To help you determine average maintenance costs, your home inspector should be able to provide you with estimates or you can search the web for sites that provide averages.
Q. Are there any incentive programs available for first time home buyers or even home buyers in general?
A. To find out what incentives may be available to you check out this sitehttp://www.mdhomeprograms.com. Simply answer a few questions and check a few boxes and this site will identify all of the programs available to buyers.
Q. How do I know if the realtor I am working with is the right agent for me?
A. Simply put: if it feels right, then it is right. When determining the realtor that you want to work with, it is best to interview several to help you get a sense of whether they would be the right fit for you. In addition to experience (years and certification) and their understanding of the local market, you want to make certain that you get a sense that they understand your needs and that they are someone that you can trust. Because this is going to be one of the most expensive decisions you will ever make, you want to make certain that you are working with someone that has the knowledge and experience to make you feel comfortable throughout the process and be able to provide you with all of the resources that you need.
Home Buying Questions
Q. What should I consider when buying a home?
A. When determining the requirements for your new home, it is best to first start with location. After you have determined where you want to live, then focus on the home itself. Be specific in the requirements that you want, realizing that you may never get all of them. Your home should fit way you live, with spaces and features that appeal you. Requirements should, at a minimum, include home style, size, number of bedrooms and bathrooms, parking requirements, lot size, and age of home.
Q. What should I consider when identifying a community?
A. Select a community that will allow you to best live your daily life. Are the quality of the schools important to you? 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 rural community? When you find places that you like, talk to people who live there. They know the most about the area and will be your future neighbors. Another great way to check out an area is to speak with the mailman. They know everything about the neighborhood and are a great resource. More than anything, you want a neighborhood where you feel comfortable. I always recommend driving or bicycling around neighborhoods at different times of day. Pay attention to how people maintain their yards, what cars they drive, and who you see outside.
Q. Should I really care about living in communities governed by a Home Owner’s or Condominium Association?
A. It depends if these type of community fits your lifestyle. Communities governed by Home Owner (HOA) and Condominium Associations have rules and regulations governing the exterior of your home, including colors, landscaping, renovations, renters, etc. People who choose to live in one of these types of communities must ask themselves whether they would like living within the rules that provide for the uniformity of structures that these communities can afford their residents. You do get an opportunity to review the HOA or Condominium Association rules and regulations as part of the contract process. If you do not like any aspect of the rules and regulations, you can cancel the contract, without having to provide any reason to the seller.
Q. How can I find out about local schools?
A. There are several great websites that will allow you to evaluate the schools for your particular community. If you Google the county, that will take you to the specific website where you can enter the address of each home that you may be interested in to see what school it is zoned for.
Q. How can I find out about crime in the area?
A. There are several websites that maintain crime and sexual predator statistics. Because crime and living next to a sexual predator are NOT reasons for you to break a contract, it is important for you to research this information before submitting an offer on any home. Each local police department maintains crime statistics. You can also look at sites such ashttp://spotcrime.com/md.
Q. Once I am in contract on a home, can I back out of the contract for any reason?
A. No. The Maryland Association of Realtor (MAR) Contract is very clear regarding how you may terminate the contract. Specifically, you are allowed to terminate the contract if you are no longer able to get financing, inability of both parties to come to an agreement on the home inspection repair resolution, in ability to come to an agreement regarding wood boring insect damage remediation, and review of the Home Owner/Condo Association documents. You are NOT allowed to terminate the contract based on crime statistics or the presence of sexual predators in your neighborhood. Always verify that information prior to making an offer on any home.
Q. How many homes should I see before making an offer?
A. The amount of homes you see before making an offer is a personal decision. You have to remember that before you go to visit a home in person you will most likely view homes on line. Through this on-line visitation process, you will narrow down the “favorite” homes that you want to see. If a home that you go to visit “feels” like it is your home, then make an offer on it. If you want to visit additional homes before making your decision you have that right as well. But remember, the home that you love will continue to be visited by other buyers and could be bought by someone else while you are reviewing all of your other options.
Q. How long does it take to buy a home?
A. The typical time frame to purchase a home from the date of contract acceptance can take between 30-45 days. Sometimes longer. Sometimes shorter when it’s a cash deal. This timeframe will be mutually agreed to during the contract negotiation process.
Q. Do I need to have homeowner’s insurance?
A. If you are purchasing a home with a mortgage, the lender will require that you maintain homeowner’s insurance on the property. A paid homeowner’s insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. If you pay cash or have paid off the home, your decision to obtain or maintain a current home insurance policy is up to you. If you choose to let your policy lapse, you will have no coverage pertaining to any loss that may occur on your home.
Q. Are home warranties the same thing as home insurance?
A. Home warranties offer you protection for a specific period of time (e.g. 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.
Q. Do I really need to do a home inspection?
A. It is a good idea to have a home inspection so that you can have a better understanding of the condition of the 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 repairs that are needed. The inspector does not evaluate whether or not 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 pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector who is qualified and experienced. A home inspection is an important contingency that will protect you from purchasing a home that has significant problems.
Q. What else should I consider when buying a home?
A. Aside from liking the location and layout of a home, you want to be aware of issues that could affect your overall quality of life in the home. Issues to consider pertain to:
- Insurability – check with your insurance agent to pull up an insurance claims history on the home because homes where high amounts of claims have been made could affect your ability to either get insurance on the home or the insurance rate that you pay.
- Average monthly utility rates – contact your local utility to see what average monthly utilities are. Be cognizant of the fact that if the home is vacant that it could have lower than average utility bills. Also, understand that the previous owner’s personal preference and comfort have a bearing on the bills as well.
- Location – Location of the home in an area that has a propensity to flood or located near a hazardous materials site.
- Master development plan – you want to contact your local government to see if any master development planning has occurred that could affect your area – new homes, new roads, etc.
- Permits – If the home is listed as remodeled/renovated by the listing agent, search the permits that have been registered with the local jurisdiction to make certain that the owner adhered to all regulations and building codes.
- Local zoning laws – you want to identify current or potential future local zoning laws which could affect remodeling or making an addition in the future.
- Home Owner/Condominium Association rules – is the home governed by rules and regulations that you feel that you can live with?
Q. Does the age of a home matter?
A. The simple answer is: It depends. You should look at each home for its individual characteristics. While a home’s structure may be older, the home may have been remodeled and therefore has all of the modern amenities of a newer home. A home inspection will inform you about the condition of the home.
Q. When walking through a home what should I consider/pay attention to?
A. When visiting homes that have made your short list of contenders, pay attention to whether the home will accommodate your lifestyle. Other things to pay attention to include whether:
- There is enough room for both the present and the future, including storage
- There are enough bedrooms and bathrooms, and you are happy with their locations
- The home is structurally sound
- The mechanical systems and appliances work
- They yard is big enough or have enough useable space
- The floor plan works for you
- Anything needs to be repaired or replaced
Q. What questions should I ask when looking at homes?
A. When looking at homes, one might think that just because a home looks nice it has been well maintained. For many homes this can be true. And while you will most likely perform a home inspection on any property you are intending to purchase, it is still important to dig a bit deeper and obtain information from the seller regarding:
The age of the roof and mechanical systems in the home – Heating, AC, Appliances, Plumbing, Electrical. Whether the mechanical systems have been maintained on a regular schedule. Whether the home has sufficient insulation in the walls and attic. If the home is new construction or has gone through significant renovation, were the proper permits obtained? Whether there are issues with moisture or water getting into the home? Whether the seller has all necessary warranties, and if so, do they transfer to the new owner?
Maryland law requires that the seller disclose any issues that they are aware of. To prevent surprises, it is always a good idea to review this statement before making an offer to purchase.
Making an Offer
Q. How do I know what price to offer for a home?
A. When you find a home that you would like to make an offer on, your realtor will provide a market analysis showing for the selling prices for homes in the neighborhood within the last 90-120 days. The information provided in this analysis will show list price, sold price, and whether there was any seller subsidy or closing cost assistance provided to the buyer. This information will provide you with information regarding an acceptable range for your offer. You will compare your home of choice against the homes listed in this analysis to come up with an offer that makes the most sense.
Q. When making an offer what factors should I consider, other than purchase price?
A. In addition to purchase price, other typical options for you to consider in your offer include: closing cost assistance, settlement date, inspections or contingencies you would like to have, and whether you would like the seller to provide you with a home warranty.
Q. How do I make an offer on a home?
A. Using the market analysis of recent home sales that your realtor provides you, speak with your lender to develop the parameters of the offer. For example, do you want to ask for a price reduction, closing cost assistance, or both? The lender will develop worksheets that show you down payments, closing costs, and monthly mortgage payments for each scenario you want to examine. Once you have determined the composition of the financial portion of the offer, you will work with your realtor to draft the offer using standard Maryland Association of Realtor forms. You will let your realtor know offer price, closing cost assistance, settlement date, and the inspections that you would like to perform. In addition to this, your lender will have provided an offer letter for the exact amount of your offer. Never provide a lender letter showing the full amount that you have been qualified for if your offer is less than that amount. Along with the offer and lender letter, you will also have to provide an earnest money deposit (EMD) check to accompany the offer. This EMD check is typically in an amount that is equal to 1% of the purchase price. Once all of these documents are compiled, your agent will present this offer to the seller’s agent who will in turn present it to the seller for review.
Q. Once I make an offer, what can I expect?
A. Once the offer has been submitted to the seller’s agent, the seller and their agent will meet to evaluate the offer. The seller’s agent should call your lender to evaluate whether your financial situation is strong and whether your loan has a high probability of being granted based on your credit scores, income and debt. Don’t worry, your lender will not divulge any personal information about you. After reviewing your offer, the seller will either accept your offer as is, counter the offer with different terms they feel acceptable relating to price, settlement date, closing cost assistance, or inspections that you would like to perform, or flat out reject the offer. If the seller counter’s your offer, you can either accept their terms or make another offer. Again, the seller could choose to accept the new offer or counter again. The process will continue until either party accepts the terms or decides to not continue negotiations. If the seller rejects your offer, they feel that your offer was too low to even consider. At this point you either choose to make a more reasonable offer (listen to your realtor’s advice) or suspend negotiations because you never really wanted the home to begin with.
Q. Is there a typical response time to hear back from the seller once I make the offer?
A. There is no typical response time. However, you should write into your offer that you would like to have a response within 24 hours. This timeframe should allow the seller sufficient time to evaluate your offer. It also limits the seller’s ability to shop your offer around as they wait for other potential offers to come in. Of course, if the seller is out of town, you may want to allow some additional time, but that will be worked out between your realtor and the seller’s realtor.
Q. When does an offer become a contract?
A. An offer becomes a contract when both buyer and seller have signed, initialed, and dated in all of the appropriate places and the document has been returned to the buyer’s agent.
Q. Can I rescind my offer before accepted by the seller?
A. Yes, an offer is just that, an offer. So, anytime before it becomes a contract it can be rescinded. You want to rescind offers in writing.
Q. What types of contingencies are available in a contract?
A. Contingencies upon which a contract can be based include your ability to get financing, the sale/lease of your current home, inspections that include – home (structural and mechanical), inspecting for the presence of wood boring insects, testing for lead/mold/radon or other environmental issue, examining the chimney, and review of the Condo/Home Owner’s Association documents.
Q. What types of inspections are typically available?
A. When you purchase a home, typical inspections include the home (structural and mechanical), inspecting for the presence of wood boring insects, testing for lead/mold/radon or other environmental issue, and examining the chimney. You do not have to do any of these inspections, however, most agents would recommend that you perform the home and wood boring insect inspection (FHA/VA loans require this). If the inspections turn up any items that require repair or replacement, then your realtor will request in writing that the seller repair or replace those items using licensed contractors.
Q. What happens at settlement?
A. Sometimes referred to as a settlement, your closing is the final step of your real estate transaction. The closing is handled by a neutral third party closing agent such as a title company or a real estate attorney. At a closing, major events include:
- A home’s title (and the keys) are transferred from seller to buyer.
- The proceeds of the sale are distributed to the seller.
- If the home is financed, the buyers sign the mortgage note.
Closings involve signing a lot of paperwork, including the deed, which grants legal rights and is signed by the seller and given to the buyer. The deed will then be registered with the city or county to protect the ownership rights of the new owner. Keys are also given from the seller to the buyer.
As a buyer or seller, it’s important to review the HUD-1 document before closing. The HUD-1 shows line-by-line each and every expense, as well as who is responsible for paying each amount. You should get this document a minimum of one day prior to closing, but hopefully several days before. As a buyer, you will typically have to pay your share of closing costs and escrow fees at closing, so you will need to bring a cashier’s check with you for the balance of what you owe for closing costs, as stated in the HUD-1. Of course, if closing cost assistance has been negotiated, this assistance will reduce the amount of funds that you need to bring with you.
Q When do I receive the keys?
A. You receive the keys to your new home on the day of settlement once all parties have signed all appropriate paperwork and money has changed hands.
Q. Do I need a lawyer to purchase a home?
A. Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is involved. Even if your state doesn’t require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee, and whether the attorney is experienced at representing homebuyers.
Q. What is a Title or Settlement Company?
A. Maryland allows you to select either an attorney or Title/Settlement company to ensure that the home you are purchasing properly transfers from the current owner to you. Real estate title companies work with the lenders and real estate agents of both the buyer and seller to facilitate the terms of a real estate contract. And while buyers typically have very little interaction with these companies until the day of settlement, they perform an important role throughout the real estate transaction.
Once a contract has been received, the title company examines the public land records to investigate the title to the property to establish that that the contract seller is the legal owner; if there are open mortgages, judgments, or any liens which must be satisfied before “clear” title can be conveyed; if there are existing restrictions, easements, public utilities, etc., which may limit rights to the use of the property, or grant rights to others who are not property owners; and determine the status of property taxes and other public or private assessments.
Throughout the process, the title company maintains close contact with the lender and buyer and seller agents to obtain the documentation necessary for closing the transaction. Working closely with the bank, the title company compiles all the lender’s charges, miscellaneous fees, title company fees, and other closing costs into a final Settlement Statement. When all of the parties have been assembled at a time they have prearranged, the papers and fees will be explained by the title company and the papers will be reviewed and executed. The title company assumes the responsibility of collecting all funds necessary for the transfer and the prompt and accurate disbursement of such monies. After the closing has taken place, the title company will make sure that the legal documents have been filed for record, the mortgage lender’s requirements have been fulfilled and all of the necessary paperwork returned to them, all outstanding liens have been fully paid, and the title policies prepared and sent out.
Property Tax Questions
Q. Where can I find the latest information regarding property taxes?
A. The Maryland State Department of Assessment and Taxation website will allow you to look up the property taxes for any home http://www.dat.state.md.us/. Simply click on the link “Real Property Data Search” and enter the County and property address and the property tax information will be available.
Q. Can I appeal the property taxes?
A. If you feel that your property is assessed at a value that is not in-line with the current values of the local market, you do have the right to appeal those taxes. Simply click the link “Assessment Petition for Review” on the home page of the Maryland State Department of Assessment and Taxation website at http://www.dat.state.md.us/.
Q. Are there any incentives that reduce property taxes for home owners?
A. Yes, the State of Maryland does have several programs that will help reduce a home owner’s property taxes. For more information on these programs click the link “Tax Credit Programs and Exemption Information” on the home page of the Maryland State Department of Assessment and Taxation website at http://www.dat.state.md.us/.