Buy a Home
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Frequently Asked Questions (FAQ)
Buying a Home
The process of buying a home is unique for each homebuyer, but the following steps are recommended.
- Take a home buyer education class and/or read up on home buying.
- Resolve any outstanding credit issues and determine what you can afford.
- Get pre-approved for a mortgage loan.
- Select a real estate agent and shop for a home in your price range.
- Make an offer and an Earnest Money Deposit, and sign a Purchase and Sales Agreement (typically it will be 30-60 days from date of signed agreement to closing).
- Purchase a home inspection and negotiate any repairs (usually within 10 days of the offer acceptance).
- Complete a formal loan application. The lender will process your application to make sure that you and the house you have chosen qualify for the loan (3 weeks average).
- Shop for homeowners insurance.
- Bring your funds to the closing meeting (including down payment and other closing costs) and sign closing documents and receive the keys to your new home!
The length of time it takes to buy a home depends on the buyer and the market. Once the property has been identified and a contract signed, negotiation and loan processing can typically take between 30-45 days, depending on terms and financing choices.
In some circumstances, closing dates can change. If you are currently in a lease it is wise to give yourself sufficient time to account for a delay. You can help avoid delays by making sure the documentation you submit is as complete and accurate as possible, and by promptly informing your lender, real estate agent and others involved in the home purchase process of any changes.
Is Homeownership Right For Me?
Owning a home takes time and hard work and it is perhaps the greatest financial investment you may ever make. It’s essential that you protect your new asset through home safety precautions, sound household budgeting, and regular home maintenance. As you pay down your mortgage over time, you have the satisfaction of knowing that you are building equity for the future. You also will gain pride in ownership, personal stability, potential tax benefits and be a part of building a stronger community.
Practically, you should expect to spend time and money on maintenance and house-related tasks –cleaning, repairs, improvements, landscaping/yard work, and more. Please see How do I maintain my home? for a detailed list of common maintenance items that will likely need attention on an ongoing basis.
Owning a home takes time and hard work and it is perhaps the greatest financial investment you may ever make. It’s essential that you protect your new asset through home safety precautions, sound household budgeting, and regular home maintenance. As you pay down your mortgage over time, you have the satisfaction of knowing that you are building equity for the future. You also will gain pride in ownership, personal stability, potential tax benefits and be a part of building a stronger community.
Practically, you should expect to spend time and money on maintenance and house-related tasks –cleaning, repairs, improvements, landscaping/yard work, and more. Please see How do I maintain my home? for a detailed list of common maintenance items that will likely need attention on an ongoing basis.
The amount of money you can afford to pay for a home depends on many factors, including your income, your debt, your monthly expenses, the amount of money you can contribute to the purchase up front, among other factors. The maximum dollar amount that a bank will agree to lend you should be the upper limit; in most cases, it is advisable to borrow less than this amount.
There are many calculators available online to help you get a general sense of what you can afford on sites like Zillow, Bankrate.com, and others. At Community Housing of Wyandotte County (CHWC, Inc) we use the financial information you provide to create a home purchase package that is unique to you. The Affordability Range that is shown on your Dashboard is calculated based on your current gross monthly income and your current monthly debt. At Community Housing of Wyandotte County (CHWC, Inc) we consider a monthly housing payment to be genuinely sustainable as long as it is no more than 28% of your gross monthly take home pay. But realistically, most families are usually also making monthly payments on some other kind of debt besides their housing payment (such as a car note or paying down credit card debt).Because of that, we also take a look at your TOTAL debt when calculating what your maximum home purchase price. When looking at your total debt (your house payment plus any other monthly debts you might be paying), we consider your total monthly debt to be sustainable when it is 36% or less than your gross monthly pay.
Here’s an example – if your gross monthly pay is $4,000, then your monthly housing payment should be no more than $1,120, or 28% of $4,000, and your TOTAL debts shouldn’t exceed $1,440, or 36% of $4,000. Let’s say in addition to your housing payment, you have a monthly car note of $400. We subtract that $400 from the total debt payment allowable ($1,440) to come up with a monthly housing payment that shouldn’t exceed $1,040. So, even though your gross monthly income can support a housing payment of $1,120, once you combine your housing payments with your other outstanding debt (car note), you need to lower your housing budget down to $1,040 in order to stay below the 36% sustainability range for total debt payments. Remember, this is just an example - your homeownership advisor can provide a person-to-person perspective in addition to the financial one. This is designed to give you a personalized recommendation for the mortgage amount you can afford and sustain.
If you are considering becoming a homeowner, ask yourself the following questions:
- Have you had steady income and stable employment for the past 2 years?
- Do you plan on remaining in the area for the next few years?
- Have you created a budget so you know how much you can realistically afford for a monthly mortgage payment?
- Do you have an established credit history or records of payment to previous landlords and utility companies?
- Do you consistently pay your bills and your debt payments on time?
- Do you have some money saved for a down payment and the fees involved in home purchase?
- If you have had a bankruptcy, was it discharged more than 3 years ago?
- Is your monthly debt low enough not to limit your ability to qualify for a mortgage?
- Are you ready to care for and maintain a home?
- Have you been pre-qualified by a lender, so that you know how much you can borrow based on your income and current debt?
- Have you looked into the benefits of special financing programs that are available to moderate income, first-time home buyers?
If you answered “yes” to the majority of questions listed above, you are probably near-ready to buy a home. If you answered “no” to the majority of questions, you probably need more time to get ready to buy. You should consider engaging with a Community Housing of Wyandotte County (CHWC, Inc) homeownership advisor to develop a plan that will help you to get to a position where you can buy a home.
Buying a Home: Fees and Costs
Purchasing a home will require that you pay a variety of fees and costs though these can vary based on the market. The costs listed below include the typical costs most homebuyers will encounter during the homebuying process.
Purchase Price
The first and easiest cost to understand is the purchase price. This is the amount of money that you are committing to pay for the home. In most cases, a large part of this will be covered by a mortgage loan; the rest will be paid through your down payment.
Earnest Money Deposit
In most cases when you make an offer you will commit to contributing some portion of the total purchase price into the transaction. This indicates your intention and ability to buy the home and is called an Earnest Money Deposit (EMD). As a rule, the EMD is generally 1-3% of the purchase price and is credited to your transaction at closing.
A portion of your down payment is typically placed into escrow at the time that your offer is accepted. The EMD can be almost any sum that the buyer and seller agree to. Although it is generally refundable if the transaction is canceled, there are cases when the EMD may be lost if the buyers are unable to complete the purchase and do not notify sellers appropriately.
Down Payment
The down payment is the payment that you contribute to the transaction. Usually just before the close of escrow the buyer (you) will receive an estimate of how much money you need to bring to the closing. This amount includes your down payment and any closing costs, minus the earnest money deposit (EMD) you paid into the transaction.
The down payment typically represents only a percentage of the full purchase price. Typically, this is money you have saved, but for some loans you can use gift funds from family members or other down payment assist programs. Mortgage financing generally covers the remaining amount owed to the seller. In some cases, the EMD is not refundable if the deal falls through and buyers do not notify the sellers appropriately.
It is still possible to buy a home with as little as 3.5% down payment. Providing a small percentage down payment can be a necessity for some homebuyers, but it does mean that you’ll have very little equity in your home when you first purchase. Buying a home with a down payment of less than 20% generally means that you may have to pay private mortgage insurance (PMI) every month until your equity in the home exceeds 20% of market value. The investment in PMI can be partially offset by the tax benefits of the mortgage deduction but the tax benefit can vary based on individual financial circumstances and IRS rules/deductions can change over time.
Some fees associated with purchasing a home may be non-refundable if the transaction is cancelled or denied, such as the home inspection and appraisal.
Home Inspection
Generally, buyers pay for all inspections costs associated with the purchase of the home. The inspections required, and their prices, depend on the age and condition of the home as well as where the home is located. A general property inspection typically costs between $350-500 depending on the size of the home. Roof inspections generally run $100-200. Roof inspections are not included in the cost of the general home inspection. Trade-specific inspections (those by plumbers, landscapers, electricians, etc.) are generally equal to about 1 hour of the usual rate. It is important to comparison shop and/or get recommendations from trusted referrals when selecting a home inspection firm. The key to a home inspection is that the buyer is fully aware of the condition of the home so the more thorough, the better. The information provided by the inspection can also be used as part of the negotiation process with the seller.
Check your state and local guidelines, or with your Community Housing of Wyandotte County (CHWC, Inc) homeownership advisor or loan officer to see what other inspections are common or recommended in your area. They may include radon, oil tank, sewer scope, lead based paint, termite or other pests, and others. Some regions may require sellers to perform an additional health and safety inspection before they offer the home for sale.
Appraisal
An appraisal is an independent evaluation of the property’s value provided to the bank. Appraisals may be paid for directly at the time the service is rendered or billed at the close of escrow and included in the closing costs.
Mortgage Application Fee
Lenders may charge a fee for you to apply for a mortgage. This can range from $300-750 or more depending on your lender, and some portions may be non-refundable. There may also be similar fees for a second mortgage or down-payment assistance depending on the program.
This term generally refers to the amount of money that is necessary to bring to escrow to 'close' or complete your purchase – it includes the purchase costs and some of the transaction costs as well as some fees specific to closing.
Closing costs typically include:
- Loan costs: Lender’s fees typically range from 1-2% of your loan, but can be as high as 5%. Lender fees can include underwriting, processing, recording, and notary fees.
- Escrow costs: Escrow fees are based on the value of the property being purchased.
- Title Insurance: Title fees are also based on the value of the property being purchased.
- Insurance costs: Prior to closing the transaction your lender will require that you select a home insurance provider. Usually the first year’s policy premium will be included and paid as part of the closing costs. The size of the premium depends on the type of property and the insurance you are purchasing.
Real estate agents are typically paid a commission by the listing broker, provided the home is listed on the Multiple Listing Service with a broker. At the time of listing, the listing agent working with the seller will negotiate the total commission for the transaction. In most cases, a portion of this is allocated to pay the agent who represents the buyer. The amount of money earned by the agents involved is a percentage of the total purchase price.
For Sale by Owner properties may work differently. Even though the seller is choosing to represent themselves, they may have allocated a commission for the buyer’s agent in the transaction and these details should be negotiated and documented in the Purchase and Sales Agreement. If not, the buyer is responsible for covering the real estate agent’s commission.
In some regions, an attorney may be involved to facilitate the closing process and provide representation for the seller. In most cases it is not necessary for a buyer to provide their own attorney, but you do have the option to do so, at your own cost. If you decide to engage your own attorney, the cost of services range from $400-$1,200 or more, depending on the length and complexity of negotiations and the attorney you select. Attorneys can be engaged on an hourly basis or with a flat rate.
Once the home is yours, remember to budget for the additional costs to move your belongings and to turn on all utilities in your name, as well as the regular costs of home maintenance. Buying a home isn’t just a matter of replacing a rental payment with a mortgage payment. There are also maintenance and utility costs, property taxes, and homeowners insurance. Don’t forget about these costs when you are thinking about how much house you can afford.
If possible, ask the current homeowners about their average utility costs and property taxes, get a homeowner’s insurance quote, and budget about one percent of the home’s purchase price for annual maintenance. Then run the numbers to see if you can afford the home.
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