29 Essential Tips for Buyers
Many Home Buyers Lose Thousands Of Dollars When Finding, Buying And Financing Their Home.
It’s true! Many home buyers actually lose thousands of dollars when buying a new home, even tens of thousands of dollars. Why? Because often they don’t take the time to educate themselves and learn about the process. Not all agents understand it enough to effectively guide you through the process either.
“Most People Don’t Plan To Fail…But Fail To Plan”
If you’re in the market to buy a home anytime soon, of course you want to find the best possible home at the best possible price, with the best possible terms. Before you can do that you need to take a few minutes to educate yourself on the process.
I’ve put together a list 29 common questions you might have with your next home purchase…It’s my free gift to you as a way to say thank you for visiting my website!
#1 What is an “as-is” sale?
An “as is” property is sold without a warranty as to condition, repairs, or structure. The reality is all sales are “as-is” unless it is 
agreed otherwise. We see this verbiage pretty commonly right now as a way to put the buyer is on notice that the seller makes no promises regarding the property’s physical status. With an “as is” sale, it is extremely difficult to make a claim against a seller if something is found to be wrong with the property after closing. This does not mean that the buyer does not have the right to do a full physical inspection and counter or back out within the allotted time periods. On the contrary, the fact that the seller is making a point of stating the “as-is” nature of the transaction means you should be especially cautious regarding the condition and diligent in your inspection.
#2 How long must I live in a house once I buy it with an owner-occupied mortgage?
When you apply for a loan, a lender will ask if you intend to use the property as your primary residence. If the answer is “yes,” then it is expected that you will physically move into the property and live there for some time. There does not seem to be a set definition in the term “some time,” but what lenders are getting at is this: They do not want to make residential loans with low rates and little down to investors.
Thus, if someone gets a residential mortgage, instantly moves out, and quickly rents the place, lenders will be more than unhappy – and they may call the loan. They may also review the loan application to see if fraud was involved. Lenders do not want borrowers to move in and then rapidly move out, but they will look at the “facts and circumstances” if such an event occurs. For instance, a sudden job change not known in advance might be a valid reason for a move after several months of occupancy. What lenders do not want are situations where a “residential” borrower is actually a disguised investor. Given that most homes are occupied for 8-10 years, a move after several months or a years may set off bells. It boils down to were you fraudulent in your intent? Fraud is a crime with sever penalties, my advice is don’t do it. If you are truly an investor then use the proper loans.
#3 Can I buy real estate with no money down? And no money out of my pocket?
Yes. Millions of people have bought real estate with no money down and even no money out of their pocket through the VA loan program. 
If you mean, can you buy real estate at a discount of 20% or 25% with no cash or credit, and then instantly sell or rent the place at a profit, then the answer is probably not. Why “probably” instead of “absolutely” not? Because in a marketplace with millions of transactions each year, somebody somewhere has made a deal with no money down and rented or sold at a profit. But it is also true that somebody somewhere was hit by lightening. The problem is that the term “no money down” is sometimes in the worst cases a code expression for a deal where someone without cash or credit wishes to buy property from someone who is needy, unsophisticated, desperate, in mourning, etc. Under the guise of “helping” the owner, buyers offer to purchase property at 20% off, or more, and with subordination and substitution clauses. Of course, if purchasers really meant to be helpful, they would surely pay full market values. Let’s be clear. If no-money-down schemes are so wonderful, why do folks who engage in such investments have a need for “partners” with cash?
#4 We made an offer on a home below the asking price and it was rejected. Is there anything we can do to make the seller more reasonable?
Who says the owners aren’t reasonable? They have established a market price for their home. If they can get that price within a reasonable time frame, then they have logically priced their home. If the price cannot be obtained, they will lower either the price or the property will be withdrawn from the market. Because your experience in a different market made selling at a loss acceptable, that does not mean the same logic applies in other markets, or that your choice should in any way impact the sellers. Perhaps it would make sense to restructure your offer – maybe raise your price but seek better terms.
#5 If we can get the seller to discount the sale price can we use that as our down payment?
No. Lenders provide financing based on the sale price or the appraised value, whatever is less. In the case of a “discounted” price, say selling a home worth $450,000 for $430,000, the sale price is $430,000. Lenders do not recognize a discount.
A better approach is to pay full market value but to make the transaction dependent on a “seller contribution” at closing. The effect is the same, but the accounting makes more sense to lenders. This is where an experienced Realtor can really help you by structuring your offer “creatively”.
#6 What is a “due on sale” clause?
When a home is financed, the borrower agrees to make regular monthly payments. However, if those payments are not made, if they are late, or if the lender’s security is reduced (by not making payments, damaging the property, not maintaining insurance, not paying property taxes, selling the property, selling a part of the property by placing someone else on the title, etc.), then the lender has the right to call for the complete and immediate (say within 30 days) repayment of the loan. The mortgage language outlining the lender’s rights is generally called a “due-on-sale” or “acceleration” clause. One effect of a due-on-sale clause is that it effectively prevents a loan from being assumed.
Borrowers should note that state and federal law may limit the ability of lenders to enforce a due-on-sale clause. For instance, a title change in the event of an estate situation may be allowed.
#7 What is a “seller contribution”?
A sale agreement typically includes both a purchase price for the property as well as terms and conditions. It sometimes 
happens that a buyer will make an offer subject to certain terms. (I’ll buy your house, but I want to keep the washer and dryer, etc.)
One possible condition concerns “seller contributions.” (For example, I’ll buy your house if you will pay the up to 1% of the price of the home towards my closing costs.) Lenders will generally accept seller contributions as part of a transaction providing they are written into the sale agreement, fully disclosed and only represent a limited fraction of the sale price. Different loan programs have different contribution caps. Lenders and brokers can provide specific advice.
A seller contribution can be a useful bargaining chip in slow markets. (Buy my house and you can have a credit of $x at closing.) It’s a thought that goes a long way with cash-strapped buyers.
#8 Can I rent out a room of the prospective purchase to help me qualify for a loan?
Generally no. Lenders have no assurance that such income will be regular and continuing. In addition before you can use rent as income they typically want to see an established history of it and even then will only allow you to use a certain portion of it. This is where a good lender can help you out tremendously.
#9 How quickly must I apply for a loan when buying a home?
Many sale agreements require buyers to apply for a mortgage within a specific time period, say seven days after the contract is signed. This is a negotiable item, however, and can be any period agreeable to both parties. In the current market it is customary for this to be done before the offer is made. I personally would rarely allow my sellers to enter into a contract with a buyer without proof that the buyer could perform in advance. This is also the commonly accepted practice in the market as well.
This is an important matter because if an application is not made, then a buyer may be in violation of the sale agreement. Thus, buyers should go through the sale agreement with great care before signing to assure that all obligations are known and understood. Work with an appropriate professional such as a buyer broker when reviewing a sale agreement.
#10 I am getting married in two months. I have lousy credit but my spouse-to-be has excellent credit. Can my future spouse by a home individually?
Yes. However, he or she may only be able to borrow based on one income and his or her credit standing. Together you might have far more income. Lenders, incidentally, will probably want both parties on the property title even if you are not on the mortgage. This removes a barrier should foreclosure be required.
#11 If the appraised value and sale price are different, what will the lenders use to base the mortgage off of?
Whatever is lower. Lenders want as little risk as possible, so they will look at both the sale price and the appraised value and then make a loan based on the lower of the two numbers.
#12 What is “buyer’s remorse”?
With some frequency it happens that buyers often have a sense of remorse after contracting to buy a home. Why?
A home is a very large purchase. Not just in terms of dollars, but also in the sense of status, ego, and commitment. And because it is such a transforming event, it naturally and reasonably causes some concern.
But not to worry. Buyer’s remorse typically passes in quick order.
#13 Can I buy a home after a bankruptcy?
Probably. There are two issues to consider.
First, lenders like to see a few years of good credit after a bankruptcy is resolved. However, there are instances where lenders will finance with a year of good credit.
Second, lenders want to know why you have gone bankrupt. There is a substantial difference between a bankruptcy that is caused by reckless financial habits or due to simple financial disasters (a car wreck, medical costs, the plant closed after 30 years, the town was underwater for three weeks, etc.). In other words, not every bankruptcy is a by-product of financial negligence.
Check with a good lender on this one. Each case is different and programs are changing all the time.
#14 What is a brokers “trust” account?
In terms of a real estate sales agreement, a “trust” account is typically an account operated by a real estate broker that is used to hold buyer deposits until closing.
Example: Buyer Smith makes an offer to purchase a home. With the offer is a $10,000 deposit. That deposit is held by Broker Smith in a trust account. The money in a broker’s trust account is typically a credit to the buyer at closing. If the sale does not close, however, then several alternatives are possible:
First, buyer and seller may agree to return the trust money to the purchaser. Second, buyer and seller may agree to give the money to the seller to resolve claims that the buyer did not perform as agreed under the sales contract. Third, buyer and seller may dispute how the funds should be distributed. In this situation, the money is usually turned over to a court or, in at least one jurisdiction, the state real estate commission.
The industry is getting away from trust accounts due to the liability they present. It is become more and more common for buyers to deposit funds directly into escrow without ever touching the broker’s hands.
#15 What is a lender’s escrow account?
When homes are bought with 80% or more financing from a single lender, the lender generally requires the borrower to make monthly payments to a lender “escrow” (trust) account.
The purpose of the lender escrow account is to accumulate money to assure that the borrower’s property taxes and property insurance are paid (and thus reduce the lender’s risk).
Lenders typically collect 1/12th of the annual costs for property insurance and taxes each month. They are allowed to keep as much as one full year’s worth of tax and insurance payments in the account, plus a two-month safety margin, plus $50. The only time the account is likely to have 12 monthly payments plus the two-month cushion is just before property taxes or insurance are due.
Lenders must account to borrowers annually with a statement showing how much is in the account, whether monthly payments will rise or fall in the coming year, and whether any surplus or shortage appears in the account. If the surplus is more than $50, the excess must be returned to the borrower. Note that some states require lenders to pay interest on escrow accounts, others do not.
#16 What is the difference between a Condominium and a Townhome?
A buyer of a condominium owns his or her individual unit, plus a percentage of the surrounding property, including land and any amenities on the property. (The word “condominium” is Latin, meaning “common ownership” or “common control.”) Residents are members of a homeowners’ association and pay a monthly fee to the association in exchange for maintenance of the common property. Each condominium complex has a master deed which outlines the percentage of ownership each unit in the development has invested in the entire complex. That percentage determines residents’ monthly dues to the association. Condominiums come in a wide variety of architectural styles, from two- and three-story buildings arranged apartment-complex style with carports to luxurious high-rise properties with sweeping views of the surrounding city or natural landscape.
A buyer of a townhomepurchases his or her individual unit, as well as the ground underneath that unit. Each townhome has its own roof, in contrast to condominiums. Townhome residents also typically belong to a homeowners’ association and pay monthly fees in exchange for the general maintenance of common outdoor areas. Townhomesoccasionally come with such single-family home amenities as garages and backyards (albeit small backyards), for which owners generally are responsible for maintaining.
#17 We are buying a home and have a copy of the seller’s property questionnaire and disclosures, do we still need a home inspection?
CA has a mandated seller disclosure form that must be used for most properties. This form provides an opportunity for the seller to answer certain questions regarding the property’s condition. Just ask the broker or the owner for a copy.
But a seller disclosure form is not a substitute for an independent examination by a professional home inspector. A seller may well complete a form to the best of his or her ability, but without knowledge of home construction, that ability may be limited. And a state-written form may not ask the questions you want answered. For example, when was the owner last in the attic to check for leaks? When was the furnace last examined? Does the home have aluminum wiring?
#18 What is a “CMA”?
When owners offer a home for sale, they logically want the best possible price and terms for their property. A “comparative market analysis” or “CMA” is an estimate of value prepared by a real estate broker or salesperson that shows recent past sales for like properties and suggests a possible asking price for the owner’s property.
#19 What is a contract “contingency”?
A sale agreement between buyer and seller typically outlines a series of obligations for each party. Also, usually a sale agreement has one or more clauses that make the transaction dependent on certain events. Such contract language is a “contingency” and the agreement itself can be seen as a “contingent” arrangement.
For example, you will buy the Smith house if you can get a mortgage at not more than 8% and one point. If such financing is not available, if the contingency has not been met, then a contingency may provide that the deal will fall through and your deposit will be returned in full.
The words used in a sale agreement outline important rights and terms and should be written and reviewed with great care.
#20 What is the difference between a “home warranty” and a “home inspection”?
A warranty and an inspection are different creations. An inspection shows the condition of a home at a particular time. A warranty provides compensation if an approved repair is required during the warranty period. Not all warranties are alike. Some cover repairs only above a certain minimum (that is reasonable). Some have defect lists, but the standards for each list vary (some lists are vastly more liberal than others are). Some warranty programs charge an inspection fee for each item.
#21 What stays with a home and what goes?
In general, items that are physically attached to and intended to be part of a home are expected to stay. Example, if there is a built-in dishwasher it should stay. If the sellers take it, there would be a large hole in the kitchen cabinets.
Items that stay are called “fixtures” but it is sometimes difficult to determine what is or is not a fixture. Moreover, one can “create” a fixture in a purchase offer by saying that as a condition of the deal, the backyard swing set (or whatever) will stay.
The best approach to fixtures is to list what stays in the purchase offer. For details, speak with a broker as appropriate.
#22 What is a lease-option?
It sometimes happens that a buyer does not want to purchase, or cannot purchase, immediately, and a seller does not want to sell, or cannot sell, immediately. In this situation, both parties may want a “lease option” arrangement.
In general, a lease option is an arrangement where a prospective buyer moves into a property as a tenant. The buyer has the right to buy the property for a specific price during the option period. The monthly rent is equal to the fair market rental rate plus an additional sum. The additional sum is credited to the buyer at closing, should the buyer exercise the option to purchase. If the buyer does not buy the property, then the additional monthly payments go to the owner.
Lease option properties can be located by real estate brokers. Lease options contracts should be reviewed by attorneys for each party to the transaction before signing. Also, before entering into a lease option arrangement, speak with lenders to review current financing requirements.
#23 What is a seller “carry back”?
A seller “take-back” works like this. A home is worth $300,000 and you get a mortgage for $200,000. Instead of taking $100,000 in cash from YOU, the seller instead takes back a note, secured by the property. For example, the seller might take-back a note for $80,000 of the remaining $100,000 if you will put up $20,000 in cash.
A seller take-back is just like a loan from any lender. It must be repaid according to the terms and conditions outlined in the note. If not repaid, the property can be foreclosed. The rules that apply generally to mortgages may not apply to seller take-backs. For example, some attorneys argue that a seller take-back is not subject to state usury rules (interest rate caps) because a seller take-back is NOT a loan, no money changed hands.
#24 Does it make sense to buy real estate for cash?
Probably the best answer works like this: Is there a better place to put your money? Is there an alternative investment that will
produce like returns with equal risk? Is it simply more comfortable as a matter of personal preference to pay cash? The decision to pay cash or not pay cash includes both economic considerations and personal choices. Many people simply prefer a home that is free and clear of all debt. Several advantages can be obtained by paying all cash. There is no mortgage application and no need for private mortgage insurance. There is also no mortgage interest to write off.
However, if you elect to pay all cash, be sure to insist on the protections that a lender would want, such as a title inspection, title insurance, survey if applicable, termite inspection, appraisal, etc.
It may be worthwhile to sit down with a tax professional or a fee-only financial planner to review the consequences of paying all cash or financing.
#25 Why are closing costs so high?
State and local governments have discovered that real estate transfers are wondrous opportunities to tax with little political responsibility. If a politician says that taxes should be raised, the individual may well be out of work when elections next roll around. But if real estate transfer taxes are raised, the game changes because many of those impacted by the higher tax will move elsewhere, and thus they cannot vote against the politician.
The result is that transfer taxes and “stamps” often amount to thousands of dollars per transaction, income that is enormously profitable to states and local communities.
#26 What is a “Walk Through”?
When you purchase an existing home, you enter into a sale agreement at one point but only close on the sale some weeks later. To assure that the property is in substantially the same condition as when the sale agreement was signed, a buyer will “walk through” the property just before closing.
If you are a buyer, be sure to allocate enough time for a thorough walk-through.
In the case of a new home, the situation is a little different. Typically, there is a walk-through with the builder’s representative. Items not completed, or not properly completed, are entered onto a “punch list.” The punch list items are then detailed at closing and the builder is obligated to make required repairs and completions.
When going through a new home, buyers should make their own punch list and compare it with the builder’s representative to assure that nothing is missed by accident.
#27 Must a real estate agent or broker disclose that they are licensed when they buy or sell a home for themselves?
All states license the practice of real estate brokerage. A common provision of such laws is that real estate licensees must disclose their license status when they buy or sell a property for themselves, for a spouse, or for an immediate member of the family such as a parent or child.
The reasoning behind such disclosure rules is that brokers and salespeople, by virtue of the fact that they are licensed, are presumed to have a marketplace advantage over those who have not studied real estate, passed various tests, and obtained a license. To have a fair playing field, brokers and salespeople must disclose the fact that they are licensed so that consumers know about such training and experience. In my home state of CA I can tell you yes, it is required. If you happen to be reading this in another state then speak with brokers regarding specific requirements in your state.
#28 Can a real estate broker assist me in the sale or purchase of a business?
In some states there traditionally were “business chance” brokers, individuals specifically licensed to buy and sell businesses for 
another and for a fee. Such licenses in many states have been combined with real estate licenses, meaning that a real estate broker is allowed to buy and sell a business for another. In my home state of CA the answer is yes we can. If you happen to be reading this in another state then please speak with local brokers for specifics related to your state.
#29 Do people really make millions of dollars buying with no money down like I see on TV?
It’s a big country and you can be sure that each year someone will win the lottery, someone will be hit by lightening, and someone will buy a home at a steep discount, with predatory terms, and no money down. The odds in every case are grim.
The essential issue is NOT buying property with no money down, it is buying property that can produce a positive cash flow and/or be sold at a profit. Unless one or both of these conditions can be met, then the economics of buying a home with no-money-down are unlikely to make sense.
Those buying under the VA program can buy with no money down, and residential financing with 5% down or less is widely available, especially for first-time homebuyers. However, all of these programs require appropriate credit and income.
So, what’s next?
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- A step by step overview of the entire home buying process
- Extensive glossary of terms
- To buy or not to buy? Considerations for buyers in this market
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- Home search worksheets
- Much Much More…
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