Questions? Ask a Houston Mortgage Lender
Frequently Asked Questions Related to Mortgages
How much house can I afford?
They are two rules of thumb in the real estate world. First, your housing costs per month should be approximately 33% of your gross monthly household income. However, in recent years many buyers are pushing that ratio as high as 45% to 50%. Second, your loan should be approximately 2 ½ times your annual salary. These are just rules of thumbs and should not be used in absolute. Many factors might allow you to be more aggressive such as better financing terms or very low consumer debt. Consult with an experienced HomeStart loan officer to make the best decision.
What is involved the process of buying a house?
Buying a home is a process. It’s more of a marathon than a sprint. From start to finish there will probably be approximately 2 or 3 people you will have to work with (seller, real estate agent and loan officer) on a daily basis but behind the scenes there will be over 20 other individuals working together to ensure you can purchase the home of your dreams.
What is a typical range for closing costs?
Typical closing costs range between 3% and 6% of your total loan amount. Many things affect this total such as whether you decide to escrow or not. Consult with your HomeStart loan officer on your different options.
Do I have to pay for all of the closing costs?
NO. In the state of Texas it is customary that the SELLER pays for all Real estate commissions, owner’s Title policy, pro-ration of taxes, any unpaid HOA dues, ½ of the escrow fee and preparation fee for Deed. In some cases the SELLER may also pay for the survey and appraisal and may even contribute to other closing costs. Having good representation many times can make the difference whether you or the SELLER picks up the costs.
I’ve heard there are tax advantages to owning a home. How does this work?
One of the best financial reasons to buy a home are the tax advantages that come along with its ownership. When filing your taxes your mortgage interest and property taxes are deductible and can reduce the amount of taxes you have to pay or increase your refund at time of filing! Consult a certified CPA for more information.
Who pays for the Inspection of the home, appraisal repairs, etc.?
Typically the buyer will pay for the Inspection of the home. This cost can vary significantly depending on the type of inspection (structural, electrical, ect.) ranging from $55-$300. The buyer also typically pays for the appraisal and ranges from $325 to $450 depending on the work involved (suburban vs. rural) and amount of acreage. Specific repairs will be in the sales contract and will state how the buyer or seller will repair or pay for the repairs.
If I buy the home in the middle of the year am I responsible for the full year’s property tax?
Yes and No. The county, city, school districts and any other taxing jurisdiction will all look to the owner of record (buyer/you) at the end of the tax year and hold that person responsible for the full year’s taxes. However, because you have not lived in the home for the full year it would be unfair to you if you had to pay the full year’s taxes. To avoid his unfair situation, at closing, the title company will collect from the SELLER his prorated share of taxes and credit that amount to the BUYER. Here’s an example, if you buy the home on September 25th the title company will collect 8 months and 25 days worth of all taxes from the SELLER and credit that amount to the BUYER. However, at the end of the year, the buyer would be responsible for the entire year of taxes.
Do I need a Real estate agent if I buy a home from a builder? What about a used home?
NO. You also don’t need one if you’re buying a used home from an individual. But, it might be a good idea. Realize that builders’, as well as individual sellers’, main goal is to maximize their total profit. To ensure their success, they always have representation looking out for their best interest. You should also have someone in your corner looking out for your best interest. Consult with an experienced loan officer or real estate agent.
Is a Real estate agent’s commission negotiable? Could they help with my closing costs?
YES. Real Estate agent’s typical commissions range from 3% to 6% and in most cases they can contribute up to 3% of their commission towards closing cost. Many buyers often find it difficult to pay for the required closing costs (even in cases where 100% financing is available) on a purchase. Therefore, it’s important to first weigh your options with an experienced loan officer and get a sense of how much out-of-pocket costs you will have to pay. Knowing this beforehand will allow time to negotiate and find a Real Estate agent willing to chip-in with some financial assistance. Most agents would rather close your deal and get paid than walk away from an otherwise good deal.
What is an HOA? How much does it cost? Why do I need one?
HOA stands for Home Owner’s Association. Most modern neighborhoods have them. Its main goal is to enforce deed restrictions, maintain common property and hopefully instill a culture to protect and uphold property values. HOA dues vary, so be sure to ask you real estate agent or Loan Officer for each specific property.
How do I truly know if there are other bidders interested in the same house?
Many times a real estate will alert you that there are other interested buyers who have made offers on the home. If you suspect your agent is pressuring you to make an offer by exaggerating the activity on a certain house, ask to see the other bids. That information is supposed to be confidential, but one former real estate broker says that if another offer really exists, in some cases the agent will show it to you.
Can I use more than one agent to look for a home?
There's nothing to stop you from seeing homes with more than one agent. Checking in with a few of the best salespeople in each area is a good way to keep your finger on the pulse of the market. Many times an aggressive agent will show you a home before it appears on the multiple-listing service. And if you're looking in a large geographic area, you'll need more than one agent to make sure that you have access to all of the multiple-listing services in those places.
What is Earnest Money? Why is it necessary?
Earnest money is the money a buyer places at risk to show the seller they are working in good faith to purchase the home. The larger the earnest money the more attractive the offer is to the seller. The seller wants to know how serious the buyer is before accepting the contract and taking the home off the market. The higher the earnest money offered the stronger the offer.
What is a typical earnest money amount?
Some rules of thumb say 1% of the purchase price. However, everything is negotiable. Typically, in Texas, $1,000 in earnest money in considered acceptable. Keep in mind, that although earnest money can be recovered under some circumstances, earnest money can be lost and awarded to the seller as liquidated damages if you do not purchase the home according to the accepted sales contract.
I have heard that I should use an Option period? What is that, how does it work?
An option period is a period determined within the sales contract during which the buyer can terminate the sales contract for any reason with no recourse from the seller. The buyer must pay for this option period and typically, in Texas, the buyer pays $10 a day. For example, if the buyer wanted 10 days to inspect the home and consider the findings they would pay the seller $100. If the buyer chose to cancel the contract within the 10 days the buyer would lose their $100 however they would be refunded their earnest money.
I canceled my contract within the option period however the title company will not release the earnest money because the seller will not sign a release of earnest money. Why?
Although you may have canceled the sales contract within the stipulated option period the title company is not a party to the contract and is not allowed to interpret the sales contract. Upon termination of the sales contract within the option period you are no longer under contract to purchase the home however the sales contract does not explicitly instruct the title company to release the funds. The title company must have a release of earnest money on file signed by both parties. If the seller refuses to sign the earnest money release you may have to sue the seller to force action. The good news is that the title company may help you and may be able to recover attorney and court fees. The other good news is the seller may not accept another offer on the home without first releasing your earnest money.
Does a drop in the Federal-funds rate influence the fixed-rate mortgage?
Mortgage rates actually follow the bond market, not the Fed-funds rate. The interest rate on a 30-year fixed-rate mortgage tracks the yield on the 10-year Treasury note. Lenders typically set their base mortgage rate around two percentage points higher than the 10-year bond yield. Rates on adjustable-rate mortgages are tied to yields on two-, three- and five-year Treasurys. These short-term loans are more sensitive to Fed rate movements, and those with the shortest maturities see the greatest impact when short-term rates rise and fall.
If my closing is set to occur during a incoming storm or hurricane will my home be insured if in case something should happen?
No. Unfortunately during an incoming tropical storm or hurricane most insurance companies will suspend binding authority or the ability to provide coverage and will only be able to provide insurance coverage 24 hours after the storm has dissapated. So if you are closing during a storm it would be wise to speak with your insurance agent to insure your home will be covered or play it safe and suspend the closing until the storm has passed.
