8 -- Frequently Asked Questions on Buying
If you are planning to buy a home in the Upper Pioneer Valley of the Commonwealth of Massachusetts these are some additional questions you might have. For answers to main topic questions please refer to relevant sections of this Buyer’s Guide”.
What is the first step in the home-buying process?
Get pre-qualified, or pre-approved, with a lender. This means you will submit a loan application and most of the necessary paperwork to obtain a mortgage. Once your credit is checked, the amount of mortgage you qualify for will be approved. All you'll need to do then is find your new home.
How do I find out how much house I can afford?
There are a number of formulas you could use to determine how much house you can afford. Unfortunately, there is rarely any blueprint for summing up exactly what will work for you. You would do best, however, to work this out with your mortgage lender. They could give you a much more accurate idea of what price range to look in based upon your income, debts, current interest rates, and the many loan programs that are available. A lender will be able to make suggestions for the loan program that will best meet your needs.
How is an asking price determined?
Asking price is typically set using a CMA or Comparable Market Analysis. This method uses other properties that are similar in size, style, and condition, that are currently on the market or have recently sold, to determine a reasonable price.
What is the difference between sales price and assessed value?
The selling price of a home is the value placed on it based upon other home sales in the area, condition of the property, and other factors. The assessed value of a home is an estimation used by the tax assessor to determine your property taxes. Assessed value has little bearing on the market value or sales price of a property. This is particularly true when comparing sales in different price ranges.
What is the difference between an appraisal and a CMA?
An appraisal is performed by a licensed appraiser who, similar to the Realtor's CMA, uses comparable homes in the area, but adds a construction cost analysis including depreciation factors, and an income approach that interprets a property's rental capacity, to determine an official value. An appraisal usually ranges in cost between $350 and $600. A Comparable Market Analysis (CMA) done by an agent uses the comparable sales approach which uses many of the same factors (similar properties, size, condition, etc.) as the formal appraisal to determine an estimated value. A CMA is usually performed free of charge.
Explain the difference between a "Buyer's market" and a "Seller's market."
A "Buyer's market" is when there are more homes for sale than buyers looking for homes. In this instance, the buyers have an advantage, because they can pick a house and the seller will want to meet the buyer's terms in order to get the property sold.
A "Seller's market" is when there are more buyers looking than homes for sale. Here, the sellers have the advantage because several buyers may be trying to buy the same house and they will most likely meet the seller's terms to get the property.
Under what circumstances could I lose my deposit?
Deposit money is rarely lost. What risk you do have of losing your deposit rests upon the contract you have with the seller. Most contracts have specific contingencies for a home inspection by a certain date, mortgage commitment deadlines, and closing deadlines. As stated above if the inspection results are not to your liking, there is usually an opportunity to negotiate work to be done, changes in price, etc. However, any changes that are made from the original terms, conditions, and deadlines in the contract need to be agreed upon IN WRITING by ALL parties. This must be done BEFORE the deadline in your contract in order to keep from potentially losing your deposit. Note that by the time the inspection is done and negotiated, the offer is usually superseded by the Purchase & Sale Agreement which will have as an Addendum the agreed-upon inspection items.
Do the appliances stay when a home is sold?
In most transactions, any fixtures (items that are physically, permanently attached to the property) stay after the sale. This includes ceiling fans and lighting fixtures, through-the-wall air conditioners, built-in dishwashers, storm & screen doors or windows, wall-to-wall carpeting, etc. Appliances (items that can be moved readily without damaging the premises) that are not necessarily included in a sale include stoves, refrigerators, air conditions, washing machines, clothes dryers, etc. Sometimes there are certain fixtures that the seller wants to take with them when they move. These should be disclosed in the listing information, and replaced with something of equal value. Also, you can negotiate if there is something you specifically want to stay in the property.
What is a Purchase and Sale Agreement?
Usually signed about 15 to 20 days after the Offer to Purchase, the Purchase & Sale Agreement (commonly referred to as P&S) expands the one-page, short-form Agreement to Purchase to several pages. It covers in more detail with extended wording, such items as mortgage contingency, condition of the property, deadlines for loan commitment and closing date, and details of any other arrangements that have been made between the parties. The first draft of the Purchase & Sale Agreement is prepared by the attorney for the seller then finalized by working in concert with the buyer's attorney.
Do I have to put down a second deposit?
Yes. The initial deposit, usually $500, is only a nominal amount used to bind the offer. An additional deposit (as outlined in the initial offer) is to be put down at the time the Purchase & Sale Agreement is signed. This amount is usually between 5% and 15% of the purchase price. This second deposit, like the first, is held in an escrow account until the closing, at which time it is brought to the closing and included as part of the total purchase price. Note that if you are getting a "conventional" eighty percent mortgage, at the time of closing you will be bringing additional funds that will make your down payment equal approximately twenty percent.
What if I decide I want to change something in the contract?
Additions, deletions, or changes of any sort to these documents can be made as long as they are agreed upon in writing and initialed by all parties. Tell your attorney what change you wish immediately.
What happens to my deposits after the sale starts?
Your deposits are held in a non-interest bearing escrow account until the closing, at which time they are brought to the closing and included as part of the total purchase price.
What is a final walk-through?
A final walk-though is an opportunity you to walk through the property and make sure everything is the way you agreed in the Purchase and Sale Agreement. Any work that was to be done before the closing should be completed at this point, and if the property is to be delivered vacant, any tenants should have moved out. If there is a problem and things are not as you'd agreed, then arrangements can usually be made at the closing to remedy the situation; for example, a faucet drip that was agreed to be fixed by seller was not fixed, the attorneys will usually escrow one and one-half times the amount required to fix. The final walk through is usually done right before the closing.
How do I find out how much my closing costs will be?
Once you've applied for your mortgage, your lender can provide you with a good faith estimate of closing costs. This will give you a good idea of how much you'll be expected to pay at the closing and will also explain the fees in writing so you know exactly where the money is going. The final numbers at the actual closing may be slightly higher or lower, but the original estimate is often pretty accurate. Prior to your making the formal mortgage application, your attorney may be able give you a rough idea of closing costs.
Can the closing date be changed once it has been set?
Yes. The closing date can be adjusted if necessary. In most cases, your attorney acting as the closing attorney will try to schedule a day/time that is most convenient for you. Note that the seller does not usually participate at your closing. All the seller needs to do is sign over a deed to you, which has usually been done days before your closing, the latter being what we think of as the formal closing.
What do I need to bring to the closing?
You will need to obtain an insurance binder on the property you are buying and bring it to the closing. You also need to make prior arrangement to have certified funds for the balance of your full down payment and related closing costs. Your attorney should give you the exact amount needed. Also, due to new federal regulations, be sure to have your driver's license and/or picture identification with you.
Do I need to change the utilities?
No and yes. Your attorney will be getting the final readings of community-based utilities such as water and sewer. An exception is the electric company who insists that you as their new customer call them directly to have the meter changed over to your name. This should be done a few days prior to closing so when the seller orders his or her service to be stopped, your service will automatically kick in. The electric company numbers are: WEMCO/Northeast Utilities/Eversource 800-286-2000, or Massachusetts Electric/National Grid 800-322-3223/413-582-7200. The electric companies do not allow we agents or your attorney to make this changeover; the companies insist that you, as their new customer, talk to them directly. For other services such as telephone, cable, trash pickup, etc., you can arrange at your convenience.
What happens at the closing?
At the closing, you will be required to sign a mortgage, and a number of other legal documents. As mentioned above the seller will have previously signed a deed over to you.
What happens at the closing?
At the first stage of your closing you meet with your attorney at his or her office and sign the mortgage papers, and a number of other legal and tax documents. Note that the seller is not normally be present when you sign these papers as he or she meets separately with his or her attorneys and goes over the accounting and signs the deed over to you. The final stage of the closing is when your attorney meets with the seller’s attorney at the Registry of Deeds and exchanged cash for deed and the latter is recorded. Then you own the property and get the keys.
What are deeds for?
Deeds indicate, and are generally required to transfer, ownership of real estate. A deed contains the names of the old and new owners and a legal description of the property and is signed by the person transferring the property. The typical deeds used in residential real estate include quitclaim and warranty deeds. Generally, a quitclaim deeds conveys only whatever title the seller owns, with no warranty against the claims of others, while a warranty deed assures the buyer that the seller will defend his title to the property from all other persons. Ask your attorney what will be best for you.
What are some typical restrictions imposed on property owners?
Real estate owners can't do whatever they want on their property. Federal laws provide environmental restrictions, while local ordinances control everything from noise levels to fence height. Local law is also the usual source of zoning rules, which limit the uses of property in certain areas. State laws typically regulate who can access property and how boundaries are established and changed. Private agreements and other restrictions may also control property use. For example, a development may contain restrictive covenants regarding lot size, architectural design, vehicle parking, and other details.
What is joint tenancy?
Joint tenancy is an arrangement in which more than one person owns a piece of property. Many spouses own their property as joint tenants, with equal shares in the property. Joint tenancy can include a right of survivorship, which allows the property to transfer to the other tenants when one joint tenant dies. Joint tenancy is just one way that people can hold property jointly. Tenancy in the entirety is similar to joint tenancy, except each spouse holds an undivided half of the property. Tenants in common can own unequal shares of property and is a common way for commercial partners and cohabiting unmarried couples to hold property. Your attorney can help you to determine which form of ownership is most beneficial under your specific circumstances.
What happens to a deed after it is signed and notarized?
A signed deed should be recorded, or filed, in the appropriate land records office, usually in the county in which the property is located. The office, which has a different name in different states, is called the County (Hampshire, Franklin, or Hamden) Register of Deeds. To record the deed, you or your attorney must deliver the signed, original deed to the land records office, and the clerk will stamp the deed with the date and officially record the transaction. The county will charge a fee to record the deed. Recording the deed gives public notice of the change in ownership and the interests in the property.
What is title insurance and why do I need it?
Basically, title insurance assures that you have clear title to the home you're purchasing. Title insurance has two components: insuring the mortgage amount, and additionally insuring your equity. You want to insure both. Closely related, a title search is the primary component of "due diligence," a process that will be started by your attorney. The title search determines whether the seller actually owns the property and if there are any claims against it.
Buying a home is not like buying a car. You are making the largest single investment in your lifetime. You are going to live in your next home for years to come, make sure you take the steps available to you to protect your investment.