Fred Krawczyk and Associates
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- Buying a Home
- First Time Home Buying
- Buy vs. Rent
- The Buying Process
- Mortgage Calculator
- Community Information
- Working with a Realtor
- Getting Pre-qualified for a Loan
- Finding a Home
- Making an Offer
- Understanding Mortgages
- Choosing a Lender
- Home Inspections
- The Appraisal
- The Survey
- Title Insurance
- Homeowner's Insurance
- Property Taxes
- Closing Successfully
- Frequently Asked Questions from Buyers
- Mortgage Pre-Approval
Frequently Asked Questions from Buyers
Q: What is a Showing?
A: A showing is a term that we as Real Estate Agents use to describe the process of be able to get access to a home that you might be interested in buying. We need to contact the other Agent or showing service, request a time to see the home and get instructions on how to gain entry to the home and other ancillary instructions such as don't let the cat out, take off your shoes, please lock doors ... etc.
Q: Why do we have to schedule a showing?
A: Just as if you were trying to sell your house, you wouldn't want someone giving you a 1 hr. notice to see your house or even worse, show up at your door step in the middle of dinner or a birthday party. We typically want to give the seller at least a 24 hr. notice as a professional courtesy. Sometimes there will be conflicting showings with other agents that would be difficult to coordinate in your schedule last minute.
Q: Why did the Seller decline our showing request?
A: There are a number of different reasons why a Seller would decline a showing request. Maybe there won't be someone available to take care of a pet, they have a birthday party scheduled, they already have a showing at that time, they just accepted an offer, someone is sick ... etc. Again, why we need to try and schedule at least 24 hrs. in advance.
Q: Why do we need to drive by a Home before we schedule a showing?
A: You will want to know if you even like the area or neighborhood. I've had clients drive into a neighborhood and decide right away, this is not where they want to live. I've had clients drive by the house and realize that the listing agent did a great job keeping the cemetery or warehouse next to the home out of the online photos. Many clients are starting to use Google maps for the satellite view prior to driving by a home. Also, being able to drive by a home on your own time is better than taking time off work.
Q: What does Buyer Pool mean?
A: There are Buyer's who are currently looking for a home ... "Buyer Pool" ... and Buyer's who will be looking at some time in the future. Depending on the desirability of our type of house, the Buyer Pool may be large as with a $250k house in Carmel vs. a $750k house in Kirkland, IN which would be much smaller due to location and price. The more expensive the house, the fewer people who can buy them.
Q: How do I know when I've found the right home?
A: If you get all of your needs and most of your wants, this is the home for you. Even people who build new homes would say after they've lived there for a while that it is NOT the perfect home. Its natural to want something changed in any home you buy. This is why people add a deck, change the landscaping, paint rooms, remodel a kitchen ... etc.
Q: What are needs vs. wants?
A: A need might be something like ... school district or number of bedrooms to accommodate enough family members or a main floor master bedroom because you have severe knee arthritis and can't walk up stairs. A want might be a fenced rear yard, wash tub in the laundry room or white kitchen cabinets ... all of which could be added or changed after you buy the home.
Q: What is the best way to decide which home we like the most?
A: In my experience, the best way to shorten your list of homes is to use the ranking system with 10 being closest to what you want and 1 being least like what you are looking for. When you look at a home, have a column of Positives and Negatives compared to your Needs and Wants list. Give the home a ranking. Quite often my clients will go back to homes on their list that they have seen and re-rank them as we look at other homes on their list.
Q: How many homes should we expect to look at before we submit an offer?
A: First time home buyers may need to see a few homes before they can refine their wants and needs list. Its also critical to have a preapproval as soon as possible so you are not looking at homes more expensive then what you can afford. Of course, once you look at a $300k home then find out you can afford a $200k home, nothing beyond that point will compare and you will be disappointed going forward in your home search. If you have a good Wants and Needs list, know what area you want to live in and use the 1-10 ranking system, most clients will be in a position to write an offer with no more than 10 showings. Repeat home buyers often know what they want, have already done the research and I have helped them purchase in as little as 2 showings.
Q: Why do I need to submit an offer ASAP?
A: When a home comes on the market and its condition, location and price are good, there are other buyers just like you who have been looking at homes and they will be ready to put in an offer right away. Once you have narrowed down your home requirements such as type, area, neighborhood ... etc., you will know when you are ready to make an offer.
Q: What is a multiple offer situation?
A: If the home condition, location and price are good, and there is a high demand for the home, it's possible that the seller will receive more than one offer at the same time. If your offer is competitive, you can expect to receive a multiple offer notification to submit your best and highest offer.
Q: What is meant by Best and Highest?
A: Highest is the highest amount the Buyer is willing to offer. Best is with respect to terms and conditions. A clean, cash offer without any contingencies is better than a Buyer who needs to get a loan, asks for the seller to pay money towards their closing costs, wants a seller paid home warranty and is contingent upon selling their existing home before they can buy your house.
Q: What should I expect once I write an offer?
A: It essentially boils down to 3 primary steps.
- Offer Acceptance
- Getting an offer accepted may require multiple counter offers between Buyer and Seller to come to agreement on the price, terms and conditions. If the Buyer and Seller cannot come to agreement on price, terms and conditions, then the Buyer will walk away and the Seller continues to market the house and find another Buyer.
- A contract is not valid until both the Buyer and Seller accept price, terms and conditions within the contract period or before the contract expiration date.
- If the Seller counters the Buyer's offer, the Seller is essentially out of contract and if the Buyer does not respond, there is NOT a valid contract.
- Inspection Response
- You will want to have a whole house inspection. The licensed inspector will go over the whole house and report any findings that could affect the home such as safety, major defects or repair items ... etc. If the inspection reveals any MAJOR Defects such as foundation, structural or other significant issues with plumbing, electrical, mold ... etc., the Buyer can cancel the contract but typically we would ask the Seller to repair these items.
- If the Buyer's inspection reveals a significant number of defects that require repair such as rotted wood around windows, malfunctioning sump pump, failed window seals ... etc. and the Buyer & Seller cannot come to agreement on the repairs, the contact can be cancelled.
- It's important to respond to the inspection response quickly since contracts have a clause stating if the Buyer does not respond within the time period allowed by the Seller, then the Buyer agrees to accept the home per the Seller's response which may mean that the Seller does not want to fix some items.
- Financing Approval
- When the Buyer is getting a loan (Financing), there is a process that the Buyer's Lender (Bank) has to go through to approve the loan for the Buyer. This typically takes around 30-45 days and requires that the Buyer provide proof of income, tax returns, credit report, lender appraisal, review of title, compliance with Lender underwriting guidelines ... etc. Even though you get a preapproval letter, it's possible that financing could be denied at any point during the 30-45 day process due to an underwriting stipulation (issue) that can not be resolved to meet the underwriter's lending requirements. This would terminate the contract.
- The Buyer's Lender will require an Appraisal.
Q: What are Purchase Agreement Terms and Conditions?
A: Examples of Terms and Conditions are price, closing date, prorated taxes, seller contribution toward Buyers closing costs such as Buyer financing fee, escrow, closing fee (Seller Concessions), home warranty & survey or sale contingent upon Buyer's Inspection or closing of your existing house before you can buy a new home.
Q: What are common issues found during an inspection?
A: Your inspection is going to find something even if its a brand new house. Minor or maintenance issues should be non-issues if you are buying a used home. We commonly see issues such as missing anti-tip brackets on ovens, no high loop from the dishwasher to garbage disposal, no air gap from the water softener to sewer line, pointed screws in the electrical panel, wood rot, failed window seals, garage door opener eyes not properly adjusted, ceiling stains from leaking sky lights ... etc.
Q: What is Radon?
A: Radon is an odorless gas that the EPA has determined to contribute to lung cancer if inhaled at high levels. The EPA recommends that radon level be below 3.9 pCi/l. Radon is a relatively new issue (the new mold scare), so millions of homes in Indiana have not been tested for radon. Radon is most often found in houses with basements or crawl spaces.
Q: What are prorated taxes?
A: In Indiana, taxes are paid in arrears which means the taxes due in May and November of the current year are actually for the previous year. The Seller has to bring these current at the time of sale so if you were closing at the end of February, the Seller would pay the May and November installment of taxes plus the per diem amount through the end of February. The Buyer receives this as a credit and in turn, the Buyer would pay these when they sell the house.
Q: What is Earnest Money?
A: A contract is valid when the Buyer and Seller accept and sign the Purchase Agreement. The Earnest money demonstrates the Buyer's commitment to purchasing the home. Rule of thumb is to submit 1% of the sales price. A low amount of earnest money may be rejected by the Seller.
Q: What is the difference between Closing Fee and Closing Costs?
A: The closing fee is what the Title Company Charges and is often around $400. Closing Costs are a lump sum category such as the Buyer's financing fee, prepaid items like hazard insurance and property taxes that are part of the escrow account, loan origination fee ... etc.
Q: What is a Buyer's Agent?
A: A Buyer's Agent is a REALTOR / Real Estate Agent who is representing a Buyer Client. A listing Agent is the Agent who is representing the Owner / Seller. Each Agent has a fiducial responsibility to their respective clients.
Q: I thought you were an employee at FC Tucker so any agent could help me?
A: REALTORs are self employed. We pay for all of our own expenses such as gas, insurance, office supplies, phone, internet, self employment income taxes, state licensing, real estate contracts, continuing education, subscription to the MLS ... etc. Although we could practice as a stand-alone real estate agent, we have chosen to pay the FC Tucker Company for corporate advertising, access to professional conference rooms, office administration staff support, world class training, state of the art marketing and legal counsel just to name a few. As a professional, full time agent, we pay close to $25,000 a year to provide you with industry leading service and support. When we work with a client, we don't get paid until the home closes. We greatly value the relationships we develop with our clients and hope that you will see the advantage of working with a real estate professional.
Q: What do you charge to help us find a home?
A: The great news is that the Seller pays almost all of the Real Estate Brokerage fees. FC Tucker only charges a small $206 transaction fee that can be rolled into your total closing costs and can be put on the final settlement statement when you close so its not coming directly out of your pocket.
Q: What are Seller Paid Concessions?
A: Sometimes it makes sense to ask the Seller to pay for some of your closing costs. These are called Seller Paid Concessions. The most you can ask for is 3% but your loan officer will provide you with a Good Faith Estimate (GFE) and advise you on how much you could use to help offset the total amount you will need to close. Remember, if there is competition for the home you will want to make a CLEAN offer which might be necessary to exclude the request for Seller Paid Concessions.
Q: What is a Home Warranty?
A: Often times we will ask for the Seller to provide a Home Warranty at closing. Its typically an annual policy which covers most of the mechanical systems in the home such as furnace, water heater, appliances, electrical ... etc. Its usually around $400 a year but becomes a negotiating point if the Seller doesn't want to pay for this.
Q: What is a HUD statement?
A: The United States Department of Housing and Urban Development (HUD) developed this document which is used by Title Companies at the closing. It is essentially a document that provides detailed financial information with respect to buying & selling a home. It has columns for the Buyer and Seller showing details of the transaction like purchase price, closing fees, taxes, broker commission and any other fees associated with the closing. This document is provided prior to the closing.
Q: What is a Preapproval or Proof of Funds?
A: Preapproval Letter vs. Proof of Funds
- Preapproval Letter
- Provided by the Buyer's Lender (Bank) that basically says the Lender has pulled the Buyer's credit report to verify the Buyer's credit worthiness and has discussed the buyer's income and debt such as car or student loans, time on job ... etc. to confirm that the Buyer SHOULD meet the Lender's underwriting guidelines to give the Buyer a loan to buy a home.
- The underwriter is the Lender's decision maker. The Loan Officer is the person collecting all of the underwriter's required documentation from you and the Loan Officer advises you on what to do and what not to do. The loan officer will also make you aware of any underwriter stipulations that need to be taken care of before the loan can be approved.
- A stipulation could be something that is found during the underwriting process that would void your ability to qualify for a loan and needs to be rectified, if possible, before the underwriter can approve your loan also called "Clear to Close". A major stipulation could be a foreclosure you had years ago, however, when your old bank took the property they didn't sell it until recently (transfer of title). Another example of a stipulation that can be easily resolved would be the underwriter needing an additional pay stub or letter of explanation regarding the checking deposit you made when you received an unexpected bonus from your employer.
- Your loan officer will guide you through the process of financing approval and please do your best to comply with the loan officer's request ASAP as any delay on your behalf will delay your ability to close on time. Please understand, its very common to wonder why your loan officer is asking for what may seem to be a ridiculous request for additional documents or updated documents you have already provided like bank statements or pay stubs but these requirements are being generated from underwriting in order to approve your loan. After the 2008 real estate crash, a number of compliance regulations were implemented for lenders and the lenders can be held responsible for pay back of your loan if they do not properly process your loan per these guidelines.
- Proof of funds is provided by a CASH buyer showing that they have enough money in an account to purchase a home. It could be a bank account or stock portfolio statement or letter from their bank ... etc. Lenders also require a proof of funds from a buyer who is getting financing to ensure the buyer has enough money for their down payment and closing costs.
Q: Why can't I buy furniture on credit before I close on my new home?
A: Unless you are paying cash and not using a Lender, the lender has approved you for a loan based on all the financial information you provided them. The Lender calculates your debt to income ratios based on what you currently have such as credit cards, car loan, student loan ... etc. Should any of those numbers change prior to closing on the home, it can void the whole transaction. If you apply for any credit, no matter how small, this becomes an unknown for the lender and causes them to re-evaluate the file again. As part of procedure, the Lender will pull your credit just before closing to make sure you have not done any of the above mentioned items. Do yourself a favor ... DO NOT do anything money or credit wise during the home buying process other than the normal course of getting paid by your employer or paying normal expenses. DO NOT make any abnormal bank deposits or withdrawals. This can prevent you from being able to buy your new home.
Q: Why can't we close on the date specified in the Purchase Agreement?
A: The date that the Buyer puts in the Purchase Agreement is quite often a target date to close as it depends on a number of factors ... see Offer Acceptance, Inspection Response and Financing Approval.
Q: Why does the Buyer need 45 days to close?
A: When a Buyer is getting a loan, there are many steps that take place including financial document collection for their lender, IRS response regarding the Buyer's 4506T, appraisals can take 5-8 days to be completed, lender underwriting review, inspection response ... etc.
Q: What does the title company do?
A: The title company is a transaction facilitator. They check the Seller's title to make sure there are not any issues that would affect the ability to sell the house, make sure the terms and conditions of the Purchase Agreement are met, prepare the deed, make sure all the Buyer's loan documents are prepared and signed correctly, provide notary service and insure the closing against any future legal action from a faulty title ... etc.
Q: What is a closing and closing packet?
A: The closing is where the Buyer and Seller meet to sign documents allowing the Buyer to Purchase the Home and the Seller to transfer ownership to the Buyer. The closing packet includes all of the legal and ancillary documents required to buy a home.
Q: Why is the Seller being so difficult with our inspection Response?
A: There are a number of different reasons why a Seller may not want to fix something. First and foremost, it comes down to money. As you can imagine, you want to get the lowest price and the seller wants to get the highest price so having to fix items on the house is more money out of their pocket. Also, the Seller may not have a lot of money to work with. Sometimes when the Buyer and Seller go through several rounds of negotiation on price, its painful for the Seller to want to fix items from your inspection since they feel like they were just beat down on their list price. It can become an emotional issue where both you and the seller will want to draw a line in the sand. We as agents do our best to counsel our clients accordingly with a non-emotional perspective and based on our experience. Remember, you want to buy and the Seller wants to sell. Both of you will have time and money invested in the home buying / selling process so reaching a compromise is often the best solution for both sides to agree.
Q: What is an Open House?
A: An Open House is where the Seller opens up the house for anyone off the street to stop by and see the house. It's usually done on a Sunday afternoon.
Q: What if I want to build a new home?
A: I can certainly help you with that. Builders like Drees, Ryland, Beazer, Estridge ... etc. are always coming to our real estate offices asking REALTORs for our business. Its very important to register me with any builder you may visit so they can attach me to your file. Just as Sellers pay a Broker Commission fee when they are Selling their house with a REALTOR, builders do the same and its built into their profit margin as a cost of Selling. If you do not register me with the builder, they consider you a walk in client and I will be excluded from the contract you sign with the builder and I won't be able to help you unless you hire me at your own expense. Excluding a REALTOR doesn't mean they are going to give you a discount on the price of the home as they have established pricing sheets for their homes and it would of course cause problems if one buyer found out they paid more for the same home. It simply means it will increase their profit margin and the Builder's Sales Rep will get a bonus.
Remember, I represent YOUR fiducial interest and the builder pays the FC Tucker Broker fee. Before I became a REALTOR, I purchased a new construction home without a REALTOR and I regretted it many times. For example, I had issues during the construction process and no one to help me get them resolved. They told me it was a common construction practice per BAGI specs. I felt pressured into using their in-house financing company and they assured me I didn't need an inspection on new construction which came back to haunt me later and no recourse with the builder. Most builders are great to work with, but my past clients have told me it was nice having peace of mind with a real estate professional on their side.
Q: Is it normal to feel anxiety during the home buying process?
A: Yes. Buying a home is, for most people, the biggest transaction in their life and it's an emotional experience. You are uprooting your family, changing jobs, moving kids to a new school, having to coordinate the move ... etc. We as agents do real estate every day and the average Buyer does it every 5-7 years. Rest assured, we are doing a lot of activities behind the scenes that you never see and we do our best to communicate with you to a level that makes you feel comfortable. It is in our best interest to sell the house as quickly as possible for the most money. Remember, we don't get paid until we close so this is a team activity.
Q: What is my recourse if the Seller cannot execute the contract?
A: Unless there is a valid, legal reason why the seller can not sell, you have a binding contract. The problem is that its hard to make a buyer buy and seller sell if they don't want to. It boils down to contract law which means you would have to take them to court to try and force the sale of the home and sue them for damages. We never want to get to that point because nobody wins. Its always best to try and work it out or walk away and get your earnest money back. The Seller would also have to agree to sign a Mutual Release document agreeing to release the Earnest Money.
Q: What is a Mutual Release?
A: A mutual release is a document that both the Buyer and Seller agree to sign to mutually agree to terminate the contract and includes a clause to return money to the Buyer or forfeit to the Seller.
Q: What is the Seller's Disclosure?
A: The Seller's Disclosure is a Indiana State required document that requires the Seller to disclose any known defects with the house.
Q: What are the differences between Short Sale, Foreclosure & Bank Owned?
A: Their are differences between a standard transaction, Short Sale and Bank Owned
- Standard Transaction
- A standard transaction is where the seller owns the home and may either have a mortgage lien (loan) against it or it could be paid off (free and clear). The buyer makes and offer and the seller agrees. Buyer and seller go to closing and the title company processes the documents necessary for the seller to sell and buyer to buy.
- Bank Owned - REO (Real Estate Owned), HUD or VA owned houses
- Houses that have gone through the foreclosure process and ultimately the bank takes the house at the end of the foreclosure process and then sells it. FHA loans that go into foreclosure become HUD properties and VA loans become VA owned properties. Bank owned properties are typically sold at a discount but AS-IS condition meaning the bank may only take care of any safety or dangerous issues that could be a liability for the bank like mold. These houses are priced knowing that the buyer will have to make repairs or updates. Buyers are also in competition with other buyers because the bank will look at multiple offers at the same time. Most often these properties are distressed and will not qualify for standard financing. Banks will want to close as quickly as possible after accepting your offer so these transactions are time sensitive. Financed offers will often be beat out by a cash offer of similar price as these are attractive to investors. You need to work with an agent who is experienced in dealing with banks because the requirements are different from a standard transaction. Fred Krawczyk & Associates is highly experienced in dealing with bank owned and foreclosure properties.
- Short Sale
- A house that is still owned by the seller, however, they are behind on their loan payments so the seller is asking their lender to take less than what is owed so they can sell the house. Short Sales should really be called "LONG" sales as the average time from making an offer to decision from the lender is around 90 days or longer. Sometimes it can be more than a year to process this type of transaction. Its very common to make an offer and wait months only to find out the lender will not accept your offer. The reason for this can vary including the additional steps by the lender to process the seller's short sale request, lender valuation of the property, underwriting sign off and approval by the investor. In addition, there may be multiple liens against the house that have to be negotiated like 2nd mortgages, income tax liens, credit card judgments ... etc. The appeal to short sales is that they are often priced lower than a standard house for sale, may be in better condition than a bank owned and typically the seller will accept your offer then present it to the lender for approval so you are not in competition with other buyers. You need to work with an agent who is experienced in dealing with short sales because the requirements are different from a standard transaction. Fred Krawczyk & Associates is highly experienced in dealing with short sale properties.
Q: What is an Appraisal?
A: The purpose of an appraisal is to verify that the house is worth what the Buyer is willing to pay and to make sure the house is habitable which means the Buyer could move in after closing and live there ... i.e. running water, heat, electricity, roof is not leaking ... etc. There are a number of common items that appraisers look for which would prevent the Buyer's Lender from approving the loan and would be called out on the appraisal as an appraisal contingency. These items would need to be replaced or repaired prior to getting a clear to close and the appraiser will go back out to confirm they have been completed.