1. What is the first step of the home buying process?
Getting pre-approved for a mortgage should be the first step of the home buyer process. First, you need to know how much you can borrow. Knowing how much home you can afford narrows down home searching to suitable properties. No time is wasted considering homes that are not within your budget. Pre-approvals also help prevent disappointment caused by falling in love with unaffordable homes and also saves the realtor time in showing unattainable properties.
Second, the loan estimate from your lender will show how much money is required for the down payment and closing costs. You may need more time to save or liquidate other assets. Finally, being pre-approved for a mortgage demonstrates that you are a serious buyer to both your real estate agent and the person selling their home. In any event most real estate agents will require a pre-approval before showing homes – this is especially true at the higher end of the real estate market.
2. How long does it take to buy a home?
Once you identify the home you can afford and the Seller accepts your offer an offer to purchase form is completed and signed by both parties. This document is used by the Seller’s attorney to extract the pertinent clauses that will be included in the sales contract (Agreement for Sale). Once the Agreement for Sale is executed by both parties completion is generally 90 to 120 days for transactions being financed by mortgage. Cash purchases can be closed in 30 days or less.
3. What is a seller’s market?
In sellers’ markets, increasing demand for homes drives up prices. Here are some of the drivers of demand:
- Economic factors – An increase in employment can or foreign investment can bring an inflow of new residents and pushing up home prices before more inventory can be built.
- Interest rates trending downward – improves home affordability, creating more buyer interest, especially for first-time buyers who previously could not qualify for loans when the cost of money was higher.
- Low inventory – fewer homes on the market because of a lack of new construction. Prices for existing homes may go up because there are fewer units available.
4. What is a buyer’s market?
A buyer’s market occurs where there are declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand;
Interest rates trending higher – Purchasers may not readily qualify for mortgage if interest rates rise and result in an increase in the monthly payment which could impact the amount of money a borrower can afford. This could have the effect of reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals.
- Fall in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
- High inventory – a new subdivision and can create downward pressure on prices of older homes or apartment complexes nearby, particularly if they lack highly desirable features (swimming pool, tennis court etc.)
5. How much do I have to pay an agent to help me buy a house?
Purchasers pay no commission to real estate agents. For most home sales, there are two real estate agents involved in the deal: one that represents the seller and another who represents the buyer.
Listing brokers represent sellers and charge a fee to represent them and market the property. The property will also be placed in the multiple listing service (MLS), where other agents will be able to search and find the home for sale.
Agents who represent buyers (buyer’s agent) are compensated by the listing broker for bringing home purchasers to the table. When the home is sold, the listing broker splits the listing fee with the buyer’s agent. Buyers don’t pay their agents.
6. How much do I need for a deposit?
The convention for the payment of a deposit has been 10% and this has been predicated on the statutory requirement of the Seller to pay transfer tax and both parties to share in the payment of stamp duty, which prior to 2019 was a total of 9% (transfer tax 5% and stamp duty 4%). To bind the parties in contract, these costs have to be paid to the Stamp Commissioner and provide the convenience of the seller not having to come out pocket prior to receiving the full sales prices. To facilitate this the accepted practice has been for the taxes and duties to be advanced from the purchaser’s deposit. This precedent also coincides with the underwriting criteria for first time home buyers where most banks will finance a maximum of 90% of the selling price once the purchaser has at least a 10% down payment and equity in the property. In 2019 transfer tax was reduced from 5% to 2% and stamp duty to a nominal J$5,000.00 thereby reducing the transaction costs well below 10%. Notwithstanding, many lenders still require the purchaser to have at least 10% equity in the purchase and in that instance the requirement for a 10% deposit remains. If the National Housing Trust or another lender is prepared to finance 95% of the purchase price a 5% deposit would be acceptable.
7. Should I sell my current home before buying a new one?
If the built-up equity (market value less outstanding mortgage) in your current home will be applied to the down payment on the new home, naturally the former will need to be sold first.
Some home buyers decide to turn their current home into investment property, renting it out. In that case, the current home will not need to be sold. However, a mortgage company will still need to evaluate your risk profile and credit history to determine whether making a loan on a new home is feasible while retaining title to the old home.
8. How long can the seller take to respond to my offer?
Written offers should stipulate the timeframe in which the seller should respond. Giving them twenty-four hours should be sufficient. Much depends however on if the market is a sellers or buyer’s market. In a seller’s market the seller faces increasing demand and can dictate terms.
9. What if my offer is rejected?
Sellers can accept or reject an initial offer. But there is a third path that is quite common as sellers can initiate a counteroffer. Remember that a deal isn’t dead until it’s dead. So, if a counteroffer is proffered by the seller, you’re still in the game. You and your agent just need to review and determine whether the counteroffer is acceptable. If so, then approving it closes the deal immediately and puts the parties in a position to move to contract. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual and negotiations are a matter of routine. Each revision should bring both parties closer together on the terms of the deal. Bear in mind, however, that even where an offer is accepted and both parties execute the offer to purchase form there is no binding sale until the sales contract also referred to as the Agreement for Sale is signed by both purchaser and seller and the agreed deposit paid.
10. Do I need to do a final walk-through?
It’s not required, but it’s a good idea. For new construction, there should be a final walk-through where the developers representative compiles what is known as a “punch list” which identifies any minor defects that need correction prior to possession. Final walk-throughs give purchasers a chance to make sure nothing changed since their first visit. If repairs were requested, as part of the offer, a follow-up visit ensures that everything is complete, as expected, per the terms of the contract. If it was agreed that the property would be sold with certain fixtures or furniture then a list of items should be compiled prior to the sale and reconciled at closing.