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FREQUENTLY ASKED QUESTIONS

BUYING A HOME

Budgeting for a home purchase requires calculating your monthly income and expenses to determine how much can you comfortably afford.

  1. Add up all the income you bring in each month. If you take home $5,000 and your spouse takes home $4,000 each month. Your total monthly net pay would be $9,000.
  2. Multiply your monthly take-home pay by 25% to get a COMFORTABLE mortgage payment amount. If you take home $9,000 a month, your monthly house payment should be no more than $2,250. Keep in mind, many mortgages will let you take out loans upwards of 40%, but YOU are the decision-maker here, do you want to struggle to make your payments?
  3. Down Payment. Consider saving for a down payment of 20% because you’ll avoid private mortgage insurance (PMI). PMI is an extra cost added to your monthly mortgage payment, and it doesn’t go toward paying off your mortgage balance. PMI typically costs between 0.41% to 2.25% of the entire loan amount on an annual basis (depending on your credit score, loan-to-value (LTV) ratio, and debt-to-income (DTI) ratio). If 20% is out of reach make sure to ask how to get it taken off your loan when you reach 20%!

The down payment needed to purchase a home will depend on your credit, the type of loan you apply for, and the property type you are purchasing.  VA loans do not require a down payment, while FHA loans require 3.5% down.  Conventional loans are available with 3% down, but borrowers will have to pay private mortgage insurance if they put less than 20% down.  Some condo associations have down payment minimums in place to prevent foreclosures in the building that lead to unpaid maintenance fees.

Florida closing costs average 2.58% of the purchase price, but fees fluctuate by county. Buyers and sellers can negotiate closing costs, but there are certain standards per county that usually dictate which fees are paid by the buyer and the seller. For example, the standards for Palm Beach County closing costs make it customary for the seller to pay for title insurance.

Property taxes vary by county, but the average property tax rate in Florida is 0.98%.  The Sunshine State attracts new residents with the tax benefits of Florida homeownership including the generous homestead exemption, The Save Our Homes Act, and Amendment 5.  Florida does not have state or local income tax, making it an attractive retirement destination.  Retirees with Florida domicile do not have to pay state or local income taxes on any retirement income or social security benefits.  Furthermore, not having to pay state or local income taxes, those retirees who choose to work part-time get to keep more of their paycheck.

On average a Florida comprehensive home inspection costs $500.  You aren’t required to get a comprehensive inspection, but you should in order to avoid costly surprises after closing.  Your insurance company will require a four-point inspection which averages $175 to $250.  A wind mitigation inspection costs around $150 and can save you a lot of money if the home qualifies for an insurance discount.  Wood-destroying organism inspections are often required by lenders and insurance companies in Florida where termites are prevalent. A termite inspection usually runs between $75  to $150.  If you suspect that the home has excess moisture or water damage, you will want to order a mold inspection which costs around $375. 

The length of time that it takes to conduct a home inspection depends on the type of home inspection, the size of the house, the presence of extra features such as a pool, and the number of inspectors.  A four-point inspection on a 2,000 square foot home takes two to three hours. The buyer should attend the inspection.  

Most home appraisers spend about 15 to 30 minutes inside of a home to evaluate the overall condition, upgrades, and unique features.  If the home is situated on a large lot, it will take longer to mark the boundaries.  The inspector will also drive around the neighborhood to take exterior photos of comparable homes that have recently been sold.  It can take a few days to a few weeks to complete the final appraisal report. 

Title insurance protects you and your property against title defects. Past owner’s liens, debt, tax liens, zoning violations, building code violations, past due utility bills, closing errors, marital rights, inheritance issues, and other claims of ownership may have been instituted prior to your purchasing the home. If future claims should come back to haunt you, the title policy will cover them.

The title company will perform a title search to ensure that nobody can lay claim to the property.  Once they identify and cure any clouds on the title, they will purchase your title policy for you.  The closing agent will facilitate closing and make sure that all documents are signed and witnessed. 

SELLING A HOME

The absorption rate in real estate is the rate at which listed homes in a given market will sell over a defined time frame. To calculate the absorption rate:
1. Define a time frame, say one month.
2. Count the number of homes that sold over the past month. 
3. Divide the number of homes sold by the number of homes listed in the market.  For example, if 200 homes sold in Boynton Beach in 30 days, and 300 homes are currently listed, the absorption rate would be 66%. 
4. To calculate the months supply of inventory, divide the number of homes currently listed by the homes sold.  300/200=1.5.  Therefore the market would have 1.5 months of inventory.  This means that a home seller in Boynton Beach that prices his or her home according to market value could expect to sell their home within one and a half months.   
It is best to calculate the absorption rate for similarly priced homes since different price ranges tend to sell at different rates.

Generally speaking, listing your home in a seller’s market will allow you to sell faster for more money. The absorption rate, median days to contract, and the average sales price are some important statistics that will help you determine whether or not current conditions point to a seller’s market.  An absorption rate above 20% indicates a seller’s market.  A 15 to 20% rate is a balanced market, and a rate below 15% is a buyer’s market.

The first step to listing your home for sale is to find out how much your home is worth.  It is advisable to shop around for a real estate agent.  During this process, listing agents will preview your property and provide you with a comparative market analysis, which is the agent’s estimate of market value.   If your property is unique or there have not been many recent sales in your neighborhood, it can be difficult for an agent to provide an accurate CMA.  In this case, you may benefit from an appraisal

REQUEST A FREE HOME VALUATION

The commission is negotiable, but the Florida real estate commission is usually 6% of the sales price.  The commission is paid by the seller and the listing agent agrees to share a percentage with the buyer’s agent.  The listing agreement will spell out what the commission rate will be and how it will be divided between the agents involved in the transaction.

Preparing your home to sell is an important step toward selling fast for top dollar.  
  • Apply a fresh coat of paint and go for neutral paint colors
  • Fix the little things that could give an impression of deferred maintenance: leaky faucets, broken gate latches etc.
  • Depersonalize: pack away family photos
  • Declutter: rent a storage unit if needed
  • Organize closets and cupboards
  • Deep clean everything and make sure your home smells pleasant
  • Let the light in: remove heavy curtains
  • Spruce up your curb appeal: powerwash your home and driveway, lay fresh mulch, mow the lawn and plant flowers

A listing agreement is a contract between you and your agent’s brokerage that will lay out the terms and conditions of the listing. There are three different types of listing agreements you should be familiar with, although the most common is the Exclusive-Right-of-Sale.  Find out which items are negotiable and how to spot red flags in a Florida Exclusive Right of Sale Listing Agreement.

Seller’s Disclosure is a comprehensive document listing any known issues with the property and anything that may materially affect the value of the property. A Seller’s Disclosure should include systematic, structural, electrical, plumbing, water/flooding, governmental and environmental issues. It is the responsibility of the seller to prepare it and offer it to the buyer. One would be wise to have it signed and returned although Florida law does not mandate its use or execution, better safe than sorry.

The Florida FAR-BAR Contract  For Sale and Purchase was developed by the Florida Bar and the Florida Association of Realtors to facilitate real estate transactions.  This standard form should be filled out by a real estate professional when you make an offer on a home.  It is important that you understand all contingencies before signing an offer. 

Home appraisers look at the overall condition of the home, upgrades that impact the value, and boundaries of the property.  Sellers should work with their listing agent to put together a list of upgrades along with the date and cost of all renovations.  If you received multiple offers, your agent should include the first page of each offer to show demand at the purchase price. It is also important to give the home a deep clean before your appraisal appointment to make a good first impression.

SHOPPING FOR A MORTGAGE

Be sure to shop around for a mortgage to get the best rate and terms.  There are many different types of lenders and loan products to choose from.  We usually recommend starting with a mortgage broker because they are intermediaries between you and lenders and can help you find the best possible deal.  You have 45 days to shop for a mortgage without impacting your credit with multiple credit checks.

There is a big difference between mortgage preapproval and prequalification.  A lender can prequalify you after a quick conversation, but sellers won’t take your offer very seriously.  Whereas a preapproval will tell sellers that your lender has done their due diligence in assessing your ability to qualify for a loan.  In today’s competitive market, you need to submit a preapproval with desktop underwriting.  The documentation needed to get pre-approved for a mortgage includes:

  • Driver’s license or passport
  • SS or permanent resident card
  • Credit history- lender will pull this for you
  • Employment verification
  • Pay stubs for the past 30 days
  • Federal income tax returns
  • W-2s for the past two years
  • Proof additional income
  • Bank statements
  • Proof of funds for your down payment and closing costs in the form of bank statements, statements from stock accounts and mutual funds, a grant approval certificate and/or a gift letter.

FHA stands for Federal Housing Administration.  FHA loans are backed by the government.  This government insurance mitigates the lender’s risk; as a result, FHA financing is easier to qualify for in terms of credit scores and loan to income ratios.  The minimum down payment is just 3.5%. The downside is that FHA borrowers have to pay private mortgage insurance for the life of the loan, lenders have stricter criteria for the property condition, and it can be more difficult to compete with buyers who are approved for conventional financing in a multiple offer situation.  FHA has loan limits.  Visit HUD.gov to find the limit in your county.

A conventional loan is not insured by the government.  Without a guarantee from the government, conventional loans pose a greater risk of default for the lender.  Therefore, conventional loans are more difficult to qualify for than FHA and VA loans.  Conventional loans come with a variety of down payment options, from 3%-20% is common, but 0% down can be arranged with down payment assistance. Once you have 20% equity in a conventional loan you no longer have to pay mortgage insurance.

A fixed-rate mortgage allows you to lock in an interest rate so your monthly payment will stay the same over the life of the loan (only slightly changing with tax & insurance changes).  A 15-year fixed-rate mortgage typically offers a lower interest rate but a higher monthly payment because you’re paying the loan amount off faster.

An adjustable-rate mortgage offers a lower interest rate than a fixed-rate mortgage for an initial period of time —  five or seven years — but the rate can fluctuate after the introductory period is over, depending on changes in interest rate conditions. Different lenders may offer the same initial interest rate but different rate caps. It’s important to compare rate caps when shopping around for an ARM.

Mortgage brokers are intermediaries between you and lenders. In other words, mortgage brokers don’t control the borrowing guidelines, timeline or final loan approval. Brokers are licensed professionals who collect your mortgage application and qualifying documentation. They can counsel you on items to address in your credit report and with your finances to strengthen your approval chances. Many mortgage brokers work for an independent mortgage company so they can shop multiple lenders on your behalf, helping you find the best possible rate and deal. Mortgage brokers are typically paid by the lender after a loan closes; sometimes the borrower pays the broker’s commission upfront at closing. ASK!

UNDERSTANDING REAL ESTATE TERMINOLOGY

The absorption rate in real estate is the rate at which listed homes in a given market will sell over a defined time frame.   A community can be defined as a neighborhood, city, zip code, county, or metropolitan statistical area.  This important statistic will help you figure out how long it will take to sell your home under current market conditions.
Absorption Rate= # of existing Homes sold during a defined timeframe ÷ # of homes currently listed for sale

An as-is contract removes repair obligations from the seller.  The buyer can still negotiate repairs and/or seller credits and cancel the contract during the inspection period if they can’t come to terms.  The seller is still legally bound to disclose known material defects under an as-is contract.

property appraisal is a written estimate of a home’s current market value by an impartial licensed appraiser.  The value is determined by comparing the subject property to recent sales of similar homes in the neighborhood.

The appraisal contingency gives the buyer the right to cancel the contract if the home doesn’t appraise at the purchase price.  If the home is valued below the purchase price, the price can also be renegotiated.

An assessed value is the property value determined by a local or state government for property tax purposes. Once a value is assigned, the government applies the property tax rate to the assessed value. A home’s assessed value is usually a different amount than its appraisal, or market value (about 85%).

Closing costs are fees associated with buying a house. These fees include lender charges, appraisal fees, title insurance, homeowners insurance, sales tax, attorneys fees, and other third-party charges. Always ask your agent which are negotiable, which can be paid on a credit card, which can be “gifted” and which can be paid by your lender or the seller as a closing credit.

Commission is a percentage of the sale that is paid to the real estate professional. In most situations, commissions are paid by the seller of the property and negotiated before the property is put on the market.

comparative market analysis, often referred to as a CMA, is a real estate agent’s estimate of market value based on recent sales of similar homes in the same neighborhood.  A CMA is useful for sellers to determine a list price for their home, and for buyers to come up with a reasonable dollar amount when submitting an offer to purchase.

A condominium or “Condo” is an ownership concept, often in an apartment building. The owner receives a deed for the apartment and pays real estate taxes on their unit.  Condo owners share ownership of common areas such as hallways, property grounds, elevators, and community amenities like pools and fitness centers.

Owners pay fees to maintain the grounds and the building (or buildings, for a larger complex). The owner pays fees to contribute to the building maintenance, the land, and the collective utilities.  What maintenance fees cover will vary from association to association. Roof and exterior maintenance, pool care, landscaping, water, trash collection, and building insurance are common items included in the maintenance fee.  It is common for maintenance fees to increase.  You should ask if there are any proposals to raise the dues when purchasing a condo in Florida.

Contingent is a Multiple Listing Service (MLS) status in which a house has accepted an offer but relies on meeting certain criteria, such as passing a home inspection or appraisal.

Real Estate contingencies are conditions of the contract that are in place to protect the buyer and seller from things that could go wrong during the transaction. Each condition must be met according to a predefined schedule to ensure that the sale progresses in a timely manner.

conventional loan is originated in the private sector and is not insured by the government.  They are more difficult to qualify for than government-insured loans because they pose a greater risk to the lender. Conventional loans offer 3% down payment options, but select lenders are able to qualify buyers with 0% down.  Borrowers can avoid private mortgage insurance with a 20% down payment.

A co-op is a non-profit company that owns and operates a residential complex. Buyers lease one of the building’s units by buying shares of stock in the building’s corporation along with a proprietary lease that claims their rights to exclusively inhabit.  The land is often leased on a 99-year land lease and renewed every century.  Most purchases are cash transactions, but you can finance a co-op with a share loan rather than a traditional mortgage.

Desktop underwriter is an automated system that is used to evaluate a borrower for loan approval.  A true pre-approval will include a desktop underwriting report to demonstrate that the lender has done his or her due diligence in examining the borrower’s ability to obtain loan approval.  In hot seller’s markets, most listing agents will not entertain an offer without a preapproval letter accompanied by desktop underwriting.

Discount points allow you to prepay interest on your mortgage.  Basically, you pay more at closing to secure a better interest rate.  Each point is equal to 1% of the loan amount, but the reduction of the interest rate for each point varies among lenders so make sure that you understand each lender’s discount point calculation while shopping for a mortgage.

The amount of your home’s purchase price you pay upfront when financing a home.  The amount required largely depends on the type of loan you choose.   Sometimes the type of property you purchase and the homeowners association’s requirements can impact the required down payment as well.

The earnest money deposit, also known as the good faith deposit, is collected from the buyer and placed in escrow during the transaction.  If the buyer fails to meet his or her contractual obligations, the seller can claim the deposit.  If the transaction makes it through to closing, the deposit is applied to the buyer’s amount due at closing.

Escrow is a legal arrangement in which a third party holds funds until conditions of a contract are met.  When purchasing property, buyers are required to deposit earnest money into an escrow account to prove their intent to purchase.

Fee simple is the highest form of ownership and grants title to the property, the land, and any improvements to the land in perpetuity to the buyer. Single-family homes offer fee simple ownership but condos don’t because the owner owns the unit but not the land.

It’s common to take a final walk-through the day before closing. Do not skip this step! You want to make sure there hasn’t been any serious damage to the property since you entered into the contract. You’ll also want to check that all agreed-upon repairs have been completed to your satisfaction.

The finance contingency provides a specified timeframe in the real estate contract for the buyer to obtain loan approval.  The buyer is obligated to deliver a loan commitment or denial letter to the seller by the finance contingency deadline.  If the buyer fails to qualify for the loan, he or she will not forfeit the earnest money deposit as long as the deadline is met.

An FHA mortgage is a home loan that that is insured by the Federal Housing Administration (FHA). FHA loans are “designed” to make housing more affordable, and are easier to qualify for than conventional mortgages. However, they are often more expensive than a low money down conventional mortgage especially since FHA loans now require mortgage insurance for the life of the loan.

Foreclosure is the process of a mortgage lender taking possession of a property when the homeowner fails to make mortgage payments.  In hopes to recover the balance of the home loan, the lender will sell the house.

A four-point inspection is also known as the ‘Insurance Quote’ inspection. Once a home reaches a certain age, many insurance carriers would like to take a peek at the four main sources of insurance claims: the roof, plumbing, electrical, and HVAC

FSBO is a property that is being sold by the current homeowner without the aid of a real estate agent. Always consider getting your own representation for this type of transaction. Don’t forget your contract needs to be reviewed by a professional and your escrow should be held by an impartial party.  Inspections, appraisals, and title insurance will also need to be arranged.

Governing documents or “HOA docs” spell out the rights, rules, and responsibilities for the board and HOA members.  Governing documents include the Bylaws, Articles of Incorporation, Declaration of Covenants, Conditions, & Restrictions (CC&Rs), and Rules & Regulations.  HOA docs do change over time.  When purchasing in a community governed by an HOA, be sure you receive the most current version containing any amendments that have been made.

HOA stands for homeowners association.  Homeowners associations are governed by a board of directors that set and enforce the rules and regulations in the community.  The rights, rules, and responsibilities for the board and HOA members are spelled out in the association’s governing documents.  Aside from following the rules and regulations in the community, residents are required to pay maintenance fees known as HOA dues.

The Florida homestead exemption provides a tax exemption of up to $50,000 for a permanent residence.  The homeowner must establish Florida residency and they must own the home on January 1st of the tax year that they want to apply the exemption to.  This important tax benefit is not automatic, homeowners must apply at the county property appraiser’s office.

home warranty is a residential service contract that can be purchased for a flat fee at closing by the buyer or seller to cover repairs or replacement of the home systems for one year.  If repairs are needed, the buyer will pay a service fee. The home warranty can be renewed each year.  This can save new homeowners a lot of money when purchasing a resale property.

A home inspection is an evaluation by a professional inspector to determine the current condition of the home and its systems. The buyer will receive a written report for all inspections they choose to have. Comprehensive inspectionsfour point inspections, termite inspections, wind mitigation inspections, radon gas inspections, and mold inspections are common.

The inspection period is the timeframe that the buyer has to get home inspections of the property.  The length of time is negotiable, but in Florida averages ten to fifteen days. The buyer may cancel the contract without penalty for any reason during the inspection period.

A kick-out clause is a contingency that provides a seller with alternative options when the contract is contingent on the sale of the buyer’s current home.  While the seller agrees to a home sale contingency, he or she can add a kick-out clause stating that the seller can continue to market the property. If another qualified buyer steps up, the seller gives the current buyer a specified amount of time (such as 72 hours) to remove the home sale contingency and keep the contract alive. Otherwise, the seller can back out of the contract and sell to the new buyer.

A list of information about a home that is currently on the market.  Key elements of a listing are the list price, a description of home features, and photos.  Listings are published on the Multiple Listing Service (MLS) and are syndicated out to real estate websites.

The MLS is a database that includes all available homes for sale in a particular area. Only licensed real estate professionals that belong to the local real estate association have access to the MLS. Not all sites on the internet are created equal, real estate agents always have the best information.

Private mortgage insurance is a policy that protects the lender (not the borrower) by covering a percentage of the lenders loss if the borrower defaults on the loan. Premiums range from 0.25% to 2% of the annual loan balance. Buyers that put less than 20% down are required to pay private mortgage insurance. Conventional mortgages require PMI payments until a 78% loan-to-value ratio is achieved, but borrowers can request to stop payments at 80%. FHA loans can require PMI payments for the life of the loan.

Pending is a Multiple Listing Service (MLS) status in which a home for sale is under contract with a buyer but hasn’t closed yet.  Generally, most or all contingencies have been met and the listing agent is confident that the transaction will make it to closing before a home is put into pending status.  Transactions that still have open contengencies are placed into a “contingent” status.

mortgage pre-approval is an evaluation by a lender that determines if the potential buyer qualifies for a loan and, if so, the maximum amount the lender would be willing to lend. This is different from a pre-qualification.

REO is an acronym for “Real Estate Owned.” A REO property is owned by the bank due to a foreclosure. REO properties can be purchased from the bank; however, they are often sold “as is” and are not always a great “deal” when you consider the cost of repair.

A seller credit is money given from the seller to the buyer at settlement to pay for part of the closing costs. The amount varies depending what the mortgage company allows (3%-6% depending on the mortgage product). Seller credits can also be granted for home repairs. Negotiating repairs after the inspection can make or break a transaction. Remember- there is no harm in asking! 

A seller credit is money given from the seller to the buyer at settlement to pay for part of the closing costs. The amount varies depending what the mortgage company allows (3%-6% depending on the mortgage product). Seller credits can also be granted for home repairs. Negotiating repairs after the inspection can make or break a transaction. Remember- there is no harm in asking! 

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