While each real estate transaction is unique, the questions buyers ask are often the same. Here are some of the most common questions answered.
What credit score do I need to buy a home?
Generally, your credit score will not determine whether you can get a loan; rather, it will determine how much you can borrow and at what rate. Private party loan brokers offer loans to people with rock-bottom credit scores in the 500s, but the terms aren’t favorable compared to conventional home loans.
There are a wide variety of lenders who offer conventional home loans. Some lenders accept a minimum credit score in the low 600s, but most prefer a minimum score of 700. Even with a perfect credit score, without verifiable income to prove you can make the payments, you won’t get a loan under any circumstances.
What’s a deed of trust?
Practically speaking, a deed of trust outlines the relationship between the trustee, the lender and the borrower with regard to the property. The lender puts up the financing. The borrower agrees to maintain the property, not to commit waste, and to pay all applicable taxes and liens. Deeds of trust can run anywhere from a couple of pages to more than 100 pages, depending on the lender’s demand for documentation, the kind of property, and the circumstances of the loan.
How long has the property been on the market—and why does this matter?
The relevant issue is how long the property has been on the market at the current price. This information can influence how you structure an offer. Always remember that while the market value may influence what you offer, your offer should be based on the property’s worth to you. If you want to live next door to your best friend and the house becomes available, it will likely be worth more to you than to someone who isn’t picky about their home’s location. If a property is perfect for you in every way—condition, location, close to work and amenities—paying a little over market may be justified.
Should I sell my old house before I buy a new one?
If you need the revenue from the sale of your current house to purchase your next house, then you have a few choices. First, you can sell your current house and then buy another. Second, you can make an offer on the new house contingent upon the sale of your current house. (Or, you can make an offer on the new house contingent on getting approved for a loan, which will only happen if you sell your current house).
The REALTOR representing the seller will warn their client to be wary of contingencies that require the sale of another property. You can always put a deposit down and make an offer without a contingency, hoping you’ll be able to sell your house. If your house doesn’t sell, you will forfeit your deposit. If you can afford to keep your current house as a rental, that may also be a good option.
What happens if I back out after making an offer?
According to the law, your reason for backing out of a transaction makes all the difference. If your contingencies aren’t met, you are justified in withdrawing your offer and you should receive a full refund of your deposit.
If, on the other hand, you just get cold feet or something better comes along and you want to back out, your deposit may be forfeited. In many contracts, there’s a liquidated damages clause that requires buyers to give up their deposit if they withdraw their offer without good reason (up to 3% of the sales price).
Without a liquidated damages clause, buyers could be on the hook for a lot more if they rescind their offer. For example, if the housing market suddenly crashes and the property’s value drops from $500,000 to $400,000, the buyers’ decision to withdraw could cause the sellers to lose $100,000. Without a liquidated damages clause, the buyers could be on the hook for that whole amount. This is why the liquidated damages clause is signed in so many residential purchase agreements. The buyer’s liability is limited, and the seller receives some compensation for their loss if the transaction goes sideways.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.