Real Estate Frequently Asked Questions

What is the difference between floating rate and fixed rate mortgages?
What is a Conventional Mortgage?
What is a High Rate Mortgage?
Why should I use a Real Estate Agent?
What is an Appraisal and why should I have it done?
Should I purchase a house that requires fixing up?
How much money do I need to come up with to buy a new home?
What is a Home Inspection? Should I get one done?
When should I make an offer?
As a seller, should I disclose all the defects in my house?
Am I asking too much for my home?

What is the difference between floating rate and fixed rate mortgages?

In a fixed rate mortgage, the interest rate is pre-determined at the beginning of the loan term, which can range from 6 months to 25 years. The advantage of this type of mortgage is that it offers a security of knowing your monthly payments beforehand and allows you to plan accordingly.

In a variable or floating rate mortgage, the interest rates change on a periodic basis during the term of the loan according to a pre-determined formula. In a floating rate mortgage, the monthly payments can vary greatly, depending on the fluctuations in the interest rate.

What is a Conventional Mortgage?

A conventional mortgage is one in which the down payment is equal to 25% or more of the purchase price. In other words, it is a mortgage where the loan value is less than 75% of the total cost and does not require mortgage loan insurance.

What is a High Rate Mortgage?

A mortgage which is greater than 75% of the purchase price or appraisal, whichever is less, is known as a High-Ratio mortgage. A High-Ratio Mortgage requires mortgage loan insurance. Premiums for a mortgage loan insurance can range from 0.5% to 3.75%, depending on the value of the mortgage.

Why should I use a Real Estate Agent?

The advantages of using a real estate agent are many, regardless of whether you are on the buying or the selling side of the deal. An agent is someone who has proper education and experience in the real estate industry and can provide the right type of guidance and advice that is required when buying or selling a property.

As a home buyer, an agent can shortlist the properties that suit your budget and requirements and help you pick the best one. With their several years of experience, agents are better trained to locate faults in a particular construction. Agents also take care of the negotiation process and the paper work involved.

From the seller’s point of view, an agent can get your house the kind of advertising it requires to initiate a quick sale. An agent can get your home listed on the Multiple Listing Service (MLS) which will advertise your house to the largest number of buyers in the least possible time. The agent will also negotiate with the buyers to get you the maximum profit from your property sale.

What is an Appraisal and why should I have it done?

An appraisal is the valuation of your property by a professional appraiser to determine the value of your home in comparison to the current market trends. Most lenders want to see a professional appraisal of the property you want to buy before sanctioning the loan to ensure that the selling price is in accordance with the current market value of similar homes. This way, the lender is confident that he is not lending a sum that is much more than the value of the home.

The cost of the appraisal will vary according to the complexity of the appraisal and the time taken to complete it. Appraisers use a number of techniques to establish the value of a property. Some look at comparable homes sold in the past six months, adjusting the prices to reflect differences between these homes and the property being appraised. If several similar homes have recently sold, the appraiser’s work is fairly simple. If your home is situated in a rural area, or in a neighborhood where there is mixed development the appraiser’s task is more complex.

Should I purchase a house that requires fixing up?

The answer to this question depends entirely on how much fixing is required to get the house back in flawless shape. Your real estate agent might have found you the home of your dreams but the seller has not quite done his homework right – the house has not been given the facelift that is required when presenting it for sale. With the help of your agent or maybe a professional home inspector, determine the amount of fixing up that is required in terms of costs. Be sure you keep a clear definition of the term “fixing up”. Major constructional repair work will not qualify as a fix-up job and in such a case, you should reconsider the purchase.

How much money do I need to come up with to buy a new home?

The total sum required to purchase a new home depends on a number of factors, including the cost of the house you intend to buy and the type of mortgage that you get. In most cases, you need enough money to bear the three main expenses of:
- Earnest Money – This is the deposit that is made on the home when making an offer to show the seller that you are serious about buying the house
- Down Payment – This is a percentage of the cost of the house that you must pay when you want to book the place and start the settlement process
- Closing Costs – These are the costs associated with processing the paperwork to buy a house.
When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be used to pay the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. Closing costs average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you can be well prepared to bear the expenses.

What is a Home Inspection? Should I get one done?
A home inspection is a visual examination of a house by a qualified professional to determine the overall condition and value of the home. When conducting a proper inspection, an authorized home inspector should check all the major components of the house such as the roof, ceilings, walls, and floors along with other systems such as the electrical connections, heating, plumbing and drainage and weather proofing. The inspector usually gives the results of the inspection in writing to the home owner within 24 hours of the inspection.

It is always advisable to get a home inspection done before making a purchase decision. A thorough inspection is likely to clear a majority of the doubts that you might have when buying a home. The inspection gives an idea about the quality of the construction and indicates whether any major repair work will be required. This allows you to calculate all the add-on costs before making the final decision. An inspection will definitely give you a more secure feeling about your purchase decision by removing most of your doubts.

When should I make an offer?
As soon as you have found your dream home. The real estate market is constantly buzzing with activity and hence you should never take things too lightly. If you really like a particular house, do not ‘sleep on it’ but go ahead and make a decent offer before someone else does. Act quickly or else you might regret your casualness later on.
When making an offer, there are a few things that you should consider. Firstly, make sure the asking price of the home is in line with the current market rate for similar homes. Secondly, you should determine whether you will have to spend a substantial amount of money on repairs. You can also enquire on how long the home has been on the market. If it has been on sale for a while, the seller might settle for a lower price. Considering all these factors, make an offer that is as close as possible to the asking price. There is always scope for negotiations in a real estate deal. But make the offer at the earliest before the opportunity slips away.

As a seller, should I disclose all the defects in my house?

As a moral responsibility, it is important that you disclose any defects that might be present in your home. It is in the best interest of both the buyer and the seller that the entire process of the home exchanging hands goes off smoothly. If as a seller, you happen to conceal any major defects in your house, the buyer has the right to take legal action against you. This will not only sour relation between you and the buyer but also create further headaches and added costs in terms of legal expenses.
Not disclosing defects in your house will also lessen your reputation as a trustworthy seller in the market. Most home buyers will conduct their own inspections of your home, usually with the help of a professional home inspector. If the defects come to light during such an inspection, word will spread quickly about how you did not give an honest picture of the property.

Am I asking too much for my home?

This question might arise if your house has been on the market for several weeks without a proper offer coming your way. The price of your home is the most decisive factor for any home buyer. If you over quote, then chances are that your property will remain on the MLS for a few more months. Consult your agent when finalizing a price for your home. He can provide the best guidance by giving you a comparative analysis of other similar homes in your area. Price your home competitively and you will definitely attract the right buyers. Be realistic when fixing a price and not idealistic.