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Frequently Asked Questions, Part III: Buyers

posted in Real Estate 101 by Kathleen Yamauchi

What is a Buyer Broker Agreement and why should I sign one?

A Buyer Broker Agreement is a contractual agreement between a buyer and real estate agent that precisely outlines responsibilities, representation, and compensation.

By default, all real estate agents work for the seller (even if the agents and sellers have never met before), and have a legal obligation to protect the interests of those sellers. As such, the seller agents can provide information about particular properties to buyers, but their primary loyalty is to the sellers of the properties. A seller agent, cannot do anything that would be in the interests of the buyer rather than the seller.

A Buyer Broker Agreement establishes that the real estate agent works for the Buyer exclusively and owes loyalty, honesty and fiduciary duties to the buyer alone. By signing a Buyer Broker Agreement, you allow your real estate agent to completely represent your interests. They can also talk to you about real estate in general (including providing information about potential market downturns and risks), provide honest opinions and analyses about the relative values of properties, expose you to properties other than those listed by other real estate agents (including showing properties For Sale By Owner), negotiate offers on your behalf and in general, represent your interests to the exclusion of the interests of the seller.

Can you show me any home or just ones listed by your company?

We are not limited to showing you only the homes we have for sale. We can show you any home listed in the Multiple Listing Service, as well as newly constructed homes in a new home subdivision, and For Sale by Owner properties.

What is earnest money and how much do I need to put down?

Earnest money is the deposit you make on a home when you submit an offer. The Earnest money proves to the seller that you are serious about wanting to buy the 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 applied to the down payment, closing costs, or other agreed upon expense specified in the purchase contract. If your offer is not accepted, your money will be returned to you.

The amount of your earnest money varies and is negotiable between parties; however, an industry standard is anywhere between 1% - 2% of the purchase price.

Should I get prequalified before looking at property?

Yes. It is to your advantage to pre-qualify for a mortgage. The following is a list of benefits of prequalification:

Prequalifying for a given loan amount allows you to comfortably shop for a home within your price range.
Prequalfying can speed the process of obtaining a mortgage once a house of your liking has been identified.
Prequalifiying gives you an advantage with the agent and sellers to whom you submit an offer, demonstrating to them you are a determined and qualified buyer. This is especially important in a fast-paced market, where competition for a limited number of homes exists.

Prior credit approvals can expedite the closing of your loan. Proof of prequalificaiton is required with the submission of the Arizona Residential Purchase Contract (your offer).

What is the difference between prequalification and preapproval?

Prequalification is a quick, simple process that is done either over the phone or at your initial meeting with the loan officer. Prequalification is based on housing and debt ratios, and will give you an idea of how much house you can afford, as well as options for loan programs.

A preapproval requires more detailed documentation of the information necessary to complete your loan. The loan documents will be processed, with information obtained from you and outside sources and then submitted to underwriting, where all the documentation will be reviewed. The underwriter will do one of three things: approve, reject, or approve with conditions. If the Underwriter issues an approval of your loan with additional conditions to be met, it is considered approved; however, the outstanding conditions will need to be satisfied before your loan is considered fully approved. Once the process is complete, you will be given a preapproval letter stating the lender is willing to give you a loan. This letter is typically valid for 60 days.

What information will I need to apply for a loan?

Some general information that is typically required includes:

The names and social security numbers of the borrower and co-borrower(s).
Where you have lived for the past two years. If you were renting, the landlord's name, address, and phone number.
Your most recent two-year employment history, including income.
W-2 tax forms for the past 2 years.
A listing of all creditors, including account balances.
Information about all bank and investment accounts, including balances.
The value of any other assets you might own, including other real estate.
Bank statements for the past three months.
Gift letter statement. If you have received any money from friends or relatives which will be used towards the purchase of the home.
Most recent pay stubs. (Usually the last 30 days.
Any supporting documents proving claims of additional or supplemental income for sources like: social security, pension, stock dividends interest and such.
If self-employed, additional tax forms and financial statements regarding both you and your company may be requested.
If recently divorced you will need to provide a copy of the divorce decree as well as proof regarding any claims of receiving alimony or child support.

There may be other information as well.