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"Prime has dropped (or raised) 0.X%" Youll see some version of that headline all the time, particularly if youre looking for a mortgage. You may even be considering a loan that is based on "Prime". But what is Prime?? In a nutshell, the prime lending rate is the interest banks charge each other for overnight loans. This rate is based in turn on the interest rate the Federal Reserve charges for money it lends to banks. Heres an example from the video. Bank A borrows money from the Federal Reserve, at 1% interest. Bank B borrows from Bank A at 4% interest. (Historically Prime has been about 3% above the Federal rate.) Both Bank A and Bank B recalculate loans "based on Prime" — like Adjustable Rate Mortgages — on that 4% figure. The short-hand term "above Prime" in the world of mortgages is the margin (or spread) added to the Prime rate. An ARM with 2% margin would be 6% (4% + 2%) in the example above. Watch our short video to see this explained visually.
A "home warranty" is frequently available at the time of purchase, and may even be a tool in negotiating terms. These warranties provide protection for a short period of time — like 1 year — against unexpected costs in home systems and appliances. A failed heater or oven, for example, might be covered by a home warranty. This financial protection in the period immediately after home purchase can be helpful, especially if down payment and closing have drained cash reserves. Home warranty may not be an option after purchase, so consider the benefits and costs prior to finalizing your deal.
Understanding what a "home inspection" does is useful in the purchase (and selling) process. Home inspectors bring professional knowledge to the job of inspecting the structure, construction, systems and current state of a home. They do not weigh in the value or price of a property, but do provide an objective recommendation of status and recommended repairs. Things usually included in an inspection: Top-to-bottom structural state: roof, ceilings, walls, windows, floors and roof. Electrical system status and safety. Plumbing and waste disposal system conditions. Key mechanical systems, including water heaters, heating and A/C. Ventilation and insulation condition. Water — source, quality and (potentially) obvious plumbing issues. Pests — or the absence of. (Pest inspection may be a separate, required step in some communities.) Look for a home inspector with experience, qualifications and (ideally) time in the local market. While home inspections may or may not be required under specific market conditions, remember that skipping inspection means you own the house as-is once the deal has closed.
As this video explains, cash committed to demonstrate sincere intent to go through with a detail is called "earnest money." Conditions and (sometimes) local customs may play a role, but an earnest money sum between 1% and 5% of the purchase price is typical. This is regarded as substantial enough to demonstrate good-faith intent. If agreement is reached through offer and counter-offer, the earnest money generally becomes part of the down payment or transaction closing costs. If agreement is not reached, earnest money is returned. If you back out of the offer/deal, you may forfeit the earnest money. Ask your real estate professional for guidance.
The initial offer price and terms on a home purchase have a big effect on the final deal. Keep a few things in mind in calculating your offer: If a buyers agent is involved, working for you (the buyer), they should take the lead on this job. Remind them to keep information and decisions confidential. If a buyers agent is NOT involved, remember that the selling agent works for the seller, not you! Calculating the actual offer should factor in: The price and terms for homes in the area The price and terms for recent, similar and especially nearby sales ("comps" -- comparable homes.) The condition of the home The listing history - how long has it been on the market? Has the listing price changed over time? Your financing terms, and general financing conditions such as interest rates. The sellers situation Know what the home is worth, and what you can afford. Negotiation is common; expect the buyer to make a counter-offer and anticipate more than one back-and-forth to reach agreement on the final price and terms. If you have a buyers agent, consider their advice, but follow your own reason and goals.
It is difficult not to hit information overload while looking at possible home purchases. Take pictures, measure and maintain a scorecard as you go, but pay especial attention to these things: Maintenance and Potential Problems. Look critically at systems like heat and AC; appliances and working mechanisms like doors and garage doors. Observe the roof as best you can; even though it will probably be inspected, its a critical aspect of each house. Look down! Carpets and floors are big wear points. Ask lots of questions about the house, and include questions about the neighborhood and community. Look for clear and complete answers as you go. Consistent questions and a scorecard will save you time in the long run. This free Federal resource may be useful: https://www.hud.gov/sites/documents/CHECKLIST-EN.PDF
Buying a home is a complex decision financially and emotionally, with long-term effects on life. Being clear on your housing needs and wants before starting can help make the process easier. As much as possible, your home should fit the life of everyone living there — space, features, neighborhood, and more. Try to agree on your priorities before you have narrowed down to a particular house. Things to consider: Home features. How many bedrooms? Offices? Garage size? What are your must-have and like-to-have criteria for common areas such as kitchen, living room, and media room? Home size. Square footage is a big factor in pricing; how does your desired size compare to your current situation? Lot and yard. The outdoor space around the house may be a big or small factor for you. Other amenities such as distance to work and schools, neighborhood character, parks and common facilities, as well as in-house amenities — everything from the floors to the roof — are also part of your decision process. The experts advise knowing your minimum requirements — those must-haves — and your wish list of nice-to-have features.
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Biography
Cathy has already established herself as a skilled and creative videographer and animator. With a passion for visual storytelling and a talent for bringing ideas to life, she has worked on a variety of projects for clients in a range of industries. When she's not busy behind the camera or working on animations, Cathy enjoys reading, history and travel.