Most of the following information for home buyers is generally applicable to all buyers, while information about closing costs is tailored for home buyers in San Antonio, Texas. If you need information related to these costs in other states, try this Google search for closing costs. To find information specific to your state, add your state's name to the criteria in the search box (outside the quotation marks). Then click the "Search" button again.
The best general advice for home buyers that I encountered on the Web is available on Prudential Texas Properties. Be sure to review their Financing Guide as well. Granted, this is a real estate brokerage franchise site, but the advice is sound. Real Estate ABC is also a good source of info.
And don't overlook the Articles of Interest linked below. They provide insight to important, though obscure, bits of information.
You can also search the MLS listings for San Antonio homes for sale and the national MLS database—without registering! This is the actual REALTOR.com MLS search.
Advice for First-Time Buyers
It may be that the following advice should be read by any home buyer, but first-time home buyers will almost certainly benefit from it—whether a young single or couple, or an established family that has finally reached an income level that they believe makes them ready for home ownership.
The Home buying process—Buying a home is not a complicated pursuit, though some of the details can be a little complicated. The process and many of those details are covered on the Common Questions About an FHA Loan pages of the FHA Web site. Note that the process is the same for other types of loans as well.
Assistance programs—There are many assistance programs for first-time buyers and people who need financial assistance:
• The Local Homebuying Programs pages of the FHA Web site lists these programs by state. • The Homeownership: Texas page has the links to the assistance programs and other information for those of you who live in Texas. • In San Antonio, see the Homeownership Incentive Program pages of the City of San Antonio Neighborhood Action Web site for information about assistance for low income households. • Other assistance programs are available on the SABOR Down Payment Assistance Programs Web page. • Funds for your down payment may also be available through the Nehemiah Corporation.
Waiting should not be an option—Buying a first home is an intimidating consideration with too many uncertainties for many first-time buyers. For this reason, far too many put off making the decision to buy a home. It's natural and common to put off doing something fraught with uncertainty. Meeting with a professional can however put those uncertainties into perspective, and get you started taking advantage of the benefits of home ownership. Whether sooner or later, you will need to take this step, and you run the risk of not being represented in the negotiations if you wait until you meet with an agent at a property you called about. See mistake #2 in the following section for more about buyer representation.
Give yourself a buffer—Buying all the way up to your qualifying limit without a buffer that will help you cope with unexpected financial demands can result in hardship. The possibilities for personal disaster range from accidents that result in the loss of the use of the principal vehicle (or income due to injury) to unexpected additions to the family, or the need to replace and air-conditioning system and natural disaster requiring extensive repair to the house or its systems. At times, even combinations of the preceding can occur. Buying 5% – 10% or more below your qualifying limit, and putting the difference away for a rainy day, can make the difference between on-going enjoyment of your new home, or a forced sale or foreclosure.
Be wary of adjustable-rate mortgage loans—Adjustable-rate loans can be great in a market with high interest rates that are expected to come down—or for buyers who expect their incomes to increase more than the potential for the increase in the rate of the loan—but the reverse is also true. Like the advice above, borrowers need to consider possible future demands on their finances, and be realistic about their prospects for growth in their income.
A Baker's Dozen of the Worst Mistakes Home Buyers Make
Buying without becoming informed—Knowledge empowers, and learning as much as you can is in your best interest. Magazines, books and the Internet abound with helpful information for home buyers—and your agent and other professionals are important sources of information. Direct your legal questions to an attorney, your questions about structural features to an inspector and so on.
Not making sure that you are represented in the negotiations—Home buyers generally pay less when they are represented in a transaction, and need to know whether they have an agency relationship with the agent who helps them make a purchase offer (see Real Estate Agency Info). If a buyer calls a number on a sign in front of a property for sale, the agent who shows them the property will be representing the seller, not the buyer. Finding a good agent early on in your search for a home is incredibly important to you.
Trying to be a "wheeler-dealer"—Going into negotiations with the expectation that you will make the deal of the century can result in disappointment. Remember, sellers and their agents likely know what they are doing, and your objective is to find a home that suits your wants and needs at the best possible price. Once you find the home you want, you can make an offer a little below what you think a seller will accept, but get ready to negotiate.
Putting flash ahead of function—Don't overlook how a house will function for your family, or other factors that may diminish your enjoyment of home ownership.Each room in a house diminishes the space available for the other rooms. If entertaining guests includes formal dinner parties, a formal dining room may be a necessity—but it may not be if entertaining means that you throw large parties or the gang comes over on Sunday afternoons to watch the football game on your wide-screen TV.How about location? Is the house on a through street, and do you have small children? What about the property that backs up to yours? Is it vacant, used for some commercial purpose, or on an uphill slope that allows the home behind a full view of your back yard?
Declining a home inspection—Even homes that are just a few years old can have foundation problems, and many another problem that could be difficult for the untrained eye to detect. Declining a home inspection is too often a far more expensive decision than paying for it.
Declining a home owner's warranty—If you paid for an inspection, you will know the serviceability of the systems in the home at the time of the inspection, but the systems in a house can go south in a heartbeat. Replacing the hot water heater will cost only a little more than the warranty, but do you want to risk replacing the air conditioning system?
Not doing the homework on the businesses that inspect and warrant the property—Check with the Better Business Bureau to see what kinds of complaints may have been filed against the inspectors and, more importantly, whether the complaints were resolved. In Texas, inspectors are licensed by the Texas Real Estate Commission (TREC), and you can also check their records on the TREC Web site for complaints.
Not checking out the builder's reputation when buying a new home—Ask three or four people who live in the builder's homes whether they were satisfied with the builder's workmanship and performance. Were there many flaws, or hidden flaws? How responsive was the builder to complaints?
Waiting to see what else may be available after finding "the right" home—Take the time necessary to satisfy yourself that the home is what you are looking for and priced right, but act quickly once you decide that it is. As individual as your wants and needs may be, they are probably not especially unique—and someone else may act before you do. Even if the home does not go under contract before you act, you could find yourself bidding against another buyer.
Waiting for a better housing market and interest rates—The difference between a "buyer's market" and a "seller's market" is nominal, but home values are likely to appreciate more quickly during the later. If the trend endures, you could end up paying more when you do buy and foregoing the full increase in equity afforded by the current market. If you are in a financial position to buy and wait for better interest rates, any number of events could cost you what you would otherwise have gained—and refinancing is an option if the long term drop in interest rates is significant.
Acquiring other debt in advance of buying a home—Is your car paid off, but costing you a couple hundred dollars every few months to keep it on the road? In most instances, these costs are simply an annoyance, and cost less than the payment on a new car—and the repair cost is not figured into your qualifying ratios. This situation is one of life's trade-offs, and you will need to set your priorities. Is the effect on your qualifying ratios of the cost of the new car worth it?
Not buying when the time is right—If you are thinking about it and you can afford a home, but continue to rent, you will be helping your landlord build the equity and take the tax advantages that could have been yours.
Not becoming familiar with the CC&Rs, By-Laws, and Association Fees—These restrictions within a residential subdivision or condominium community related to a real property’s design, maintenance and use can be extensive. In acreage land development, they may dictate the size and composition of building materials used in construction. What kind of vehicles may be parked and where they may be parked, the extent of any landscaping and the maintenance of the lot, and even the color and composition of roofing materials and garage doors are commonly regulated. In condominiums, the CC&Rs often stipulate what physical changes may be made to a unit, and ban such things as hanging laundry in public view (over a balcony rail) and even the color of drapes visible to the exterior. If you are an independent trucker or own an RV, wouldn't you want to know whether you can park your vehicle on your property?
How do I know what the value of a real property is? By definition, you never know the value of anything until after you reach an agreement with a seller. Though some of the information necessary for you to make an analysis of value is available, obtaining it is time consuming and you may not have access to all the information you need in order to fully analyze a property's value.
In the residential housing market, real estate professionals, brokers (agent's) and appraisers, analyze data on recent sales of comparable properties that is available to them in order to arrive at a reasonable estimate of value. The agent's estimate is used to establish the initial offering price for a listing, and the appraiser's estimate is used to validate for a lender that the agreed upon selling price is the reasonable value of a real property. If you have a buyer agency relationship with your agent, your agent will be able to give you an opinion of value.
How do I know how much I can afford to pay?
You can use the calculators on this site, but you need to know that the results will be an estimate based on the accuracy of your input. Many factors—your credit standing, cash reserves and others—will make a difference in the amount a lender will loan and/or the rate they will charge.
Your best course of action is to shop for a lender and have them pre-qualify you or, better yet, pre-approve your loan. Pre-approval eliminates the need to apply for the loan after finding the property, which speeds up the process and tells the sellers that the sale will close at the earliest date possible—thus reducing stress on both buyer and seller. But it has a potential drawback. Most lenders will "lock in" a rate for only 30–40 days without charging an additional fee, which may tend to pressure you to act too quickly. Two good places to shop for a lender are at Bankrate.com and Interest.com.
Should I borrow as much as I can afford to pay?
That depends on your qualifying income and expected future demands on that income, your job security and prospects for advancement, and the lifestyle you want to enjoy—and your optimism in general.
The average home buyer should probably buy slightly below their qualifying limit to afford themselves a safety margin for unexpected expenses.
Should I lock in the rate quoted by the lender?
Since even the experts often disagree about economic trends, you are likely to be taking some risk no matter what you decide to do. This could be a mistake if the rates go down—but not locking in the rate could result in paying a higher rate at closing. It's a dilemma.
The best course is to learn what you can about current market pressures and consult with a financial advisor. Then make your decision based on what you expect. As a starting point, take a look at the current rates and graphs of the trend for seven different loan types on the Current Mortgage Rates page.
Should I use an agent?
Yes, and this reply is not just a matter of bias. Seventy-three percent of home buyers purchase their home through a real estate agent or broker. If you are "looking" at properties listed by a brokerage, you will eventually use an agent—but the agent may not be representing you in the transaction.
Without a buyer representation agreement, the agent will be representing the seller, whether the agent is associated with the listing broker or not. While the agent will need to treat a buyer honestly and fairly, the agent will not be able to give the buyer the benefit of any advice that may help in negotiating lower costs, and will in fact be obligated to provide the seller with any information that will be to the seller's advantage. See the Information About Brokerage Services download (PDF) for more information.
If you are "looking" at properties that are for sale by owner (FSBO), you had better have a high level of sophistication—FSBO sellers know what they want, whether they are truly capable of achieving it or not. Whether you are knowledgeable enough or not, you also stand to lose in two other respects.
When you do-it-yourself in the real estate market, you will likely spend untold hours and days "looking" at unsuitable properties, and you may miss out on the "perfect" home because you did not know just when and where to look.
How much do buyers' agents charge & who pays them? Like other aspects of agent compensation, there is no set fee. I, Like most San Antonio area agents, do not charge to help buyers. Many buyers have a hard enough time meeting the costs of buying, and we depend on the traditional compensation of collecting a commission from the seller on the sale. Those who do charge usually ask the buyer for as little as what they believe will be needed to cover their expenses, while others charge more. Some will ask for the fee up-front, and others will accept the fee at closing. This fee, like all other aspects, is negotiable.
How do I find a good agent?
I have to admit to an extreme bias, and say that you have found one. Contact me. I'm a REALTOR® member of the Multiple Listing Service (MLS) with over six years of know-how and highly refined negotiating strategies. If you are looking for a home outside the San Antonio area, I can refer you to a good one—just click the "Relocation Services" link. If you don't contact me, at the least you should look for another REALTOR® member of the MLS. Only members of the National Association of REALTORS® can use the REALTOR® designation and subscribe to the MLS.
There is one other consideration. Does the agent you contact promise to provide the kind of service after the sale that I pledge on this site's Homeowner Info page?
What's the advantage of using an experienced agent?
There are certainly advantages to using an experienced agent, but that's not to say that experience should be your primary consideration in selecting an agent. New agents have an enthusiasm that often gets lost to those with years in the business, and they have the knowledge and experience of their broker, office manager and fellow agents upon which they will unhesitatingly call when they need it.
Should I form a buyer's agency relationship with a REALTOR®? Yes. It is in your best interest. If an agent shows you a house without forming an agency relationship with you, the agent will be representing the seller, not you. If that agent gives you advice or works out strategies with you during the negotiations, remember that and list your home with someone you can trust when you are ready to sell. Form a buyer's agency relationship with one agency, and stick with that agent. The agent will then be obligated to represent your interests in the negotiations.
Can I get a better deal from a FSBO?
If you could get a better deal from someone selling their home by owner, the FSBO would be defeating their whole purpose—saving the broker's commission. While they may agree to sell below their asking price, they will not likely sell for less than they believe they would net after paying a commission. So, you need to ask, "What is the real value of the home, an how did the seller decide on that figure?"
If you cannot answer these questions, you are aware at least that you are at a disadvantage. If you have an agent with whom you have established an agency relationship, the agent can provide you with the answers—but the FSBO's motivations still make it unlikely that you will get a better deal. Your obligation to the agent makes it necessary that the agent ask the FSBO to pay a commission, which adds an unintended cost to the sale that will reduce the likelihood of negotiating a better price or terms of sale.
Can I ask the seller to pay my closing costs?
Yes. In fact, you should at least ask that the seller pay some of them as part of your bargaining strategy. Remember though that bargaining is a tit-for-tat process, and you will need to give something in return. An experienced real estate professional will know how to structure your offer and negotiate the best terms possible for you.
How much will my closing costs be?
In the business, the term "closing costs" actually covers only a set of costs in the monetary outlay for the purchase of a home or other real property. The following section, "Closing Costs," treats the entire set of costs involved, and will provide you with the information and tools you need to get an advance estimate of the costs.
Closing Costs
Buyers, especially first time home buyers, want to know how much cash will be need at closing. Most of the questions raised will be answered by the following frequently asked questions:
What are typical closing costs for buyers? The information on most Web sites will tell you, but the fact is that there is no such thing. They differ significantly enough between cash, conventional loans, FHA loans and VA loans that they should each be outlined. The following will explain what most buyers want to know, and there are links to PDF and Microsoft Excel documents that will provide a fair estimate of the bottom line for each type of financing.
Some closing costs, especially those associated with the loan application, are actually paid in advance of the closing. Others are "prepaid" items that are collected for the lender's escrow account to assure that adequate funds will be on hand to pay the insurance and taxes. These are all included in the downloadable documents available below.
The following closing costs are estimates of those that are customarily paid by the buyer in the San Antonio area. A seller can however be asked to pay some or all (unlikely) of them to help a cash-strapped buyer, or as bargaining points in the negotiations. Any calculation made based on the following will be an estimate. Your actual closing costs may be higher or lower. Because you will need to provide a cashier's check at closing, you will be provided with the actual closing costs prior to closing on a transaction.
How much down payment is needed for a home purchase?
Most lenders require that buyers put down 5% to %20% of the sales price toward the purchase of a home for a "conventional" loan.
Normally, buyers putting less than 20% down are required to buy mortgage insurance to protect the lender.
Buyers who put less than 20% down can use 80-10-10 loans, sometimes called "piggyback" loans, to qualify for a larger mortgage.
With a piggyback loan, a borrower takes out a loan for 80% of the purchase price, a second lien loan for 10%, and pays 10% down. The rates on the second mortgages are higher and the term will be 15 years.
The advantages of doing this are that a buyer can avoid the expense of private mortgage insurance, and the interest paid on the total payment is tax deductible. A buyer can also opt to pay off the second loan early, and thereby reduce the total payment. Piggyback loans are especially useful to buyers who have not yet sold their current home, and plan to pay off the 2nd lien as soon as their home sells.
FHA insured loans require a down payment of 3%.
The Veterans Administration provides zero down, guaranteed loans for qualifying veterans.
Will I need mortgage insurance?
Private Mortgage Insurance (PMI) is charged only when the loan exceeds 80% of the purchase price (down-payment is less than 20%).
The monthly rate varies with from .5% to almost .6% of the principal amount of the loan, depending upon the amount of the down payment, the type of loan (fixed or adjustable interest rate), and term of the loan, as well as borrower's credit score.
Similarly, FHA loans entail a Mortgage Insurance Premium (MIP).
For loans over 15 years, the amount due at closing is 1.5% of the loan amount.
The monthly rate is .5%.
Annual MIP will terminate when the loan to value ration (LTV) reaches 78%, either by regular monthly amortization payments or additional prepayments, but not before a minimum of five years of monthly MIP payments are paid, regardless of LTV.
For loans of 15 years or less, the amount due at closing is 1.5% of the loan amount.
The monthly rate is .25% if the initial LTV is more than 90%.
There will be no annual MIP if the initial LTV is less than 90%.
If the initial LTV is more than 90%, annual MIP will terminate when the LTV reaches 78% either through regular monthly amortization or additional prepayments, whether or not it has been paid for a minimum of five years. The five year rule stated above for loans with terms of more than 15 years is not applicable for loans with terms of 15 years or less.
How much earnest money is customarily offered?
As the name implies, earnest money is offered by a buyer as a show of good faith.
While there is no required amount of deposit to submit with an offer, buyers should expect to deposit at least 1% of the sales price.
After an offer is accepted, the earnest money check will be delivered to the title company and held in escrow until closing. The buyer then receives a credit for the deposit at closing.
In the event of default on the terms of a contract, the earnest money is usually paid to and accepted by the seller as liquidated damages in compensation for any loss incurred.
What are "points," and are they worth paying?
Discount point are paid up front, at closing, to "buy down" the interest rate of a loan.
Each discount point is equal to 1% of the loan amount.
Discount points are tax deductible, because they are interest paid on a home mortgage.
Discount points can be especially beneficial if a buyer expects to remain in the home they buy for more than five years (per point), and during periods of high interest.
What is an origination fee, and should you pay it?
Loan origination fees are generally 1% of the loan amount.
A buyer can take out a loan quote without an origination fee, but the interest rate will be slightly higher.
What is an escrow account?
Escrow accounts are usually required by a lender for the deposit of the homeowners insurance and real estate taxes portion of each monthly payment.
Up to 3 months of taxes and insurance will be collected to place in escrow at closing, because no monthly payment is due the first month after closing, and to assure that adequate funds are available for the payment of property taxes and insurance.
The lender uses the funds deposited in escrow to assure that these obligations are paid in order to protect their interest.
With a 20% down payment, a buyer can usually opt to pay taxes and insurance on their own.
In Texas, interest is not paid on escrow accounts, and lenders may not hold excess money in escrow accounts.
Annually, escrow accounts are re-evaluated, and the monthly payment is reset for the following year if an adjustment is needed. Any overage in the account will be refunded.
See also the information below about home owner's insurance and taxes escrow.
What is "prepaid interest"?
Since interest is paid after it has accrued, and no monthly payment is due in the month after closing, the interest on a loan from the closing date to the end of the month is collected in advance.
In example, if a closing falls on January 15, interest from January 15 through January 31 will be collected at closing, and the first payment will be due March 1, which will include the interest accrued during February.
If a closing falls near the end of the month, the interest due at closing will be less than that for a closing near the beginning of the month.
What is a Title Policy
A title policy insures that a seller has clear title to a property, and can convey title to a buyer. It protects all parties involved: The seller against claims by the buyer; The buyer against claims by an unknown party with an interest in a property; And the lender against loss of the security in the note.
It is normally paid by seller, but may be paid by buyer. Often on new homes, the buyer pays for the title policy. Refer to this chart provided by the Texas Department of Insurance, or use this JavaScript calculator.
Homeowners Insurance—Though lenders require only that borrowers secure hazard insurance, most home owners enjoy the greater protection afforded by a homeowner's policy. As a "rule of thumb," figure about 0.7% of the value for the annual rate. Factors like type of policy, the distance from fire hydrants, the composition of the exterior materials or the fire resistance of materials and construction features, and the amount of the deductible, among many other considerations, make insurance rates vary widely. In addition to the up-front cost for the first year's coverage, two months "prepaid" insurance will be collected at closing for next year's premium. In Texas, click the following links for types of policies available and other good info, helpful information about shopping for an insurer and rate comparisons from the Texas Department of Insurance.
Taxes Escrow— Property taxes will vary widely, depending on the closing date (taxes are prorated), whether a property is located within a municipality, the school district in which it is located and the current assessed value. As a "rule of thumb," figure about 1.5% to 2% of the value for the annual rate. The total tax will be prorated, and "prepaid" tax (for the remainder of the month, plus the taxes for the following month) will be collected at closing for the end-of-year tax bill.
Click the link below to download the Microsoft Excel spreadsheets for the monthly payment and closing costs , as well as the Department of Housing and Urban Development pamphlet, Buying Your Home: Settlement Costs and Helpful Information. The download is a compressed .zip file that contains each of the documents. MP&CCs.zip (454 KB)
