4 types of neighborhoods

After the boring stuff is out of the way – the loan application process, choosing a lender and then hiring a real estate agent, it’s time to go shopping, the truly fun part of buying a home.

Have you started your wish list yet? The first section should be all about location – where you want to live, right down to several neighborhoods that you find appealing.

We believe in the “Google Earth” method of finding anything – start wide and then narrow down the search radius.

At the wide end of the spectrum, you’ll need to decide whether you want to live downtown, in the suburbs or a more rural area. Let’s walk through some of the terminology you may see while shopping for a neighborhood and the pros and cons of each.

1. Urban Core

The most common name for living in the heart of a city is “downtown,” but the media have introduced another term, “urban core.”

In some areas of the country, such as Austin, Texas, the word “central” might be placed before the name of the city. So, if you live in an apartment in downtown Austin you would most likely tell folks you live in “central Austin.”

Housing choices in the urban core also depend on region. They can range from luxury penthouse condos to warehouse conversion lofts and apartments that sit atop businesses.

Your neighbors will be diverse as well, including a mix of low-to-middle income folks, the affluent and seniors.

Urban core residents like their neighborhoods because the housing is affordable (again, depending on region), it’s typically easy to get where you need to go on foot, they’re close to nightlife attractions and these neighborhoods generally lack the shopping malls so prevalent in suburbia.

Drawbacks to downtown living include trying to find parking, more crime and lots of transients.

Popular urban core neighborhoods include downtown Los Angeles, Battery Park City in Manhattan and downtown Seattle.

2. Suburbs

There are as many different descriptions of the suburbs as there are neighborhoods within them. One thing most can agree on is that the suburbs are located outside of the urban core.

Sometimes called “bedroom communities,” the suburbs offer a quieter, slower pace yet lack the uber-close proximity to many conveniences and entertainment venues.

Zillow.com finds that more than half of millennial homebuyers are choosing the suburbs, so if you plan on selling your suburban home, you may want to target this group of buyers.

Money magazine studied suburbs and, in February 2018 came up with a list of “the best” in the U.S. They include:

  • Peters, Missouri (a suburb of St. Louis)
  • Vinings, Georgia (outside Atlanta)
  • Schaumburg, Illinois (a suburb of Chicago)
  • North Arlington, New Jersey (a New York suburb)
  • New Berlin, Wisconsin (outside Milwaukee)

You can find the rest of the list at cnbc.com.

If you count yourself among those who dream of buying a home in the suburbs, plan on having a wide choice of home styles from which to choose: apartments, condos, townhomes and single-family homes.

Tip: Consider your commute before settling on the suburbs.

3. Subdivisions

Whether you long for the small-lot subdivisions that became popular in the Los Angeles area a few years ago or are seeking a large lot with manicured lawns and mature landscaping, subdivisions are still in great demand – especially among families.

They may be located in the suburbs or near the urban core.

Subdivisions typically offer residents amenities and what is offered depends on region, developer and the price of the homes.

Larger subdivisions may have a park or three for residents, a clubhouse, community pool, and bicycle or pedestrian trails. But the sky is the limit – literally – in some subdivisions.

Just outside of Charlotte, North Carolina you will find Aero Plantation, home to 90 families. It’s what is known as a fly-in subdivision and light aircraft have the right-of-way on all the roads. Lots are huge – 2 acres minimum – and there’s also a forest and lake in the community.

Trying to describe the typical subdivision home is futile as the variety is huge. Those with cul-de-sacs, however, typically house lots of families with children.

4. Rural areas

If you’re seeking a sense of community and want to put down “roots,” choose a rural area in which to buy a home. According to Pew Research, 40 percent of rural residents know their neighbors.

Only 28 percent of suburban dwellers can say the same while 24 percent of urban core residents know their neighbors.

This is a surprising finding, considering the sparse population of most rural communities.

Choose a rural setting for your new home and you’ll find that your neighbors exhibit a sharp divide in values and politics from the urban core dweller, according to Pew Research.

The populations of rural communities have been on the decline, so many are using incentives to attract new residents, according to a Zillow study. For instance, Tribune, Kansas, in its desire to attract new college graduates, offers the Rural Opportunity Zone program.

“They’ll help you pay off your student loans — up to $15,000 over the course of five years,” according to Brittan Jenkins at Business Insider.

Once you’ve decided on the type of “developed human settlement” (as Wikipedia calls them) that best appeals to you, narrow your home search to the neighborhoods that include the type of home you want and the price range.

Contact us, we’re happy to help.

Are you brave enough to buy a home while engaged?

Whoever coined the phrase “Bridezilla” must’ve been referring to the bride (or groom) who was juggling wedding planning with homebuying.

Believe it or not, many couples avoid the chicken and egg scenario (what comes first, the wedding or the house?) and decide to do both processes simultaneously.

It sounds crazy, but if you have a system and some professional guidance,  you can be successful.

Read on for our tips to get you from chaos to homeowning spouses.

It all comes down to money matters

Since the first step in a home purchase is getting a loan, you’ll need to decide if you should both apply or just one of you.

If you go for the joint mortgage, the lender will combine both applicants’ income, assets and debts. If one of you has a lot of debt, it will weigh down the application.

If, on the other hand, you’re like the average couple, where one of you looks better on paper than the other, perhaps that one should apply for the loan.

In many cases, one half of the couple has good credit but a lower income than the other. The lower income limits the amount of loan you’ll qualify for, while the high credit score may help you get a better mortgage rate.

You may want to sit down with your financial professional for the best advice on how to approach the mortgage application process.

You must consider the unthinkable

Although it may be unthinkable right now, there is a chance that you may not make it down the aisle. If you don’t, you will be among the nation’s 25 percent of failed engagements (according to Time magazine).

So, even though it’s unthinkable, you should be prepared for it, just in case. The best way to do this is to meet with an attorney about how you should divide the property, should a breakup occur. This is especially important if only one of you is on the home’s title.

To be extra safe, have your lawyer prepare a written agreement that both of you can sign.

While it’s not nearly as romantic as planning a honeymoon, planning for the successful purchase of a home before you tie the knot is important.

Feel free to reach out to us with any questions you may have. We love to talk about real estate!

What you absolutely must know about HOAs

A Sacramento area HOA created a requirement that insisted homeowners keep their garage doors open from 8 a.m. until 4 p.m., Monday through Friday. If they refused, they would be fined $200.

Apparently, the HOA hoped this invasion of homeowners’ privacy would prevent them from renting out their garages as living spaces. The requirement was later rescinded.

An Orlando area HOA ordered Robert Brady, a 70-year-old Vietnam veteran who has lived in his current home for 45 years, to get rid of his dog.

Brady, who has a letter from the VA stating that the dog is a mental-health therapy dog and helps keep the man’s problems in remission, was told that “Bane” exceeds the HOA’s weight restriction of 35 pounds. The dog weighs 40 pounds.

Say the words “homeowners association” and most of us come up with an image of a gang of power-hungry, nosy, petty despots.

The reality

Despite what we read in the media, 63 percent of Americans who live in communities managed by homeowners associations say they are satisfied with their communities, according to the Community Association’s Institute 2018 Homeowner Satisfaction Survey.

Only 38 percent of those surveyed, however, say members of their elected governing board “absolutely serve the best interests of their communities.”

Obviously, there is a distinction with one being satisfied with a community overall yet dissatisfied with their HOA.

Whether their reputation is over-hyped or well-deserved, HOAs offer both disadvantages and advantages to their members.

 

Dues: the most obvious disadvantage

One of the most obvious disadvantages of buying a home in a HOA-governed community is the monthly fee you’ll be required to pay. Don’t pay it and the association can (and most likely will) slap a lien against your property and, possibly, push your home into foreclosure.

These payments are a lot easier to tolerate if you consider them as helping to ensure your property’s value.

A 2017 Trulia study puts the average HOA fee, nationwide, at $331. Of course, the fee varies, depending on the services provided by the HOA and the community’s amenities.

When you pay the fees also varies, from monthly to yearly and, sometimes, quarterly or semi-annually.

The HOA uses this money to maintain and improve the common areas, to pay for taxes and insurance on the common areas, to enforce the rules and to pay legal fees. They will also use a portion to fund the reserve account – monies put aside to pay for unexpected major expenses or planned long-term projects, such as roof replacement or landscape upgrades.

 

Then there are the special assessments

Sometimes the HOA doesn’t have the funds to remedy an unexpected expense. Ideally, the reserve fund will have sufficient money in it, but, when it doesn’t, it falls to the homeowners to fork over what’s needed.

How the assessment is determined depends on the HOA’s governing documents. Most often, the governing board will make the decision while some HOAs require that the membership be given a vote before the imposition of a special assessment.

 

If you are considering buying a home in a managed community

Once your offer is accepted, you’ll receive a package of HOA documents to examine. It’s often a huge stack of paperwork, filled with legal terminology.

We urge our clients to consult with an attorney to help them decipher the documents. Once you accept them, you have no recourse but to abide by what’s in them.

Pay special attention to the Declaration of the Covenants, Conditions & Restrictions, or the CC&Rs for short. This document outlines how you can use the home, and how you can’t. For instance, it may contain a weight limit for pets, it may dictate your front yard landscaping and what window coverings are allowed.

The meeting minutes might also be of interest to you. Look for homeowner complaints. More important, look for the same complaints repeated over a number of meetings. This is an indication of an unresponsive HOA.

The financial documents can give you an idea of how the board handles the HOA’s finances. How much money is in the reserve fund? Check the history of special assessment impositions and the HOA budget as well.

When you buy a home governed by an HOA, you’ll not only pay a fee each month, but your use of the home and the property on which it sits will be decided by people you may not even know.

For those reasons, it pays to read the documentation carefully and see an attorney with any questions you may have.

 

3 Tips for selling your home when it’s snowing

It may not be snowing just yet, but you can count on the white stuff in the near future. If your home is going to be on the market during winter snow storms, the time to prepare is now.

Sloppy, slushy conditions are not only dangerous to folks trying to get to your front door, but they create messes – while you’re trying so desperately to keep the home clean.

Here are our best tips to help you sell your home when it’s snowing.

1. Keep them safe

Can you imagine a prospective homebuyer (or one of her children) careening down your walkway on her backside? Yikes.

Prevent this from happening by being extra-diligent in your ice and snow removal. Pay close attention to walkways, driveways, sidewalks near your home and stairways. If you have a deck or patio, ensure it’s snow-free as well to entice potential buyers to explore.

Then, follow up the shoveling with ice melt or rock salt. ConsumerReports.org has a handy piece about how to use ice melt and which is best.

Cut back any tree branches that appear precarious. The last thing you need is a potential buyer with a concussion (or worse) from a fallen tree branch.

Finally, clear out the gutters to avoid overflow.

2. Entice them to come inside

Do whatever you can to add pops of color to the exterior of the home. Potential buyers will notice and, hopefully, be enticed to get out of the car and into the home.

Add some color to the exterior of the home with plants, such as cold-weather loving pansies in pots on the porch or holly, with its colorful berries.

Consider painting the front door a cheerier color, such as red (evoking a holiday spirit). You’ll need to do this now, before it gets too chilly, according to the pros at houselogic.com.

Oil-based semi-gloss exterior paint needs to be applied in temperatures that are no lower than 40 degrees Fahrenheit and the limit is 50 degrees for acrylic-based paint.

Then, add a decorative door wreath (find ideas on Pinterest.com) for added curb appeal.

Paint the mailbox while you’re at it – anything to add contrast to the oh-so-white landscaping at this time of year will act as an invitation to enter the home.

3. Make them want to stick around

Offer up a place for visitors to hang their coats and shoe coverings to keep them from tracking the outside through the home. They’re quite inexpensive and will save you having to clean up after them. Check out Amazon.com if you prefer ordering online.

If you’ll be at work while the home is being shown, you’ll need to prepare the home before leaving. Set the thermostat so that the air temperature is comfortable. Turn on all the lights and, if it’s a particularly gloomy day, switch on your landscape lighting and porch light.

Since all homes look better in natural light, open all the window coverings as well.

Tori Toth offers a brilliant idea at USNews.com: a hot chocolate station. Since you won’t be home during showings, use an urn to keep water hot, a basket full of envelopes of instant hot chocolate mix, another full of cookies, a bowl full of mini-marshmallows and a container of stir sticks.

Or, use your crock pot, like Ashlie at Sugar Rushed does. You can find additional hot chocolate station ideas here.

Don’t forget to leave a note inviting visitors to help themselves.

What is the earnest money deposit in a real estate transaction?

First-time homebuyers know that they’ll need a down payment if they hope to get a loan.

What they often don’t know is that they will also need cash to use as what is known as an “earnest money deposit” to submit with the offer to purchase when they find the home they want.

This deposit takes its name from its purpose: It shows the sellers that you are earnest about following through with the transaction to purchase the home – you are, in essence, “putting some skin in the game.”

Although the amount of the deposit isn’t set by law, it varies according to region and the real estate customs within that region.

Something called “liquidated damages” typically determines how much a savvy listing agent will counsel her clients to demand.

Liquidated Damages

Buried within most pre-printed real estate purchase agreements is a clause known as “Liquidated Damages.” This concept is defined well by Bob Hunt at RealtyTimes:

“A liquidated damages clause sets in advance – at the time of contract formation – what the monetary value of damages shall be in the event of contract breach by one of the parties.”

In other words, should the buyer fail to hold up her end of the bargain, the seller agrees not to sue but to keep whatever amount of money the parties have determined will cover damages.

The amount of liquidated damages is stated as a percentage. In California for instance, that amount in most cases is 3 percent of the sales price of the home.

So, what do liquidated damages have to do with your earnest money deposit? If you default on the purchase of the home, this deposit may be forfeited as liquidated damages.

The liquidated damages clause must be initialed by both parties to be valid and the release of the money must be agreed to as well. Then, there is the issue of trying to prove that you suffered damages.

How Much?

The amount of earnest money you’ll need to deposit will vary by region and also by homeowner dictates. One percent of the purchase price is standard in Northern California but the buyer is typically asked to increase the deposit after the removal of contingencies.

As mentioned earlier, smart listing agents will counsel their clients to ask for an increase that will make the deposit equal to the maximum amount of liquidated damages.

Like many aspects of the residential purchase agreement, the amount of earnest money to deposit is negotiable so – whether you are the buyer or the seller — ensure that you’ve hired a knowledgeable real estate agent that can counsel you wisely.

Home-Buying Tips for Veterans

Veterans Day this year is November 11 (observed on the 12th) but to us, November is Veterans Month. And what better time to remind those who have served our country and their surviving spouses that the best mortgage on the market just may be the one that was created for them?

When comparing mortgages, especially when you’re short on cash, it just doesn’t get better than a loan that requires no down payment, the possibility of not having to pay closing costs and no private mortgage insurance requirement.

VA loan requirements are different from other loans, which many veterans find confusing. Because they don’t understand these requirements, even some real estate agents will try to steer military clients to other products.

Let’s take a look at three of the most frequently asked questions we receive about the VA loan.

What credit score does the VA require?

Since the VA doesn’t grant loans (it guarantees the repayment of a portion of the loan) it has no minimum credit score requirement. They leave that up to the lenders.

The good news is that because of the government guarantee, lenders tend to be more lenient with their credit score requirements.

Aim for a credit score of no lower than 620 and, remember, you would need a 740 or higher for most conventional loans.

Lenders also look at your ability to repay the loan. This includes an confirmation of:

  • Stable income
  • A debt to income ratio of no more than 41 percent. Even if yours exceeds this percentage, you may still qualify if you can prove “compensating factors.”

How much will I need for closing costs for a VA loan?

The amount the borrower will pay for a VA-backed loan’s closing costs varies by lender, the type of home, where you are buying and other factors, but plan on paying between 1 percent and 5 percent of the loan amount.

By the way, the VA limits the borrower’s closing costs to a specific list of items.

Although the VA doesn’t allow borrowers to finance the closing costs of their mortgage, they are quite flexible on who can pay them on behalf of the veteran.

This means that the seller or anyone else can pay all or part of your closing costs, quite possibly allowing you to buy a home with no money out of your pocket.

Speak with your lender about the various ways of dealing with VA loan closing costs.

Do I have to live in the home that I purchase?

Yes, you do. In fact, the law requires the borrower to certify that the home will be owner-occupied as the primary residence. You’ll have 60 days from closing to take occupancy, although extenuating circumstances may allow occupancy to be extended to 12 months.

By the way, for service members on active duty, occupancy by a spouse or dependent child fulfills the occupancy requirement.

There are, of course, exceptions to this rule. A PCS may allow you to rent out the home. Or, the borrower can apply for  an Interest Rate Reduction Refinancing Loan, which only requires that you certify that you previously occupied the home.

Contact the Regional Loan Center with any questions about the occupancy requirement. You’ll find yours on the U.S. Department of Veterans Affairs website.

 The first step in the VA loan process is to obtain your Certificate of Eligibility and you can do that online or through your lender.

By serving our country, you earned this housing benefit. Take advantage of it.

 

Selling Mom and Dad’s Home

One of life’s most challenging aspects is watching our parents age. Then comes the day when you, and they, realize they’ve lost their physical independence.

Whether they are downsizing into a smaller, less maintenance-intensive home or are moving in with you or to a care home, giving up a long-loved home is wrenching.

Thankfully, they have you and you have us and we have tips to help your parent or parents — an you — through this tough time.

Get legal advice

You may be required to use the proceeds of the sale to pay for your parents’ care if they will be moving to an assisted living facility or long-term care facility and will require Medicaid to pay for their care.

Speak with your attorney early in the process to learn about the complex aspects of selling an elderly parent’s home.

Line up some labor

Cleaning out a family home is a huge job so don’t try to tackle this alone. If you have siblings, enlist their help. In fact, insist on it.

Not only will you need their muscle but having family around may help ease your parents’ transition as well.

Otherwise, hire some help. Visit the neighbors to let them know what’s happening and ask for a referral to local manual laborers. Who knows? They may volunteer to help.

Hire a real estate agent

It may seem that it’s too early in the process to hire a listing agent, but we disagree, and here’s why.

Your agent should see the home before you start moving things out of it. Advice on what to leave for staging purposes is invaluable.

Ask for tips on whether to paint, replace carpet and other updates that will make the home more attractive to potential buyers.

Your agent will also be able to refer you to an estate sale company (if needed to help get rid of belongings), cleaners, painters and more.

Hiring an agent early in the process also allows Mom and Dad to get to know the agent and feel more comfortable about the sale process.

Move first, then sell

Because it’s so important for the homeowner not to be present during buyer showings, most experienced real estate agents will counsel you to move your parents before putting the home on the market.

If they need the equity from the current home to move, however, come up with another solution. Perhaps they can stay with you or a sibling until the home sells.

It’s time to purge

Purging a lifetime of belongings (and memories) will be the most challenging aspect of downsizing for your parents. What to keep, what to get rid, of will be decisions not easily made.

“ … the problem isn’t denial, but rather, the extraordinary difficulty associated with giving up items that are so closely linked to their identities, their past and their memories,” claims Sarah J. Stevenson at APlaceforMom.com.

It’s not really the items, it’s the memories attached to them

One way to ease your parents’ reluctance is to promise them that you will photograph everything they decide to get rid of and place the photos in a lovely scrapbook that they can take with them to their new home.

Or, if they prefer, you can video their cherished-but-leaving items. This way, they’ll still be able to refresh those memories.

Still, unless the parent is suffering from dementia, it’s important to allow him or her to take the lead in the purge. Yes, it will be slow-going, but it’s important that, in the future, they don’t look back and feel they were railroaded into getting rid of certain items.

Gather family members together to go through your parents’ purge pile. As one elderly woman in an online forum stated, “It is SO much better to know cherished family things will continue on.”

Have conversations with Mom about these items and the stories behind them. This helps ease her anxiety and lets her know that the memories associated with the items will live on.

Should I Sell my Home and buy Another Now or Wait? 

We don’t need a crystal ball to tell us when to take the first step in determining if this is a good time to sell a home and buy another.

While market conditions should play a role in your decision, the first step starts with you, and the state of your finances.

Your Personal Finances

How’s your credit? Lenders have tightened their FICO requirements. Even FHA has raised the lower end of their acceptable FICO range.

How long have you been in your current job? Lenders want to see at least two years with the same employer, or in the same line of work and no decrease in income.

Next, do you have the cash to put down on a home? In this strong seller’s market you may be able to use the equity from your current home to fulfill the down payment requirement on your new home.

You’ll need at least 20 percent of the price of the home if you go with a conventional loan. If you obtain an FHA-backed loan, the down payment requirement has a lot to do with your FICO score.

That said, lending has become so tight that sometimes a stellar FICO score can’t make up for lower income, a spotty job record and even a huge down payment, according to news from the Wall Street Journal.

Don’t forget closing costs. These are the fees you’ll need to pay when you close on the purchase of the home. They vary, but a rule of thumb is to have 2 to 5 percent of the purchase price in cash reserves.

Timing the Market

If you’re trying to time the market so that you sell at the top, good luck. Nobody knows when a particular market will top out, until it starts its downward move.

But, there are signs in the economy you might want to watch, according to some experts, that the real estate market is changing. These signs include:

Unemployment

Housing market prognosticators keep a close eye on unemployment numbers. It’s only natural that people worry more when their jobs aren’t secure. This anxiety tends to make them hold off on spending money.

Consumer confidence typically lags right along with low employment numbers. When the jobs situation improves, so does the confidence of Americans and money begins flowing again.

Right now, unemployment is quite low. But these numbers only help us figure out part of the story.

The Housing Inventory

A “shrinking inventory” is a real estate term that describes a market in which the number of homes for sale decreases. Think of it as supply and demand.

When there are fewer homes on the market, prices tend to rise, which is a good sign if you plan on selling your home.

New Housing Starts

Homebuilders sit out tight economies. When people are back to work and spending money again builders begin new developments. While national new housing starts are important, keep an eye on the state and local trends.

While it’s wise to monitor economic indicators to help time your home sale to coincide with the top of the market, there’s also a danger in that. The only sure-fire way to know that we’ve hit the price peak of the market is when prices start falling. By then, it’s too late.

Real estate markets move in cycles and can take excruciatingly long to change, or they can transform almost overnight. The ideal time to sell a home is when prices are high and there is lots of competition from homebuyers.

That time is now.

What are you looking for in a home?

When I bought my first home my priorities included a big backyard and the home had to be single-story. Yes, I was young, and obviously not too bright. I ended up with the backyard of my dreams in a single-story home that otherwise didn’t fit my lifestyle or tastes.

What’s your hot button?

Yes, it seems to be a simple question, but it turns out that the answer is complex.

Impulse buying is real. Retailers know this and take advantage of our tendency by using in-store cues to direct us to impulse buys. From magazines to peruse (and hopefully throw into your cart) as you wait in line to that snazzy lemon squeezer right next to the lemons in the produce department, impulse buys are everywhere.

The same holds true when shopping for a home. In the hands of a savvy real estate agent, a home for sale is presented in the best light possible. Trendy paint colors, strategic lighting and the presentation of a certain lifestyle are sure to appeal to many buyers. If the home appears to be in move-in condition, it’s even more appealing.

Avoid these strategic distractions by being absolutely clear on what you want and need in a home. This requires making a list.

But, this isn’t necessarily a shopping list, which is actually a list of needs. Think of it as more of a menu – a list of both wants and needs, with the latter prioritized.

Create your menu

This list should contain those features of a home and a neighborhood that are most important to you and your lifestyle.

Let’s start with the location. To do that, you’ll need to understand what type of structure you want to buy You typically won’t find mobile homes in the downtown area or condos in suburban neighborhoods. So, make this decision first:

  • Condo
  • Single-family house
  • Duplex
  • Townhouse
  • Mobile home

Now you’ll need to construct that menu. Remember, your needs take priority, but there’s also room on the menu for “desert,” those things that would be nice to have, if possible. Here are some ideas to get you started:

  • Should the home be one story or are multiple floors ok?
  • Square footage needed
  • Number of bedrooms and bathrooms required
  • Work from home? Put a home office on the menu
  • Preferred yard size
  • Do you need a garage? One, two or three-car?
  • Additional amenities, such as a pool (on site or nearby?)
  • Commute time
  • Proximity to public transportation, schools, parks, etc.

Now, edit the list, placing priorities at the top. These are items that you absolutely cannot do without. For instance, earlier I mentioned that my priority was a big backyard. I got it, but I also got a lousy floor plan because I hadn’t taken the time to figure out its importance to me.

What’s important to other members of the family? You’ll all need to agree on which of their dream list items they’ll be willing to compromise on, if the need arises. And, it most likely will.

What are you looking for in a home? Take the time to figure it out, in detail, stick to the list, and you won’t regret purchasing your new home.

Everything you need to know about the down payment

Unless you have a big stash of cash, you’ll need to borrow money to buy a home. Oh, you’ll still need some cash (for the down payment and closing costs), so don’t stop socking it away just yet.

In fact, one of the things that confuses our clients most is the down payment they’ll pay when they get a home loan. So, today we’ll share some of the questions we most frequently field.

Why do I have to make a down payment?

Not all home loans (also known as “mortgages”) require a down payment, but most do. There are several reasons for the requirement. Primary among them is that the money helps protect the lender in case you default on the loan.

Secondary to that is the fact that lenders understand that borrowers with “skin in the game” are more apt to do whatever it takes to hang on to the home and not allow the loan to go into foreclosure.

Is the down payment the same as the earnest money I give the seller?

No. The earnest money’s purpose is to show the seller that you are earnest about buying the home. The amount varies and it is typically held in a broker’s trust account or in escrow until either the purchase is finalized or you or the seller back out of the transaction.

When the purchase is finalized, the earnest money deposit is credited toward your down payment or, in some instances, closing costs.

The purchase contract contains what are known as “contingencies.” For instance, your purchase may be contingent upon you obtaining final loan approval. Should this not come to pass, you can walk away from the purchase with a full refund of your earnest money deposit.

If, on the other hand, you get cold feet and walk away from the deal, the seller may have the right to keep the deposit.

I’ve heard that some sellers help pay the down payment. Is that true?

No, it is not true. Sellers cannot help the buyer with the down payment. On the other hand, they are allowed to contribute toward the buyer’s closing costs.

You can, however, use gifted funds, as long as the money doesn’t come from someone directly involved in the transaction. The person who gifts you the funds must be able to document where the money came from.

If the gift funds are undocumented, you’ll need to have them in your bank account for at least 60 days before the lender will consider them “seasoned.” In fact, even your own down payment funds must either be sourced or seasoned, so if you need to move money around, do it as soon as possible.

Can I use money from my retirement account to pay the down payment?

Yes, you can, but we urge you to speak with your financial advisor or accountant before doing so. There may be penalties or tax ramifications that you should consider.

You’ll find information on borrowing money from your 401k at smartasset.com and moneycrashers.com. You’ll also find an article about why it isn’t a good idea to withdraw retirement funds for a down payment at kiplinger.com.

Again, we urge you to speak with a financial advisor before making the decision.

How much will I need to pay for a down payment?

How much you’ll be required to pay for a down payment depends on the loan product you’re using. The U.S. Department of Veterans Affairs and U.S. Department of Agriculture loan programs require no down payment but each has specific eligibility requirements.

Other loan programs, such as those offered through FHA and Fannie Mae and Freddie Mac offer low down payments and the range is generally tied to credit scores. With a conventional loan, you’ll typically be expected to pay 20 percent of the loan amount for the down payment.

But, consider voluntarily paying a larger down payment, if it’s within your budget. The more you pay, the smaller the loan amount will be and, thus, the smaller your monthly loan payment will be.

Make a down payment that nets you 20 percent equity in the home and you won’t be required to purchase private mortgage insurance, which adds a hefty premium fee to your monthly house payment.

When is the down payment due?

While you will need to show the lender proof of your funds for the down payment, the actual monies aren’t due until closing.

The lender will send you a form, called the “Loan Estimate.” While it breaks down all of the costs associated with the loan, pay special attention to the “Costs at Closing” section, specifically the second line under that heading, “Estimated Cash to Close.”

You’ll find a sample Loan Estimate online at consumerfinance.gov.

This amount reflects how much you’ll need to provide to your lender before the transaction is closed. It includes the down payment and closing costs and the lender typically requires the funds be in the form of a cashier’s check or wire transfer.

Please don’t hesitate to reach out to us if you have additional down payment questions or to clear up any confusion on other real estate-related topics. We’re happy to help.