Real Estate 101: What Every Buyer Needs to Know

Question 1

What is the main difference between a mortgage pre-qualification and a mortgage pre-approval?

Accepted Answer

Pre-qualification is a quick estimate based on self-reported financial information, while pre-approval involves a formal credit pull and verification of income, assets, and employment

Answer

Pre-qualification is only for first-time buyers while pre-approval is for repeat buyers

Answer

Pre-qualification requires a full appraisal of the property while pre-approval does not

Answer

Pre-qualification locks in your interest rate while pre-approval only estimates it

Question 2

What is the minimum down payment required for a conventional loan without private mortgage insurance (PMI)?

Accepted Answer

20% of the purchase price

Answer

25% of the purchase price

Answer

10% of the purchase price

Answer

5% of the purchase price

Question 3

Under the Homeowners Protection Act, when can a borrower with a conventional loan automatically request cancellation of PMI?

Accepted Answer

When the loan-to-value ratio reaches 80% based on the original purchase price or appraised value at origination

Answer

After making 24 consecutive on-time mortgage payments

Answer

When the home's current market value increases by 25% over the purchase price

Answer

After five years of homeownership regardless of equity

Question 4

What are typical total closing costs as a percentage of the home's purchase price?

Accepted Answer

2% to 5%

Answer

0.5% to 1%

Answer

6% to 8%

Answer

10% to 12%

Question 5

What is earnest money, and what protects a buyer from losing it if the deal falls through?

Accepted Answer

Earnest money is a good-faith deposit (typically 1% to 3% of the purchase price) held in escrow; contingencies such as financing, inspection, and appraisal allow buyers to back out and receive a full refund

Answer

Earnest money is a non-refundable fee paid to the listing agent upon offer acceptance

Answer

Earnest money is always fully refundable regardless of why the buyer backs out of the deal

Answer

Earnest money is the first month's mortgage payment paid directly to the seller; buyers never lose it if they have a real estate agent

Real Estate 101: What Every Buyer Needs to Know

What You Will Learn