Buying a House Without Paying the Listing Agent

Reader Question: How do I buy a house without paying a real estate agent who has the house listed?

In most cases, the seller pays the listing agent's commission. This is the way it works in most states and for most real estate transactions. The seller pays his or her agent's fee out of the proceeds they make from the sale (if any). If the buyer has an agent as well, the listing agent will typically split his or her commission with the buyer's representative -- as a "thank you" for bringing in a buyer.

Of course, these rules are not written in stone, and there are other types of arrangements between sellers and their agents. This is just the most common scenario. Now, the seller may very well increase the asking price to account for the commission they have to pay out. But as far as the person who actually writes the check out of pocket to pay the listing agent ... it's almost always the seller.

Keep in mind, also, that you are probably in a buyer's market right now. This is the case for most cities. It's tough to sell a home right now due to the economy. A lot of would-be home buyers are unable to get mortgage loans. Heck, it's tough to sell anything right now. That's why everyone from Circuit City to General Motors is on the brink of collapse -- nobody is buying stuff.

For you, this means you have even more bargaining power than you would have in a stable economy. So there's very little chance a seller would ask you to pay half of the listing agent's commission. That would just be foolish in this economy. The scenario you will likely encounter is this: The seller will pay the listing agent, and that person will split the commission with your agent (if you have one). I would be very surprised if it happened any other way.

Hope that helps. Good luck with your home buying process.

Equity in Current Home to Buy Another

Reader Question: I want to purchase another home but I don't have equity in my current home. I am confused about the process. How does this work? Do I have to have equity in my home to purchase another?

I'm not sure whether you would like to buy a home in addition to the one you currently own, or you want to sell the home you live in but purchase a home before the sale takes place. In either scenario, you would need to have sufficient income to pay both mortgages and cash for the down payment on the new/additional home.

The only reason you would ever need equity in your current home to purchase an additional home would be for the down payment (in the event you do not have the cash). In that case, the lender would allow you to borrow against the available equity for your down payment and closing costs. This type of arrangement is referred to as a bridge loan, but they are not easy to secure in the current economy due to declining real estate values and lender restrictions.

Related information on our website:

Home equity loans -- This type of financing is popular among homeowners as a quick source of cash. But there are smart and foolish ways to use an equity loan or credit line, and this article explains the difference.

Buying a new home before selling old one -- Is it possible to buy a new home before selling the old home, and if so how do I go about it? This article provides some answers.

Buying a Home After Chapter 13 Bankruptcy

Reader Question: I filed a Chapter 13 bankruptcy in 2005 and my credit score is at 620 still. When will I be able to buy another home?

Only a mortgage lender can tell you that answer for sure. But I'll try to give you as much input as I can. By federal law, a bankruptcy filing can only stay on your credit report up to ten years. But in most cases, Chapter 13 bankruptcy comes off after seven years. This is relevant to your question because the information in your credit reports is what determines your credit scores.

Here's what Maxine Sweet, VP of public education at the Experian credit reporting company had to say about this:

Bankruptcy can be reported for up to 10 years from the filing date ... Experian reports Chapter 13 bankruptcy for seven years because it includes partial debt repayment. Chapter 7 bankruptcy remains for 10 years from the filing date because none of the debt is repaid.

Now, this doesn't mean you can't buy a house in the meantime. Those are just the "magic numbers" you need to keep in mind, when the Chapter 13 filing will come off your report.

Here's something else to keep in mind. The impact a bankruptcy has on your credit score lessens over time ... if all other factors remain the same. In other words, if you don't have any other issues affecting your credit score (such as overdue bills), then your credit score will likely start to rise. It sounds like yours has remained the same since the filing. If that's the case, you should try to determine what else might be hurting your score.

We have an article on how to read a credit report on another blog here at the Institute, and that's probably worth reading. You might also want to peruse this Q&A session from a couple weeks ago, on the same subject.

Buying a Home With Parents - Credit Scores and Income

Reader Question: My boyfriend and I along with his parents would like to buy a house together. The problem is he and I both have poor credit but decent incomes and his parents have good credit with low incomes. Would we likely qualify for a loan in today's market?

That's an interesting question. It's almost like a Zen riddle! It sounds like you offset each other's weaknesses. Since you have good income but bad credit, and his parents are the reverse, they might be able to co-sign on the loan to help you all get approved.

If you haven't done so already, I would read up on FHA home loans as well. That might be a good option for you. You would still apply for the mortgage through a private lender, but the FHA would insure the loan. This helps buyers with credit trouble and other issues get approved.

Probably the best thing to do at this point is set up an appointment to talk to a lender. They can look at your financial information (for all four of you) and pre-qualify you based on that. Pre-qualification is the process through which the lender will determine how much of a mortgage you might actually qualify for -- a ballpark range, at least. It's a good way to get the ball rolling.

To prepare for this process, you should start rounding up your financial documents. This includes your most recent W2 forms from the last couple of years, pay stubs, bank statements, retirement account info (if applicable for the parents), etc.

Hope that helps. And hey ... if you end up getting a mortgage loan and would like to share it with other readers, just send me an email when the time comes and I'll update this blog post. Information sharing is critical in this tough economy. Good luck!

-Brandon

Credit Score Needed for FHA Home Loan Program

Reader Question: What credit score do I need to get an FHA first-time home buyer loan?

First, let me clear something up. There is an FHA home loan program designed to make home buying more affordable, but it is not limited to first-time buyers. Anyone can apply for such a loan. With that being said, it can be a useful program for first-time buyers because it can help you get a mortgage loan when you might not otherwise qualify for one.

One of the biggest benefits of FHA loans is that you can often get approved with less money down. For tradition loans, most lenders these days require somewhere in the neighborhood of 20 percent down (especially in light of our current economic issues). But you can theoretically get approved for an FHA home loan with as little as 3^1/2 percent down.

I would love to give you a credit score limit that you need to get qualified for the FHA home loan program, but it's just not possible. Here's why. The FHA does not set the eligibility criteria for these loans, because they are not the one making the actual loan. You still have to apply through a private mortgage lender. So the minimum acceptable credit score will vary, based on which lender you approach.

Because of the FHA's backing, lenders have traditionally been willing to offer loans to buyers will less-than-ideal qualifications (such as a low credit score). You would apply for an FHA loan through a regular lender, and -- theoretically -- you would be able to get approved with less of a down payment, a lower credit score, etc. I used the word "traditionally" above because times have changed. In our current economy, I'm not sure how much difference the FHA backing will make, in terms of getting approved through a private lender.

Find Out if You're Eligible for an FHA Loan

The only way to find out if you're eligible for the FHA home loan program (based on your credit score and other criteria) is to apply for it. There are couple ways to go about this -- and one is much easier than the other...

• The FHA has a list of approved lenders that you can access through this page. I don't know about you, but I personally would not want to contact a long list of lenders to see if I'm eligible for the FHA program.
• An easier way to apply would be through a website like LendingTree. In fact, we have an in-depth explanation of the FHA loan program on our main website, and it has links to the appropriate LendingTree application page. Go there now

I know I didn't answer your credit score question, because there's no way for me to answer it. But I hope you have a better understanding of how it all works now. Good luck.

Related Question:
Will FHA loans be available in 2009?