Home Buying Guide
- GET READY – One key to making the home buying process easier and more understandable is simple planning, and that usually begins by asking yourself some simple questions. For instance: Do you know what you want and why you want it? Are you planning to move to a new community due to a lifestyle change? Or is buying an option rather than a requirement? What would you like that you don’t have now? Once you’ve determined what you really want or need, the next question is: Do you have the money you need? In recent years, innovative loan programs have evolved and many require a 5 percent down payment or less. Several newly emerging loan programs not only allow the purchase of a home with no money down, but also underwrite some closing costs. But less money down means higher monthly mortgage payments, so most homebuyers choose to buy with some cash up front. Of course, those great loans aren’t available to everyone. You’ll need good credit. So, ask yourself: Do you have your financial house in order?
- GET HELP – Buying real estate might seem as simple as checking online listings and finding the right home at the right price, but no two properties — even two identical models on the same street — are exactly alike. Homes all differ and so do contract terms, mortgage options, inspection requirements and closing costs. In this maze of forms, financing, pricing and processes, it makes sense to work with professionals who know the community — and much more.
- GET PRE-APPROVED – Virtually all buyers (especially first-time buyers) require a home loan of some type. But the big issue with real estate financing is not getting a loan. Almost anyone willing to pay high interest rates can qualify for a mortgage. The big idea is to get the loan that’s right for you — the one with the lowest costs and best terms. We suggest that you start the mortgage process well before bidding on a home. By meeting with lenders and looking at loan options, you’ll find programs that best suit your needs and learn how much home you can afford. But we also recommend pre-approval for another reason: Purchase forms often require buyers to apply for financing within a given time period; in many cases, 7 to 10 days. If you meet with lenders in advance, it won’t be necessary to find a lender, check credit and then rush into a financing decision. “Pre-approval” means you’ve met with a loan officer, your credit files have been reviewed and the lender believes you can readily qualify for a given loan amount. Although not a final loan commitment, a pre-approval letter can be shown to listing brokers to demonstrate your financial strength and ability to complete a purchase. This is important to owners, since they don’t want to accept an offer that may fail because financing can’t be obtained.
- LOOK AT HOMES – Some 6 million homes are sold each year, so choosing the right home can be downright complicated. The selection of homes for sale is always in flux, so you’re aiming at an ever-moving target. Even on a website that showcases every home available showing the list becomes obsolete within seconds as new homes become available and other properties are put under contract. What are you looking for?
Each of us is different, so the first step is to list all of the features and benefits you want in a home. Consider such things as pricing, location, size, amenities and design. Then consider your priorities. If you can’t get a home at your price with all the features you want, then which features do you really want most? It’s also important to consider your needs in a few years. If you’re likely to need a larger home, maybe now is the time to buy it rather than moving or expanding in the near future. All neighborhoods and communities have a special nature that gives them identity and value.
- CHOOSE A HOME – Choosing a home is a big decision and you want to do it right. No aspect of the home buying process is more complex, personal or variable than bargaining between buyers and sellers. Your agent knows the community, is familiar with local values and has spent years negotiating real estate transactions. How do you know if a house is the house? The best approach is to look at as many homes as possible. But once you’ve narrowed your choice to just one, you’ll want to move quickly. Do you remember Step 2: The pre-approval process? Getting pre-approved means you have a very good idea of how much you can borrow, which loan programs might work best for you and how much home you can afford. Despite fluctuating interest rates, pre-approval nonetheless provides a reasoned, careful analysis of what you can afford and gives you the “green light” to make your dream home your home.
- GET SET – Because financing is so important, you should acquire as much information as possible regarding potential mortgage options and costs. There are thousands of loans available from a variety of lenders; but in general, the mortgage you choose will likely be determined by three key factors: How much down? How’s your credit? And Are you a first-time buyer? You may believe that “first-time buyer” means someone who has never owned property but, under most state programs, the term refers to those who have not owned property within the past three years. To obtain a loan you must complete a written application and provide supporting documentation. Mortgage
financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions, and insurance companies.
- MAKE AN OFFER – Once you’ve settled on the home for you, you’ll want to extend an offer. While much attention is often paid to offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value or additional costs for buyers, so they should be reviewed carefully.
The process of making offers varies around the country, but in a typical situation, you’ll complete an offer your agent will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter-offer. Home inspections are also common in residential real estate transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections (which are particularly important). Such inspections for a single family home often require two or three hours and buyers should attend. This is an opportunity to examine the property’s mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.
- GET INSURANCE – You wouldn’t drive a car without insurance, so it figures that you shouldn’t buy a home without it either. The essential idea behind real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime. There are various forms of insurance associated with home ownership, including Title Insurance, Homeowners Insurance, Flood Insurance and Home Warranties. Of course, the time to obtain insurance and warranty coverage is at closing.
- CLOSING – This is the day you’ve been waiting for; the day your new home becomes yours. The closing process (which is also sometimes known as “settlement” or “escrow”) brings together all of the parties who are part of the transaction so all paperwork necessary can be reviewed, approved and signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately. But in any case, the result is the title to the property being transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices. One of the best parts of closing is that buyers and sellers need to do very little. Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests.
- GET MOVING – You’ve done it. The home is yours. But there are several more steps you’ll want to take. Those papers you received at settlement are extremely valuable, so hold on to them. In the short-term they can help establish tax deductions for the year in which the property was purchased. In the future, such papers will be important
for tax purposes when the property is sold, and in some cases, for calculating estate taxes. Also at closing, determine the status of the utilities required by the home, items such as water, sewage, gas, electric and oil service. You want utility bills to be paid in full by owners as of closing and you also want services transferred to your name for billing. About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded. Such records are public notices that show your interest in the property. For most owners, a home is the largest single asset they hold, so it makes sense to protect that asset. Many homeowners make a photo or video record of the home and their possessions for insurance purposes and then keep the records in a safety deposit box.
- Most importantly: Enjoy your home. – Owning real estate involves contracts, loans, and taxes, but ultimately what’s most important is that homeownership should be a wonderful experience. We hope you’ll make the most of it.