A Guide for Homebuyers
Part I-Preparing to Purchase
Purchasing a home may be the largest financial step you can ever take. In order to make sure you are getting a good deal and making the right decision, there are several steps you should take to make sure this happens. The following will help you make your real estate transaction go through smoothly.
Financial Matters
Credit Check
One of the first things you should do before you actually begin your search for a home is to obtain a copy of your credit report. This will allow you to know what your credit score is and allow you time to improve your score should it be necessary. You can order your credit report from several reputable companies, such as Equifax or Experian.
If you find there are errors on your credit report, you will want to take the necessary steps to remove them in order to improve your score. Many people order a copy of their credit report annually to verify there have been no errors during that time period.
Gather Financial Information
When you go to a lending institution, you will find you will need all of your financial information in order for them to process a loan for you. Many lenders require your tax returns from the previous two years, your two most recent pay stubs, your current bank account information, including account numbers and the balance, and a list of all retirement accounts, stocks, and other assets you may own. You will want to make sure you have gathered all of your financial information and have it organized for the lender. This can only make the loan process smoother.
Analyze Your Finances
The next step to take is to figure out how much you can afford to spend on a home. While a lender will give you an amount they calculate as affordable, only you understand your complete financial status. The lender may tell you that you can afford a home for $250,000. However, if you are taking into account that your expenses may change, such as when you begin a family or change jobs, you may want to consider spending a much lower amount on a home. When figuring out how much you can afford to spend, don’t forget to take taxes, utilities, and other expenses into account.
When calculating how much you can afford, most lenders will agree that the total of your monthly mortgage expenses (including taxes and insurance) should not exceed 36 percent of the gross monthly income. If you go over 36 percent, you may find that your home loan will be denied. In order to make sure you do not go above, you may need to readjust the amount you wish to spend on a home.
Your Down Payment
One of the most important things you can do when getting ready to purchase your home is to make the decision not to spend all of your savings for the down payment. Unfortunately, this is a mistake many homeowners make and once the home is purchased, they find they do not have enough money to fall back on should the need arise. Make sure you leave at least three or more months of income in your savings for any emergency.
Many lenders may require you to pay as much as 20 percent down on your home in order to have your loan approved. If you participate in a program that allows less than 20 percent, your lender may require you to purchase Private Mortgage Insurance or PMI. This insurance actually protects the lender should you find yourself unable to pay your mortgage.
Finding the Right Lender
In order to find the right lender for you, you will want to shop around. Interview several different lenders before you commit to anything. There are lenders that actually push an individual toward loans that are aimed toward those with lower credit. While this can be a great thing for those who need this type of loan, if you do not research what the current interest rates are for the different credit scores, you may find yourself spending thousands of dollars more in interest. By asking friends, family members, and co-workers who they recommend and shopping around, you can interview the different lenders and find one with a loan program to match your needs.
If you find a lender you may want to work with, to lock yourself into the interest rate they have quoted you, ask for a Good Faith estimate. This will lock you in for a designated period of time and if you decide to go with this lender, you can make sure your interest rate has already been determined.
Decisions Regarding a Home
Location
Once you’ve found the lender you wish to work with, the next step is researching the area in which you wish to live. There are several things to consider, especially if you have a family. Schools will be of the utmost importance as you’ll want to give your child the best education you can. You’ll also want to find out the crime rate in the area, as well as what the local community offers. While some prefer a very close-knit community, others prefer a larger, more private community.
What Do You Want or Need in a Home?
Once you’ve decided the area in which you wish to live, your next step should be to make a list of your needs and wants in a home. The following is a list of things to consider on what you need and want:
Ÿ How many bedrooms do you need or want?
Ÿ How many bathrooms do you need or want?
Ÿ What type of floor plan do you prefer or need?
Ÿ How many stories do you prefer?
Ÿ How close to the schools do you want to be located?
Ÿ Do you prefer or need a quiet neighborhood?
These are just a few things to consider when purchasing a home. You may find that you need a three-bedroom home but would prefer a four-bedroom or if this is a home you are planning to retire to, you may find yourself looking for a one-story home. When you make your list, you’ll narrow your search and save a lot of time in searching for the house you want to purchase.
Choosing An Agent
When you’ve found your lender, decided where you want to live, and what you want in a home, your next step is to find a real estate agent to assist you. The real estate agent should be one who you can have a good rapport with and one you can trust. If you do not already know a reliable real estate agent, you’ll want to interview several before you select one to work with. The following are some questions you can ask in your interview:
Ÿ How long has the real estate agent been licensed?
Ÿ Does the real estate agent work full-time or part-time?
Ÿ How does the real estate agent keep in touch and what is their style of work?
Ÿ How many times has the real estate agent represented the buyer in a transaction?
Ÿ Is the real estate agent familiar with the area in which you wish to buy?
You will also want to discuss Dual Disclosed Agency with the real estate agent. This is when the agent represents both the buyer and seller in a transaction. If this occurs, the real estate agent will not be able to offer you advice-they will simple handle the paperwork in the sale. If you prefer the agent to only represent you, as the buyer, you will need to sign a form stating your wishes.
Once you have completed the previous steps, you can begin your search of homes. See Part II - Tips on Finding Your Home to help you in your search.
A Guide for Homebuyers
Part II-Tips on Finding Your Home
As you are getting ready to buy a home, whether it is a new home or old home, there are several things you can do to make sure your search is done both efficiently and effectively. Part I of Getting Ready to Buy detailed how to find the right lender and real estate broker to assist you. The following tips here in Part II are to help you to decide what home will be right for you and your family.
How To Find Homes For Sale
When many buyers enlist the help of a real estate broker, they simply leave it up to the broker on which homes to see. Generally, the buyer will give the broker some criteria and then he or she will set up the showings. However, in order to make sure you are seeing all of the homes that match your criteria, you may want to do your homework.
MLS
The MLS or Multiple Listing Service is a service that your real estate agent subscribes through and contains information on listings throughout the area where they do their business. This is where your real estate agent will find homes that may be of interest to you. The MLS is the most valuable tool a real estate agent can use and you will want to make certain your real estate agent is using it to your benefit.
Many areas now have an automated emailing system attached to the MLS. What this means is that your real estate agent can save the search they have done for you and set it up so that any time a new home is put on the MLS that matches your criteria the system will automatically email the listing information to you. This will allow you to see homes as soon as they come onto the market and should any interest you, simply contact your real estate agent to set up the showing.
Virtual tours of homes are also available through the MLS. This will allow you to preview potential homes and only select the ones that really interest you. This will help prevent you and your real estate agent from wasting time on homes that may not really match your needs.
FSBOs
When you begin your search of homes, you’ll find your real estate agent may not be actively seeking out all the homes that may be for sale. The fact is many people decide to sell their homes without the assistance of a real estate professional. These are known as an FSBO or For Sale By Owner.
While many real estate agents may stay current with FSBOs in their area, many will not tell you about the FSBOs in your area, for fear they will not receive a commission. However, it is in your best interest to speak to your real estate agent about FSBOs. If the real estate agent simply represents you in your purchase of an FSBO, you, as the buyer, can provide them with their commission.
To find FSBOs in your area, look in the local newspaper or online websites that help advertise FSBOs. You may be surprised to find how many there are available.
Open Houses
When looking for a home, open houses can play a crucial part in helping you to determine what you’re looking for. The open house will allow you to view other homes in the area where you are looking and help you to determine what you get for the price. While visiting open houses of homes listed by a real estate agent, make certain you inform the listing agent that you are already represented by another agent if this is the case. This way, if any interest in the home develops, the listing agent can expect a call from your agent.
Details of Potential Homes
When you begin looking at homes that match your criteria, you’ll find there are a wide array of differences between each one. Rarely do you find two homes that are exactly alike. When viewing these homes, you’ll want to take several things into consideration when determining whether or not the home is a good match for you and your family.
Situation of the Home
While you may find the home in the neighborhood where you wish to live, you may find the area of the neighborhood may not be your ideal place to live. Stand outside on the street and look around you. If you want a home with a great view and all you have around you are homes where the owners do not keep the yards clean, you may want to consider other homes or another section of the neighborhood. Other factors to consider include the home’s curb appeal (how nice it looks from the street), whether or not the home’s windows look directly into the other homes on the street, and what the access to the home is like. These are all factors that will help you to determine whether or not you wish to pursue it as a potential home for you and your family.
Kitchen
The kitchen is often the area of the home that gets the most action. The most important thing to remember is to not purchase a home with a kitchen that you can not live with. If it a matter of simply replacing the countertops or appliances, it should not be of importance to you. However, if the layout, cabinetry, flooring, and everything else does not work for you, you may want to reconsider your decision to purchase. The cost of remodeling a kitchen can be very expensive and unless you have the money for the project to easily spend, you may want to move on to the next home.
Closet and Storage Space
If you are like many people, you have a lot of stuff to be stored, such as sports equipment, decorations, and clothing. You’ll find that most of the older homes do not have much for storage space and many have too few closets. Newer homes will generally have a lot more closets and storage space for you to use. If you find that you love the older home, but need the closet space, you’ll need to remember that storage space can always be added. You will, however, need to surrender some of the living space in order to do this.
These, of course, are just a few things to think about when considering a home for purchase. The following is a list of items that will help you, as well.
· How long as the potential home been on the market?
· Are there previous offers on the home?
· If available to you, what are the homeowners reasons for selling?
· How does this home compare to others in the neighborhood?
· Does the home require any repairs?
When you’ve found a home that meets your expectations, you’ll want to speak to your real estate agent regarding an offer. Refer to Part II of A Guide For Home Buyers, Your Purchase and Sale Agreement and What It Means for information that will help you to put in a strong offer on your potential home.
A Guide for Homebuyers
Part III-Your Purchase and Sale Agreement and What It Means
After a long search, you’ve finally found the perfect home for you and your family You’ve contacted your real estate agent and you’ve set an appointment to make an offer on the home. Yet, you’re unsure of all of the little details involved in making an offer. The following information will help you with your purchase and sale agreement and assist you in figuring out what it all means.
The Contract
The real estate purchase and sale contract consists of many different sections in which a buyer can specify the details to their offer.
Price
The price is one of the first details that must be specified in the contract. The price of the offer can often make or break a deal very quickly. When determining the price you wish to offer, your real estate agent can help you by performing a CMA or Comparable Market Analysis on the home. This will tell you what other homes that are in the area and that are similar to the one you wish to purchase are selling for and can give a ball park range in which to make your offer.
Things to remember:
Ÿ You, as a buyer, must be aware that if you make an offer too low, you may scare the seller away from your offer entirely.
Ÿ Along with the price, you will be putting down earnest money with your offer, as well. This earnest money lets the seller know how serious you are in regards to purchasing their property.
Financing
The financing portion of the offer will detail the kind of financing you will need to get in order to purchase the home. This financing of the home is considered to be a contingency, as the offer is in good standing as long as the buyer does get financing. If the buyer is not able to get the financing they require, the contract can be dismissed. The only way that financing is not a contingency is if a cash offer is being made.
Things to remember-
Ÿ If you are unsure of the type of financing program you are going to need for this home, speak to the lender who pre-approved you for a loan. They can help you to determine what will be needed.
Ÿ If a cash offer is made, always make another way “out” of the contract, such as with inspection contingencies.
Inspections
One of the most important things you can do as a homebuyer is to protect your investment. In order to do this, homebuyers are encouraged to have a home inspected before the actual sale. Most lenders will require the home is inspected by a professional, as well. While known defects must be disclosed to potential buyers, there may be some that are even unknown to the sellers. These inspections can protect the homebuyer and lender from investing in a property that has too many defects and may require too much additional money to be invested.
A general building inspection will determine the overall condition of the building. The inspector will determine the condition of the structure, the roof, foundation, wiring, plumbing, and heating system , as well as whether or not there is any asbestos in the home, and will let you be aware of which items may need to be addressed. The general building inspector can also perform a radon and air quality test. He or she can also perform a water quality test.
If the home has a private sewer system, you will also want to have a septic inspection done. This can determine if the septic is working properly and is up to the codes of the city or town where the home is located. In order to perform the inspection, the septic tank must be emptied and many buyers find the homeowner is often willing to share this expense.
As part of the inspections, if you, as the buyer, are not satisfied with the results and have found too many things wrong with the home for you to be comfortable with the purchase, you may in fact call the contract null and void due to your dissatisfaction with the results of the inspections performed. If you still wish to purchase the home, you and your real estate agent can ask for the home sellers assistance in either repairing the defects or take money off the price of the home to pay for them.
Other Contingencies
If the potential property requires other contingencies, such as a survey inspection or review of utility bills, your real estate agent can help you to write them up as part of the contract.
Negotiations
Once your purchase and sale agreement has been completed and signed by you, your real estate agent will pass it along to the listing broker and the seller. When the seller receives the offer, they will have a choice of three responses:
Accept
The seller can accept the offer as is without requesting any changes.
Deny
The seller can refuse the offer point blank. They do not have to state any reasons.
Counter-Offer
The seller can counter-offer by making changes to your contract and request that you accept the changes. These negotiations can go back and forth until every item is agreed upon. The following are some items that are commonly part of the counter-offer:
Ÿ Price
Ÿ Closing date
Ÿ Time period to allow inspections
The contract will not go into effect until both parties have agreed upon all items and the contract has been signed by both parties.
Closing
Before you close on your home, you’ll find that many things will take place. The lender will require an appraisal on the home and a title search will be completed. Unfortunately, any of these things can delay the sale of your home. Regardless of the problem, however, your real estate agent will remain in close contact with the lender and the selling agent. They will inform you of what is needed in order to close on the home. Once all of the paperwork has been signed by you and the new deed has been signed by the sellers, you will own the home.
What Do You Need For Closing?
Each state and lender may have different requirements, however, the following items are most commonly needed to close on your home:
Ÿ Insurance policy and binder
Ÿ Certified check for down payment or closing costs (You will be informed of this amount)
Ÿ Picture identification to verify your identity
The fact is when you purchase a home enlisting the help of a real estate agent can only benefit you. They will walk you through the process and assist you in making your purchase of real estate a smooth transaction. When you finally close on your home, you’ll be thankful that you had someone to assist you in this process.
By: Penny S. Harmon