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1. Do You Know What You Want?
It doesn’t matter if you are a first-time homebuyer or entering the marketplace as a repeat buyer, you need to ask yourself why you want to buy. Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you don’t currently have? Do you have a purchasing timeframe?
2. Get a REALTOR®
Buying and selling real estate is a complex matter. At first it might seem that by checking local books or online sites you could quickly find the right home at the right price.
But a basic rule in real estate is that all properties are unique. No two properties—even two of the same models on the same street—are precisely and exactly alike. Homes differ and so do contract terms, financing options, inspection requirements, and closing costs. Because of this, it makes sense to work with Scott and LeAnne, professionals who know their community and much more.
3. Get Loan Preapproval
"Preapproval" means you have met with a loan officer, your credit files have been reviewed, and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power.
Although not a final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to sellers since they do not want to accept an offer that is likely to fail because financing cannot be obtained.
4. Look at Homes
Each person is different and therefore it's important to list the features and benefits you want in a home. Consider such things as price, location, size, amenities (such as a finished basement or extra-large kitchen), and design (one floor or two, colonial or modern, etc.). Next, it's important to consider your priorities. If you can't find a home in your price range with all the features you want, then what features are most important? For example, would you trade fewer bedrooms for a larger kitchen? A longer commute for a bigger lot and lower cost?
Lastly, consider your needs in a few years. If you'll need a larger home, maybe now is the time to buy a bigger house rather than moving or expanding in the future. If you expect your income to increase, perhaps you should consider a more expensive home financed with a loan program where monthly payments increase in the future.
5. Choose a Home
There's no doubt that choosing a home is a big decision and you want to do it right. A home has been placed on the market for which the seller has established an asking price as well as other terms. In effect, this is an offer. At this point, you have three choices: accept the seller's offer and create a contract; reject it and not make an offer; or suggest different terms and make a counter-offer. If you choose this last option, the seller may accept, reject, or make a counter-offer.
No aspect of the home-buying process is more complex, personal, or variable than bargaining between buyers and sellers. This is the point where the value of having Scott and LeAnne is clearly evident because they know the community, have seen numerous homes for sale, know local values, and have spent years negotiating real estate transactions.
6. Get Funding
There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several key factors:
- How much down? Loans with 5 percent down or less are now widely available -- in fact, loans from major lenders with no money down have appeared in recent years.
- If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as the Veterans Administration (VA), the Federal Housing Administration (FHA) or a private mortgage insurer (PMI, or private mortgage insurance, is required by lenders to protect against any mortgage defaults).
- How's your credit? The best rates and terms are only available to those with solid credit. To get the best loans, make a point of paying credit cards, installment payments, rent, and mortgage bills in full and on time.
To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks, and tax returns for the past two or three years if you are self-employed.
7. Make an Offer
REALTOR® organizations, along with legal counsel, have developed forms that are appropriate for realty transactions in specific communities. Such documents include numerous sale conditions, and their wording should be carefully reviewed to assure that they reflect the terms you want to offer. Scott and LeAnne can explain the general contracting process in your community as well as their role.
While much attention is spent on offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers—or additional costs. Terms are extremely important and should be carefully reviewed.
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews, and structural inspections.
Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. 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 more about the property than is possible with an informal walk-through.
8. Get Insurance
Title insurance: Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes "lenders" policies, which protect buyers up to the mortgage value of the property, and "owners" coverage, which protects owners up to the purchase price. In other words, "owners" coverage protects both the mortgage amount and the value of the down payment.
Homeowners' insurance: Homeowners' insurance provides fire, theft, and liability coverage. Homeowners' policies are required by lenders and often cover a surprising number of items, including, in some cases, property such as wedding rings, furniture, and home office equipment.
Flood insurance: Generally required in high-risk, flood-prone areas, this insurance is issued by the federal government and provides as much as $250,000 in coverage for a single-family home plus $100,000 for contents. Scott and LeAnne can explain which locations require such coverage.
Home warranties: Home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems, such as plumbing and wiring for the first two years, and structural defects for up to 10 years.
Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.
9. Closing
Closings bring together a variety of parties who are part of the "transaction" process. For example, while the history of property ownership has been checked, it's possible that the records contain errors, unrecorded claims, or flaws in the review itself; thus title insurance is necessary. At closing, transfer taxes must be paid and other claims must also be settled (including closing costs, legal fees, and adjustments). In most transactions, the closing officer from the title company also completes the paperwork needed to record the loan.
Make sure that you have all utilities transferred to your name, effective on the day of closing. You can find numbers and information for local utility companies by visiting the links page.
10. What's Next?
Those papers you received at settlement are extremely important, 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.
Owning real estate involves contracts, loans, and taxes, but ultimately what's most important is that homeownership should be a wonderful experience. Enjoy!
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