Buying a Home
Finding a Home
The process of finding a home involves a number of steps. The good news is that there is a fairly logical sequence by which this occurs. Further, there are some things you can do to accelerate the process like doing advance research in an area that interests you or getting pre-qualified for your home loan in advance of your home search. This tells you what you can afford and can save you a lot of time and stress in the process.
Home Buying Steps
Buying a home is a multi-step process starting with the commitment that it is time to move to a different phase of your life. Purchasing a home is a great life-changing event so try to prepare for it. In doing so, you are committing to a mortgage payment that will be there for you every month. You'll pay property taxes, insurance, and other monthly bills that also come with home ownership. There are many benefits that come with home ownership, such as the potential for equity growth, the opportunity to create a home with your "signature" on it and, of course, digging in the dirt to plant your favorite flowers! So what are the steps?
Step 1: Qualifying for a loan. How much money do you have? This information will help you determine what you can afford
You need to figure out what your cash and other resources are that can be converted for a down payment. You will use this money for initial home buying costs, your down payment, and transaction closing costs. There are some instances where people qualify for 100% financing (up to allowable limits of the loan program) such as military veterans. This is dependent on their income and ability to qualify for a loan. Providing this information to a bank or mortgage broker will help them determine your options. In fact, you should probably do this with 2 or 3 mortgage brokers and let them know there is competition to help you get the best loan for your needs.
Most people need to come up with some cash. Be careful about advertising that allows you to "get into a home with no money down". Remember the old adage "If it sounds too good to be true, it probably is". Despite all of the information out there, many housing scams are being perpetrated against uninformed consumers and the FBI has many open cases (and convictions) on file. However, people who have been bilked out of their cash rarely recover any money. Only work with reputable companies who have been around for a while.
Next, decide what you want in a home within the bounds of what you can afford. Think about bedrooms, bathrooms, garage, yard size, schools, shopping and other things of importance to you. The single most important thing you can do is to avoid frustration. Don't shop for homes you can't afford as it will eventually add to your frustration. When you find the right home, you should act quickly having pre-determined your requirements and your price. Be as realistic as you can and try not to stretch outside of your budget. Remember, you should try to set a realistic budget and stick to it because you'll be making payments for a long time.
Step 2: Determine whether or not to use a real estate agent
For most buyers, using a real estate professional can be a big benefit when it comes to knowledge of an area and their ability to negotiate. Interview a few agents and see how well they listen to your needs. Get references if possible. Tell them about your expectations and your timeline for finding a home. Let them know that you expect to receive communiqu_s from them regularly and whether anything new is on the market or not.
By establishing your expectations up front about the home you want and how you want to be treated, you will minimize the likelihood of problems down the road. No one enters into a transaction with the idea of finding problems but inevitably they sometimes arise. The better the communication there is between you and your real estate agent, the better you'll be able to resolve issues should they occur and result in you finding the home you want. A real estate transaction should be a collaborative effort between client and agent, not an adversarial relationship. Keep focused on your target of finding the home you want.
Step 3: The Loan Approval Process
Earlier, we discussed the necessity of knowing what you can afford. Affordability comes in two basic components: 1) Available cash for a down payment and closing costs and 2) the financing to make up the difference between cash and the purchase price. An important part of the loan approval process is pre-qualification.
Unless you are paying cash for a home, you will have to go through a loan approval process. By completing the necessary forms in advance (also known as pre-qualification), your lender will have the opportunity to check credit history, employment, identity and other essential aspects of loan qualification. Of equal importance, pre-approval will be to your advantage when you are in negotiations on an offer to purchase a home. Knowing that you are qualified in advance gives sellers a greater sense of confidence that a loan will close and allow you to close the sale of the home.
Since it has to be done anyway, it's better to have that process done and behind you before you get caught up in all on the transaction details like appraisal, home inspection, walk-through inspections and other inspections. You have to approve all of these processes to move towards your home purchase, so complete those details before they become a problem. Again, knowing how much you can pay for a home will help you tremendously in your search and negotiation process. In many cases, people qualify for a larger loan than they can realistically afford. Don't fall into this trap _ get a loan that you can AFFORD on a monthly basis.
Step 4: Looking for homes
If you approach the home search process in a systematic manner, you have determined your baseline needs in a home and know approximately how much you can afford for a home. Time-and-time again, buyers get very excited about the prospects of owning a home... Why not? It is an exciting time. HomeSmart Reports strongly suggests that you manage that excitement and back it up with factual information about market value and trends in the area. Reports can be attained at www.homesmartreports.com, and will provide you with an instant analysis of important market information and local area risk information.
Perhaps the most important thing about staying within your financial bounds is that you will decrease the frustration that can come when you look at homes beyond your current financial means. There are things you want in a home but may not be able to afford at this time. Remember, a real estate agent or a mortgage lender has no motivation to keep you within any financial boundary. The more you spend, or the larger the loan you need, the higher their commissions when the sale closes. So, in the end, it's up to you to place those limits on yourself. After all, you are the one who will have to live with them.
Step 5: When you choose a home
Define the basics of what you need in terms of property attributes when you choose your home of the future. Next define the locations you can afford based on your home's physical characteristics and your other requirements. Stay within the range of affordability defined by your current financial state and be prepared to move quickly when you find the right home. There are a lot of buyers out there looking and time won't wait for you if a nice home comes on the market.
Do the research you need and get information quickly as you can with www.homesmartreports.com. Lastly, when you have successfully concluded your negotiation, be prepared for something known as buyer's remorse. When people make a big purchase, they sometimes get very worried and that's natural. It's a good idea to do advance research, so you'll reduce your stress level. Obtain reports on sales data in the area, area risk factors, foreclosure activity and so on. The more you know the more confidence you will have in your decision.
Step 6: Funding your loan
As we mentioned earlier, the amount of your loan will depend on the purchase price of the home and the cash you have for a down payment. Subtract the cash down and closing costs from the purchase price and you arrive at the loan amount you need. Closing costs can also be managed by the amount of interest you pay on your loan. For example, assume your mortgage broker tells you that the best rate available is 6.5%. However, if you choose to pay a higher interest rate, perhaps 6.75 of 7.0 percent, your closing costs can be minimized or eliminated. In fact, the lender is just rolling those closing costs into the higher rate that you'll eventually pay through increased monthly payments. While it may be convenient to reduce those closing costs up front, over time you will pay more through higher interest than you would have had you paid the upfront loan fees. It's just something you need to know.
Mortgage brokers are required to provide you with a "Good Faith Estimate" called a RESPA statement. Study it carefully and ask questions about anything you don't understand. When it comes time to close the loan, compare the estimate you received with the estimate provided by the escrow holder. If any of the fees exceed the quote you were given, ask for a thorough explanation as to why. One fee that you cannot escape is the interest fee. If you close toward the first part of a month, you may have to prepay nearly a month's interest that will approximate your normal monthly payment.
For example, if you close on Oct 3rd, you'll usually have to pay 28 days of interest in your closing costs. However, most loans provide for a one-month grace period before the first payment is required. That means your first full house payment would usually not be due until December 1st. Some lenders vary in this approach so make sure you understand the payment terms of the loan. Some loans require pre-payment penalties that can cost you several thousand dollars if you pay off your loan early. This occurs when you sell your home in the future to buy another or simply cash out. Review the terms of the loan with your real estate agent and your mortgage brokers of choice so there are no surprises. Verify whether or not there are pre-payment penalties prior to signing your loan papers.
Step 7: Making an offer to purchase a home
When making an offer to purchase a home, be decisive and plan for it in advance. Ask your real estate broker about the best strategy to use. Ask them how they intend to present your offer. In nearly every case, you, as the buyer, will not see the presentation and will have to rely on your broker to represent your interests. Don't tell your broker how high you might go.
Make each offer as if it is your best offer. Your agent has to believe this and when she does, she'll work harder to get that offer accepted by the seller. If your broker knows you'll pay up to $20,000 more for the home, they may cave in to a sellers counter-offer and come back to you with a counter higher than you were hoping to see. Depending on the market conditions, you will have to determine whether to make a full price offer (as often happens in hot markets), or if there may be room for negotiation. If the seller immediately accepts your offer, you may feel you paid too much. This is another good reason to do your advance research with www.homesmartreports.com.
Sometimes, buyers decide to submit what is known as a lowball offer. Such an offer is usually well below market price. You must be careful of such offers. If an offer is too low, the seller may find it insulting and refuse to do business with you. If it's a home you truly want, consider this risk. Remember, the negotiation of a sale is one of the most critical points in a transaction and can be a very sensitive time for all involved. Do your best to maintain composure during this process and be available to your agent for counter-offer discussions. Again, your ability to act quickly and decisively at this moment may be the difference in owning a particular home or not. Making an offer to purchase a home is not something to take lightly. There's a lot at stake for both you and the seller. The better you prepare, the more quickly you can act.
Step 8: Don't forget to get insurance
Property and casualty insurance is always a good idea in the event of a disaster of some type. Some people acquire flood insurance as well as earthquake insurance, or some other natural disaster such as wind. It can also protect you in the event you are sued for some event that happens on your property. Nearly every lender requires homeowners insurance.
As with the pre-approval process for a loan, shop early for insurance. Compare rates and coverage with several companies and choose the one that is right for you. The company carrying your auto policy will likely also write homeowners insurance for their clients and many times you can receive discounted premiums if you have your auto and home insurance with the same company. If you neglect to have it ready to go at the close, it could delay the close of the sale. In an extreme case, it could cause you to go past the loan commitment date causing you to pay higher interest rate or lose the property all together. Higher interest could cause you to no longer qualify for the loan you'd originally agreed to during the offer presentation. Bottom line, this should not happen to you. Don't allow yourself to relax to the point you don't take care of details, especially your property insurance since it's easy to handle with a call to an insurance agent.
Step 9: Closing the transaction
As the transaction winds to a close, the pace will quicken a great deal. There are documents to sign. You will have to make the loan commitment by signing a mortgage or trust deed committing to the payment schedule you have agreed to earlier in the transaction. Also, near the end of the transaction you will have to review and approve a home inspection report.
There will be a "walk-through" inspection just days before the closing, to assure you that the home is in the condition it was when you first saw it. Generally, many of these documents will be reviewed at an attorney's office, a title company or an escrow company. Remember that you should bring your preliminary estimates of closing costs to compare to the ones you are seeing for the first time. If you have questions, now is the time to bring them up. Once the transaction closes, the money is dispersed and would be difficult to get back.
This is the time to assure yourself that everything is as it was originally represented by your agent, and the seller. If not, discuss it with your real estate agent as to how to best resolve the problem. Between the agent and the lender, creative solutions can sometimes be found.
Note: Be sure to bring current identification to a closing meeting as you often have to identify yourselves, or have documents notarized requiring such proof.
Step 10: You own a home!
If everything goes according to what's outlined above, you own a home! Congratulations, the fun is about to begin. If you have done your research and prepared for your move to a new location, your moving days will be easier. If you have arranged for a mover, you'll want to be in contact with them in the last weeks of the transaction to be sure to coordinate your move date. If you're doing it yourself, you'll want to reserve a moving truck.
During the transaction you should obtain through your broker a list of all utility company providers. You absolutely do not want to move in on Friday afternoon only to find out you have no power until Monday or Tuesday. If it happens, it's not the end of the world, but it sure is inconvenient. Try to plan to have kitchen basics available or plan to eat a lot of meals out in the first few days of owning your home. Many well-prepared real estate agents can provide you with a checklist of things you'll need as you prepare for moving out of your old place into your new place. Preparation and planning are keys to successfully coordinating a successful, relatively stress free move. It isn't easy, but with good planning you'll get it done.
The process of finding a home involves a number of steps. The good news is that there is a fairly logical sequence by which this occurs. Further, there are some things you can do to accelerate the process like doing advance research in an area that interests you or getting pre-qualified for your home loan in advance of your home search. This tells you what you can afford and can save you a lot of time and stress in the process.
Home Buying Steps
Buying a home is a multi-step process starting with the commitment that it is time to move to a different phase of your life. Purchasing a home is a great life-changing event so try to prepare for it. In doing so, you are committing to a mortgage payment that will be there for you every month. You'll pay property taxes, insurance, and other monthly bills that also come with home ownership. There are many benefits that come with home ownership, such as the potential for equity growth, the opportunity to create a home with your "signature" on it and, of course, digging in the dirt to plant your favorite flowers! So what are the steps?
- 1. Qualifying for a loan to buy a home
2. Determine whether or not to use a real estate agent
3. The loan approval process
4. Looking for homes
5. When you choose a home
6. Funding your loan
7. Making an offer to purchase a home
8. Property Insurance
9. Closing the transaction
10. You own a home
Step 1: Qualifying for a loan. How much money do you have? This information will help you determine what you can afford
You need to figure out what your cash and other resources are that can be converted for a down payment. You will use this money for initial home buying costs, your down payment, and transaction closing costs. There are some instances where people qualify for 100% financing (up to allowable limits of the loan program) such as military veterans. This is dependent on their income and ability to qualify for a loan. Providing this information to a bank or mortgage broker will help them determine your options. In fact, you should probably do this with 2 or 3 mortgage brokers and let them know there is competition to help you get the best loan for your needs.
Most people need to come up with some cash. Be careful about advertising that allows you to "get into a home with no money down". Remember the old adage "If it sounds too good to be true, it probably is". Despite all of the information out there, many housing scams are being perpetrated against uninformed consumers and the FBI has many open cases (and convictions) on file. However, people who have been bilked out of their cash rarely recover any money. Only work with reputable companies who have been around for a while.
Next, decide what you want in a home within the bounds of what you can afford. Think about bedrooms, bathrooms, garage, yard size, schools, shopping and other things of importance to you. The single most important thing you can do is to avoid frustration. Don't shop for homes you can't afford as it will eventually add to your frustration. When you find the right home, you should act quickly having pre-determined your requirements and your price. Be as realistic as you can and try not to stretch outside of your budget. Remember, you should try to set a realistic budget and stick to it because you'll be making payments for a long time.
Step 2: Determine whether or not to use a real estate agent
For most buyers, using a real estate professional can be a big benefit when it comes to knowledge of an area and their ability to negotiate. Interview a few agents and see how well they listen to your needs. Get references if possible. Tell them about your expectations and your timeline for finding a home. Let them know that you expect to receive communiqu_s from them regularly and whether anything new is on the market or not.
By establishing your expectations up front about the home you want and how you want to be treated, you will minimize the likelihood of problems down the road. No one enters into a transaction with the idea of finding problems but inevitably they sometimes arise. The better the communication there is between you and your real estate agent, the better you'll be able to resolve issues should they occur and result in you finding the home you want. A real estate transaction should be a collaborative effort between client and agent, not an adversarial relationship. Keep focused on your target of finding the home you want.
Step 3: The Loan Approval Process
Earlier, we discussed the necessity of knowing what you can afford. Affordability comes in two basic components: 1) Available cash for a down payment and closing costs and 2) the financing to make up the difference between cash and the purchase price. An important part of the loan approval process is pre-qualification.
Unless you are paying cash for a home, you will have to go through a loan approval process. By completing the necessary forms in advance (also known as pre-qualification), your lender will have the opportunity to check credit history, employment, identity and other essential aspects of loan qualification. Of equal importance, pre-approval will be to your advantage when you are in negotiations on an offer to purchase a home. Knowing that you are qualified in advance gives sellers a greater sense of confidence that a loan will close and allow you to close the sale of the home.
Since it has to be done anyway, it's better to have that process done and behind you before you get caught up in all on the transaction details like appraisal, home inspection, walk-through inspections and other inspections. You have to approve all of these processes to move towards your home purchase, so complete those details before they become a problem. Again, knowing how much you can pay for a home will help you tremendously in your search and negotiation process. In many cases, people qualify for a larger loan than they can realistically afford. Don't fall into this trap _ get a loan that you can AFFORD on a monthly basis.
Step 4: Looking for homes
If you approach the home search process in a systematic manner, you have determined your baseline needs in a home and know approximately how much you can afford for a home. Time-and-time again, buyers get very excited about the prospects of owning a home... Why not? It is an exciting time. HomeSmart Reports strongly suggests that you manage that excitement and back it up with factual information about market value and trends in the area. Reports can be attained at www.homesmartreports.com, and will provide you with an instant analysis of important market information and local area risk information.
Perhaps the most important thing about staying within your financial bounds is that you will decrease the frustration that can come when you look at homes beyond your current financial means. There are things you want in a home but may not be able to afford at this time. Remember, a real estate agent or a mortgage lender has no motivation to keep you within any financial boundary. The more you spend, or the larger the loan you need, the higher their commissions when the sale closes. So, in the end, it's up to you to place those limits on yourself. After all, you are the one who will have to live with them.
Step 5: When you choose a home
Define the basics of what you need in terms of property attributes when you choose your home of the future. Next define the locations you can afford based on your home's physical characteristics and your other requirements. Stay within the range of affordability defined by your current financial state and be prepared to move quickly when you find the right home. There are a lot of buyers out there looking and time won't wait for you if a nice home comes on the market.
Do the research you need and get information quickly as you can with www.homesmartreports.com. Lastly, when you have successfully concluded your negotiation, be prepared for something known as buyer's remorse. When people make a big purchase, they sometimes get very worried and that's natural. It's a good idea to do advance research, so you'll reduce your stress level. Obtain reports on sales data in the area, area risk factors, foreclosure activity and so on. The more you know the more confidence you will have in your decision.
Step 6: Funding your loan
As we mentioned earlier, the amount of your loan will depend on the purchase price of the home and the cash you have for a down payment. Subtract the cash down and closing costs from the purchase price and you arrive at the loan amount you need. Closing costs can also be managed by the amount of interest you pay on your loan. For example, assume your mortgage broker tells you that the best rate available is 6.5%. However, if you choose to pay a higher interest rate, perhaps 6.75 of 7.0 percent, your closing costs can be minimized or eliminated. In fact, the lender is just rolling those closing costs into the higher rate that you'll eventually pay through increased monthly payments. While it may be convenient to reduce those closing costs up front, over time you will pay more through higher interest than you would have had you paid the upfront loan fees. It's just something you need to know.
Mortgage brokers are required to provide you with a "Good Faith Estimate" called a RESPA statement. Study it carefully and ask questions about anything you don't understand. When it comes time to close the loan, compare the estimate you received with the estimate provided by the escrow holder. If any of the fees exceed the quote you were given, ask for a thorough explanation as to why. One fee that you cannot escape is the interest fee. If you close toward the first part of a month, you may have to prepay nearly a month's interest that will approximate your normal monthly payment.
For example, if you close on Oct 3rd, you'll usually have to pay 28 days of interest in your closing costs. However, most loans provide for a one-month grace period before the first payment is required. That means your first full house payment would usually not be due until December 1st. Some lenders vary in this approach so make sure you understand the payment terms of the loan. Some loans require pre-payment penalties that can cost you several thousand dollars if you pay off your loan early. This occurs when you sell your home in the future to buy another or simply cash out. Review the terms of the loan with your real estate agent and your mortgage brokers of choice so there are no surprises. Verify whether or not there are pre-payment penalties prior to signing your loan papers.
Step 7: Making an offer to purchase a home
When making an offer to purchase a home, be decisive and plan for it in advance. Ask your real estate broker about the best strategy to use. Ask them how they intend to present your offer. In nearly every case, you, as the buyer, will not see the presentation and will have to rely on your broker to represent your interests. Don't tell your broker how high you might go.
Make each offer as if it is your best offer. Your agent has to believe this and when she does, she'll work harder to get that offer accepted by the seller. If your broker knows you'll pay up to $20,000 more for the home, they may cave in to a sellers counter-offer and come back to you with a counter higher than you were hoping to see. Depending on the market conditions, you will have to determine whether to make a full price offer (as often happens in hot markets), or if there may be room for negotiation. If the seller immediately accepts your offer, you may feel you paid too much. This is another good reason to do your advance research with www.homesmartreports.com.
Sometimes, buyers decide to submit what is known as a lowball offer. Such an offer is usually well below market price. You must be careful of such offers. If an offer is too low, the seller may find it insulting and refuse to do business with you. If it's a home you truly want, consider this risk. Remember, the negotiation of a sale is one of the most critical points in a transaction and can be a very sensitive time for all involved. Do your best to maintain composure during this process and be available to your agent for counter-offer discussions. Again, your ability to act quickly and decisively at this moment may be the difference in owning a particular home or not. Making an offer to purchase a home is not something to take lightly. There's a lot at stake for both you and the seller. The better you prepare, the more quickly you can act.
Step 8: Don't forget to get insurance
Property and casualty insurance is always a good idea in the event of a disaster of some type. Some people acquire flood insurance as well as earthquake insurance, or some other natural disaster such as wind. It can also protect you in the event you are sued for some event that happens on your property. Nearly every lender requires homeowners insurance.
As with the pre-approval process for a loan, shop early for insurance. Compare rates and coverage with several companies and choose the one that is right for you. The company carrying your auto policy will likely also write homeowners insurance for their clients and many times you can receive discounted premiums if you have your auto and home insurance with the same company. If you neglect to have it ready to go at the close, it could delay the close of the sale. In an extreme case, it could cause you to go past the loan commitment date causing you to pay higher interest rate or lose the property all together. Higher interest could cause you to no longer qualify for the loan you'd originally agreed to during the offer presentation. Bottom line, this should not happen to you. Don't allow yourself to relax to the point you don't take care of details, especially your property insurance since it's easy to handle with a call to an insurance agent.
Step 9: Closing the transaction
As the transaction winds to a close, the pace will quicken a great deal. There are documents to sign. You will have to make the loan commitment by signing a mortgage or trust deed committing to the payment schedule you have agreed to earlier in the transaction. Also, near the end of the transaction you will have to review and approve a home inspection report.
There will be a "walk-through" inspection just days before the closing, to assure you that the home is in the condition it was when you first saw it. Generally, many of these documents will be reviewed at an attorney's office, a title company or an escrow company. Remember that you should bring your preliminary estimates of closing costs to compare to the ones you are seeing for the first time. If you have questions, now is the time to bring them up. Once the transaction closes, the money is dispersed and would be difficult to get back.
This is the time to assure yourself that everything is as it was originally represented by your agent, and the seller. If not, discuss it with your real estate agent as to how to best resolve the problem. Between the agent and the lender, creative solutions can sometimes be found.
Note: Be sure to bring current identification to a closing meeting as you often have to identify yourselves, or have documents notarized requiring such proof.
Step 10: You own a home!
If everything goes according to what's outlined above, you own a home! Congratulations, the fun is about to begin. If you have done your research and prepared for your move to a new location, your moving days will be easier. If you have arranged for a mover, you'll want to be in contact with them in the last weeks of the transaction to be sure to coordinate your move date. If you're doing it yourself, you'll want to reserve a moving truck.
During the transaction you should obtain through your broker a list of all utility company providers. You absolutely do not want to move in on Friday afternoon only to find out you have no power until Monday or Tuesday. If it happens, it's not the end of the world, but it sure is inconvenient. Try to plan to have kitchen basics available or plan to eat a lot of meals out in the first few days of owning your home. Many well-prepared real estate agents can provide you with a checklist of things you'll need as you prepare for moving out of your old place into your new place. Preparation and planning are keys to successfully coordinating a successful, relatively stress free move. It isn't easy, but with good planning you'll get it done.
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