Updated: Nov 12, 2020
So you’re ready to start looking for your new home?
Below are things that you may or may not have thought of, it all starts with the money!
A good lender will make or break the process!
A Good Lender is here to help you.
A Good Lender wants you to be able to buy your house.
A Good Lender will tell you what you need to do to make that happen.
The first step in buying a home is getting pre-approved. You can only get pre-approved by speaking with a lender. The lender will check your credit score, ask you some questions about your job, income, and other things. This is to determine if you can purchase. Do not be intimidated by this process. Did you know that less than 30% of people are approved on the first try? But, most who don’t qualify at first can be ready in less than a year with some guidance from a good lender. Once your lender gives you the pre-approval letter the House Hunting can officially begin.
At this point your lender will tell you what type of loan you will be using to purchase your home. There are many different types of loans just like there are many different situations and properties. (See fig 1.1 below) Think of it this way, you would not run track in high heels. Same principle applies. When deciding on a lender to use there are some factors to consider. What type of experience does the lender have? How many lending avenues do they have available to get you approved? Will they be accessible during the loan process? It is also recommended to work with a local lender so that if there are any issues you will be able to have direct access to your lender to resolve anything that comes to light quickly and efficiently. It is also important to know that your application and credit will be reviewed again just before the act of sale.
There are 8 things that you want to avoid doing until after the purchase is complete.
1. Do not apply or open any new credit cards
2. Do not close any credit cards out
3. Do not change jobs during the process of buying a home
4. Do not go and finance new furniture or appliances until the day after your closing!
5. Do not buy a new car
6. Do not move money around
7. Do not skip a payment or be late on a payment
8. Do not spend your savings
9. Following these guidelines will help make sure your home purchase goes smoothly.
TYPES OF LOANS
3% minimum down payment and PMI can be removed if applicable, down payments can be gifted.
3.5% down payment, PMI is for the life of the loan. Down payment can be gifted.
Zero Down, area and home must be eligible, limits on the USDA (RD) size of the loans and is based upon size of household and income
Offered to Veterans at Zero Down, can be used multiple times, and sellers can assist with closing costs.
Next comes the fun part and this requires a little work on everybody’s part. Below is the role we at the Brown Real Estate Team take very seriously and hope that you do too, we want a great working relationship with all of our clients and are hopeful that we can all work together for several years to come.
YOU AND YOUR AGENT
Firstly, Hiring an Agent to Represent You As A Buyer Costs You NOTHING.
Your Agent’s Commission is derived from the seller’s proceeds of the house being sold.
Your Agent is your advocate, your consultant, your personal expert.
We recognize this is a significant moment in your life. The fact that you have trusted us with your transaction is taken very seriously.
Some Questions You and Your Agent Should Discuss:
What do you expect from your agent?
What will my agent expect from me?
What is the preferred method of communication between you and your agent?
What are some of the resources offered to you by your Agent?
Now you must decide what is most important when searching for your house. You want to pick what are the most important factors that will impact the decision to place an offer. Deciding now as to which of these factors are most important and which are least important will make it much easier to recognize the right house when you see it. Make sure to communicate this with your agent, we want to make sure we are not wasting your time by showing you homes that you don’t want.
Create a list to give your agent identifying and ranking areas of importance in your search.
1. School District
2. Open Floor Plan
3. Big Yard
4. Great Kitchen
5. Room Size
Your agent will use this information to sort through properties and assist in finding the house that is as close to perfect as possible.
Once you find the house that is for you, it is time to make an offer. This is where we reach for that pre-approval letter. Sellers want to know that you can buy before they will entertain your offer. When writing the offer, it is important to remember that you are trying to spend as little as possible while the seller is trying to make as much profit as possible. Your agent will look at the recent sales and comparable properties in the area and offer advice when making an offer.
This is where you can start to expect to see your first expense, just like when you are renting a property you must put down a deposit to show you are serious about the purchase. The time from accepting an offer to getting to the act of sale can be as little as 2 weeks to 45 days depending on the circumstances. To get the seller to take the property off the market for that long they will expect what is called Good Faith Funds. This deposit can be as little as $500 up to $5000 depending on the size of the purchase.
Your agent will work together with the seller’s agent to negotiate the best and most acceptable terms for all parties involved. This can include price, closing costs, warranty, allowances, repairs and much more. Once everything is agreed upon and signatures are in place you are now under contract and the real work begins.
Now that you have agreed to purchase a home there are several things to do before the sale is complete. The first step is the home inspection. Home Inspections are not mandatory.
HOME INSPECTIONS ARE ALWAYS RECOMMENDED.
This is the next point where you need to be ready to spend money. You can expect to spend several hundred dollars or more for a good inspection depending on the size of the property. This is money well spent. A good inspection will uncover any defects that you cannot see with the naked eye. Things like the condition of the roof, electrical system, plumbing, HVAC and much more will be included in a thorough inspection. Often a house that looks great on the surface can have skeletons in the closet that show up during inspection. You don’t want to buy a house that has hidden problems that could potentially cost you thousands down the road. Once the inspection report is obtained you will discuss your options with your agent.
If there are many defects and you do not wish to go forward with the sale now is the opportunity to walk away and get your deposit back and start your search again.
If you wish to continue you must look at the report and decide what items are considered deal breakers and what items are for the honey-do list.
If there are defects and you still wish to continue there are several options.
1. Ask the seller to fix the issues before the act of sale.
2. Ask for an allowance to be given to have the issues fixed by you after the act of sale.
3. Move forward regardless of the inspection report.
Sometimes the seller will agree to these requests, sometimes they will refuse, often there is compromise on both sides because at this point everyone wants to make sure this sale takes place.
It is important to note that often people think if they are buying new construction they do not need to have an inspection. This is not correct, as with any industry there are good builders and there are bad builders. You want to have an inspection to make sure everything was done correctly. There is nothing worse than a brand-new house that has problems.
Once all the issues that arise from the inspection are addressed we are ready to move forward.
The next step in the process is the appraisal. You can expect to spend another several hundred dollars. If you are financing the purchase the appraisal is required. The purpose of the appraisal is to ensure that the house is worth what the lender is loaning. A lender will not loan more money than the property is worth.
The appraiser will look at the property in question and attempt to find similar properties that were recently sold to gain an accurate market value of the property. It is important to have a reputable appraiser that understands the local market and the value of properties can vary greatly depending on the area or neighborhood in which they are located.
If the appraisal comes back lower than the agreed upon sales price there are a couple of options.
1. The agent can challenge the appraisal and offer new data for consideration.
2. The seller can lower the sales price to meet the appraisal value.
3. The buyer can produce the difference out of pocket.
4. The buyer and seller can negotiate and agree to a solution acceptable to both parties.
Therefore, it is important to understand the current market when pricing a home for sale or submitting an offer for purchase.
You are now about to cross the finish line. Ever since the contract was agreed upon a titling company has been working to make sure the property makes it to the act of sale. This is where the closing costs are incurred. When choosing a title company, it is important to ask for an estimate of closing costs. It is also important to note that these costs can be negotiated to some extent.
The title company has been working to make sure ownership of the property can legally transfer to you. They are checking to make sure no unknown parties have a claim of ownership. The title company has been preparing and submitting the necessary documents to execute the sale of the property. When the title company completes their work, the lender will be notified. Once the lender is notified that everything is clear regarding the contracts and the title they will once again look at the file and if all requirements have been met they will issue the final approval known as the Clear to Close.
The Clear to Close is basically the green light to sign the papers. Once received, the title company will schedule a time for everyone to sign the necessary paperwork. Now that all signatures are in place the loan will fund and you are officially a homeowner.