Whether you are a first time buyer or a seasoned move up veteran, purchasing a home is no easy process. Many people don’t know where to start, but often don’t know where to go for reliable information. Securing a realtor is the best way to ensure a smooth home buying purchase since a realtor’s primary function is protecting your interests and realtors are highly trained specialist in the real estate market. However, in the interim I put together this guide to outline the steps every buyer must take when purchasing their new home.
NEEDS VS. WANTS LISTS
Buying a home is a very exciting but overwhelming process. Every buyer would love to capture all their wants and needs in one home, but many times it’s a balancing act. Make a list of your absolute must have’s in the home versus your “wants”. This will be a great tool for you to provide to your realtor. It will also help you really focus on what is important to you in a home and how you want to spend your precious dollars. Think about things in terms of what will increase your quality of life, what you wish you had now to improve your living situation, and how certain things may effect resale value.
PRE-APPROVAL PROCESS
You will be talking to a lender to discuss your buying power in terms of the new home. Many people take this step before venturing out to look at homes. This gives them an idea of how much home they can afford, what current rates are trending at, how much of a down payment they will need, various loan options, and most importantly where they stand credit wise.
I always say do not get to attached to whomever you pick for the pre-approval process, because often times you may not end up securing that lender for the purchase. If you purchase a new construction home or find another institution with a more advantageous loan program it’s obviously in your interest to use that lender. Just be cautioned, do not go around to multiple lenders during the pre-approval process pulling credit and shopping rates. This is merely a one time effort to find out how much home you can afford based on your credit scores, income, and loan program you qualify for.
HIRING A REALTOR
Deciding on a realtor is a very personal decision. You will be spending a great deal of time together so it’s imperative that you are compatible in terms of your vision.
Some important questions to ask your potential candidates are:
- Is real estate your full time profession?
- Will I be working directly with you or handed off to an assistant?
- Is your license in good standing?
- How many years of education and experience do you have?
- Can you provide me with any references?
- What sets you apart from other realtors?
SEARCHING FOR HOMES
Provide your realtor with the selection criteria you have deemed relevant in your new home. They will send you homes that match these guidelines for your review and you can then coordinate a time to tour the ones that are the best matches. There is no guideline for timing on this process. Sometimes your perfect home comes along in days and other times it takes a bit longer. Just be patient and remember there is always a give and take when it comes to selecting a home.
MAKING AN OFFER
WOW! You found the home of your dreams. Time to make an offer. Your real estate agent will give you insight by finding comparable homes in the area to ensure you make a realistic offer for the market conditions. They will also detail any contingencies, such as inspections, appraisals, closing costs, personal property, etc to be noted with the offer. Offers are most often submitted with Earnest Money Deposits to show a high level of interest and good faith in the offer. This amount ranges from area to area and can be negotiated with each individual deal.
Many times the initial offer is not accepted and the seller will counteroffer. This is a time when you will consult with your realtor and decide if you wish to proceed with the counteroffer or issue another counteroffer pursuant to the sellers. Do not feel pressure to go over your budget at any time during the negotiation. However, keep in mind that $1,000 on a loan amount translates to about $5-$6 on a mortgage payment.
Once you and the seller have agreed on a purchase price, you both will execute a Purchase Agreement along with any Addenda.
This will also be the stage you will have to receive a full loan commitment from a lender. It will entail gathering all tax returns, pay stubs, and relevant financial documents for review by the underwriting team along with a review of your credit profile. Your lender will then give you a choice of various loan programs that best fit your financial profile and the benefits of each. You will be provided with a Loan Estimate Statement which will detail all payment information in regards to the monthly mortgage note, estimated funds needed to close, interest rate, and loan program. You should receive this estimate within 3 days from submission of your financial documents. PLEASE NOTE, DO NOT MAKE ANY CHANGES TO YOUR CREDIT PROFILE WHEN PURCHASING A HOME. DO NOT MAKE ANY LARGE PURCHASES OR OPEN/CLOSE ANY NEW LINES OF CREDIT. THIS COULD AFFECT YOUR ABILITY TO PURCHASE YOUR NEW HOME.
AFTER YOUR OFFER IS ACCEPTED
A home inspection is a must when purchasing any new home. You can ask your realtor for suggestions on an inspector or use a site such as Angie’s List. Being present for the home inspection is always in your best interest. It’s a great time to ask questions and gain valuable insight on the structure of the home.
Once the inspector completes the inspection and generates a report, you can negotiate the resolution of any issues with the seller provided you put that contingency in the contract. Certain issues such as radon and termites are required by law for the seller to mitigate prior to closing without negotiation.
Now is also the time to select a real estate attorney to represent you at closing. The attorney’s role will be to conduct a title search on the home to ensure a clear, marketable title that has no liens or encumbrances. They will also work with your lender to prep all closing documents. Please always make sure you ask your attorney to explain the benefits of title insurance to you as well.
CLOSING ON YOUR NEW HOME
When all the documentation has been reviewed and processed by your lender a closing date will be issued. This will be followed up with an official Closing Statement (HUD-1). This document outlines monies due by each party at closing. You will need to provide all funds by certified check or bank wire to receive the keys to your new home.
On the day of closing you will be signing many documents relevant to the sale of your new home. The closing agent and/or attorney will give you a detailed description of every page and all the terminology that accompanies it. Once signatures are complete and the financial commitment is made, you are ready to receive your keys to YOUR NEW HOME!