Buying a Home Made Easy
STEPS TO BUYING A HOME
Purchasing your own home is a great investment that provides financial advantages like equity buildup, value appreciation potential and tax benefits. It's also an automatic savings plan that you can’t get from renting!
Looking for a new home can be an exciting and challenging experience. For most people, a home is the largest and most emotional investment they will ever make. The key is to weigh all factors, including finances, location, amenities and lifestyle options nearby.
Here is the most important rule for keeping your stress to a minimum: You don't have to know everything. I am here to help you through each step in the process!
Whether you’re buying a home for the first time or a repeat buyer, here are the basic steps for buying a home:
- Hire an Agent
- Obtain Financing
- Find a House
- Make an Offer
- Perform Inspections/Get Appraisal
- Close the Loan/Sign Papers
Let’s get started!
Step 1: Hire an Agent
In looking for a real estate professional to help you, know that above all else, good agents put their clients first. This is your dream, and your agent is your advocate to help you make your dream come true. It’s important to have good communication with your agent, and it’s imperative that you TRUST your agent.
An important note here is that when you’re a buyer, you do not pay your agent’s commission...the seller does! There may be a small fee that goes to the agent’s office, but that will be included in your closing costs.
Here are just a few items that your real estate agent will do for you:
- Interview you to find out what you want and what you need in your home.
- Educate you about the current market.
- Help you obtain a mortgage.
- Guide you to homes that fit your lifestyle and criteria.
- Negotiate with the seller on your behalf.
- Coordinate the work of other needed professionals like inspectors and contractors throughout the process.
- Order the appraisal
- Check and double-check paperwork and deadlines.
- Solve any problems that may arise during the process.
Step 2: Obtain Financing
Very few home buyers pay cash for their home. It’s estimated that over nine out of 10 home purchases involve a mortgage. If you need to get a mortgage, I can suggest different lenders with whom you can apply for a mortgage. In most situations, you can obtain preapproval within hours after filling out an online application. Lenders will initially require your employment check stubs, bank statements, tax returns and other documentation to verify your income. Ultimately, your lender will preapprove you for a certain amount. It’s usually higher than you think you can afford, but YOU will decide what you're comfortable paying every month. Now, just because you’re preapproved doesn’t mean you’re finished with the financial end of things. During the process you may be required to furnish updated check stubs, stock portfolio/retirement savings statements, bank statements, gift letters and other explanations for your spending habits.
Keep in mind that it’s not only the home price that will be taken into account with the lender in determining your preapproval amount. The term “PITI” refers to principal, interest, taxes and insurance. Monthly homeowners association payments, if any, will also be included in the PITI. Lenders require that your monthly PITI is no more than a certain percentage of your monthly gross pay. The type of loan you get determines what that percentage is.
There are different types of loans. In discussing your situation with your mortgage consultant, you will come up with the best type of loan to choose. The factors that influence this decision are the location of your desired home, down payment amount, interest rate, eligibility requirements and payment/income ratio. Generally speaking, a credit score of 600-620 or higher is necessary to obtain financing, and the higher your credit score, the lower your interest rate.
There are federal and state programs for first-time home buyers that offer cash incentives, but be aware that there are income limits associated with eligibility and that homeowners usually need to occupy the home for three to five years depending on the program.
Step 3: Find a House
So you’ve made the decision to purchase a home, you’ve hired an agent and obtained your financing. Awesome, opossum! Now for the fun part….looking at homes! You will start looking for homes online. This is a great way to save time and energy. There are photos and in some cases videos that allow you to get a good feel for a home. If you’re a first-time homebuyer, you might consider looking at different floorplans in different areas of town initially, then narrow down your search once you’ve seen a few.
Think about it and be aware of how much you’re willing to do to a home to make it your own. Some look for move-in ready, others would rather get a deal on a distressed property and do renovations themselves. Look at wants versus needs and revisit the list as you go along. Do you want your kids on the same level with you? Do you really need that formal dining room? Is it absolutely necessary to have a three-car garage or would a two-car suffice? If you’re not into lawn maintenance, does it make sense to have a large corner lot?
Since you will be spending so much time in your home, there are a lot of considerations to take into account in making your decision: Are there friends or family I want to be near (or far, far away)? Is my drive time to work a factor? Are there places nearby for my hobbies or recreational activities? Is this home near my bank, gym, babysitter or favorite grocery store? Is the school district important? Is there a timeframe that has to be met?
Understand that your new home doesn’t HAVE to meet these criteria, but know that adjustments to your lifestyle will need to be made depending upon the answers to those types of questions.
Once you’ve found a home you want to purchase, it’s important to examine the seller’s disclosure, then check with your lender to assure that the taxes and insurance for that home is something that fits within your approved payment amount. If you have enough time before putting in the offer, I would suggest you drive by the home at different times, see what’s going on in the neighborhood. If traffic on the street is a concern, drive by the home during rush hour.
Step 4: Make an Offer
Deciding how much to pay for a home can be a delicate process. The amount to offer is dependent upon comparable home sales, how long the home has been for sale and other factors like is it a seller’s market or a buyer’s market. I will be able to help point out factors that affect the pricing, but generally speaking, sellers expect to net within 3 percent of their list price. It doesn’t hurt to offer less than that, but be prepared to lose the home to another buyer’s offer.
Unfortunately, this isn’t a market to submit a “lowball” offer. Since inventory is low, most homes aren’t lasting on the market long enough for a seller to have to accept a low offer. Buyers are losing homes due to bidding too low. I can pull comparable sales in order to advise how much to bid on a home.
There are other terms to consider in determining the purchase price. These items will all be spelled out in the sale contract and may be countered by the seller:
- Whether you’re asking the seller to help pay your closing costs
- Whether your offer is contingent upon a certain event happening, like selling another home
- What you want included with the price of the home, such as appliances, backyard playsets, pool equipment or furniture
- When you will take possession of the home.
It’s vital that you remain in close contact with your realtor during the negotiation process. You’ve heard the phrase “time is of the essence?” This particularly applies to real estate transactions. There are always time deadlines that need to be met. Remember, these are legally binding documents that you’re signing. Failure to respond in a timely fashion can result in the home being sold to another buyer.
An important note at this point of the process: Do not….I repeat DO NOT…. do anything that will affect your credit score like apply for credit cards, make major purchases, a car or even furniture. Wait till the home has closed. There will be plenty of time for trips to Nebraska Furniture Mart!
Step 5: Perform Inspections/Get Appraisal
A vitally important part of the process once the offer has been accepted is the home inspection. An inspector will test the appliances, inspect the foundation, the plumbing, the electrical and the HVAC systems. I recommend that you also obtain a termite inspection and be present for the inspection.
An inspector’s job is to educate you about the home and to find problems or concerns with the home, and believe me, they will find a problem or two. The key here is don’t sweat the small stuff. If there’s a big concern that comes up during the inspection, we can bring in a specialist. If there are unacceptable conditions found, they can be remedied by requesting that the seller make repairs or you can request a price reduction. In extreme cases, you can walk away from the contract. I will be able to give you options when that time comes.
Another item to do during this time is obtain your homeowner’s insurance. The square footage of the home, the deductible amount, whether the policy includes roof replacement coverage versus depreciated coverage, your credit score and even the zip code will determine the cost of the insurance. Don’t be afraid to shop around. Remember that most companies offer multiline discounts, so ask about your auto coverage, umbrella coverage or any other insurance needs you have at the same time.
Two very important notes on this portion of the process: (1) Make sure that your driver’s license won’t expire prior to close, and (2) Do not….I repeat DO NOT….make a major purchase like a car or even furniture.
Once the inspection process is complete, I will contact the lender and request that the appraisal be ordered. The appraisal is necessary because it assures the lender that the price you’re willing to pay for the home is justified. The appraiser may require certain conditions be met in order for the lender to issue the loan. The appraiser has five business days to submit the appraisal to the lender after it’s been performed. After the appraisal comes back, we’re just waiting on the lender to go through the final underwriting process. Don’t be surprised if at this point the lender wants updated bank statements or pay stubs.
Step 6: Waiting to Close the Loan/Sign Papers
So you’ve found a home, negotiated the price and terms and performed your inspection...whew! The hard part is over. However, don’t be surprised if you’re asked to provide additional documents for the lender. Even if you have excellent credit, they may request more pay stubs, tax returns or seek explanations for items on your bank statements. While it’s not convenient, it is routine, so do your best to comply in a timely manner.
Some other things to do in this period: Finalize your movers and your homeowner’s insurance, have the utilities put into your name starting on the day of possession, notify the post office to forward your mail and provide your bank and creditors your new address. Remember to update your address with any professional affiliations you may have as well.
In the day or two prior to closing, you will want to do a final walk-through on the home. You may not have been inside the property for a couple of weeks and you will want to ensure that there haven’t been any material changes to the property. If you can’t make the final walk-through, I can do it for you.
Now for the scary part….the closing….where you’re signing your life away! It’s actually not so much frightening as it is overwhelming. You will be signing documents for your mortgage and to transfer ownership. Don’t be afraid to ask questions!
Once the closing is complete, it may be a couple more days before you can take possession of your new home. Finalize your packing and make sure you have folks lined up to help with the move.
At this point you CAN go to Nebraska Furniture Mart or buy that new car!
Step 7: Moving
Even the smallest of homes contain a lot of furniture, clothes, kitchen equipment, books, pictures and decorative items. For a short move, it may be worthwhile to transport small goods by yourself, but larger items will likely require renting a truck, finding some burly friends or hiring a professional mover. Now is a good time to donate those boxes of old clothes, books and toys to a charitable organization. Have a supply of packing tape, magic markers and newspaper or packing peanuts available for last minute packing.
Here are a few things to keep in mind for moving day:
- Have cash in your pocket. You may need money for pizza, ice or to send someone to Home Depot for a washer hookup hose, etc.
- Keep medicines in a known, handy location
- Have your children’s favorite toys, games or blankets in a known location
- Keep your pet dishes and pet food out
Now that you’ve moved into your new home, you may think that our time together is over. Not so fast….you’re not getting rid of me that easily! I hope that you’ve enjoyed the experience of purchasing your new home and consider me a new friend. You may have questions from time to time about your tax assessments or your homeowner’s insurance, you may need referrals for a project or home repair, or you may just be curious about prices of homes in your area. Feel free to call anytime. I will always enjoy hearing from you and will do what I can to help!