The Home Buying Process
Many people are confused as to the steps taken to buy a house. I have compiled a list here that may help. You will have several professionals along the way to give specific information to you regarding their specialties and their role in the process. I look forward to any feedback you have. Thank you!
Getting Pre Qualified:
Pre-qualification is an informal way to see how much you may be able to borrow. You can be ‘pre-qualified’ over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
Getting Pre Approved:
Getting a credit pre-approval means you receive a loan commitment from your mortgage company before you have found a home, based on a review of your credit and finances. A credit pre-approval shows sellers that you’re a qualified buyer and helps you establish a clear price range.
It makes your home search more efficient by allowing you to focus only on homes you know you can afford.
It lets sellers know that you can back up your offer, so they don’t have to worry about whether you can get a loan.
It lets you know early in the process if you will have difficulty getting pre-approved, so you have a chance to address problems before finding a home.
It gets most of the mortgage process out of the way up front, so you can complete your transaction quickly after you find a home.
Choose an agent
Start by asking family and friends if they can recommend an agent. Compile a list of several agents and talk to each before choosing one. Look for an agent who listens well and understands your needs, and whose judgment you trust. The ideal agent knows the local area well and has resources and contacts to help you in your search. You want an agent who will get back to you quickly and will find the answers you need. They should be organized and take your on your search personally. They should treat the information you give them confidentially and ethically. Overall, you want to choose an agent that makes you feel comfortable and can provide all the knowledge and services you need.
Understanding Agency Disclosures
Your Real estate agent will ask you to sign a disclosure that states that she will be representing you as a Buyers agent.
Buyers agents who represent buyers are working in a single agency capacity as a Buyers Agent. Seller’s agents who represent sellers are working in a single agency capacity as a Sellers or Listing Agent.
Agents who represent clients under single agency owe a fiduciary responsibility to the client. They cannot share confidential information with the other party or the other party’s agent. Single agency agents must use care and due diligence to perform duties, disclose all material facts and be honest.
Listing agents and buyer’s agents each owes the client loyalty, confidentiality and accountability.
Your buyers agent is able to show you any house on the market. You do not need to use the sellers agent (nor would that really be in your best interest). Many times people call and ask for the listing agent that they see in the print ad on the property. These agents are representing the seller. You can enter into a dual agency contract, but the representation on both sides is compromised with this agency relationship.
A listing agent who also represents the buyer is a dual agent. Dual agents cannot operate in a fiduciary relationship with either party and must treat both sellers and buyers equally. They cannot share confidential information and they cannot give confidential advice.
It is very difficult to obtain the highest and best price for the seller when the agent also represents the buyer. The dual agent cannot advise on home price or terms nor negotiate on anyone’s behalf.
Clarify your needs vs. your wants
Your home should fit way you live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities – things like location and size. Should the house be close to certain schools? Your job? To public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a ‘wish list.” Minimum requirements are things that a house must have for you to consider it, while a “wish list” covers things that you’d like to have but aren’t essential.
Choose your community
Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community? When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable in.
Go house hunting
In addition to comparing the home to your minimum requirement and wish lists, use the Home Scorecard and consider the following:
Is there enough room for both the present and the future?
Are there enough bedrooms and bathrooms?
Is the house structurally sound?
Do the mechanical systems and appliances work?
Is the yard big enough?
Do you like the floor plan?
Will your furniture fit in the space?
Is there enough storage space? (Bring a tape measure to better answer these questions.)
Does anything need to repaired or replaced?
Will the seller repair or replace the items?
Imagine the house in good weather and bad, and in each season. Will you be happy with it year-round?
Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.
Once you have chosen a home, visit the neighborhood at different times of the day and night if possible. Evaluate the noise and traffic patterns, to be sure that you will be comfortable living there.
Ask the seller for a tax receipt or contact the local assessor’s office. Tax rates can change from year to year, so these figures may be approximate. Also, remember that the properties assessment will be updated and adjusted after your purchase, be prepared as your tax bill will differ from the current owners.
Make an offer
Your Real Estate agent will walk you through this process, be prepared to have the contract come back to you as a counter offer. They may change the price, contingencies or the time frame. All changes on the contract must be initialed, dated and signed. You need to have your attorneys approval of the offer within the allotted timeline.
Choose your attorney carefully. You want an attorney that specializes in Real estate law. Choose your attorney before finding a house, ( your real estate agent can give you a list to help you with this) Ask him or her about their fees and let them know that a purchase offer will be coming their way.
The offer must include a check for earnest money (the amount is clarified in the purchase offer). Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price. The check is not cashed until the contract is accepted by both parties. This amount is deducted from the purchase price at closing. If the offer is rejected the money is returned to you.
An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of repairs that are needed. The Inspector does not evaluate whether or not you’re getting good value for your money. Generally, an inspector checks: the electrical system, plumbing and the water heater, insulation and Ventilation, the HVAC system, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is licensed.
Include an inspection contingency in the offer when negotiating for a home. An inspection clause gives you an ‘out” on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house.
It’s a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas.
If the house you’re considering was built before 1978 and you have children under the age of seven, you will want to have an inspection for lead-based point
You should always have written in the contract that the purchase is contingent upon your being able to obtain financing within an agreed upon time period
Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it’s beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations
Lenders require private mortgage insurance on conventional mortgages because experience reveals a strong correlation between borrower equity and default. The less money a borrower has invested in a home, the greater the probability of default. Thus, private MI is a financial guaranty that protects lenders against loss in the event that a borrower defaults. Without that financial guaranty, lenders will typically require a down payment of at least 20 percent.
Some people continue to confuse private mortgage insurance with mortgage life insurance. Private mortgage insurance puts people in homes and is insurance for the lender; mortgage life insurance pays all or a portion of your mortgage in the event of your death. Clearly they must be understood.
A paid homeowner’s insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low.
There may be closing cost customary or unique to a certain locality, but closing cost are usually made up of the following:
Attorney’s or escrow fees (Yours and your lender’s if applicable)
Property taxes (to cover tax period to date)
Interest (paid from date of closing to 30 days before first monthly payment)
Loan Origination fee (covers lenders administrative cost)
First premium of mortgage Insurance (if applicable)
Title Insurance (yours and lender’s)
Loan discount points
First payment to escrow account for future real estate taxes and insurance
Paid receipt for homeowner’s insurance policy (and fire and flood insurance if applicable)
Any documentation preparation fees
The morning of or the day prior to closing you will be able examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Make sure the appliances, heating system, A/C and water is working. You should will need to make arrangements for all utilities to be put in your name as of the day of closing. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix them.
You’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you’re sure you understand all the documentation, you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You’ll pay the lender’s agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.
WHAT DO I GET AT CLOSING?
Settlement Statement, HUD-1 Form (itemizes services provided and the fees charged; it is filled out by the closing agent and must be given to you at or before closing)
Mortgage or Deed of Trust
Binding Sales Contract (prepared by the seller; your lawyer should review it)
Keys to your new home