Deciding to Buy
Purchasing a home is probably the largest financial decision you will ever make. Whether this is your first purchase or you are moving on to a different home that better meets your needs, this decision must be made carefully.
Defining Your Needs
Congratulations on your decision to purchase a new home! Before you start your home buying journey, it is best to clearly define and understand why you want to buy. Are you tired of paying rent? Have you outgrown your current home? Do you want to shorten your commute? Having a clear sense of your reasons for buying will help you choose the right home.
Creating a New Home Wish List
Before the home search begins, your real estate agent will want to know as much as possible about the features and amenities you desire. To help your agent better serve you, divide your preferences into “negotiable” and “non-negotiable.” Here are some details to consider; Exterior – type of home, age of property, preferences in architectural style, number of stories, type of foundation, roof construction, lot size and/or location, landscape preferences, pool and garage. Interior considerations include number of bedrooms, bathrooms, minimum square feet, central air/heat, electric or gas appliances, fireplace, kitchen amenities, formals, office or study, laundry room, flooring preferences, how much renovation will you be willing to do and must your home accommodate any special needs. The finer the details on your wish list, the more effective your home search will be. You should divide your lists into negotiable and non-negotiable items; this will allow some flexibility during the search, especially as your agent scouts for homes on your behalf.
Deciding on a Location
Where you buy not only affects the home’s current and future value, but it also affects your lifestyle. Your agent will be able to conduct a more targeted home search if you outline your preferences in neighborhoods and nearby amenities. Items that should be considered and communicated to your agent include; urban / suburban / rural, commute time, school districts, desirable neighborhoods, proximity to restaurants, retail, airport, and major highways as well as health care facilities, parks and length of time you plan to live in your home.
Considering New Home Construction
Whether to buy an existing home or have one built is yet another decision to make during the home-buying process. If you decide to go with new construction, a real estate agent can be a powerful advocate in your corner as you negotiate upgrades, a move-in date and other terms with the home builder. Things to consider in this area are selecting a builder, using your real estate agent to work directly with the builder representative, and understanding the timing of new home construction.
Preparing Your Finances
Now that you know what you want in a home and neighborhood, you need to find out what you can afford. The best way to do this is to get prequalification or preapproval for a home loan. Your real estate agent can refer you to a mortgage broker to begin the process. In most markets, preapproved buyers are preferred by sellers over those who are prequalified. Your preapproved status lets the seller know you have completed an extensive financial background check, you have a lender that is willing to do business with you and the likelihood of unexpected obstacles regarding financing is minimal. While getting preapproved is a more in-depth process, a preapproval letter lets both real estate agents and sellers know that you’re a serious shopper who means business.
Building your “Green File”
A green file contains your important financial documents that will be necessary during the financing process. These records should be stored together for easy access and to ensure you have everything that will be needed. These documents include but are not limited to; financial statements, bank records, investments, credit cards, loans, recent pay stubs and tax returns for two years. During this time, it is critical that you are careful with your finances. Now is not a good time to make sudden career changes or large purchases. You want to approach home buying from a position of financial stability.
Getting preapproved requires that the lender review your finances, confirming pay stubs, tax records, credit accounts, bank statements and sometimes more. The preapproval amount will not only be a reliable estimate of what you can afford, but your preapproval also indicates that a lender is willing to do business with you, pending the purchase price, market appraisal and the underwriting process. You can also get prequalified for a loan, which means that a lender has taken some information from you, and made a tentative decision without necessarily verifying any of the information. Prequalification provides you with a quick estimate of the amount you can afford, but is not considered as reliable as preapproval.
Shopping for a Lender
Your real estate agent should have a mortgage broker they are willing to put you in contact with — this lender will be someone they have done business with in the past and feel comfortable recommending. However, if you decide to do a little comparison shopping and look for a lender on your own, here are a few important questions to ask.
What loan programs do you offer and which one do you think is best for me?
How long will the loan approval process take?
What line items of the loan agreement, if any, are negotiable?
What is your policy for locking in interest rates, and will you honor a lower rate if it declines during the lock-in period?
Are there fees for prepaying on my loan?
Selecting A Real Estate Agent
Whether you’re in the market for a primary residence, an investment property or a second home, purchasing real estate involves many important considerations and decisions. A real estate agent can provide the focus, due diligence and expertise needed to help you find the home of your dreams.
A real estate professional will assist in determining how much house you can afford and help you get prequalified or preapproved for a loan. They simplify your search by helping you define home and neighborhood criteria, screen new listings, keep you abreast of local market conditions and gather in-depth detail on each home. They schedule tours of homes and point out the advantages and possible drawbacks of each property. They will work with you in drafting an appropriate offer and serve as your representative when presenting it to the seller and negotiate a contract that considers your goals and leads to a successful closing.
When selecting an agent, you should make sure you are working with a full-time professional REALTOR®, find out how long they have been in real estate and what geographic areas are their specialties. Inquire how you will work together during your home search; do they have a staff or team and what roles they will play in your search? Make certain you understand how they will represent you, how they will be paid and will they be showing you properties from other companies’ listings (some real estate companies do offer their buyers’ agents a higher commission if they are able to sell “in-house” listings. In those instances, there can be added incentive to limit the range of homes you are shown. This may affect your home search and how much your agent’s fee will be). And of course, what distinguishes them from other real estate agents and for references.
Working with Your Agent
Allow your real estate agent to do the initial scouting for you. Using your wish list as a guide, he or she will alert you of new and existing listings that have strong potential. If these listings pique your interest, your agent will arrange home tours at your convenience. Many agents send alerts via email — sometimes as often as daily, depending on the available inventory in your market. Let your agent know how you’d like to receive these alerts, whether by phone or email.
You also can do some research on your own. Read local real estate publications, contact your local neighborhood associations, visit the local chamber of commerce, surf the internet or drive around your favorite neighborhoods. While these methods certainly can lead to your dream home, it’s important to note that 82 percent of home sales are the result of agent connections. That means it’s more likely your agent will find your dream home through being in the real estate business than you driving around on the weekends.
Making The Deal
Now you are ready to embark on your home search — an endeavor that can prove overwhelming if not approached with some forethought. The most efficient route is to allow your real estate agent to do the initial scouting for you. Using your wish list as a guide, he or she will alert you of new and existing listings that have strong potential.
Make an offer
When you’re ready to make an offer on a home, your real estate agent will help you determine the offer price by reviewing recent sales of homes similar in size, quality and amenities. With your input, your agent will draft a written contract that outlines what needs to be done by both parties to execute the transaction. If the seller accepts the offer, the document becomes a binding agreement, so it is imperative that you carefully review it with your agent and speak up if anything is not clear to you. It’s important to note that if the seller changes any aspect of the offer, it is not a binding agreement until the buyer agrees to the seller’s changes.
Strike a deal
Sometimes, you get lucky and the seller accepts your offer as is. However, in most instances, the seller will make a counteroffer. This is where your real estate agent’s experience in negotiations will be invaluable. Keep in mind almost everything is negotiable when you are buying a house. This can give you a great deal of leverage in the buying process — that is, if you have adequate information and you use it in an appropriate manner. Some of the items you may negotiate are price, closing costs, move-in date, repairs, financing, appliances, and general repairs to the home.
Remain in close contact with your real estate agent so you can quickly review any changes from the seller. Remember: Bargaining is not a winner-take-all deal. It is a business process that involves compromise and mutual respect.
Prepare for the closing
When an offer becomes a binding agreement, your real estate agent will help you tackle the checklist of action items that you, as the buyer, have agreed to perform prior to closing. Depending on how the responsibilities are divvied up in the agreement, this is typically when you will conduct a home inspection, get an appraisal and finalize your financing, secure title insurance and shop for a home warranty.
Having these procedures done in a timely and professional manner is a must, as any delays could threaten a successful closing. A first-rate real estate agent should be able to serve as your “one-stop shop” referral source for service providers. Your agent also should serve as your advocate, helping to coordinate activities and making sure the vendors have access to the property to perform their jobs.
Close the deal
Congratulations! The moment you’ve been anticipating has arrived. The closing is where home ownership is legally transferred from the seller to the buyer. It is a formal meeting that most parties involved in the transaction will attend. Closing procedures usually are held at the title company’s or lawyer’s office. The closing officer will coordinate all the document signing and the collection and disbursement of funds.
In advance of your closing date (24 hours at minimum), your lender will send a final closing statement that outlines your closing costs, if applicable. Your real estate agent will review this document with you to ensure its accuracy, as well as help you gather any necessary documentation that you’ll need to bring to closing.
Understanding Title To Appraisal
Purchasing a home is not only the largest financial decision you will make, but it is also one of the most intimidating process you will survive. Understanding all aspects of the process will not only give you additional confidence, it ensures you will make the best decision.
Title Company and Escrow Holder
You will need to select a title company which acts as a neutral third party holding all instruments necessary to the sale, including funds and deed. The title company will research the complete recorded history of the property to insure that the title is free and clear of encumbrances by the date of closing and that all new encumbrances are properly added to the title. Some properties are subject to restrictions which limit various activities from building to parking restrictions. There may be recorded easements and encroachments, where others have limited rights to use your property.
How to Hold Title
You may wish to consult with an attorney or tax advisor on the best way to hold title. Different methods of holding title have different legal, estate and tax implications, especially when selling or upon death of the title holder.
Once your offer is accepted by the seller, you'll need to have professional inspectors evaluate your home's major systems. Your agent may recommend other inspections, such as roof, chimney/fireplace, property boundary survey, well, septic, pool/spa, arborist or mold.
Appraisal and Lending
Keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. The lender will often send an appraiser out to the property and you may pay a fee for this service. Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, and recent sales of comparable properties. When you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.
The hard part is behind you, but there are a few more steps before you can move in to your new home. In order to make this final step the smoothest, it’s advisable to create a moving list that is customized for you and your family. This checklist should be grouped by timelines since some tasks will take longer than others. Here are a couple of things to get you started:
Make an inventory of everything to be moved
Collect everything not to be moved for a garage sale or charitable donation.
Contact mover, secure packing materials and start packing
Contact Insurance Agent
Change of address
Contact utility companies
Service power mowers, boats, etc. that are to be moved
Check with doctors, dentist, and vet
If moving schools, secure school records and contact information
Check freezer and plan to use food over next 2-3 weeks
Notify yard service, pool service and newspaper carrier
Secure jewelry and other valuables
If moving to a new community, transfer or close checking and savings accounts
Change of address card
Pack a separate carton for cleaning materials and tools
Separate cartons and luggage you need for personal travel
Plan to spend the entire day at the house
Stay with the moving van driver to oversee inventory
Make a final check of the entire house- basement, closets, shelves, attic, garage, every room
Give driver phone numbers, both here and in new community, to contact you in case of a problem
Have all utilities disconnected and advise the Realtor who sold or is selling your house
Lock all doors and windows, advise your Realtor and neighbors that the house is empty