10 Steps to Choosing and Purchasing your Home
The Following information is provided by the National Association of Realtors, Real Estate Buyer's Agent Council, INC. (REBAC)
1. Find a Qualified Buyer's Representative
What is a Buyer's Representative?
Defined most simply, a buyer's representative (buyer's agent) is an advocate for the buyer in a real estate transaction. Buyer's representatives owe fiduciary duties, including loyalty and confidentiality, to the their clients and must keep their clients' best interests in mind throughout the entire transaction.
Why Should I Use a Buyer's Representative?
A buyer's representative can provide the expertise you need throughout the entire transaction, greatly improving your buying experience and potential results. A buyer's rep is expected to protect your confidential information and act in your best interests, while also adhering to very specific responsibilities, obligations, and higher standards of good faith and loyalty.
2. Assess Your Credit And Finances
Mortgage options and requirements change frequently. Your Buyer's Rep can discuss current developments, suggest qualified lenders in your area, and help answer questions you may have about their programs.
Determine Your Credit Status
Because any mortgage lender will review your credit history, it's wise to verify your credit rating in the beginning of your home search. Even if you're sure you have an excellent credit record, there may be blemishes in your credit history that you don't know about. Identifying and resolving any credit problems to improve your credit rating will provide benefits, such as preferred rates from lenders and home insurers.
Selecting A Lender
When selecting a lender, your goal is to obtain a mortgage loan with terms that are most favorable to your situation. In order to find the best home loan for you, contact several lenders to discuss what they offer, their rtes, closing costs, and other fee's.
Rates And Duration
Two of the most important factors in choosing a mortgage are the interest rate and duration. Combined with the amount you borrow, they will largely determine the amount of your monthly payment.
Pre-Qualification or Pre-Approval
Pre-Qualification: An informal determination by a lender or mortgage broker stating the amount of the mortgage you can afford.
Pre-Approval: A guarantee in writing by a lender to grant you a loan up to a specified amount (subject to receiving full documentation.
How Much Can I Afford?
Lender's look at a variety of factors, but the two most important;
1 - Your monthly mortgage payment, as a percent of your gross (pretax) income.
2 - Your total debt load, including mortgage payment, relative to your gross income.
Another determining factor is the loan-to-value (LTV) ratio, meaning the amount borrowed relative to appraised value of the property.
When considering how much you can afford, don't forget to consider other expenses, beyond your mortgage payment, that could also impact your monthly budget. Most mortgage payments are compromised of four components: principal, interest, tax and homeowners insurance, collectively called PITI.
- Other expenses commonly associated with homeownership include: mortgage insurance, home maintenance expenses, homeowners association fees, utilities.
3. Assess Your Wants And Needs In A Home
Basic Criteria; Ideal price? Total Square Footage? Number of bedrooms and bathrooms? Single family, condo or other type of home?
Preferences; Ranch, two-story, split level, etc? Age and style? Green features? Floor plan? High priority home features? Store needs?
Location; Preferred areas/communities? Commuting considerations? Proximity to desirable features?
Lot Characteristics; Size and shape? Landscaping considerations? Home orientation?
Trade-offs; If you can't find exactly what you want, how much are you willing to invest, beyond the purchase price, to pay for improvements?
Resale; How long to you plan to live in this home? How does this impact the type of home you will buy, how much you'll spend, and your choice of location?
4. Search For Your Home
Factors To Consider When Evaluating A Neighborhood
Depending on your particular needs and preferences, some factors may be more important than others, including; Neighborhood Profile, Household Data, Crime Rate, Quality of Schools and Amenities.
5. Negotiate Terms
When you've found a home that's right for you, it's time to make an offer!
Beyond price, there are several other factors that can enter into your negotiating position. For example, your bargaining position is strong if: You are an all-cash buyer, You do not have to sell your current , or meet other contingencies, before you can complete the purchase.
Your Buyer's Rep may be able to learn more about the seller's situation and motivations. Knowing factors such as whether the house is already vacant, how long its been on the market, and reasons for selling could help you determine how eager the seller may be to complete a transaction.
Making an Offer
Negotiations begin with an offer and conclude with acceptance of the final offer. Real estate transactions require a written contract, which conveys an initial written offer. A check for earnest money usually accompanies an offer.
Your offer will specify price, plus all the terms and conditions of the purchase you want to negotiate. Your Buyer's Rep will guide you through structuring of your offer and the negotiation strategy.
What Does An Offer Contain?
- Property address
- Sales price and terms (cash and monies acquired for the purchase through a mortgage)
- Seller's promise to provide clear title (ownership)
- Date for closing
- Earnest money with provisions for how it will be refunded to you if the offer is rejected or kept as damages by the seller if you are found in breach of the contract
- Prorated amounts for payment of real estate taxes, utilities, assessments and other costs that may that may be incurred by the seller before closing but not billed to the property until afterwards
- Who will pay for title insurance, surveys, inspections, and similar costs associated with the transaction
- Type of deed to be transferred
- Federal and state requirements (property disclosures)
- Provision for attorney review
- Final walk-through inspection shortly prior to closing
- Length of time that the offer is valid
- A contingency is a term or condition that must be met for an offer to become a binding contract. Common purchase contingencies include:
- Approval of agreed-upon third-party inspections within a stipulated period of time after the seller's acceptance of the offer.
- Obtaining specific financing terms
- Selling your current home
Other Important Questions
What is earnest money? This is a cash deposit you make when submitting your written offer. The amount can vary by the negotiating situation and from market to market. Your earnest money is held by the title company. If your offer is accepted, these funds become part of your down payment at closing. If negotiations fail to result in a sales contract, your earnest money is usually refunded.
What are sellers disclosures? Disclosure of any known material defects.
The Seller's Response To Your Offer?
A counteroffer becomes a binding contract when either 1) you sign unconditional acceptance of the seller's counteroffer, or 2) the seller signs unconditional acceptance of your counteroffer.
6. Obtain a Mortgage
Applying For A Loan
You've made an offer on a house, decided what type of mortgage you want, and selected a lender, your next step is to complete the loan application. Together, your Buyer's Rep and lender can help you understand:
- Pre-application steps
- The information your lender needs at application
- Decisions you will have to make at application
- Application costs
- Application legal requirements
Closing Costs And The Truth In Lending Statement
There are various costs associated with a mortgage. These might include an appraisal and points, a fee based on the amount of the loan. Depending on the amount of your down payment, you may also be required to pay for mortgage insurance, a policy that protects the lender if you default on the mortgage.
To help you see everything you'll be paying for the home over the length of the mortgage, you should receive a Truth in Lending Statement, which is federally required good-faith estimate of all the costs associated with the mortgage.
Mortgage Application Checklist
Lender requirements differ, but the following list includes the most common items that you will need to supply to your lender.
- Social Security Number and Birth Date
- Photo ID
- W-2 or 1099 Tax Forms
- Current Assets
- Current and Previous Addresses
- Sales Contract
Other Important Considerations
Points and rate options; A point is one percent of the amount of the mortgage. Lenders charge borrowers a percentage of the loan amount equal to the number of points to cover the lender's costs. Sometimes borrowers pay higher points in exchange for a lower interest rate.
Changing your financial picture; DO NOT buy a new car, purchase major appliances using credit, or change jobs during this time. Your financial position must be the same at closing as it was when you were approved, or it could prompt your lender to revoke their mortgage commitment.
Homeowners Insurance; The financial institution providing your mortgage will require you to obtain homeowners insurance before closing and provide proof of the policy.
7. Prepare for Closing Day
Many important details must fall in place before you close on your home. Some of the most important details include:
- Complete a home inspection
- Finalize your mortgage
- Get ready to move
- Attend of final walk-through
- Prepare to pay closing costs
- The actual, legal transfer of ownership is called closing, or settlement.
- Participants usually include:
- The buyer
- The closing agent
- The real estate agent
During the meeting, you'll sign many documents, including;
- The closing statement, a kind of balance sheet of all the funds changing hands between the parties
- The mortgage papers, detailing your obligation to the lender
- A Truth in Lending Statement
- Any additional documents
After all documentation has been signed and all monies paid, possession is usually transferred and you receive the keys to your home!
9. Moving Checklist
This list contains most of the big tasks you'll need to do (and some that you won't) and suggested timeframes. Depending on your situation, you may need to add other things.
8 Weeks Before
- Call moving companies for estimates
- Remove and dispose of unnecessary possessions
- Compile inventory of your possessions
- Get floor plan of your new home
- Start a file of moving-related papers and receipts
- Locate schools, healthcare professionals and hospitals in your new location
- Arrange to transfer your children's school records and family medical records
6 Weeks Before
- Secure off-site storage, if needed
- Choose a mover and sign contract
- Contact your homeowner's insurance agent about coverage for moving and secure more, if necessary
- Contact insurance companies to arrange for coverage in your new home
4 Weeks Before
- Notify the following of your change of address; post office, banks, credit card companies, relatives and friends, Insurance agent/lawyer/financial advisor, magazine subscriptions
- Notify utility companies of date to discontinue/transfer service and/or establish service to your new home. Also arrange for final readings and bills, including refunds on prepaid services. Including; electric, internet service, gas, telephone, cable, trash, water
- Discontinue additional home services
1 Week Before
- Pack moving-essential boxes
2-3 Days Before
- Confirm all final arrangements with your mover and other service providers