How do I buy a home?
One of the keys to making the buying process easier and more understandable is planning. In doing so, you’ll be able to anticipate requests from lenders, lawyers and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the home buying process.
The buying process involves several steps, from finding a REALTOR® to making an offer to closing the deal.
Step 1: Get a REALTOR®
In the maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with professionals who know the community and much more. Those professionals are the local REALTORS® who serve your area.
Step 2: Get Loan Pre-approval
Preapproval means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power. You can visit as many lenders as you like and get several preapprovals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.
Although not a final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase.
Real estate financing is available from numerous sources, including lenders in the finance section of Homestore.com, mortgage companies that have worked with local REALTORS® and in some cases, individual REALTORS® themselves. Based on his or her experience, the REALTOR® may suggest one or more lenders with a history of offering competitive programs and delivering promised rates and terms.
Step 3: Look at Homes Click Here For A Search Tool
A home is more than just a collection of bedrooms and bathrooms. Several properties — each with four bedrooms, three baths, and the same price — may well represent radically different designs, commuting distances, lot sizes, tax costs, interior dimensions, and exterior finishes.
It’s important to list the features and benefits you want in a home. Consider such things as pricing, location, size, amenities (extras such as a pool or extra-large kitchen) and design (one floor or two, colonial or modern, etc.).
Consider your priorities. If you can’t get a home at your price with all the features you want, then what features are most important? For instance, would you trade fewer bedrooms for a larger kitchen? A longer commute for a bigger lot and lower cost?
Lastly, consider your needs in several years. If you’ll need a larger home, maybe now is the time to buy a bigger house rather than moving or expanding in the future.
Step 4: Choose a Home
When you decide to bid on a home for sale, you have three choices: accept the seller’s listed price and create a contract; reject it and not make an offer; or suggest different terms and make a counter-offer. If you choose this last option, the seller may accept, reject or make his or her own a counter-offer.
No aspect of the homebuying process is more complex, personal or variable than bargaining between buyers and sellers. This is the point where the value of an experienced REALTOR® is clearly evident because he or she knows the community, has seen numerous homes for sale, knows local values and has spent years negotiating realty transactions.
Step 5: Get Funding
Often the cost of real estate financing is routinely greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs.
There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several key factors:
- How much down payment?
- How’s your credit?
- Are you a first-time buyer?
To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the prequalification procedure, the loan officer will describe the type of paperwork required.
Step 6: Make an Offer
While much attention is spent on offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers — or additional costs. Terms are extremely important and should be carefully reviewed.
How much? You sometimes hear that the amount of your offer should be x percent below the seller’s asking price or y percent less than you’re really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.
How do you make an offer? In a typical situation, you will complete an offer that the REALTOR® will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter-offer.
Because counter-offers are common (any change in an offer can be considered a “counter-offer”), it’s important for buyers to remain in close contact with their REALTOR® during the negotiation process so that any proposed changes can be quickly reviewed.
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections.
Step 7: Get Insurance
No one would drive a car without insurance, so it figures that no homeowner should be without insurance. The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.
There are various forms of insurance associated with home ownership, including these major types:
Title insurance. Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid.
Homeowners’ insurance. Homeowners’ insurance provides fire, theft and liability coverage.
Flood insurance. Generally required in high-risk flood-prone areas, this insurance is issued by the federal government and in certain areas may be available from private insurance providers as well.
Home warranties. With new homes, buyers want assurance that if something goes wrong after completion the builder will be there to make repairs. Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.
Step 8: Closing
The closing process is increasingly computerized and automated. In many cases, buyers and sellers don’t need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.
Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers.
This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and local governments collect their transfer taxes.
Your home, your money.
For most owners a home is the largest single asset they hold, so it makes sense to protect that asset. Many owners make a photo or video record of the home and their possessions for insurance purposes and then keep the records in a safety deposit box. Your insurance provider can recommend what to photograph and how to secure it. You want to maintain fire, theft and liability insurance. As the value of your property increases such coverage should also rise. Again, speak with your insurance professional for details.
Lastly, enjoy your home. Owning real estate involves contracts, loans, and taxes, but ultimately what’s most important is that homeownership should be a wonderful experience.