Steps to Buying a Home

Qualifying

What Can You Afford?

• Before you begin looking at homes, you will want to determine what you can afford.   That depends on three things: your down payment, qualifying for a loan, and closing your costs.   It is also a good idea to become "Pre-qualified" for a home loan before actually starting the looking process.   This increases your credibility and may have a direct influence in getting an offer accepted at the price you desire.
  

  Down Payment

  1. A conventional loan typically requires a down payment.   It is not uncommon for buyers to place a down payment of 10 to 20 percent of the purchase price. For example, on an $100,000 home, a down payment of $10,000 to $20,000 in cash may be warranted.
  2. Government-backed loans require 5 percent or less as a down payment.   Loans insured by the Federal Housing Administration (FHA) and the Veterans Administration (VA) are particularly useful to first-time buyers.
  3. The thing to remember is that the higher your down payment, the lower the risk you pose for the lender and therefore the lender may be able to offer you better loan terms.   Also, the higher the down payment the lower your interest expense on the mortgage will be over the term of the loan.

  Qualifying For A Loan

  1. The key is not what you think you can afford but how much a lender calculates you can afford.   Be prepared to provide the lender with a two to five year financial history that contains the following:
     • Income - gross monthly/yearly income, employment history, education and any secondary income such as bonuses, dividends, and child support.   The lender may require a letter from your employer, W-2 forms, or, if you are self-employed, recent tax returns.
     • Assets - current checking account balances, savings accounts, stocks and bonds, certificates of deposit, other property, insurance policies, and pension funds.
     • Credit - debts on cars and appliances, debts on all credit cards, and history of debt repayment.   Your lender may ask for a credit report, so you may want to clear up any known negative items in advance.
     • The lender can also help you determine what price range and monthly payment you can afford.   The monthly payment typically consists of principal, interest, taxes and insurance - PITI, for short.   The monthly payment is calculated based on the loan amount, the interest rate, the term of the loan, the costs of any insurance, and taxes. You can get an idea of what your payment will be by using the mortgage calculator.

  Closing costs

  1. Purchasing a home involves a number of other parties and services.   You can expect fees for such services as appraisal, survey, inspections, hazard insurance, loan origination (lender's administrative costs), credit report, document preparation, title search and insurance, recording fees, notary, attorney and escrow.
  2. You will pay for some fees and the seller will pay for others.   The costs will vary depending on each transaction.   Most lenders will provide you with a good faith estimate of such costs.   Reneé can also help you estimate what those costs might be.
  3. One item at closing that is often confusing to first-time buyers is points.   Points are an additional amount a lender charges up front for the loan.   Points are interest collected in advance.   One point is 1 percent of the loan amount.   The lender's might offer you an alternative loan at a lower rate if you pay some points.
  4. One additional consideration is the other costs associated with owning a home - namely, utilities and maintenance.   These costs will depend on the home you choose, but it's a good idea to budget for them in advance.

Locating Properties

• Deciding What You Need and Want

  Needs and wants list

  1. Make a list of your needs and wants.   Do you need an extra bathroom, a garage, a fenced backyard, lower utility bills?   Do you want a fireplace, a short drive to work, a lakeside view, or maybe minimal yard work?
  2. Once your list is made, go back over it and decide what is most important to your lifestyle.   It may be privacy, creativity, or recreation.   Decide which items are musts and which you are willing to give up.   Assign each item a priority so that you will know what to look for as you begin house hunting.

• Location

  1. Deciding where you want to live may be the single most important factor in choosing a home.   Location affects your day-to-day living.   Location to employment centers, shopping centers, schools, major traffic arteries, and other attractions are important.   Evaluate location carefully.  Location of a property is one of the most significant influences on value.
  2. Your choice of location may be limited somewhat by the price you can afford.   Even so, make sure you consider such things as:
     • prices of properties and property taxes
     • distance to work, schools, shopping, and entertainment
     • proposed changes in land use such as commercial shopping centers and roads, and potential hazards such as flooding and noise from a nearby airport or highways.
  
  

• Type of home and lot

  1. A single family detached home is attractive to a lot of people because it typically provides more living space and land area than other types of living units.   Typically the detached structure permits you greater freedom (less restrictions) on remodeling, expanding, painting, and altering the appearances of the structure.
  2. If you don't like spending leisure time on yard work, consider patio homes.   These homes are set on small lots.
  3. A townhome or condominium is another option.   Condos and townhomes often offer shared greenbelts or membership in private recreational facilities such as swimming, golf, and tennis.
  
  

• New vs. older homes

  1. In selecting the type of home you want, consider new versus pre-owned homes.   Pre-owned homes usually have established yards, and usually the neighborhood or subdivision is built-out.   On the other hand, older homes may require more maintenance and need some repairs.
  2. New homes are not without problems.   Although they require less maintenance in the first few years, you may have to put in landscaping and call the builder back to correct faults.   If buildings are still active in area, you may have to endure nearby construction.
  3. Finally, consider size and style.   You may already have in mind a contemporary home with sun decks or a two-story estate home.   You probably won't know what you like until you see it.   Either way, Reneé will listen to your preferences and help you find the right home for you.

Making an Offer

• What to offer

  • Reneé can help you find your perfect home, but only you can decide how much you are willing to offer for it.   She can supply you with information about the selling prices and marketing time of other houses in the area.
  • Once you have determined the amount you are willing to offer, Reneé will help you prepare a written offer.   In most transactions you will offer to deposit earnest money.   Earnest money manifests your sincerity in making a reasonable offer and abiding by the terms of the written contract.
  
  

• Contract forms

  Reneé will help you prepare an offer using standard forms.   The offer, if accepted, will become a binding contract.   This document is the most important paper you will sign because it lays out all the terms of the transaction. It will contain such things as:
  • a legal description of the property
  • any property that will be transferred with the home, (blinds, curtains, fireplace screens, etc.)
  • the price
  • financing conditions and contingencies
  • amount of earnest money deposit
  • name of the title company
  • rights to inspect the property and for repairs to be made
  • dates of closing and possession
  • what happens if either party defaults on the contract
  
  

• Seller's options

  • Reneé will present the contract to the seller's agent or seller.   The seller has three options: accept, reject or make a counter offer.   A counter offer is a rejection of the offer with a simultaneous offer from the seller to the buyer.   If a seller makes a counter offer to you, you then have three options: accept, reject, or make another counter offer.   Whoever makes an offer or counter offer is giving the power of acceptance to the recipient of the offer or counter offer.
  
  

• Binding contract

  • Once you and the seller unequivocally agree to the written terms and both of you sign, the document becomes a binding contract.
  • As part of the contract you may have the right to have the property inspected and certain repairs may be required to be completed.   Be sure that you pay close attention as to when certain items must be completed.   Otherwise, you may waive some contractual rights.   For example, the contract may provide for you to deliver a copy of the inspection report to the seller within a specified time and to deliver a list of the items you require to be repaired.   If you fail to provide the information within the specified time, the contract may provide that you waived certain rights.
  • The contract may also set out other contingencies that have to be satisfied.   We cannot address all conditions and contingencies.   Read the contract carefully, know its terms and comply with its requirements timely.
  • If repairs are required, the contract will specify who will bear the cost of the repairs, who will arrange for the repairs, and when the repairs must be made.   Before you close, be sure that the condition of the property meets the required condition specified in the contract.
   

• Inspections and warranties

  • An inspection by a qualified inspector or other professional can provide you with unbiased opinions about the condition of components and systems in the property such as the foundation, mechanical systems, plumbing systems, appliances, etc.
  • If you can, accompany the inspector at the time the inspection is conducted.   When ordering the inspection, ask the inspector the approximate time needed to complete the inspection so you can reserve sufficient time from your schedule.   Be sure to ask the inspector to detail the scope of the inspection.   Not every inspector inspects every component in a house.   For example, does the inspector inspect foundations, air conditioning and heating units, roofs, swimming pools, septic tanks, etc.?   The cost of home inspection depends on the size of the home, but the price could prove to be worth it.   It's also a good idea to get a termite and other wood destroying insect inspection.
  • You may also want to investigate the possibility of buying a residential service contract.   Such a contract is an agreement with a residential service company that certain items will be repaired by the company if such items fail to function after you move in.   If you buy a new home, the builder may offer a warranty as well.   Whether you buy a residential service contract or receive any other warranty, find out how claims will be processed and how any necessary repairs will be made.

Closing the Deal

• The closing is the end of weeks or even months of research and decision making.   The closing could last less than an hour but may take longer, depending on the complexity of the transaction.   It often occurs at the title company's office.   The title company officer will explain each document before you sign.   You may have your attorney present as well.
• If you are borrowing money for the home, you are actually making two transactions - acquiring the loan and buying the home.
• As a borrower, you will sign a note promising to repay the loan and a deed of trust (also known as the mortgage) pledging the house (or other collateral) as security for the note.   You will also sign numerous other papers including things such as acknowledgments, disclosures, surveys, certificates, etc.   Be sure to read each document carefully.   Ask questions if you do not understand anything.   There are no dumb questions.
• As a home buyer, you will present a cashier's check (or other good funds) to the seller, sign a document that itemizes closing costs (the lender will have given you an estimate in advance), and pay your share of the closing costs.   In return, you will receive a deed, transferring ownership rights to you.
• At the end of the meeting, you will likely receive keys to the property.   At that moment, the home will be yours.   Occasionally, possession of the property will occur after closing.   For example, the seller may have negotiated with you for a few extra days after closing, or the loan will not immediately fund, or other concerns.   But, in most transactions, you will be the new owner at the end of closing.

Some other points to keep in mind:

• Buyer/Seller Agency.   It's important to understand who your Realtor® represents - buyer or seller.   Reneé will provide you with information about representation.   As a buyer you may sign a buyer representation agreement with her.   She will discuss the scope of her representation.
• Prepaids.   You should be aware that your closing costs will include prepayment of an escrow account to cover insurance and taxes.
• Realtors® are required to make properties available without regard to race, color, religion, national origin, sex, disability or familial status.
• Be sure to have a property inspected by licensed inspectors to determine:   a) the condition of the property (structural, mechanical, electrical items, etc.);   b) any environmental conditions (asbestos, lead-based paint, toxic materials, etc.);   c) wood-destroying insects; and d) other matters.   Brokers are not qualified to perform such inspections.
• Residential Service Contracts are available for purchase.   In such contracts the residential service company agrees to, subject to the terms of the contract, repair the appliances, electrical, plumbing, heating, cooling or other systems in the property.
• Be sure to obtain a policy of title insurance or have an abstract of title reviewed by an attorney of your choice before buying a property.
• Seek the advice of an attorney of your own choice before entering into a binding agreement.