Step 1: Are You Ready?
Knowledge and experience are the keys to successful real estate transactions. One of the keys to making the homebuying 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 homebuying process.
Do You Know What You Want?
Whether you are a first-time homebuyer or entering the marketplace as a repeat buyer, you need to ask why you want to buy. Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not now have? Do you have a purchasing timeframe? Whatever your answers, the more you know about the real estate marketplace, the more likely you are to effectively define your goals. As an interesting exercise, it can be worthwhile to look at the questions above and to then discuss them in detail when meeting with your REALTOR®
Do You Have The Money?
Homes and financing are closely intertwined. (Financing is the difference between the purchase price and the downpayment, commonly referred to as debt or the mortgage.) The good news is that over the years new and innovative loan programs have evolved which require a 5 percent downpayment or less. In fact, a number of programs now allow purchasers to buy real estate with nothing down.
In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan). Several newly emerging loan programs not only allow the purchase of a home with no money down, but also underwrite closing costs.
Not everyone, however, elects to purchase with little or no money down. Less money down means higher monthly mortgage payments, so most homebuyers choose to buy with some cash up front.
As to closing costs, in markets where buyers have leverage, it may be possible to negotiate an offer for a home that requires the owner to pay some or all of your settlement expenses. Speak with your Realtor® for details.
Is Your Financial House in Order?
Those great loans with little or nothing down are not available to everyone: You need good credit. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time.
Step 2: Get Loan Preapproval
Few people can buy a home for cash. According to the National Association of REALTORS® (NAR), nearly nine out of 10 buyers financed their purchase, which means that virtually all buyers — especially first-time purchasers — required a loan.
The real issue with real estate financing is not getting a loan (virtually anyone willing to pay lofty interest rates can find a mortgage). Instead, the idea is to get the loan that’s right for you — the mortgage with the lowest cost and best terms.
REALTORS® routinely suggest that consumers start the mortgage process well before bidding on a home. Many lenders (the sources of money) are available through recommendations from your REALTOR®. By meeting with lenders — either online or face to face — and looking at loan options, you will find which programs best meet your needs and how much you can afford.
REALTORS® also recommend preapprovals for another reason: Purchase forms often require buyers to apply for financing within a given time period, in many cases, seven to 10 days. By meeting with loan officers in advance and identifying mortgage programs, it won’t be necessary to quickly find a lender, check credit, and rush into a financing decision that may not be the best option.
What is it?
“Preapproval” means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily 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.
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.
Step 3: Look at Homes
Some 6 million new and existing homes are sold each year. There’s no shortage of housing options, but with so many choices the challenge becomes finding the property which best meets your needs.
The housing market is complicated because the stock of homes for sale is always in flux. In effect, buyers are looking at a moving target in a marketplace that is never static. Because of this, it is important to know as much as possible about the choices in preferred markets, and the way to do that is by working closely with your Realtor® who has a good “lay of the land.”
What are you looking for?
A home is more than just a collection of bedrooms and bathrooms. Each of us is different and so 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.).
Next, it’s important to 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?
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
There’s no doubt that choosing a home is a big decision and you want to do it right.
As a buyer, here’s what actually happens. A home has been placed on the market for which the seller has established an asking price as well as other terms. At this point, you have three choices: accept the seller’s offer and create a contract; reject it and not make an offer; or suggest different terms and make 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.
What kind of loan?
There are thousands of loans available from a variety of lenders, but in general, the mortgage you choose will likely be determined by several key factors including how much you put down, your credit history, and whether you’re a first-time buyer.
Step 6: Make an Offer
REALTOR® groups, working with legal counsel, have developed forms that are appropriate for realty transactions in specific communities. While much attention is spent on offering prices, a proposal to buy includes both the price and terms. Terms are extremely important and should be carefully reviewed.
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.
There are various forms of insurance associated with home ownership including title insurance, homeowners’ insurance, flood insurance, and home warranties. Insurance policies and warranties have limitations and individual programs have different levels of coverage, deductibles and costs. For details, speak with your Realtor®.
Step 8: Closing
The closing process, which in different parts of the country is also known as “settlement” or “escrow,” is increasingly computerized and automated. Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. The result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home.
Step 9: What’s Next?
You’ve done it. You’ve looked at properties, made an offer, obtained financing and gone to closing. The home is yours.
Those papers you received at settlement are extremely valuable, so hold on to them! In the short-term they can help establish tax deductions for the year in which the property was purchased.
About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded.
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. Enjoy!
10 Things to Take the Trauma Out of Homebuying
- Find a real estate agent that’s simpatico.
- Remember, there’s no “right” time to buy.
- Don’t ask for too many opinions.
- Accept that no house is ever perfect.
- Don’t try to be a killer negotiator.
- Remember your home doesn’t exist in a vacuum.
- Don’t wait until you’ve found a home to get approved for a mortgage.
- Factor in maintenance and repair costs in your post-home buying budget.
- Accept that a little buyer’s remorse is inevitable and will probably pass.
- Choose a home first because you love it; then think about appreciation.
Courtesy of National Association of REALTORS®