Home buying is a simple process. Really! It’s an adventure. Yes, there are important things you must consider before putting your toe in the buying market. There are roadblocks and frustrations that can and do pop up during the process. The key to being a successful homebuyer is to be prepared for the journey with knowledge. You will also need two trusted people to guide you through the journey. The first and foremost is a loan officer; and the second, a seasoned real estate professional.
So, where do you begin the home buying process?
Contact a reputable lender. Do not apply on line with the folks that tell you they will seek out the best rate to save you thousands. What these companies do is submit your personal information to several lenders to bid against each other for your business. On the surface, this sounds good. What they don’t always tell you is that those lenders may pull credit reports. You don’t want 4 or 5 people inquiring about your credit in a small span of time. The credit bureaus don’t reward your credit score when you have multiple inquiries.
Before you look at a house, you must talk to a quality lender.
The lender will examine your personal financial information to determine if and what you can afford. This is the essential first step. Often, after your first meeting with a lender, they will request certain items needed to make a full application. Gather those items immediately because they will need it all. Be very upfront and totally open with that loan officer; they need to know all the little secrets of your financial and work life in order to give you the best advice. Believe me, if there are any ghosts in the closet, they will be found.
Before you start your actual search ask the lender for two things. The first is good-faith estimate showing you your purchasing expenses. This will include closing costs, state and county transfer fees, loan fees and much more. Know how much cash you will need to make the purchase. Second, make sure that the lender tells you what your total payment is. That should include principle of the new loan plus the interest on that loan. It should also include the monthly real estate taxes, the monthly insurance payment to insure the house and any Homeowner association fees. To get an idea of principal and interest cost take a look at this Mortgage Calculator.
My loan is Pre-Approved, what not to do next?
DO NOT MAKE ANY LARGE PURCHASES THAT ARE FINANCED, DO NOT CHANGE JOBS, DO NOT ALTERNATE YOUR WORK HOURS UNLESS YOU ARE WORKING MORE.
Determine where you want to live
This should be a geographical decision. It should be based on those things that are important to you. If you don’t care how far your daily commute to work is then the opportunities are greater. What style house do you want? What are you willing to compromise on? How much do you want to spend each month? Do not forget your utility expenses, maintenance and repair costs, insurance fees or the additional gas you will use to get from your new home to work and back.
Think about daycare, shopping, family and those other things that are important to you and how they relate to where you live and what you live in. Sit down with a map and a piece of paper, make a list, discuss it with family and friends and come to a general consensus. Why bother with all this? You don’t want to spend your time running all over the place trying to find “the perfect home.” Having owned many homes, I can tell you, there is no perfect home, buy what works for you.
Timing is key to owning your own Home
When do you need, want, or have to move into your new home? Do you have a lease where you are living now? Will that need to be broken? When do you need to vacate? You should choose and have submitted a written offer on the home you want 45 to 60 days prior to a move in date. It will take that much time if there are no issues. The loan process can take that much time after you have a fully signed contract and have submitted that contract to your lender. The lender must have a property before they will begin the full qualification process. The lender has a lot of work to do prior to a check arriving on settlement day for your home, so please, plan in advance.
Where is the money coming from to buy my home?
There is still a myth out there today that you can buy a home with no money down. Sorry, those days are gone for now. Hopefully you have been saving and have a little nest egg to use as a down payment on a home. You can expect a minimum of 3 – 5% of the purchase price as a needed down payment. That’s $10,500 for a $300,000 price tag. Lenders will also require you to have a few months equal to your new house payment left in the bank after settlement. Don’t forget the closing costs. They can be extensive, but in today’s market you will find many sellers willing to pay a good portion of the buyers closing costs. You will also need money to move, set up house, etc. If you don’t have the money there are sources you can investigate. One is a gift from family another may be a loan from your retirement fund. Know where the funds are coming from before you start looking at homes.
Oops! One last stop, who is going to guide you?
Shop first for a local, knowledgeable real estate agent. Ask friends and family whom they have had good experiences with. Research agents on the web, call them and interview them. Determine if you feel they are a good fit. I strongly suggest you meet an agent at their office before you even go out and look. It’s important that both you and the agent are comfortable with the situation and agree on a strategy to find you the right home.
Neighborhoods, Crime, Demographics and Schools
Your real estate agent cannot discuss with you certain items because of fair housing laws. These are things that you can and should research yourself. The department of Census, Board of Education and local police departments are good places to get that information about an area you are interested in living.
The hard part of buying a home is over
Now it’s time to look. You have narrowed down the area in which you want to live. You have decided what are must haves for the house regarding style, garages, basement, number of bedrooms and baths. There is entirely too much inventory on the market for you to look at everything in the area. Contain your search to the price range your lender suggested. Don’t focus on the myths, that you can offer 300k on a 375k house and have your offer accepted. Be realistic and stay focused.
Preparing the offer to buy your home
It’s your agent’s job to assist you in the contract and negotiating process. Consider the deposit you are going to make on the property. Set a realistic settlement date. Be aware of any community fees, HOA fees, Front Foot fees and or ground rent. These are items that can sneak up on you, if you don’t ask the questions. Know what you are buying, what the contract says and what other costs are involved. Remember when you first write a contract you are presenting an offer. Until the seller signs it and all terms are agreed to, you do not have a binding contract. Most often, a seller will counter your offer with some change to your original.
We have an accepted offer, now what?
Your real estate agent should guide you through this process. First, you need to select a title company to handle the title search on your home and to conduct the settlement. Title companies are impartial third parties that handle the legal end of finalizing the transaction. They search the title, provide title insurance, they order surveys, if requested and complete the final HUD-1 (settlement statement) for closing. They will also prepare the deed, you need to know how you plan to hold title to the property if buying with other individuals. Your real estate agent should be able to explain the different forms of ownership.
Should you want to get a home inspection on your home?
There are plenty of companies that offer home inspections. You need to make a few calls to determine the experience level and fees associated with the home inspection. I have been to many where the home inspector had a lot less knowledge of construction than I have. I have also seen many ruin contracts because that discuss things beyond their scope of work. Once, I had a home insp. suggest to a couple that they purchase bars for their windows because of high crime in the area. Not only wasn’t it true, but I found the home insp. had a security business. When the inspection is over you need to decide what items that were found deficient are important to you. Remember all homes need some maintenance; older ones were built when building codes were different. You need to decide what is important to you and request in writing the items you want repaired as a condition of settlement.
Homeowner and Condominium rules and regulations
In Maryland the seller is required to provide you with a current copy of the community documents, bylaws, budget and or condominium documents prior to settlement. Once received you have several days to review those documents. I strongly suggest you do it. You have the right to cancel the contract if you do not agree with what the community requires of its residents. BUT…. If you go to settlement without reviewing those documents, the second the settlement is over, your rights change. You cannot go back to the seller, agents, title companies or anyone, if you don’t like the rules and regulations and fees. This can be a step in the buying process that is overlooked and can leave a very bad taste in the buyer’s mouth for years to come. This goes back to the premise of “know what you are buying.”
Communicate often during the home buying process
Buying a home is not a spectator sport. Be involved, understand and participate in the process. Call your lender at least once a week and ask what he or she has done to complete and approve your loan. Call your agent once a week if they are not calling you. Be proactive in getting the Community HOA documents. Find out what utility companies service the home and find out what you need to set up an account. Call the county real estate tax office and confirm the total real estate taxes are that you will be responsible for. The listing data and tax record on the property is not always accurate. The current owner may be enjoying a homestead tax credit and paying fewer taxes than you will be responsible for. Continue to do your own investigative research during the buying process. Surprises that pop up are not always pleasant ones.
Don’t make the process more confusing then it has to be
Buying a home is an exciting process. It’s a big step, and it’s actually, a very simple process. Be informed; surround yourself with competent, experienced and trusted individuals to help you along.