Your Guide to Purchasing the home of your dreams
For those who have never bought a home before, the prospect of buying a home can be confusing and intimidating. You have so many questions and just don’t know where to start. Hopefully, this section will make you more comfortable with the idea of buying a home. After all, knowledge is empowering.
If you are reading this, you’re on the right track. You’ve found a Realtor that can help you through the process and make the experience fun and exciting while educating you on the process and the market.
Step 1 – Hire a buyers Agent
Step 2 – Get pre-approval for a loan
Step 3 – make a list of what you want in a new home
Step 4 – Schedule appointment to view properties
Step 5 – Make an offer to purchase and negotiate contract
Steps 6 - Have the home inspected and negotiate inspection repairs
Step 7 –Make formal loan application
Step 8 – Obtain homeowners insurance for your new home and arrange for movers, and for utilities to be cut on
Step 9– Close on your new home
Step 10 – Celebrate being a new homeowner
Step 1: Hire me to work for you as a Buyers Agent
That’s right, not all Realtors are looking out for your best interests. A Realtor can work for the seller, for the buyer, or be a disclosed dual agent (working for both seller and buyer with full disclosure and agreement of both parties). Yes, there is a contract involved with hiring a buyer’s agent to represent you, but it may not cost you anything in the way of an extra fee. I typically work for buyers and get paid out of the transaction. It does limit you to work with that Realtor and no other Realtors during the period of the contract.
It works like this: When a homeowner decides to sell their property, they hire Real Estate Company to sell their property and agree to pay that Company a fee, called a commission, upon a successful sale. The Real Estate Company then decides how much they will offer to other Real Estate Companies (called a “co-operating broker”) to bring a buyer for that property. The property is then posted on the MLS (Multiple Listing System) where the information on the property, the asking price, and the amount being offered to the “co-operating broker” is listed. This is how I get paid; at closing, from the amount being offered to the “co-operating broker”.
This brings up another important fact to note. The MLS is accessible by all licensed Realtors who are members of MLS. This means that every Realtor has access to all properties for sale, not just those listed with them or their company.
Step 2: Get a pre-qualification letter from a lender.
Before you look at any properties, you need to contact a mortgage lender and ask them to pre-qualify you for a home loan (mortgage). This does not obligate you to use that lender when you are ready to purchase. A pre-qualification means the lender has reviewed your credit and based on the information you provided them on your income and debts, they feel you should be able to qualify for a loan. Keep in mind that this is all based on a review of your credit and your word on income and debts and is not a full approval.
I encourage you to take it one step further and start the actual loan process before you find your home. If you can obtain a “pre-approval”, it will make your offer more appealing to home sellers and speed up the amount of time it will take before you are moving in to your new home. A pre-approval is a step better than a pre-qualification because this means the lender has not only approved your credit, but they have verified your income and employment and had an underwriter review and approve the loan.
There is no need to take a day off work and sit and wait on a loan officer to talk to you. I will be happy to refer you to several reputable local lenders who will be happy to pre-qualify you over the phone or on-line.
Why is the pre-qualification step so important? There are several reasons for this:
A lender will pull your credit and ask questions about your income and debts and tell you how much they will allow you to borrow. They can also explain all the costs associated with buying a home and the different types of loans available so that you can together decide on the best loan for your situation. If you have a credit score less than 620, you may need to work on some credit issues before you are ready to look for your new home. Better to know this up front than to find the perfect home and be disappointed that you cannot get financing.
You can decide how much you feel comfortable spending and can look for a home in your price range confident that you can afford the monthly payment.
Once you find a home you want to purchase and make an offer, the seller will require that you show a “pre-qualification letter” showing that you are capable of getting financing. In this market, a seller is not willing to take their home off the market for a buyer that may not be qualified for a loan. In the case of multiple offers on the same home, a pre-approval letter is more attractive than a pre-qualification letter. Your offer won’t even be considered without at least a pre-qualification letter from a lender.
Step 3: Sit down and make a list of what you want in your new home:
Type: Do you want a single family home or would you prefer a condo or townhome with no yard maintenance? How do you feel about mobile or manufactured homes?
Location: Where you want to live. What areas appeal to you? Where would you like your kids to attend school? Would you like to be close to work? What type of neighborhood do you want to live in? Do you want amenities such as a neighborhood pool or golf course? How do you feel about Homeowner Association Restrictions and Homeowner Association Fees?
Must have, must not have, and wish it has:
List what you absolutely must have in a home. Not what you’d like, but what you MUST have – things you won’t compromise on. This would be things such as number of bedrooms, baths, garage, etc. Start your sentence with “It absolutely must have _________ or I won’t even look at it”
List what you absolutely WILL NOT even consider. Start your sentence with: “Don’t even show me a home that has ______________”)
Now make a WISH list – things you would love to have if at all possible. “If possible, I’d love to have ______________________”)
Step 4: Schedule an appointment to view properties. Share your pre-qualification and your lists with me. I can then review your list with you and search for properties that will meet your needs. I’ll select those that closest meet your needs and we will schedule a time to view them. Plan to see no more than 5 per day. If you have done your homework, that may be all we have to see. It is possible that we may find your new home the very first day! If not, don’t become discouraged. We’ll pick out a few more and schedule another day to look. The reality is that many first time home buyers re-evaluate their needs after looking at what the market has to offer in their price range.
Step 5: Make an offer to purchase and negotiate contract. Once you have decided on a property and are ready to make an offer, I will help you by educating you on what other homes have sold for in the area. You decide what you want to offer and we put it in writing on a contract and present it to the seller’s agent. You will need to be prepared to write a check to accompany the offer called an “earnest money” check. If at all possible, it should be at least $1000. If your budget doesn’t allow for that much, discuss it with me and we will make an offer with less earnest money accompanied by a letter explaining why you cannot provide more. This money gets deposited upon both sides agreeing to all terms of the contract, but not before. The earnest money is refundable to you if your loan is declined or you decide after having the home inspected that it is not acceptable. After the inspection period has ended and your loan is approved, this money becomes non-refundable. You will get credit for it at closing and it will apply toward your down payment and/or closing costs. If your loan does not require a down payment and you do not have any closing costs, you will get a refund of the earnest money at closing.
The offer is delivered to the listing agent who presents it to the seller. The seller can accept your offer, reject your offer, or make a counter-offer and ask for different terms. If they have accepted the offer – congratulations, you are well on your way to owning your new home. If they reject the offer, we can make another offer or move on to your 2nd choice. If they make a counter-offer, you can accept their offer, reject their offer, or come back with a counter-offer of your own. We go back and forth this way until both sides have agreed to all terms or until we reach a stale mate and cannot come to terms. If this happens, we simply move on to another property. If we do come to terms – congratulations, you are well on your way to owning your new home! Once the contract is ratified (signed and agreed to by both buyer and seller), your earnest it’s time for inspections.
Step 6 - Have the home inspected
Although a home inspection is not required, I highly recommend you have the home inspected for hidden defects. I will be happy to refer you to a licensed home inspector and schedule the inspection for you. You need to be prepared to pay for the home inspection upfront. Typically this fee will be $250-$300. A home inspector will check the house from top to bottom checking out electrical, plumbing, appliances, heat and air, roof, under the house and in the attic and report any problems or issues they find along with recommendations on what is a major problem and what are minor maintenance issues. Once the inspection is complete, we will sit down together to discuss any discrepancies and can ask the seller to make repairs if needed. We then negotiate those repairs in the same way we negotiated terms of the purchase contract. If the seller is not willing to make any repairs and you wish to terminate the contract, you may do so at this time and get a refund of your earnest money. You will be out of the cost of the inspection, but at least you wont’ be buying a home that is in far worse condition than you had anticipated.
Step 7 – Make formal loan application
Once you are satisfied with the condition of the home, you need to make a formal loan application. This requires another check…. Sorry… this time the check is for the credit report and appraisal. Typically you can expect to pay $450-$500 depending on the lender and the type of loan. If you cannot pay this, discuss it ahead of time with your lender to see what options you may have.
Step 8 – Obtain homeowners insurance for your new home and arrange for movers, and for utilities to be cut on.
Call around and decide on a home owner’s insurance policy. No, you don’t’ have to pay for this upfront. Once you decide who you want to use, they will send a binder to the closing attorney.
You will also need to call all utility companies: power/water/gas/sewer/cable/phone, etc and arrange for service to be cut on as of the day of closing or whenever the seller has scheduled them to be cut off. There may be a fee associated with cutting on utilities.