Home Purchase Guide
Buying a home can seem like a frightening prospect. Whether it's your first home or your fifth, so much is at stake- your savings, your credit rating, and your financial freedom. It is difficult to find the courage to sign on the dotted line even if you want that home very, very badly.
How do you determine whether the purchase of a home makes sense? What is the easiest way to examine the whole picture, from emotions to economics?
I want to share with you my Seven Steps For Success plan. If you read this plan, you will learn how to separate whims from true needs. You will discover how to prepare a game plan for your real estate venture, how to research effectively, choose wisely, finance appropriately, and survive the whole procedure with your smile in place.
Seven Steps For Success
Begin your search for a perfect home by making a careful assessment of the kind of home you need and want. We recommend that you write it down. Take time, right now, to be as specific as you can about your particular requirements. First, make a list of “necessities” in your home. Next, list the features that you “desire.”
Set up a budget for yourself. Decide how much you can afford to invest and be comfortable with, for your monthly house payment. Be realistic. Most lenders suggest that your payments be no more than 28 percent of your total monthly income. Don’t forget to include taxes and insurance if you plan to escrow.
You can save yourself time and heartache by meeting with a lender before you start your search for a home. A lender can let you know what specific loan programs would be best for you. He can also help you understand what it takes to qualify for the loan that you want. By taking a look at your financial situation and looking at your credit history, a lender can usually give you a good idea if you can qualify for the loan amount that you want. Many lenders call this ‘Pre-Qualifying A Buyer.’
To be absolutely certain that you can be approved for a loan, you may want to ask to be “pre-approved.” In the approval process, all of your documentation is completed and submitted to an underwriter. The pre-approval that you will receive is an actual loan commitment from a lender - your guarantee of loan approval.
It is important that you are 99.9% sure you will get the financing needed and your lender will be able to perform according to the time limits in a purchase contract. If not, you could end up in the middle of an escrow and find out otherwise. If this happens, you could lose your deposit, which could be as much as 3% of the purchase price. Ask for current references and check them. Ask references if there were any problems during escrow and did escrow close within 30 days?
You can learn a lot about agents by just letting them talk to you about how they help their buyers. Within a few minutes, you will probably be able to determine if an agent’s style is in line with yours.
Ask as many questions as you can upfront. Finding a good agent will save you huge amounts of time, effort, and frustration. Remember, a “buyer’s agent” is working for YOU!
To find a home that meets your needs, consider these tips for successful house hunting.
Keep an organized record of all your research data. Write down comments about the homes that you see. Keep track of your likes and dislikes.
Make sure that your agent is aware of your time schedule and your expectations. Do you like to look at one or two homes in a session? Four? Eight? Discuss all of this with your agent.
Tell your agent about any homes that perk your interest and those you'd like to know more about. Include those homes you discover as you explore the area yourself or those you see advertised in the newspaper.
If you want to spend time driving around looking at homes for yourself, ask your agent for a list of drive-by homes which you can consider first from the outside. Your agent can then make appointments to show you the interior of those that appeal to you.
Express your likes and dislikes to your agent after you see a home. Honest communication is essential. Some buyers are shy and hesitant to tell an agent what they really think of a house. They think the agent may take it personally. Remember, the homes don't belong to the agent! You must be straightforward about your likes and dislikes to enable the agent to do the best job for you.
Your real estate agent can help you make an offer to buy the home that you select. It is important that you decide before viewing homes whether your agent will represent you or the seller. Some agents work only for the seller. In this case, the agent may not be able to advise you in making a fair offer.
By looking at homes selling in the area and the length of time it takes to sell, you should be able to get a good idea of value. Only a “buyer’s agent” can give you all the information necessary to make an intelligent offer in your best interests.
There are only two major investments to consider when buying a home. These are the initial investment (including down payment and closing costs) and the monthly payment (including principle, interest, taxes, and insurance).
- Here are some ways to save on your initial investment
- Choose a low down payment loan. You do not necessarily have to put 20 percent, or even 10 percent, down. You can put 5 percent, or even 3 percent, down on some loans. Ask whether or not your loan includes “private mortgage insurance” or PMI.
- As part of your offer, ask the seller to pay some of your closing costs. Sellers are usually allowed to contribute to a buyer's closing costs. In many cases this is a negotiable item.
- Shop around for your home insurance. A little shopping can save you a significant amount of money.
You can deduct money paid for discount points from your gross income before computing your tax, which would effectively reduce the cost to you. Always check with your CPA to find out specific guidelines in your area.
- Keep your monthly payments low
- Get a loan with no monthly mortgage insurance premiums. You may be able to reduce or eliminate them by paying a little more at closing. By putting 20 percent or more down, you may be able to eliminate them entirely.
- Choose an Adjustable Rate Mortgage. ARMs can be up to 3 percent lower than fixed rates.
Remember those interest payments on a primary residential mortgage are fully deductible in most circumstances. Your property taxes may also be deductible. Tax rates favor homeowners.
There are 8 mistakes some home-buyers make, and some of them are huge! Do your best to avoid
Let me explain a bit about each of the classic buyer mistakes.
Deciding to buy a home is probably the biggest financial decision you will ever make. It is an exciting decision, but it is serious business, too, and you deserve serious advice. Zig Zigler, a famous motivational speaker, once said that people don't plan to fail, they fail to plan. With a game plan, you will eliminate many of the headaches involved in this complicated transaction.
You need a clear plan when deciding to buy a house. Evaluate your current situation. Do you currently own a home? If so, will it be necessary to sell before making another purchase? Are you renting? How much time is left on your lease? Do you and your family plan to use the back yard? What is important about the location of your house? Do you want to live within 10 minutes or one hour from the office?
Make a list of features which are important in your home. Write down desirable locations you would consider, an acceptable price range, number of bedrooms and bathrooms, and any other amenities. Be specific. It is unlikely that you will find a home that offers every feature you desire. However, without a wishlist, it will be more difficult to recognize a home which meets your expectations.
Provide your list to your Realtor. Your Realtor will look for homes that match your criteria. This will save you time – you won't need to look at homes that do not fit your needs and desires.
A proper game plan will save you time and reduce the hassle of shopping for a home. Spend a little time in advance and save a lot of time and money in the future!
Many people feel that they cannot afford a home, but affording a home has never been easier!
Mortgage rates are more flexible today than ever, and the tax laws favor homeownership like no other tax shelter.\ Homeownership is a durable (real) investment. Although no one can say if a specific home will appreciate, generally speaking the odds favor the homeowner.
Numerous unique tax advantages are available to homeowners. The thousands of dollars you pay in mortgage interest are deductible. This tax deduction alone can sometimes make owning your own home cheaper than renting with after-tax take home dollars. Check with your accountant.
See the dramatic difference that homeownership will make.
Likely, you do not often interview people. To find the Realtor who is right for you, you may need to interview several. The quality of your home buying experience is dependent upon your skill at selecting the best-qualified person.
It is interesting that in the real estate business, someone with many successfully closed transactions usually costs the same as someone inexperienced! Bringing that experience to bear on your transaction could mean a lower price at the negotiating table, buying in less time, and with a minimum of hassles.
Agents make it their business to provide every service connected with your home search, from expert advice in the early stages through careful monitoring of your settlement. The more closely you work with your agent, the better your needs are known and the more effectively you can be served.
Your agent should be a skilled win-win negotiator!
Your agent should have access to the MLS systems a computerized system that will assist in locating the home that fits your needs and desires.
The purchase of your home could well be the most important financial transaction you have ever made. The person you select can make it a satisfying and profitable activity or a terrible experience. It's your home. It's your money!
Don't waste hours searching for a home that is not in your price range! Save time and money by pre-qualifying for a loan.
Before you go shopping for a home, you need to determine how much you can afford. Once you are pre-qualified for a mortgage, you will know what your buying power is. You will save time by looking only in your price range.
This process is simple. A lender will ask you basic questions concerning your history, run a credit report, and determine your buying power. You can even get pre-approved for a loan! Imagine for a moment, if, when you and your Realtor initially draft your offer for the home you select, you are already approved for the loan - IN ADVANCE... No stress, no worrying about qualifying, no concern about your ability to qualify would stand between you and the home of your dreams.
In today's market, a pre-approval can be a powerful negotiating tool. The old system saw the buyer spending many hours locating the perfect home, carefully drafting an offer, awaiting acceptance of the offer, consulting a loan officer, filing the multitude of forms and applications, and sometimes this was all a waste because, for whatever reason, he was turned down for the loan.
You deserve the peace of mind and negotiating power by getting an approved loan before you make an offer.
I have been told that a fixed-rate mortgage at today's rate is the best mortgage loan. But many different types of loan programs are available. It is a mistake to think that just because Aunt Sue got an 8.5 percent 30-year fixed rate you should get the same loan.
You should get together with an expert who can explain the many different types of loan programs. Each program may have its own series of special benefits for you and your specific needs.
When considering such an important decision, it is best to explore all possibilities. It may well be that a fixed rate is the best type of loan program. It may also be that you can save a significant amount of money by exploring alternative adjustable programs.
A full-service lender with relationships throughout the mortgage industry is a must in today's market. Lenders need the flexibility of the small business owner with the clout of a large company.
- Anticipated time in the home.
- Available asset base.
- Current income situation vs. future income situation.
It is wise to pick a program that fits YOUR lifestyle. Example If you pay off a loan in fifteen years versus thirty years you will save a lot of money in interest expense. It is important to note that this savings is due to repaying the loan in half the time. The savings is not due to significant savings in interest rates. You would expect that there would be a much lower interest rate since the loan has a quicker repayment and, therefore, a loan with less risk. The difference in interest rate is not that significant. Rates on 15-year loans may be 1/4 percent to 3/8 percent better than 30-year rates. Payments on 15-year loans will be approximately 25 percent higher monthly.
I should go to my bank to get the best loan at the cheapest interest rate. Typically a commercial bank will own a separate business entity which shares the bank's name and happens to offer mortgage financing. But this does not mean that you will get a special deal just because you are the bank's client. The bank's mortgage subsidiary has no special access to your financial records as you might expect. The bank's mortgage subsidiary must request your financial records from the bank just as any other mortgage company. Your mortgage loan process will not be simplified or viewed differently from any other applicant making a request.
The perception of most people who go to their bank's mortgage subsidiary is that their loan payments will always be made to their bank , thus, all of the individual's banking needs will be under one roof. However, most mortgage subsidiaries sell their loans on the secondary market and may sell the loan servicing just as any other mortgage company will.
Another important consideration is that a typical bank mortgage subsidiary works with a small number of mortgage products. You may not find a wide variety of loan programs and your loan officer may not have a good comprehension of all the different programs offered. It is doubtful that they can adequately advise you as to the best program for your needs. It is possible that you, or the property you are buying, may need to have special underwriting to approve your loan application.
Just as you should interview your Realtor, you should also interview your lender. Not all lenders look after your needs. Select a lender who is willing to discuss your needs and help you choose the loan program that is best for your situation, not the best for the Lender!
A home inspection reports on the structural and mechanical condition of the home. After the inspection, you will have the facts you need to decide between buying your home.
A well-qualified building inspector who has adhered to federal licensing standards can spot problems that you might not be able to see. Expect problems to be clearly explained, repair expenses closely calculated, maintenance costs estimated, and a written report delivered within a day or two.
Most home-purchase contracts are written conditional on the outcome of several inspections. These inspections may include several items, including inspection for wood boring insects, excessive amounts of radon gas, structural soundness, and the condition of the heating, wiring, and plumbing. When the contract is written, it should identify who will be responsible if there are problems with the results of any of these inspections.
If well written, home inspections can create a safety valve for both the buyer and seller. If poorly written, the result can be heartbreak and lawsuits.
Real estate law is extensive and complex. The contract for sale and purchase is a legally binding document. An improperly written contract can cause the sale to fall through or cost you thousands of dollars for repairs, inspections, and remedies for title defects.
You must be certain which repairs and closing costs are your responsibility. You must know whether the property can legally be sold "as is" and how deed restrictions and local zoning will affect the transaction.
If there are defects in the title, or if the property conflicts with local restrictions, you or your Realtor must remedy them. Otherwise, you could lose thousands!
I will assist you!
I will make sure you understand the technical lingo in the sale of your home. A commercial for a local vendor states that "Our best customer is an educated consumer." How true! It is my job to know the laws governing real estate transactions. I am involved in an on-going training program to keep up-to-date with these laws.
You deserve to have an agent who is not only knowledgeable about the transaction but is also willing to educate you throughout the process so you will feel more comfortable.
You probably would not want to rely on the seller to point out defects in a house he is attempting to sell. There may even be hidden problems of which he is unaware.
Be sure your sales contract is worded so that any "earnest money deposit" must be returned in the event the house fails inspection. If a major defect is found, you have the option to cancel the contract and have your deposit returned, bargain for a lower price to compensate for the cost of repairing the problem or have the owner make needed repairs before the sale.
Even before you get to the point of a contract and having a professional inspector look at the house, there are many items you can check yourself as you are shopping for a home.
- Structure or Basement
Check the foundation for cracks or watermarks.
- Floors and Roof
Are they level? Does it sag?
- Water damage
Look for unevenly painted ceiling or wall mildew odor in basement , signs of re-plastering or re-tiling in just one area of a room.
- Water pressure
Flush the toilet and turn on both hot and cold water faucets at the same time to test.
Ask what type pipes are installed and their age. If applicable, ask when the septic system was last inspected and cleaned. Stand near the tank to detect odor or soggy ground.
A 100-amp system is typical in modern construction and uses a one-inch main line , this can be seen leading to the fuse box. Appliances such as dryer or range require a 220-amp line. Notice if lights flicker or don't work. Check for electrical outlets, usually at least 2 in each room.
- Energy efficiency
Ask to check last year's heating and cooling bills. Determine if proper insulation has been used.
Be alert for small accumulations of sawdust in the basement. This might indicate an insect problem. Obtain date and results of the last wood-destroying pest inspection.