Real Estate Home Buying Process
Step 1: Getting your finances in order.
Getting your finances in order is your first step in the purchase of your new home. Check your credit report so you know exactly what the lenders will see about your financial history. Credit reports play a significant role in the mortgage approval process, interest rates, and loan terms. Check your credit report for errors and inaccuracies as this does happen often and can take time to correct on your credit report. Spend time shopping around for your lender and compare the different mortgages that are available. This is the time you want to determine how much you can afford for your monthly mortgage payments.
Step 2: Getting a pre-approval from the lender you chose.
Now that you have researched the different lenders and mortgage options it’s very important to choose the right loan and lender to make your home buying process a success. You have already thought about what kind of monthly payments you can afford, your lender will now help you determine how much house you can afford. The lender will determine this by taking an extensive look at all your finances such as your credit rating, if you’re a first time home buyer, your debt, your income, and how much you have for a down payment on your new home. This will give you a realistic idea of what you can afford and what the bank will approve you to barrow. Having a full pre-approval lets you shop for your new home with confidence that if you find that perfect home you are able to make an offer without any problems with the financing. Buyers who are pre-approved are preferred by sellers, because you have gone through an extensive financial background check and there shouldn’t be any unexpected financing situations to cause any problem with you buying their home.
What's The Difference Between Pre-Qualifying
Pre-qualification is an informal way to see how much you may be able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records mentioned in Question 47 (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
Step 3: Deciding your wants and needs for your new home.
Now that you have determined how much home you can afford and you lender has given you a pre-approval, you can decide on exactly what your wants and needs are for your new home. You probably already have an idea as to what your perfect new home will look like. Begin by making two lists one list for features the home must have and one list for the features that would be in your dream home. Your perfect house will have all the features of both lists but it’s more likely that you will prioritize these lists into what you really want and what is available on the market.
Step 4: Deciding location and which neighborhoods fit you.
Now you know what kind of house you want and can afford spend some time researching the area that you would like to live, When thinking about the location keep in mind your travel time to work, consider the schools, amenities the neighborhood has to offer (ie. Swimming pools, tennis courts, basketball courts, parking etc.), demographics of the surrounding area, and life necessities. Keep in mind the neighborhood a home is located in directly affects the home's value.
Step 5: Begin searching for your new home.
You know everything you need to know about what type of house you want, what you can afford, and the area you would like to live in. You can begin your search by contacting me as your real estate agent, I will then begin working for you by keeping you up to date on properties that come on to the market that fit your search criteria. When we find a home that interest you we can arrange a time for you to tour the home. You can also assist me in your search by reading local real estate publications, looking on the internet, or driving through neighborhoods that are of particular interest to you. You can contact me about the homes you have found and I will research and find all available information for you then proceed with showing you the property.
Step 6: Make your offer.
Once you find the perfect home, it’s time for you to make your offer. As your real estate agent I will help you make a good offer on your new home by reviewing recent sales of similar homes. We will create a written contract with your offer and all legal requirements. The contract will detail what is expected by each party and ensures your financial position as the buyer. Now that your offer has been made you will probably have to negotiate with the seller to reach an agreement, almost everything is negotiable when purchasing a home.
Step 7: Getting a home inspection.
Once your offer has been accepted I will work with you to coordinate your home inspections. An inspection of your home will insure that it meets the standards set forth in the contract, the inspector will check the property, foundation, and the surrounding environment. If something at the inspection is discovered it could delay or even cause the contract to become null and void. An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of only repairs that are needed.
The Inspector does not evaluate whether or not you're getting good value for your money. Generally, an inspector checks (and gives prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and Ventilation, the HVAC system, water source and quality, the potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced.
It's a good idea to have an inspection before you sign a written offer since, once the deal is closed, you've bought the house as is." Or, you may want to include an inspection clause in the offer when negotiating for a home. An inspection t clause gives you an 'out" on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house.
Step 8: Closing on your new home.
Closing on your home is an exciting day, it is when the actual ownership is legally transferred from the seller to the buyer. I will be by your side every step of the way the closing usually takes place at the title company's office or attorney's office. The closing officer will coordinate all the document signings and the disbursement of funds. All parties should be prepared and bring the necessary documents in order for the closing to go smoothly.
Step 9: After Closing
CONGRATULATIONS you have now purchased your new home! Now you have ownership you will need to have your electricity, cable, internet, and phone turned on/set up. Thank you for working with me as your real estate agent I appreciate your business and any referral.
Frequently Asked Questions
1. What are "Home Warranties" And Should I Consider Buying One?
Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped.
2. Am I Ready To Buy A Home?
Ask yourself these questions:
- Do I have a steady source of income (usually a job)? Have I been employed on a regular
basis for the last 2-3 years?
- Is my current income reliable?
- Do I have a good record of paying my bills?
- Do I have few outstanding long-term debts, like car payments?
- Do I have money saved for a down payment?
- Do I have the ability to pay a mortgage every month, plus additional costs?
If you can answer "yes" to these questions, you are probably ready to buy your own home.
3. How Do I Start The Process Of Buying A Home?
Start by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment? How much space do you need? What areas of town do you like? After you answer these questions, make a "To Do" list and start doing casual research. Talk to friends and family, drive through neighborhoods, and contact a local realtor.
4. Rent or Buy?
The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.
5. How Does A Lender Determine The Maximum Loan I Can Afford?
The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, 4 should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.