For decades, the idea of owning your own home has been one of the biggest parts of living the great American dream. Recently the nation has seen one of the worst financial periods in recent memory surrounding the housing market. Banks were over eager when it came to lending money, especially to those who were less than credit-worthy, which resulted in the bubble collapsing, and the economic crisis that followed.
But in the wake of these events, many people are once again finding renewed faith in the real estate market, and some are finding an even greater advantage now than they may have before. While banks may not be as quick to offer loans as they were before, if you can get a decent home loan, now is one of the best times to be in the market to buy. Since the housing market has been down, inventory is definitely up, which means that now is an excellent time to be in the market for buying a new home.
Before you start packing up the moving truck though, there are several important things that need to be considered. Many questions should be answered, items checked, and things to consider before you make as large of a commitment as buying a new home can be.
Before You Buy
Make sure you are ready for home ownership
Owning a home is a bigger responsibility than many people realize. Next to marriage and having children, it is in fact one of the biggest commitments anyone can make in their lifetime. Before you jump into any decision this major, it is important you realize exactly what you are signing up for.
There are also many different aspects involved in the process for purchasing a home. The process can be long and at times frustrating, and you should research the steps so that you can avoid much of the unexpected surprises that accompany the purchase process.
Are you financially prepared?
One of the most important steps to take when preparing to buy a home is to make sure that your finances are in good order. Since you will most likely be taking out a home loan, it is important to make sure that your credit is in the best shape it can be.
Get your free credit report from a site like annualcreditreport.com and an evaluation of your current credit score from a site like creditkarma.com so that you know what you are working with. Start improving your score by evaluating everything reported and looking for errors. Contact the company and the credit bureau reporting each error and request that any inaccurate or false information be fixed. This will provide an almost immediate boost to your credit score which will help you qualify for better rates on a loan.
Once you have positioned yourself in the best place you can be credit-wise, start looking into your different loan options. If you are a member of a credit union, you will often find the best interest rates with them. You may also have luck with lower rates if you look for an on-line only lender. Since these types of companies do not have the additional costs of paying for a physical location, they often pass that savings on to their customers in the form of better interest rates.
Pre-qualified or Pre-approved?
Is there a difference between being pre-qualified and pre-approved for a home loan? You bet there is! When you are pre-qualified for a loan, that simply tells the realtor that you are serious about buying a home. But the pre-approval process is much more thorough and once you become pre-approved the realtor will know that you are not only serious about buying a home, but also financially ready. The pre-approval process will also help you find out exactly what options there are for you in terms of financing.
Other things to consider
Don’t forget to think about how much you are committing yourself to in terms of mortgage payments each month for the next 10 or more years. But it’s not just mortgage payments you will need to worry about. You will also have to pay property taxes, home owners insurance, and any maintenance needs that may arise. Don’t forget to consider each of these items when you are trying to calculate your price range.
You may want to also consider your other current debt and make sure this is the right time for you to be buying a new home. For example, if you are still paying off your student loans or if you have excessive credit card debt, it may be a good idea to put off buying a new home until after you can resolve those issues.
Another important thing to consider is how much of a down-payment you want to have when making an offer on the home of your dreams. Having more cash on hand to put down on the home will help you when it comes to finding a better loan for the remaining mortgage. If you don’t need to buy a home right away, it makes a lot of sense to start saving as much as you can for a bigger down payment.
Don’t forget about all the potential benefits of buying a new home too. You can get tax credits, assistance through first time home buyers programs, or even some government assistance programs to help you purchase the home of your dreams. Make sure you look into any and all opportunities that can help you with the costs associated with buying a home. Also, don’t forget to remember that this is an investment on your part, and if purchased at the right time with enough hard work behind it, can be a very profitable investment for you that can end up practically paying for itself.
Finding the Right Home
Pick the right area
If all goes well, you will be buying a home that will be your primary residence for many years to come, so it is important to choose the area wisely. Make sure you are ready to settle down and call that new place home. And don’t forget to think about that location year round.
For example, it might be a beautiful sunny day when you drive through Anytown, USA one summer afternoon and find the house of your dreams. But what is the weather like in the winter there? Does Anytown, USA get 30 feet of snow on average? Are you prepared for that? Some important things to review are:
- Weather conditions year round
- Crime rates
- Community events
- Public transportation
- School system
Choosing the perfect home
Once you have identified the area you are ready to commit to, it’s time to start looking for homes. Some of the most important things you need in order to find that perfect home are:
– Have an open mind. There are so many things to consider when buying a home. While it is important to be particular about what your next residence will look like, you shouldn’t limit the potential that some homes have. By immediately dismissing a home that is a little “rough around the edges” simply because of its appearance, you may be missing out on an amazing place to call home, not to mention a potentially great deal on it.
– Do your homework. Know the real estate market in the area you want to purchase a home. It makes no sense to buy in an area that you are unfamiliar with, without arming yourself with property values, sales traditions, and other real estate trends for that neighborhood.
– Be patient. Just because there doesn’t appear to be any good homes right this moment in the area you have chosen, doesn’t mean that the house of your dreams won’t go on the market tomorrow. If you can afford to be patient and wait for the right house, you will be happier and avoid settling for one that is simply available right now.
When you are choosing your future home, there are some other important things to consider as well, such as the cost savings and benefits you may find when you purchase a foreclosure. These properties that have been taken from the prior owner who couldn’t make their payments, may need a little TLC to get them back to beautiful, but you may be able to find the best deals with homes like this.
Another way to save money on the price of your home is to consider a fixer-upper. If you are not dead set on buying a newly constructed home, you may find deep discounts in houses that need a little work done on them. If you can do some of these repairs yourself (like repairing holes in walls, new paint, or installing new appliances), then you can potentially save even more money.
How big is too big?
While many people place a high level of importance on keeping up with the Joneses and try to buy the biggest house they can possibly afford, this is something that is truly not recommended – especially if this is your first home buying experience.
Make sure you buy a home that is big enough to accommodate all of your needs. Also, think a few years into the future and anticipate what you might be needing down the line. If you are newly married, you may want to look for more than a one bedroom home if you plan on having kids in the future. Similarly, if you have teenagers that are getting ready to go off to college, it may be time to downsize the number of bedrooms your next house will have.
Ultimately, the most important thing to remember is to buy as much house as you need, but not more. Buying too much house will only cost you more money, both up front and down the line.
If the home you are interested in is part of a condominium building or community living arrangement, there is most likely a Homeowner’s Association (HOA) that you will need to deal with. These types of properties can end up being bad deals for many people because of the fact that even though you own the property, you are still bound to a certain set of rules and guidelines that have been established and agreed upon by the Association. These rules can govern whether or not you can have satellite tv, how your front lawn must be designed, what color you can paint your house, and much more.
If you are leaning toward one of these property types, make sure you get a copy of the HOA’s Rules and Regulations for homeowners before you go any further, and that you can live with all of their requirements and restrictions. Also, there is usually a homeowner’s fee or dues that must be paid each month to live in one of these types of communities. Make sure you factor in these costs as well into your monthly payment calculations.
Ready to Buy
Do you need a real estate agent?
The simple answer to that question is no. You certainly don’t need to have an agent, but finding a good one can make a world of difference. While there are some people who prefer to do it all on their own, real estate agents can provide helpful and valuable information on everything throughout the process. Some things to think about when considering whether or not to find a real estate agent:
- It is much more convenient having a realtor handle all of the appointments, questions, and other details throughout the process.
- It is their job. They know the market, the process, and all the ins and outs of the industry better than anyone else.
- They can help you negotiate a much better price or save you money other ways.
- It is possible to go through the process on your own if you are willing to do the work.
- As much as they are there to help you, they are also there to cash in on your new purchase. Their fees will be built into any deal you end up agreeing to.
- You can find just about everything you need on the internet, eliminating the need for an agent.
Before making an offer
So you’ve found the perfect house and you’re ready to make an offer. WAIT!!! There are still so many things that should be done before you even get to the bargaining table.
Have a CMA done. A Comparative Market Analysis is a handy report that you can get from your real estate agent or sometimes even on-line. This report will give you an estimate on the value of the home you are looking to purchase. Sometimes these reports can be very detailed, offering invaluable information on the property including other active listings in the area, properties that are currently in the process of being sold and homes that have recently sold. This information will help you better decide what you feel is a fair market price for the property you have your eye on.
Learn everything you possibly can about the property. You have to do your homework to learn everything you possibly can about the house you are ready to make your new home. Buying a house is so much bigger than renting one. If you own a home, you can’t just pick up and move to a new one if something isn’t perfect like you can when you rent. For this reason, it is important to learn everything you can about the history of that home.
You can gather a lot of information from the internet, but it is also a good idea to go to the town hall and do a little digging. Find out if there have been any recent improvements to the property, how long ago it was inspected, and whether or not it is in a flood zone or other area that could be impacted by weather.
Ask around the neighborhood. Start knocking on the doors of your potential neighbors and introduce yourself. Find out if there is any information that they have on the property that you might not be able to find anywhere else. Plus, it will give you a chance to meet the people you may soon be living next door to.
Get the property inspected. If you are ready to make one of the biggest commitments in your life by purchasing a home, you had better believe it is imperative that you get a thorough inspection done on that property before you move any further. A property inspection can reveal all sorts of problems that you would not have been able to see otherwise. This is especially true for homes that were built decades ago. Additionally, a property inspection can also give you a good idea of what maintenance issues may soon be popping up for you. Some of the things that need to be looked at include:
The roof– How long ago was it replaced? Is there current damage? How long will it last in its current condition?
Health related issues – Is there any asbestos in the home? Lead-based paint? Excessive moisture that could cause mold?
The wiring/electrical – Is it outdated? Are there any fire dangers/issues that need to be addressed?
Plumbing – Are there any leaks? How old is the plumbing system? Have there been any updates to any of the fixtures?
Structure – Is the structure itself sound or are there issues? Is there sagging or drooping? How old is the home? Is there dry rot or other structural issues to be concerned about? What about the foundation? Are there signs of termites or other insects?
Heating/Cooling – Is the heating system in good working order? Does it need servicing? How long since it was installed?
Make an initial offer
You’ve found the house, you’ve had it inspected, you’ve got $30,000 saved up for the down payment and you’re pre-approved for a loan. Now what? Make an offer!
If you have followed all the steps in this guide so far, then you are already armed with enough information to be able to start the negotiation process. You know the recent real estate market trends in the area, you know what the property is worth, and you know what the asking price is.
The first thing you should establish is the absolute highest price you are willing to pay. Do not go over that amount no matter what happens. Another thing to look at is how hot the real estate market is in that area at the time. Is there a lot of other interest in the home? If so, you may need to come in fairly close to the asking price when you make your initial offer.
Once you have submitted your initial offer, the negotiating process will begin. The owner can either flat out deny your offer and you can start over again, or they make come back with a counter-offer. This is where having a real estate agent working on your behalf can really come in handy. The negotiation process can be very lengthy, at times lasting for weeks, and it is nice to have someone else deal with all the details for you while trying to get you the lowest price possible on the home. Be patient during this process.
Another thing to consider when negotiating the final sales price, is to incorporate other things into the terms of the negotiation. For example, if the seller refuses to drop below $300,000.00 and you didn’t want to pay a dime over $295,000.00, you could re-submit an offer meeting them at the $300,000.00 with the stipulation that the current owner sell all of the homes furnishings along with the home. This could be a win-win for both parties, freeing up the current owner from having to pack all their furniture and they get their asking price, plus it saves you probably at least the $5,000.00 difference in not having to go out and buy all new furniture for your new home.
Finishing the Deal
The Closing process
You’ve finally reached an agreement with the seller on the price of your new home, your bank is all set with making the appropriate transfer of funds to the owner, and you are getting ready to pack your bags. Not just yet – you’ve still got the closing period to get through! This can typically last between 40-50 days.
Once your sales terms have been accepted by the owner, the countdown to closing begins. It may seem like you are finally at the end of this long, hard journey, but in fact you are still quite a ways away from being able to call the property your new home sweet home. You will need to find a settlement agent to help you through the closing process and help you with all the legal paperwork and necessary items that remain to be done.
Inspection and re-negotiation
First, you will need to have that thorough property inspection done if you chose to skip over that step earlier. If there are any problems discovered during this inspection, then you can use this time to add in some special terms to the agreement. For example, if it is discovered that the roof is leaky and will not make it through another tough winter, you can renegotiate with the owner to either lower the selling price, agree on a time frame that the repairs be made and split the costs, or have the current owner pay for the entire cost of the repairs before you agree to buy the home.
Financing the mortgage
After you were pre-approved for a loan by the lender of your choice, you have hopefully kept in touch with them to let them know where you are throughout this process. That way, when it is time to close the deal, they are ready to go without any major delay. Having all your necessary documents (pay stubs, savings accounts/401(k) records, taxes, etc.) up to date and ready to provide the lender will also help keep the ball moving.
Make sure you lock in the best interest rate available, and get any special loan terms and points in writing up front so that there won’t be any problems later.
Review all the documents carefully
You will soon be receiving a ton of paperwork that you will need to review carefully. This paperwork will include inspection details, title information, and insurance exclusions, sales terms and agreements, and more. While going through each and every page may not be your idea of a good time, it is definitely time spent well. Consider the seriousness of this investment and how one little thing being off can turn the entire situation of buying the home of your dreams into a nightmare of a deal.
This process can be lengthy and daunting, but it is important that you understand and agree to everything you are about to sign. If you have any questions at all about anything you find in those documents, make sure you ask the appropriate person and get an answer that satisfies your needs before you sign on the dotted line.
This is also the time where any problems with the prior ownership of the home will usually come to light. For example, the owner may have failed to pay property taxes for one or more years, or there may be a lien on the property itself. Make sure you know exactly how any of these situations will affect the sale, and more importantly how they will impact you and your ability to buy the home.
Signing on the dotted line(s)
Once you have completed all the inspections, reviewing all the documents and terms of the sale, and agree on all loan terms with you lender, there’s really nothing left to do other than sign on the dotted line. Once every single document has been signed, you have finally completed the escrow process and can now call this new piece of property your own home sweet home.