SIX BUYING STEPS EVER HOME BUYER SHOULD TAKE
Purchasing a new home is an important decision, especially so for a first time home buyer who doesn’t have the knowledge and experience in buying real estate. My goal is to provide the first time home buyer with tools and information so they can determine if home ownership is right for them. Buying a home is a process and essentially involves six steps:
1. Decide to Buy
2. Organize Paperwork
3. Shop for a Home
4. Prepare an Offer
5. Secure a Mortgage
6. Close the Deal
Many first time home buyers get caught in the trap of being unprepared and uninformed which can lead to much confusion and frustration. Educate yourself, organize your paperwork, and utilize the resources available and the home buying experience can be less stressful and more enjoyable.
Step 1: Decide to buy
So you want to be a first time home buyer? Ask yourself these questions:
What are your personal reasons?
Are you getting married or expecting a child and need more space or do you want to move closer to work? Maybe you are just tired of renting and want the benefits of home ownership? Sit down and make a wants versus a needs wish list and think it through. Make one of them “renting vs. owning” With rent you have a roof over your head and don’t have to worry about maintenance, etc. However, if you owned a home the roof would be yours, the monthly mortgage would be tax deductible, and the property will appreciate over a period of time adding more value to your estate.
How long do you plan to own the home if you buy?
You may be better off renting if you expect to move or get transferred within 2 years. Contact your loan consultant to figure out how long it would take to break-even on your expected home purchase. Calculate if you should rent or buy. Currently, it takes about 1.5-2 years to break even on a typical home purchase. However the wait is well worth it if you are going to stay. The average period of time that most people stay in a home they purchase is five years before they move, because they buy another home or otherwise.
Do you have enough cash for a down payment and closing costs?
Today, lenders are offering great zero down home first time home buyer programs, which require no money down and the seller can pay most or all of the closing costs. There are also many government and non-profit programs that provide free down payment assistance for the first time home buyer. You can go to the closing table with no check and still get your home.
Can you afford to carry a monthly mortgage and still pay your bills and go out to dinner or movie more than once a month with friends? A mortgage should not take so much of your money that you can’t have a life. After paying your monthly mortgage you should still be able to have some enjoyments of life. Sit down and make a budget to see where all your money is going during the course of a month. Usually you will find that you can cut back significantly on a lot of expenses. This is money that could go toward helping to pay your monthly mortgage.
Do you need a tax break?
In most cases, renters do not receive a tax break, homeowners do! You are able to deduct the interest on your mortgage loan and property taxes. Consult your tax accountant to discuss how purchasing a home will benefit you.
Step 2: Get Organized
Start a Home-Buying file
If you keep your records in one place, you can get organized in a few hours.
Credit data
Very Important: You should get a copy and check your mortgage credit report because it may differ significantly from the one you obtain online. Also, you should correct any problems before applying for a mortgage if possible.
Here is a list of loan documents a first time home buyer will need to process the loan:
1. Copy of purchase contract if you have found a property.
2. Current pay stub.
3. W2 forms and 1040's for last 2 years If self-employed: -1065 and k-1 returns -1120 tax forms.
4. Most recent (2) months asset statements including bank, money market, 401k, etc.
5. Loan/debt payment information for credit cards and auto, student, and personal loans.
6. Name and phone numbers for landlords, attorneys, and Realtors.
7. If its a condo purchase you will need to get declarations and by-laws and name and phone number of the condo association or management company.
Real Estate Listings:
Collect the listing sheets on the homes you may want to buy and make notes about properties.
Inspection Report:
If you are buying a condo you may choose not to have the property inspected but I feel that you should always use an inspector on a single family or multi-unit building. The property may look great but there may be some hidden defects such as foundation or structural problems which may cost thousands of dollars!
Insurance information:
Choose your insurance agent wisely and cut your insurance cost. Remember, a condo does not require exterior homeowner insurance because protection is provided by a blanket insurance policy with the association. You should check into insurance to cover personal belongings and interior structure (studs-in) since these items are not covered by a blanket policy.
Get Pre-Approved:
Currently, the real estate market is competitive and sellers are looking for buyers who are pre-approved not pre-qualified. A pre-qualification is simply a letter stating that you are pre-qualified to purchase a property based on information given to a loan officer. A pre-approval involves submitting a loan file to underwriting, accompanied by actual documentation, for approval and receiving a commitment letter. This commitment letter gives a first time home buyer negotiation leverage when submitting an offer to purchase a property.
A down payment assistance grant can be used with a loan from a bank to get you pre-approved. There are several banks that will jump at the chance to work with a government or non-profit agency that provides down payment assistance. The bank simply satisfies itself that the home buyer can make the payments and will provide the loan. These loans are very favorable and do not involve adjustable mortgage rates. They are fixed rate loans for 30-40 years.
Down payment assistance certificates can be obtained through a number of local, state and national down payment agencies. Once obtained and bank approved the buyer just goes shopping for a home.
Step 3: Shop for a Home
"Expect less, Be prepared for anything," is what a Samurai Warrior might say about buying a home. A home or condo does not always live up to their advertisements, but you may find a real charmer without many listed features. Decide whether or not to work with a real estate agent. If you work with a realtor, make sure they know your priorities, such as price, location, size, number of bedrooms, etc... Make a checklist of what you want, prioritize them, and give them to your agent. Make sure to interview and choose a realtor who best suits your personality and needs and makes you feel comfortable.
Take a checklist of questions to ask when you go to see a property. A beautiful Victorian may be a favorite until you check out your notes later and discover it needs a new roof or siding. (Hint – Always make a thorough check of the kitchen area). Make sure plumbing is okay.
When you find a home that interests you, research the neighborhood. Talk to the neighbors and find out what it's like to live there. You may want to park on the street and just observe activity and listen. If everything checks out you are ready to make an offer.
Special notes about Condos: Decide if you want to live in a low-rise or hi-rise building you should be aware that assessments are higher for hi-rise buildings due mainly to maintenance and security costs. Also, you need to know if any special assessments are in the works because it can hit your pocketbook hard. Finally, call the management company or association and find out if the owner occupancy ratio is below 60% because it may affect your resale value later.
Step 4: Prepare an Offer
Step back from your emotions. You're making a contract to purchase a home, which will legally bind you if the seller accepts. Unless you have down payment assistance from a seller or government program, you also will submit an earnest money deposit with your offer, which is only refundable under certain conditions.
Do your Research and Find out about:
1. Current market conditions.The higher the demand, the more you can expect to pay.
2. Price of comparable homes sold in the area recently. Check home values on the internet for the locale you are considering or rely on your realtor or loan officer to help you.
3. The seller's motivation. In cases, such as divorce or job relocation, the seller may settle for a lower price in exchange for a quicker sale.
Prepare your Offer
1. Always make an offer within your ability to pay.
2. To strengthen the offer, include your pre-approval commitment letter. If you have worked with our office to get your pre-approval certificate this will have already been taken care of.
3. Attach conditions to your offer. This allows flexibility for you to negotiate.
4. You usually will have to include a deposit with your offer, to apply as a good faith down payment if the deal goes through. If you have been issued a down payment certificate by an appropriate agency this requirement will have already been taken care of.
What's Next? The seller may accept, reject, or counter your offer. If the seller accepts, it is a done deal. If seller rejects, don't take it personally, look elsewhere, and you will find the perfect home. If the seller counters, you can accept or "counter the counter offer." I strongly advise that you work with an agent or other home buyer assistance agency or organization on your first home purchase because there are many legal forms and details that need to be addressed concerning your specific real estate transaction.
Step 5: Secure a Mortgage
The first step in the loan process is to get pre-approved. Once you are pre-approved with a lender or broker you can work with them or choose another lender. Choose a lender or mortgage broker. A lender actually makes the loan. A broker acts as a go-between for a buyer and a lender.
Submit your documentation.
If you have a pre-approval with a lender, your documents are good for at least 90-120 days with that lender. Otherwise, you will need to submit pay stub, bank statements, etc.
Check interest rates. Interest rates tend to fluctuate daily. You should check mortgage rates frequently. If interest rates are low, you may ask your lender to lock in a rate. Otherwise, you can choose to float but you may end up with a lot higher rate than expected. Are you a gambler?
Choose a loan. There are money loan types available, including adjustable rate loans that allow you to make lower payments in the beginning years but adjust upward later. With the current real estate market these loans are now disfavored. For the first time home buyer I especially recommend a fixed long term loan. Many first time home buyer programs have interest rates that are less than the current market rate and can be for 30-40 year fixed periods with no adjustable rate surprises in later years. You know exactly what you will be paying from day one to the mortgage pay off.
Step 6: Close the Deal
On closing day, the seller officially signs over the house to you. It can take anywhere between 15 to 90 days to close on a typical real estate transaction. The average time is about 45 days. To avoid last minute surprises: Set a closing date that works for you. If you are renting, set a closing date near the end of your lease to avoid paying unnecessary rent. Be sure to schedule enough time to move in and get 3 moving company quotes. The best bet is to close on the sale a few days before you move in to avoid being overwhelmed.
Estimate your final closing figures: A day or two prior to closing a statement is made available for you to review. Most importantly, the lender is required to give you a good faith estimate of closing costs. Go over the costs with your loan officer and make you sure you understand each one. Schedule a final walk-through. Make certain the seller has completed any repairs specified in the contract and satisfied any other conditions spelled out in the contract involving the home's condition.
Finally, sign the papers, get the keys, and hang your hat on home sweet home.
Hope this helps a prospective home buyer
Sincerely,
Roy Landers
http://www.thehomebuyersource.com/
roylanders@housingamericans.com
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