1. HOWS YOUR CREDIT?
Buying a home is a process and too often people start with step 4 only to become frustrated when they discover that their credit score isn't where they thought it was which means their interest rates will be higher. This has a huge effect on the amount they will be qualified for. Your credit score is the benchmark for determining what the best interest rate that a Lender can offer you will be. Lenders take a risk when lending so it makes sense they will want to know what your repayment habits are on the credit you currently have. A good credit score, indicates good repayment practices which gives the lenders confidence that you will repay the loan. The reward for you is a lower interest rate.
2. HOW MUCH HOUSE CAN YOU AFFORD?
Now that you've determined your credit score, it's time to sit down with your spouse or significant other and your calculator and determine what your budget is. Add in all the extras that seem to drain money unnoticed, like eating out occasionally, going to a movie, summer vacations, kids sporting expenses, the veterinary expenses if you have pets, auto expenses, etc. etc. Try to note everything that you're spending money on currently. Don't assume that if you're paying $1200 a month in rent you can now pay $1200 a month on a mortgage. There are additional expenses with home ownership that renters don't pay. Things like maintenance of the home itself and the property. You'll need tools, lawn mowers, perhaps a snow blower, rakes, shovels. Eventually the roof will need replacing. You'll be responsible for appliance repair and heating costs, city utilities and many other expenses. Be sure to factor these in. The rule of thumb is to keep your housing costs to 30% of your income, with 25% being closer to the ideal. Too often, buyers end up house poor, which puts undue strain on relationships. After you've calculated all the expenses and any "entertainment" expenses you can reduce or live without, you're ready to call a lender or mortgage broker.
Before you even start to look at homes seriously, talk to a lender or mortgage broker and apply for a mortgage. Being preapproved will tell you exactly how much you can borrow and what your interestrate is. The lender will give you a Preapproval letter, which you can attach to any offers you make on homes you decide to make an offer on. Preapproval also ensures your interest rate will be held for sometimes as long as 90 days. However, if interest rates drop, you will still get the lower rate.
4. LOOK FOR HOMES
This is where the fun begins. And it really is a lot more fun when you're confident you're looking at homes within your price range and are secure knowing what your payments will likely be. Make a list of must haves and would like to haves before you go out looking. Also, bear in mind that you may not find a house that has everything you'd ever want, especially if this is your first home. Be prepared to compromise on the things that aren't essential. Remember, if this is your first home, you will likely trade up in the future, or maybe you can add the things you would like to have later. It's best to start with what you must have and what you can afford. Don't be tempted to stretch your budget further to get the luxury things you may not really need.
Hire your own realtor that only represents you as a seller. There is a misconception that the Listing Agent (the name on the sign on the house) can get you a better offer. In reality he can't. There is no property that will sell below market, regardless of who writes the offer. No seller is going to accept an offer that is too low. Having your own Buyers Agent representing you means YOUR best interests are at the forefront and all negotiations will be made from that perspective. A buyers agent has a responsibility to point out to you any defects he might know of or community development projects that might effect the future value of the home you are considering. He can also tell you if it is a forced sale or a distressed sale which can make a difference in what you can offer and the seller will accept. If you and the seller are using the same agent, his responsibility is to the Transaction only. He can not disclose to you anything about the property and he cannot disclose to you anything about the seller.
5. MAKE YOUR OFFER
You've been looking at homes that are within your price range, but you don't have to offer the asking price. In fact, most offers come in below asking, and sellers are aware of that and may have priced their home accordingly. They too have a number in mind that they will accept. Make a reasonable offer on the home you want. Take into account any repairs that need to be done, or things that need to be updated or changed. It is acceptable to subtract the cost of these and make your offer accordingly. Bear in mind that if things like the carpet are worn, the seller may agree to reducing the price to compensate for it's replacement, but if it's just a color you don't care for, they likely won't. Price is not the only thing you can negotiate on. You might as the seller to pay for inspection costs, appliances, or assist with some of the closing costs. Don't get so excited to buy a house that you overpay!
6. HOME INSPECTION
This is probably the best investment and insurance you can purchase and most often the one that buyers decline. A home inspector will go through the property with a fine tooth comb and expose any defects or problems that are not visible to you. He'll determine if there are leaks anywhere, cracks in the foundation, a roof that needs repair, insect damage, mold, and myriad of other things most buyers don't even see. It's better to know there is a crack in the foundation that will cost thousands of dollars to repair before you buy the property than to find out after the closing. If you decline an inspection, and something comes up after you've purchased, you have no recourse. Never, ever refuse an inspection! The few dollars up front will save you thousands later.
7. FINALIZE THE TRANSACTION:
There is a lot of finishing up in the process of closing the transaction. Once the seller has agreed to your offer, your consideration money will be held in non interest bearing escrow account. Any contingencies (conditions) to the sale must be satisfied and signed off on as satisfactory by both parties before they can be removed and the transaction can move to closing. In the meantime you'll be working with your lender or mortgage broker, providing them with, what will seem like, an endless stream of documentation so they can get your mortgage approved and ready to be funded on the day of closing. Select a convenient day of closing. It doesn't have to be on the first of them month, it can be on any day that is convenient for you to move.
A good Real Estate Agent and Real Estate Attorney will guide you through the process and make sure nothing is overlooked. They'll explain to you each step and what you need to do next.
8. MOVE IN AFTER EVERYTHING IS SETTLED:
It can take a day or two, sometimes more for everything to settle. There can be a hold up from the lender with the funds being deposited. Documents from the sale of the property, the transfer of the deed and the recording of the deed and the note need to be completed in county court. All these things will happen behind the scenes, and unless there is a problem the closing will take place on the day you expect. By now you've hired a mover, packed up your things and are anxiously waiting to move in. Enjoy your new home! You've joined the ranks of proud home owners and have made the wisest decision you'll ever make.
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