Buying a Home

There are several steps to purchasing a home  and a few more if you need to sell a home before purchasing your next home.

Selling Advice

As you begin your journey to home ownership, it is important to become educated about the process.  Keeping an open mind is also recommended because as you explore homes and neighborhoods,  you may choose to alter your preferences and requirements.

Designed to walk you through home purchasing, this buyer’s guide breaks the process down into three stages:  pre-purchase planning, home shopping and closing on your home. 

 

Pre-Purchase Planning

Preparing to purchase a home and ensuring you are ready for this milestone is the first step to home buying.  As you evaluate your preparedness for home ownership, consider using these useful tools, in addition to this guide: 

 

• Mortgage Calculator
• Rent vs. Buy Calculator
• Homes.com Neighborhood Information

 

These resources can be beneficial in determining if you are ready to buy your  home both financially and according to your lifestyle.

 

Lifestyle Evaluation:  Are You Ready?

To help you decide if home ownership fits your lifestyle and personal goals, consider asking yourself these questions:

 

• Am I ready for the responsibility of owning a home? 
• Do I see myself in the same neighborhood in five to ten years time? 
• If yes, what type of neighborhood or environment fits my interests and personal requirements? 
• Do I want to live close to family, friends, work, etc.?
• Does the location need to be close to shopping, religious places of worship, libraries, etc.? 
• Does the quality of the school system factor into my decision? 
• What features and amenities do I require in my house? 
• How large does the home need to be now and into the future; and am I willing to remodel if necessary? 
• What are my storage space needs? 
• What size yard am I willing to care for?

 

There is a lot to think about prior to purchasing a home.  Knowing what your needs are will help you narrow down your choices and help you get a home you can be proud to live in.  To gain a better understanding of the types of homes available in your neighborhoods of interest, click here.

 

Evaluate Finances: Are You Ready?

Financial evaluation and preparation can streamline your house hunting process.  To help you begin, here are five fundamental financial actions to take when preparing to buy a home: doing the math, knowing your credit score, knowing the down payment, closing costs and more, preparing your paperwork and securing the mortgage first, finding the house second.

 

Doing the Math

Along with the monthly mortgage payment, there are additional costs associated with home ownership, including:  taxes, insurance, maintenance (generally one percent of the purchase price annually), association fees in some communities and town houses, and commuting costs.  Also take other external expenses into account such as college and retirement savings, utilities, etc. To help you evaluate the affordability of home ownership, calculate your current and future household expenses using this affordability calculator.

 

Knowing Your Credit Score

Lenders use credit history and credit ratings to measure the risk involved in granting a loan and determining the interest rate.  It is important to obtain and check your credit score for accuracy.  Keep in mind that a good credit score (723-850 in the United States) can help lower your monthly mortgage payment and interest rates.  The Fair Credit Reporting Act entitles you to one free credit report each year.  To obtain a free copy of your credit report from the three credit reporting companies (Experian, Equifax and Transunion), visit:  AnnualCreditReport.com.  To purchase a report, visit MyFico.com. 

As you check for accuracy, notify the credit reporting agency if you identify any errors related to late payments, credit limits, collections, etc., and make sure the inaccuracies are removed from your credit report.  After seven years, negative items should be removed from your credit report and bankruptcies are generally removed after ten years. If your credit score is not where you want it to be, consider researching opportunities to improve it or think about delaying your home purchase.

 

Knowing the Down Payment, Closing Costs and More

Down payments, ownership transfers and closing costs require out-of-pocket expense.  In other words, be prepared to make cash payments.  You may also need to add moving costs to your home buying budget. T

Traditionally lenders have required a 20 percent down payment to secure a mortgage for the remaining 80 percent cost of a home.  There are many varieties of home loans and many variations of down payment requirements.  Some loans, such as those from the Federal Housing Administration (FHA) are government sponsored and require qualification.  If your down payment is less than 20 percent of the total loan, you may also need to pay for private mortgage insurance, or PMI. 

 

Preparing your Paperwork

In advance, gather the financial documents you will need to secure a mortgage.  This includes pay stubs, automobile and school loans, credit card records, statements from brokerages, banks and retirement accounts and income tax returns. Your mortgage lender or I can provide a complete list of what will be needed.

Securing the Mortgage First, Finding the House

Second:  Securing pre-approval for a mortgage can save time when you are ready to make an offer on a house and will allow you to focus on homes in your price range. When you are pre-approved for a mortgage, you know how much you have to spend on a home and how much your monthly payments will be.  When you find the house that you want, you can act quickly.

 

 

Shopping for that Perfect House

Whether or not you have a detailed plan of attack or are casually interested in home buying, the first step for many home buyers is to search online.  Consider using home search sites such as ERA.com and NapierERA.com.

This allows you to easily and quickly navigate from neighborhood to neighborhood, view homes, compare prices and gain a general understanding of the size and price of homes currently available on the market.  You can then develop or refine your house hunting criteria (location, prices, square footage, etc.) And when honing in on the home of your choice, be sure to know market conditions and the prices of home recently sold in the area.  With this information, we will be able to craft a reasonable offer.  

Attending open houses affords you the opportunity to view a house at your own pace and get the full home experience, including: 

 

• Floor plan and room flow 
• Home condition: carpets, walls, kitchen cabinets, flooring, baths, roof and fencing
• Storage space 
• Yard size and maintenance needs
• Neighborhood characteristics

 

An open house is a good place to ask questions about the neighborhood and recent home sales. 

When making an offer to purchase a home, I will assist you in completing a purchase offer.  The purchase offer includes the proposed price, a list of what is to be included in the sale such as appliances and fixtures, contingencies or terms the sale is dependent on including a satisfactory home inspection, secured financing, sale of buyer’s current home, seller concessions including assistance with closing costs, proposed closing date, and an offer expiration date, which is typically 24-48 hours.

Upon submitting your offer, the seller will review it and can accept, reject or make a counter offer.  The purchase offer is not binding until both the buyer and the seller sign the agreement.

 

Closing on Your Home

Once the buyer and the seller have agreed in writing to the sales terms and price, the closing process begins. During this time, all stakeholders in the transaction verify information and finalize the transfer of the property from one owner to another.

Closing on the purchase of your new home involves a good deal of coordination. Costs and fees are paid at closing to cover many of the elements that accompany the purchase. Usually your lender will help make your closing as smooth as possible and guide you through the process.

All closing costs are outlined in the Good Faith Estimate (GFE) you receive — a written list of the approximate closing costs associated with your transaction, including charges from your lender, the local closing agent and other third parties. Closing costs may be added to the amount of your mortgage loan, and a seller may sometimes cover closing costs you would usually pay.

The closing process, which in different parts of the country is also known as “settlement” or “escrow,” traditionally involves the buyer meeting with their attorney or escrow company to complete the paperwork associated with the purchase and transfer of the property from one owner to another. 

 

CLOSING COSTS

All closing costs can be divided into two basic groups: 

 

• State and local government charges and fees: these include city, county and state transfer taxes, recording fees, and property taxes. 
• Mortgage costs: these include title insurance, survey, appraisal, credit checks, loan origination and documentation, and commitment processing fees, as well as mortgage insurance and interest prepayments.

 

 

Lender Fees

 

• Loan origination fee: covers the costs of evaluating and processing your mortgage loan. 
• Points: the percentage of your loan amount, paid at closing. 
• Appraisal fee: The fee for having your new home appraised may be rolled into the closing costs. The cost may vary based on the amount of your loan, and the type and use of the property (i.e. condo, rental, etc). 
• Credit report: covers the expense of your credit history report.
• Interest payment: You may pay interest on your mortgage loan to cover the time between the closing date and the date your first mortgage payment period begins.

 

It is important to note that interest on a mortgage is usually paid in arrears at the end of the time period it covers. For example: If a closing is on May 15, and your first monthly payment starts to accrue interest on June 1, an interest payment covering the period between May 15 and May 31 will be required at closing.

Consider this timing when scheduling your closing.  It is a fee you can reduce by closing near the end of the month. 

 

Escrow Fee

Escrow account fees:  A trust account created by a third party to hold money. Generally this money is used to pay property taxes and insurance when they become due. To fund the account, your monthly mortgage payments may include one-twelfth of your annual property taxes and insurance charges.  The first escrow fee may be due at closing.

 

Title Fees

 

• Title search: pertains to the examination of public records to ensure that no one but the seller has a valid claim to the property. 
• Title insurance: relates to insurance that protects the lender and buyer from losses that may result from disputes over the property's title. Typically, the buyer purchases the Lender Title Insurance.

 

 

Other Third Party Fees

 

• Document preparation fee:  charged for the preparation of the closing documents.
• Underwriting Fee: covers the costs of the underwriting process, which is the analysis of the risk involved in making a mortgage loan.