Homeownership is at an all-time high in North America, not just because of low-interest rates, but also because more and more people realize the benefits, such as:
It takes three things to buy a house: some cash, dependable income, and good credit. If you fall short in any of these areas, don’t worry. There are plenty of programs out there to help achieve homeownership no matter what your financial situation.
Before you begin the home buying process you should do the following:
The first thing you need to decide is how much you can afford. Determining this early in the process will save you a lot of time and frustration. Not only will you have a clearer idea of the amount you can spend, but you can also eliminate all those homes that are not in your range. You may even find that being pre-approval opens the doors to types of homes that you hadn’t considered before.
Before you begin searching for a home, you should take a few steps to prepare for financing:
A. Pre-Qualification is a “guesstimate” of what you might qualify for before actually submitting your mortgage application. Based on the unverified financial information you provide, the lender uses a quick calculation to arrive at a loan amount.
B. Pre-Approval means that the lender has verified your financial information and has actually committed money in your name for a specific loan type and amount. With today’s technology, you can receive loan pre-approval in minutes.
Before you get started, you need to determine if you want to hire a Realtor® to help you or go it alone.
Using just any agent to buy a home can be a little advantageous. Having someone who knows the market negotiating for you is a plus. They know the area and can tell you the pros and cons of any particular community. They have access to most of the homes on the market through the Multiple Listing Service (MLS). They can handle the negotiating, contract and closing for you. And the seller typically pays the buyer agent commission.
If you decide to use an agent, you can expect them to do the following for you:
If you choose not to use an agent and buy directly from a “For Sale By Owner”, the seller may reduce the price by the 2-3% they would have paid a buyer’s agent. If you don’t plan to use a real estate agent, it’s a good idea to protect yourself with a real estate attorney. Choose your attorney before you start shopping because it’s too late for legal advice after you’ve already signed a contract.
Become familiar with the city you’re considering to see if it meets your needs (e.g., near a park, shopping, public transportation, etc.) Drive around. Attend open houses. Talk to friends and colleagues. You may want to select two or three neighborhoods to broaden your options.
It may also be helpful to take photos of the homes you’re interested in. Make personal notes on the back. This will help you stay organized and remember what you’ve seen.
You may also want to create a profile of the home you’re looking for in your next home.
Just remember to take your time, stick to your objectives and don’t let yourself get pressured into anything. Keeping your feet on the ground now will ensure you don’t get in over your head later.
By now you should be well into your home search. If you haven’t already been pre-approved for a loan, now is the time. Pre-approval lets you know in advance how much you can afford to spend, gives you more negotiating power because you have a financing in place and can save you money by locking in an interest rate early in the process.
Getting a loan to buy a house is now easier than ever. You can actually receive loan approval in as little as four minutes. No money for a down payment? Poor credit? First-time buyer? No matter what your needs are, there are hundreds of loan products available to suit most financial situations.
When choosing a mortgage, find out about…
There are many different types of loans available.
If you put less than 20% down on a loan, you will likely have to pay PMI or Private Mortgage Insurance. PMI protects the lender against a loss in the event of default by the borrower. You can ask your mortgage company to remove the PMI if you’ve paid 20% of the loan. However, you will be asked to provide an appraisal.
Most lenders require you pay real estate taxes and insurance on a monthly basis. This cost is included in your monthly mortgage payment, placed in an escrow account, and paid out by your mortgage company.
Before you make a formal offer, you need to make sure the home is priced correctly. You don’t want to overpay, do you? Typically used when selling a home, a comparable market analysis (CMA) lists the recent sale of nearby homes, including how long each stayed on the market, how close the asking price was to the actual sales price, and then compares the houses with the one in question. If you’re using an agent, they will do this for you to help you determine a realistic price. There are several online appraisal services that can provide you the same information as a CMA.
As you go through this process, remember that everything is negotiable, and everything should be in writing. You should be very specific when you prepare your purchase offer, and the seller should be equally specific when they issue their counteroffer. Don’t forget to think ahead in terms of the top price you’re willing to pay. It’s a very emotional time and making some decisions early on is a good idea. Other tips include:
Earnest money proves to sellers that you’re serious. After all, they’re going to take their home off the market on your behalf. Earnest money is typically between 6-10% of the purchase price, but less is possible. The money should be held by an attorney or title company in escrow. Never give the money directly to the seller. Such a deposit does not mean you’re bound to the contract. Your full deposit is credited toward the down payment and closing costs.
Once your offer is accepted, it becomes a binding contract, so be sure to include the necessary contingencies. Contingencies are clauses that, if not met, will render the contract null and void. Common contingencies are the sale being subject to approved financing, the sale of an existing home and/or a satisfactory home inspection.
Great… you’ve made your offer. Now you need to have an expert “kick the tires”. A formal inspection determines if anything needs to be repaired or replaced. If you’re using an agent, they will arrange the inspection for you. If you’re on your own, make sure the contract indicates who pays for the inspection and whether you or the seller is responsible for any necessary work. The contract should also include a contingency in case the inspection reveals any repairs that cannot be resolved with the seller.
Licensed home inspectors inspect homes to determine what, if anything, needs repairing or replacing. Typical inspections may include…
The inspector will write up an inspection report with all minor and major defects itemized. Good inspectors will find minor flaws in nearly any home. It’s up to you to decide how important they are. It is also helpful to be present during the inspection. Inspectors often provide you tips on the maintenance and upkeep of the home and its systems.
Some people can get confused about this area of the real estate transaction, but with a little knowledge and guidance, it’s easy to understand. We’ll break down the basics for you.
Title Insurance: When you buy a home, a title company examines the chain of titles (previous owners) to insure that there are no problems with obtaining clear title to the property. Parties other than the current owner of the home may have rights to it for things such as mortgages, liens due to unpaid taxes, lien claims to those who the owner owes money, etc. As a new owner, you may know nothing about these risks, but you are still vulnerable to such claims on your property. A deed is not sufficient protection. That’s why title insurance is necessary.
It is very common for title companies to also handle the escrow portion of the transaction, meaning they serve as a neutral party to exchange funds and make sure both parties adhere to the agreed upon terms of the contract.
The Appraisal: Lenders require appraisals to confirm that the home for which they’re providing you a loan is in fact worth the amount you’re paying. Appraisers are independent agents normally hired by the lender, however, you may have a choice. The fees appraisers charge vary and are typically built into your loan costs. Your lender may also require a Location Survey that certifies the house is within the boundaries of the lot. The lender often selects the surveyor, but again, you may have a choice. The lender usually pays for the cost of an appraisal. Then it’s factored into the buyer’s closing cost.
Homeowner’s Insurance: If you are not assuming the seller’s homeowner’s policy, you will need to buy your own. The title will not be transferred until you can prove you have the home covered by insurance. This protects you from things such as fire, flood, tornados, or any other damage to the home. You may also consider additional levels of insurance to cover natural disasters that are more prevalent in your area.
Escrow and Closing: Congratulations! You are just steps away from being in your next home! You’ve purchased your home, but you don’t actually own it yet. You need to close on it. This is known as closing or settlement.
The escrow agent conducts the closing and is often affiliated with the title insurance company. Their job is to ensure the buyer obtains a clean title, the lender obtains a good mortgage, that the costs of the transaction are paid, the seller’s mortgage is paid off, and that the seller receives their proceeds.
The escrow agent prepares a closing statement that outlines what the required funds are, who’s paying and where the funds are going. They will not disburse funds until they can guarantee that the above-noted items have been taken care of. Closing costs usually run between 3-8% of the purchase price.
There’s nothing like homeownership. The pride and stability you feel are hard to describe when you come home to a place that you know is yours.