You've decided to purchase a new home.
Now you'll have some questions to answer.
- Who'll be your real estate agent?
- Have you saved enough money to cover the expenses?
- Will you be able to borrow enough to purchase the home you want?
- What type of home do you want?
- Where do you want to live?
- Do you have to sell a home in order to buy?
- And many more!
Selecting a Real Estate Agent
Selecting a real estate agent who'll represent you throughout your purchase is very important. You can ask friends and family for recommendations. If you use home search websites like Zillow you'll find recommendations there. It's not an easy decision to make. You'll need to speak to agents and find the person with whom you're most comfortable. You should also read reviews of that person's work with other clients.
That person should:
- Listen to you when you describe the home you want and need,
- Search for the homes that best match your requirements,
- Give you time to visit enough homes so that you can make a good decision when you find the right one,
- Assist you when the time comes to make an offer,
- Negotiate for you with your interests in mind,
- Think creatively when assisting you so you have the best chance to have your offer accepted,
- Provide recommendations of highly qualified professionals, mortgage officers, home inspectors, attorneys, etc. throughout the home buying process,
- Help to close the deal for you,
- Assist with inspections & appraisal and providing other needed advice through and after closing.
It's important to note that in most cases the agent who represents you in the purchase of your home is compensated by the seller at closing. In certain cases the agent will not be offered compensation by the seller. In those cases the compensation for the agent's services would be negotiated between you and the agent.
Calculating Your Budget
- Your Total Financial Worth - The first thing you need to document is the amount of money you’ll be using to make all payments related to your home purchase. That includes your available monies, monthly salary, additional work income, income from securities and any other income that you receive. You’ll subtract all your costs from your available monies and income.
- Costs Prior to Contract - Once you’ve found the home you want to buy you should schedule a home inspection. The cost of home inspection varies. There are a number of optional additional tests that you may choose to run - water testing, oil tank testing, septic testing, radon testing, and others. Each of these has an associated cost.
- Earnest Money Down Payment - At contract signing most buyers are required to place earnest money down. It’s a deposit that’s held in escrow until closing. It can be refunded in the event that the contingencies spelled out in the contract are not met. It is applied to the purchase price at closing.
- Mortgage Down Payment - Depending on the type of mortgage you’ll be getting, a down payment may be required. The down payment is a percentage of the purchase price that the buyer pays in full before closing. The larger the down payment, the smaller your mortgage will be.
- Regular Costs - The regular costs will include your monthly mortgage payment, insurance and taxes.
- Closing Costs - At closing you’ll be required to cover various costs including fees for loan origination, appraisal, credit report, interest, hazard insurance, mortgage insurance, taxes, assessments, title insurance, escrow and settlement costs, notary, attorney, recording and more. It’s wise to be prepared with approximate 5% of the purchase price of your home to cover these fees at closing.
Preparing for Your Home Search
- Determine How You’ll Pay For Your New Home - If you’re not one of the lucky few with the cash on hand to purchase your new home you’ll need to get a mortgage. This is how most homes are financed. A mortgage is an advance of funds from a lender to cover the purchase of your new property. You (the mortgagee) are obligated to pay the bank a percentage of the money lent each month until the entire amount has been repaid.
- Cover the Down Payment and Closing Costs - Even if you’re planning to pay for your home by getting a mortgage, there will still be costs that you’ll need to cover with available cash. Remember that you can’t borrow these funds without its effecting the amount your bank will lend you to make your home purchase.
- Determine Your Budget - Analyze how much you’ll be comfortable paying monthly for home mortgage and maintenance costs, plus all your other living expenses.
- Organize Your Financials - You’ll need to accumulate documents to furnish your mortgage bank with the required financial information regarding your income, expenses and obligations.
You should have the following:
- Two most recent pay stubs,
- W-2s for the last two years,
- Federal tax returns for the last two years,
- Last two months’ bank statements,
- Long-term debt information (credit cards, child support, auto loans, installment debt, etc.)
Starting Your Home Search
- Choose Your Mortgage Loan Officer - Ask me for a recommendation for mortgage loan officers. Your agent can direct you to institutions that specialize in mortgage loans to ensure that you get the best advice and treatment.
- Get Pre-Approved - Request a Pre-Approval Letter from your chosen mortgage lender. Since you’ve already prepared all the documentation you’ll be prepared when you’re asked to provide your financials. Continue to check your email and make yourself available by phone in case your loan officer needs clarification or additional information. This is important because when you find a home that you’d like to buy you’ll need to submit the Pre-Approval Letter with your offer. You may need to provide a pre-approval letter in order to get a confirmed appointment to visit a home so don't put this off.
- Start Your Home Search Online - Today you have a variety of online services to use to find homes that match your criteria. Zillow.com, Trulia.com, Realtor.com and others are all good services. The MLS (Multiple Listing Service) is the resource your agent will use to research homes for you.
- Make Time to Visit Homes - Scheduling appointments to visit the homes you want to see requires planning. Homeowners require advance notice, often 24-48 hours, to make their homes available to you. You and your agent will need to prepare together. The home search process sometimes requires many home visits before the right one comes along.
Finding the Perfect Home
Prioritize for Success! What’s most important to you besides price & taxes?
Now that you have all your financial documents together, you’ve been pre-approved for a mortgage and you know how much you can spend on your home, you’re ready to get on the road with your agent to see available homes.
- Architectural Style
- Swimming Pool
- Out Buildings
- Size and Type of Yard
- Type of Road
- Convenience to Employment
- Convenience to Transportation
- Convenience to Shopping
- Convenience to Daycare
- Nearby Recreational Facilities
- Nearby Medical Facilities
- Nearby Police ad Fire Protection
- Appearance of Other Area Houses
- House Value Relative to Area
- Floor Plan
- Room Size
- Bedroom Locations
- Living Room
- Family Room
- Bonus/Game Room
- Dining Room
- Doors & Windows
- Kitchen Updates
- Bathroom Updates
- Age of Appliances
- Type & Condition of Floors
- Condition of Roof
- Other Condition Issues
Take some time to consider all of these and other features that are important to you. Once you’ve described your dream house to your agent, you’re ready to start your search.
Making an Offer
Once you've decided to purchase a specific home, you'll have to submit an offer. That offer will include the price that you'd like to pay, the items to be included and excluded, the contingencies (e.g. home inspection, septic inspection and water testing if applicable, termite inspection, radon testing, etc.) If any unusual conditions must be met (e.g. resolution of obvious repair issues, below ground oil tank pressure testing) those should be included among the sale contingencies. Even if the house is listed "as is" you should have these inspections done.
"As Is" Listings - When a seller includes the term "as is" in the listing it generally suggests either that the seller doesn't have the money to do any needed repairs or that the seller doesn't want to wait for a closing where repairs will be required. Nor will the seller want to wait for the inspections to be done to accept an offer. In that case, the seller will often favor a cash offer over one that requires lender funding.
The Market - Depending on the market - "seller's market" or "buyer's market" - your offer should be calculated to be accepted by the seller at the right price for you. In a "buyer's market" you may be able to get an offer accepted below the asking price. In a "seller's market" you will probably have to go over the asking price in making your offer. In a "seller's market" you may experience a bidding war. If there are multiple acceptable offers, the seller may ask for another round of offers from those buyers who made acceptable offers. In that case they will generally ask for your "highest and best" offer by a certain deadline. You'll have the opportunity to increase your offer. In that case you have to consider a few things.
- How much do you want the house?
- Are there other listings that you like as much in the location you've selected?
- How does your agent feel about the price of the house compared to other similar houses?
- What is your timing? - Are you in a rush for any reason - Is the school year starting?, Do you have a job move coming?, Is your lease ending?, etc.
- Will the house appraise? - If not, are you willing to increase the amount of your cash down payment?
- What is the condition of the house? If it requires repair will you have the remaining funds necessary to make the changes and repairs you have planned?
Going from Accepted Offer to Contract
Selecting an Attorney - Some states require that contracts be written by attorneys. In other states the seller's real estate agent provides you with the contract or binder. In any case, you should have a real estate attorney who's familiar with real estate in the area where your new home is located. That person will be able to protect you from signing a contract that isn't good for you.
That person should be readily available to you. You'll need to count on your attorney's dedication to your success in the purchase of your home. Select an expert who has your interests at heart. Once you've signed the contract to purchase your new home, you'll be on the road to satisfying any contingencies that are detailed in your contract.
Good Faith Deposit - It's important to observe the deadline for your Good Faith Deposit. In some states the date is specified in the binder that you sign at the time of the accepted offer. The funds should be placed in an escrow account opened for you by your attorney. Sometimes it's held in escrow by the seller's attorney or agent. That money is held in escrow until the proper disbursement is determined. At closing the funds are disbursed to the seller. If the sale does not go to closing your attorney will advise you about the disbursement of the funds.
Home Inspection - If you aren't familiar with reliable inspectors your real estate agent will be able to make recommendations. Home inspection generally costs between $400.00 and $750.00 depending on the size of the house and the complexity of the inspection. It can take from 2 to 5 hours. During the inspection the inspector will do a physical examination of the condition of the foundation, the exterior of the house, the roof, the chimney, the gutters, drainage, foundation plantings, exterior plumbing, condition of paving, decks and patios, and more.
Inside the house the inspector will test that all appliances work correctly. He'll look for any signs of leaks, cracks, structural imperfections, dangerous conditions, code violations (e.g. smoke & carbon monoxide alarms and more. If possible, you and your agent should make every effort to attend the home inspection. That will give the home inspector the chance to show you any findings that are especially significant. Even if you're not able to be there the inspector should be expected to send you a thorough report of the inspection findings. You'll use the inspection report to justify any offer adjustments that you request in your negotiation. Many lenders will ask for a home inspection report before agreeing to lend the money you'll need for the purchase. If you're buying the home for "cash" this won't be an issue for you.
Pool Inspection - Pool inspection is not within the scope of a home inspection. If you feel unsure of the condition of the pool it's advisable to have a pool expert inspect the pool to give you advice about any needed repairs.
Septic Inspection - If the home you're purchasing has a septic system you should require a visual septic inspection. That generally costs between $350.00 and $500.00. A different inspector will be needed, someone with specific septic experience. The septic inspection involves digging to uncover the lid on the septic tank and the leaching fields. Before the septic inspection ask the seller when the septic was pumped last. You should advise the seller not to pump the tank before the septic inspection. If the tank has been pumped recently it is impossible to determine how well the septic system is performing.
Before the septic inspection it's always advisable to check with the local health department to see if septic plans are available in their files. Locating the septic tank and fields is not always easy. Once the tank and fields are uncovered the inspector will be able to comment about the type and condition of the septic system. If repairs are needed, your septic inspector will make recommendations and may be able to make the repairs as well. Your septic inspector will provide you with a report for your records.
Below Ground Oil Tank Inspection - If there is a below ground oil tank, it's always advisable to have the tank tested, irrespective of the age of the tank. If after testing it's determined that the tank has not leaked you can have the tank insured by your oil provider. If the tank has leaked a report must be filed with the authorities and a toxic waste removal must be conducted according to current laws. If the tank has already been removed and replaced, make sure to research whether or not it was done with a permit and proper inspection by the local health department.
It's important that you have inspections done as soon as possible. The inspections may reveal repair and replacement requirements. Your real estate agent will work with you and the seller's agent to bring both sides to agreement. Once that negotiation is completed you'll be ready to go to contract. Remember, you're not protected until you and the seller have signed a contract.
Securing Your Financing
Applying for Your Mortgage - Your fully executed contract must be provided to your lender to kick off the mortgage process. Selecting a lender requires serious attention. You'll want to work with someone who can offer you a wide selection of mortgage products. Your mortgage lender should be someone you're comfortable working with. There are certain lenders who specialize in mortgage products. It's a good idea to work with a specialist in mortgage lending.
Your lender will only lend you money if your credit is strong. They will check your credit, carefully reviewing your financial history, income, tax returns, pay stubs and long-term debt (such as credit cards, auto loans, child support, etc.) to ensure that you will be able to repay the loan.
If you’re like most people, you may have blemishes on your credit report. Here are some ways that you can remove the mistakes that tarnish your credit and succeed in your efforts to be approved for a mortgage.
- Pay your bills on time and in full.
- Only use 2 to 4 credit cards.
- Keep a checking account and a savings account.
- Keep documentation of all large deposits.
- Stay at the same job, the longer the better.
- Notify your lender of all income changes.
- Don't apply for any new credit of any kind.
- Don't consolidate your credit card balances to 1 card.
- Don't overcharge on your existing credit cards.
- Don't change or quit your job.
Now that your credit is in good shape you’re ready to apply for a mortgage. Next you’ll need to decide on the type of mortgage to get.
Note: The guidelines set forth by the Consumer Financial Protection Bureau have ruled that multiple requests for the same type of account within a 45-day period count as just one inquiry. Therefore, there is no harm in shopping around when it comes to finding the right home loan.
Types of Mortgages - There are so many types of mortgages and mortgage products and programs. Ask your mortgage loan officer about all of the options and how they effect your
closing costs and long-term costs. Discuss how the amount of your down payment can effect funding fees and insurance costs.
- Fixed Rate Mortgage - This is the traditional method of financing a home. The interest rate stays the same for the entire term of the loan - usually 15 to 30 years. This means that the interest and the principal portions of your monthly payment remain fixed. With a fixed rate
mortgage, your payments are stable and predictable, but initial interest rates tend to be higher with a fixed rate than with an adjustable rate.
- Adjustable Rate Mortgage - The interest rate on an Adjustable Rate Mortgage is linked to a financial index, such as a Treasury Security, so the interest rate fluctuates with changes in market conditions. With an adjustable rate, your payments will vary over the life of the loan. Most Adjustable Rate Mortgages have a lifetime cap on the interest rate increase to protect the borrower. The advantage of a Adjustable Rate Mortgage is that it offers lower initial payments and this makes it easier for the buyer to qualify. Some Adjustable Rate Mortgages may be converted to Fixed Rate Mortgages at specified times, usually within the first five years.
- FHA Mortgage - FHA mortgage loan types are insured by the government through mortgage insurance that is funded into the loan. If you’re a first-time home buyer you’re an ideal candidate for an FHA loan because the down payment requirements are minimal and FICO credit scores do not matter.
- VA Mortgage - This type of government loan is available to veterans who have served in the U.S. Armed Services and, in certain cases, to spouses of deceased veterans. The requirements vary depending on the year of service and whether the discharge was honorable or
dishonorable. The main benefit is that the borrower does not need a down payment. The loan is guaranteed by the Department of Veteran Affairs, but funded by a conventional lender.
Going from Contract to Closing
Once the contract has been fully executed and your earnest money deposit has been delivered to your attorney to place in escrow you’ll begin working with your mortgage officer to complete the mortgage process and move to closing.
- Schedule the Appraisal - When your bank receives your fully-executed contract the appraisal will be scheduled. The appraisal report takes about a week to reach your bank.
- Getting Clearance to Close - Before you can purchase your new home your attorney and bank will do lots of work behind the scenes. A title company will be employed to determine whether or not there are any liens against the home. If there isn't an available survey, you will need
to contact a surveyor. That cost can be considerable. Your bank will do necessary additional review of your credit information. Once that’s completed your mortgage officer will inform you that you are clear to close.
- The Closing - The Closing is the meeting where the sale transaction is finalized. During the closing, settlement procedures take place. Closings can be handled in person or remotely.
- Seller’s Disclosure Statement - Sometimes the seller will present a Disclosure Statement. This statement includes the age and condition of the property and provides a list of additional features. It also details any known condition issues. Frequently sellers choose an option provided by NY State Law. They may pay the buyer $500.00 at closing in lieu of the Property Condition Disclosure.
- The Settlement Procedure - The settlement procedures include calculating and paying for the costs of various settlement needs, signing all the appropriate papers, the transaction of money, and the title change of the property.
Preparing for Moving Day
The move to your new home includes many tasks. Some are tasks related to the move out of your current home. Others are tasks related to the move into your new home. All are very important and have to happen at the right time.
- The Final Pre-Closing Details - Once you’re sure of your closing date you should contact the companies providing your services to arrange electric meter and water meter (if applicable) readings. You’ll also need to have your oil and/or gas company (if applicable) measure the amount of oil or gas remaining in the tanks.
- Moving Out - Next you should remember to set up accounts if you will be purchasing electricity, water, television, internet, phone and other services from new companies. Make the necessary arrangements to move your belongings to your new house.
- Interim Accommodations - In case your closing is delayed, you should have interim accommodations as a backup for the storage of your belongings and in case you need a temporary residence.
- Moving In - If you’ll be using the same companies for your services, remember to arrange to pick up the billing for service at your new location promptly on your moving day. Contract with oil/gas supply, municipal water supplier, if needed. Move cable TV, Internet access, etc. Arrangements should be made with the seller to coordinate transfer of billing from the seller's account to your new account. This should be done so that no services are disconnected. If services are disconnected, there could be costs associated with reconnection.