8 Steps to Buying Your Home!
Based on the Book “Your First Home” by Gary Keller, with Dave Jenks and Jay Papasan, they highlight the 8 Steps for buying your next home, which is the proven path to home ownership!
Step 1: Decide to Buy
Making the decision to buy your first home will be one of the biggest and best decisions you could ever make. Value appreciation, tax benefits, and equity buildup are just a few of the reasons why home ownership is a great investment! Here we will highlight some of the benefits to owning a home, and list some of the common fears about buying a home.
Fear: I don’t have enough money for a down payment.
Fact: There are always a wide variety of down payment options available.
You may have heard about the 20% down payment rule in order to get a mortgage for a home. This is seldom true. There are always legitimate and sound financing options available to choose from. As a first-time buyer, options are always available that can require as low 5% or less. Don’t let this fear delay your purchase and all the financial benefits it comes with!
Fear: I can’t buy a home because my credit isn’t very good.
Fact: There are always a wide variety of down payment options available.
You may have heard about the 20% down payment rule in order to get a mortgage for a home. This is seldom true. There are always legitimate and sound financing options available to choose from. As a first-time buyer, options are always available that can require as low 5% or less. Don’t let this fear delay your purchase and all the financial benefits it comes with!
Fear: Buying a home seems way too complicated!
Fact: Buying a home is complicated, but that’s why you have help!
Buying a home is never a simple process. That’s why you have a team of professionals ready to guide you through the process each step of the way! From your agent and their admin staff, to your mortgage officer. Just know that you don’t have to know everything. We will help educate you throughout the entire process!
Benefits of Owning a Home
- Value Appreciation
- Equity Buildup
- Tax Benefits
Over time, the value of your home tends to go up. Historically, home prices have increased faster than the rate of inflation-over the past thirty years, inflation averaged 3 to 4 percent a year, while home prices went up on average 4 to 5 percent. Given time, when you sell your home, there can be an opportunity to make money from the sale of your home.
Your home equity is the portion of your home’s value that you actually own. That is, it’s the money that would go into your pocket after you sold it, paid off your mortgage, and handled any selling expenses. There are two ways to build equity in your home.
• Paying Down Your Mortgage. Over time, as you pay back the principal on your mortgage, you start to own more of the home’s value. There are many ways to pay off your mortgage faster. For example, choosing a 15-year mortgage, compared to a 30-year.
• Appreciation. Highlighted above, appreciation is the second part of your home equity. Over time, appreciation allows you to sell your home for more than what you purchased it for.
The amount of the mortgage that you pay towards the interest is tax deductible. The bulk of your payments in the early stage will go towards the interest owed.
Just remember that you don’t have to know everything. The rules of real estate are always local, as laws differ state-to-state, and city-to-city. Know that the best deals are usually a Win-Win, and that price and value are not the same during the buying process. There is never a wrong time to buy the right home. The key is finding a good buy and taking the time to carefully evaluate your finances.
Back to Top
Step 2: Hire Your Agent
When you choose to work with us,” not only do you get a top Realtor representing your interests, but the whole team! We stay on top of the market conditions, and know the market and surrounding areas inside and out!
We will:
- Educate you about the current conditions of the market.
- Analyze what you want and what you need in your next home.
- Guide you to homes that fit your criteria.
- Coordinate the work of other needed professionals throughout the process.
- Negotiate with the seller on your behalf.
- Check and double-check paperwork and deadlines.
- Solve any problems that may arise.
Back to Top
Step 3: Secure Financing (Pre-Approval)
Steps to Fund Your Home Purchase
- Choose a Loan Officer and get pre-approved.
- Determine what you want to pay and select a loan option
- Submit to the lender an accepted purchase offer contract
- Get an appraisal and title commitment
- Obtain funding at closing
Choose a Loan Officer and get Pre-Approved
We recommend our buyers get pre-approved before beginning their home search. Knowing exactly how much you can comfortably spend on a home reduces the potential frustration of looking at homes beyond your means. You will want to choose your loan officer and make a loan application. Most applications will require the following:
- Buyer to provide pertinent documentation including verification of employment
- Credit report is requested
Once you complete the application, the loan officer submits it to their underwriting department. The underwriter will verify all your submitted information, such as your income, debt, and so forth, and then approve you for a specified home loan amount!
Lender FAQ’s
What’s the Difference between Prequalification and Pre-Approval?
You really want to go beyond prequalification and seek pre-approval. Pre-approval is an actual letter of verification based on your finances that states you are pre-approved for a loan at a certain amount. Prequalification is a best-guess estimate based on your profile, not a guarantee; pre-approval is a firm commitment by your lender for a certain loan amount in writing. This is really important as you go out and look for a home, especially if you end up making an offer on a home that garners multiple offers. The pre-approval letter is your ticket to making a more earnest offer on a home and that you might encourage the seller to work with you and your offer over the others.
Do I Have to Work With Only One Loan Officer or Lender?
Absolutely not. You’re under no contract, so you can change at any time if you wish to explore your lending options elsewhere.
Do I have to Use the Entire Amount I Get Pre-Approved For?
Not at all. You borrow the loan amount you need and are comfortable with. You may prefer to borrow less than the amount that you are pre-approved for.
Determine what you want to pay and select a loan option
Mortgage loans now come in more varieties than ever. However, we want to point out that the differences about them boil down to three basic factors
- Down Payment
- Interest Rate
- Term
A traditional mortgage generally requires the buyer to place a down payment of 20% of the purchase price, but today, most loans require only 3.5%-5%. However, that 20 percent mark (which in lending-land is called “having an 80 percent loan-to-value ratio” or “80 percent LTV”) has its advantages. For one thing, it eliminates the need of paying for private mortgage insurance, or PMI, which lenders require of buyers who borrow a higher percentage. Plus, the more you put down, the less you have to borrow-that means a lower monthly payment, as well as paying less interest over the life of the loan. A bigger down payment can also mean getting a great interest rate.
Having a great interest rate can save you thousands of dollars over the life of your loan, and it will also reduce the amount you pay each month, or allow you to buy a more expensive property with the same payment. There are 3 factors that determine your interest rate.
1. Current Interest Rates Available
2. Your Credit History
3. The Kind of Mortgage you Select
Another major factor, a mortgage loan’s term, will determine how much interest you pay over the life of a loan and how quickly you build equity by paying down the loan. Most buyers will choose the thirty-year mortgage, however choosing shorter terms like a fifteen or twenty year, are good for people who want to build equity quickly and who can afford a higher monthly payment.
Even though all mortgage loans include these three factors, you will want to combine them in a way that fits your financial needs. Remember, the type of mortgage you choose will determine the following:
- How much you pay up front
- How much you pay each month
- How much interest you pay over the life of the loan
Submit to the lender an accepted purchase offer contract
Once you have an accepted offer on a home, you will submit it to your lender on a specific property at a specific price. This will inform your lender as to exactly how much you actually need to borrow. The next step is to get an appraisal on the home and make sure you will be able to receive a clear title.
Get an appraisal and title commitment
What’s an appraisal for and who does it?
The appraisal verifies the value of the home for the lender. The lender will only give you a loan based on the appraised value. You want the home to appraise for at least what you offered to pay for it. An appraiser is the certified professional hired by your lender to make a fair market assessment of the value of the property based on several factors.
What is a clear title?
The title company involved in the transaction will check to see if the property has clear title. To make sure the title is clear and can be conveyed, a title company has to confirm if any liens or unpaid claims have been placed against the property. A title company also assures you that the sellers are the true and only owners of the property and have the full rights to sell it to you.
Obtain funding at closing
Upon closing, the final step, your lender immediately agrees to a transfer of funds to the seller, and you now own your first home!
If your ready to apply for a mortgage, or would like to contact one for some questions,
Back to Top
Step 4: Find Your Home
We love helping buyers find their dream home. That’s why we work with each client individually, taking the time to understand their unique lifestyles, needs and wishes. This is about more than a certain number of bedrooms or a particular ZIP code. It’s about your life, and it’s important to us.
When you work with us, you get:
- Knowledgeable and professional REALTORS®
- Committed allies to negotiate on your behalf
- The backing of a trusted company,
We have the systems in place to streamline the home-buying process for you. As part of our service, we will commit to helping you with your home search by:
- Previewing homes in advance on your behalf
- Personally touring homes and neighborhoods with you
- Keeping you informed of new homes on the market
- Helping you preview homes on the Web
- Advising you of other homes that have sold and for how much
- Working with you until we find the home of your dreams
FAQ’s
How will you tell me about the newest homes available
After finding out exactly what type of home you’re looking for, we will set you up on “Home Buyer’s Scouting Report” or HBM. This website will give you complete access to all homes on the market, and will alert you by email when a home comes on the market that matches your criteria, which we put in. This site will only show homes that are active, and gets updated each day. If you don’t have access to the Internet or an email, we will check for you and inform you each day by phone if there’s a new home that matches your criteria.
Will you inform me of homes from all real estate companies
We will keep you informed of all homes. We want to help you find your dream home, which means we need to stay on top of every home that’s available on the market.
Can you help me find new construction homes?
Yes, our agents constantly work with builders, and can get you the information you need to make a decision. On your first visit with the builder, we will accompany you. By using our services with a new construction home purchase, you will receive the services we offer, as well as those provided by the builder, at no additional cost.
How does for sale by owner (FSBO) work?
Homeowners trying to sell their home without agent representation are usually doing so in the hopes of saving the commission. If you see a FSBO and want the advantages of our services, let us contact the owner for you and make an appointment. Most times the homeowner will work with an agent even though their home is not listed, since the agent is introducing a potential buyer to their property.
When do we go through the property again when our offer has been accepted?
Usually, we can notify the seller and schedule a convenient time to visit the property again. Immediately before the closing, we will schedule a final walk-through and inspection of your new home.
Once my offer is accepted, what should I d
Celebrate and focus on moving into your new home! You will want to schedule your move, pack items and notify businesses of your address change. We will provide you with a moving checklist to help you remember all the details. We will also give you a good faith estimate and HUD statement, which will indicate the amount you will need to bring to closing.
Back to Top
Step 5: Make an Offer
Now that you’re writing an offer, we want you to remember you’re a businessperson. You need to approach this process with a cool head and a realistic perspective on your market. The three basic components of an offer are
price,
terms, and
contingencies.
Price
What you offer on a property depends on a number of factors including its condition, length of time on the market, buyer activity, and the urgency of the seller. While some buyers want to make a low offer just to see if the seller accepts, this often isn’t a smart choice, because the seller may be insulted and decide not to negotiate at all.
Term
There’s a lot more to real estate offers than price. You and the seller have to agree on many details, such as when the deal will close, whether the seller will keep any of the décor (such as window treatments or appliances), and who pays for closing costs. These factors are called terms, and they give buyers and sellers additional flexibility in crafting a win-win deal. When it comes to terms, we want you to remember that everything is negotiable. There are six basic terms in a real estate offer. They are schedule, conveyances, commission, closing costs, home warranty, and earnest money.
Schedule- a schedule of events that has to happen before closing
Conveyances- the items that stay with the house when the sellers leave
Commission- the real estate commission or fee, for both the agent who works with the seller and the agent who works with the buyer
Closing costs- it’s standard for buyers to pay for their closing costs, but if you want to roll the costs into the loan, you need to write that into the contract
Home warranty- this covers repairs or replacement of appliances and major systems, such as the roof, plumbing, siding, or wiring. You may ask the seller to pay for this.
Earnest money- this protects the sellers from the possibility of your unexpectedly pulling out of the deal. It makes a statement about the seriousness of your offer.
Contingencies
Also called “conditions,” these clauses let you out of the deal if the house has a problem that didn’t exist, or about which you weren’t aware, when you went under contract. They specify any even that will need to take place in order for you to fulfill the contract. Some standard contingency clauses are financing, inspections, clear title, condition at delivery, and community restrictions. We will cover all of these during the contract.
When the offer is complete and submitted to the listing agent to present to the seller, the seller will then do one of the following:
• Accept the offer
• Reject the offer
• Counter the offer with changes
By far the most common is the counteroffer. In these cases, our experience and negotiating skill s become powerful in representing your best interests.
When a counteroffer is presented, we will work together to review each specific area of it, making sure that we move forward with your goals in mind and ensuring that we negotiate the best possible price and terms on your behalf. When you and the seller reach agreement and both parties sign the contract, that check you wrote as earnest money will be deposited into an escrow account. An escrow agent is a neutral third party, often a title company or specialized escrow company that holds the deposit until closing day. The last task awaiting you before closing is to remove all the contingencies standing between you and a closed deal!
Back to Top
Step 6: Perform Due Diligence
When you buy a home, unlike other major purchases, you can’t return it if something breaks or doesn’t work like it’s supposed to. That’s why you will want to get a property inspection and homeowners insurance.
- Homeowner’s Insurance
- Property Inspection
A homeowner’s insurance policy protects you in two ways:
1. Against loss or damage to the property itself
2. Against liability in case someone sustains an injury while on your property.
We highly recommend you to have a property inspection on the home you are purchasing. It will expose all the secret issues a home might hide. So you know exactly what you are getting into before you sign closing papers keep the following in mind:
1. Your main concern is the possibility of structural damage. This can come from water damage, shifting ground, or poor construction when the house was built.
2. Don’t sweat the small stuff. It’s the inspector’s job to mark everything discovered no matter how large or small. Things that are easily fixed can be overlooked.
3. If you have a big problem show up in your section report, you should bring in a specialist and if the worst-case scenario turns out to be true, you might want to walk away from the purchase.
When you’ve decided what you need to have fixed in order to make the purchase, we will convey your requests to the sellers. Your options can include asking the seller to make repairs, or asking for compensation (either through reducing the sales price or through a cash repair allowance) so you can make them yourself. If negotiations prove difficult, you could decide you love the home enough to buy it, flaws and all. As a very last resort, the inspection contingency will let you walk away.
Once you and the seller reach agreement, and the contract and homeowner’s insurance policy are finalized, you’ll only be a few steps away from owning your new home!
Back to Top
Step 7: Close
The final stage is the lender’s confirmation of the home’s value and legal status, and your continued credit-worthiness. This entails a survey, appraisal, title search, and a final check of your credit and finances. We will keep you posted on how each is progressing, but your work is pretty much done. At this point, we recommend that you keep your finances tight and your credit clean and make sure you have the necessary documents and funds needed for closing day, which we will inform you of.
The final walk-throughWe will schedule a time for you to take a final walk-through of the property before closing day. This will allow you to make sure that all requested repairs have been made, and the home is clean. We can also make sure we have all the documentation that the repairs have been completed.
Transfer of title moves ownership of the property from the seller to you. The two events that make this happen are:
Delivery of the buyer’s fundsThis is the check or wire funds provided by your lender in the amount of the loan.
Delivery of the deedA deed is the document that transfers ownership of real estate. The deed names the seller and buyer, gives a legal description of the property, and contains the notarized signatures of the seller and witnesses.
At the end of closing, the deed will be taken and recorded at the country clerk’s office. It will be sent to you after processing. Closing day marks the end of your home-buying process and the beginning of your new life!
Back to Top
Step 8: Protect Your Investment
Throughout the course of your home-buying experience, you’ll probably spend a lot of time working with our team. There’s no reason to throw all that trust and rapport out the window just because the deal has closed. In fact, we want you to keep in touch.
Even after you close on your house, we can still help you:
- Handle your first tax return as a home owner.
- Find contractors to help with home maintenance or remodeling.
- Help your friends find homes.
- Keep track of your home’s current market value.
Attention to you home’s maintenance needs is essential to protecting the long-term value of your investment.
Home maintenance falls into two categories:
- Keeping it clean: Perform routine maintenance on your home’s systems, depending on their age and style.
- Keeping an eye on it: Watch for signs of leaks, damage, and wear. Fixing small problems early can save you big money later.
