The first step toward homeownership is determining how much home you can comfortably afford. Note that I said “comfortably” afford. As we all know now, many struggling homeowners today bought homes that they could obtain financing for, but that they could not realistically afford. Responsible home ownership begins with creating a budget and realistically determining the monthly payment that you can live with.
In today’s market, you will also need to have money saved for the down payment – usually 5% of the purchase price – and your closing costs. The amount of your closing costs will vary depending on the home’s purchase price, type of loan you choose, the interest rate you qualify for and other factors. Your mortgage professional will give you a written estimate of closing costs when you make application for the mortgage.
Once you have the budget and money for your down payment and closing costs in hand, it’s time to contact a mortgage professional to begin the approval process. Many lenders can do this over the phone or will meet with you in person to take the application if you’d prefer. It’s a good idea to talk to friends and family to see if they can recommend a mortgage professional. It’s also good to do some shopping around to find the best deals available. For example, many credit unions offer no closing cost programs and a local bank of offering a program with some closing costs waived and no payments for 3 months after closing. Everyone’s situation is different, so look for the deal that works best for you.
Once you’ve made application and been pre-approved for the mortgage, let the house hunting begin! To gain access to most homes for sale, you will need to work with a Realtor. Again, asking friends and family for recommendations is the best way to go here. Be sure to interview the Realtor and make sure that you feel comfortable with him or her and that they have your best interests at heart. Your Realtor will be critical in successfully negotiating and closing the deal for your new home. You need to have confidence in his or her ability to get the job done for you and understand your unique needs.
To start the home search, you need to have some basic criteria in mind. Obviously, location is the first thing we think about. Do you want to minimize your commute to work or would it be more important to have state-of-the-art amenities in a gate community that is further away from your workplace? Think this through quite carefully and be sure to get familiar with the neighborhoods you are considering in your home search. Once you buy a house, you need to plan to be there for several years in today’s market and want to make sure it is located in a place where you will be happy.
Another consideration is the style of home. Vintage or new construction? One-story or two? Attached patio home or condo or would a detached traditional residence suit you better? Really think about things like noise, privacy and outdoor spaces if you are considering buying an attached property. Think about maintenance aspects of your home purchase as well. New construction with energy efficient features and low maintenance might work better for someone with a busy life and limited maintenance skills than a turn-of-the-century Victorian home.
Now think about the specific features you need in the home. How many bedrooms and bathrooms do you need? Do you need a garage, a pool, a home office? Make a wish list and share it with your Realtor. We can’t always find you everything you want, but we can usually find most of the features that are important to you. Be realistic, though. Ask your Realtor what reasonable expectations are for your price range and location. Maybe granite countertops are within your budget, but the swimming pool is not. Don’t be shy about asking your Realtor.
Your Realtor will take your criteria and perform a search in the Multiple Listing Service (MLS) to find properties that match your needs. Usually, the results of the search will be emailed to you to view online. You should be able to see detailed information about the property, a map with directions and photos of the property online. Once you have reviewed the homes online, schedule an appointment with your Realtor to go take an in-person look at the homes you like the most. Often it is helpful to drive by the homes first to determine if the location and neighborhood will work for you.
Your Realtor will show you the homes you select and answer questions or concerns you may have. Usually, your Realtor will consult information in the MLS or may have to contact the Seller’s agent to get all of your questions answered. Once you identify a promising property, your Realtor should also be able to research recent sales activity of similar homes and give you some guidance on the real value of the property. Doing good research at this step is key to successfully negotiating an offer on the property, particularly if you are offering less than asking price.
Based on the research, your Realtor will help you prepare the offer. Terms of the offer to consider are price, closing date, financing terms, inspections, appraisal and other terms important to you and the Seller. In general, you always want clauses in the offer to ensure that you are protected in the event that your financing falls through, the property doesn’t appraise for contract price and that you have the right to approve of the inspections before proceeding with the closing. Remember that whatever you put in your offer is binding once the offer is accepted. Don’t expect the Seller to agree to changes after the fact. Be sure that when you agree to close on the 30th of the month that you are ready, willing and able to close on that date. Too many times these requests for changes after offer acceptance can create conflict among the parties in the transaction. Careful thought and planning can avoid that whole scenario.
ALWAYS do a home inspection. It is worth the few hundred dollars for buying with peace of mind that the home is in good condition. Research your home inspector thoroughly. I recommend using an inspector that is a member of the American Society of Home Inspectors and a specialist in the type of property you are buying. If you are buying an older home, seek out an inspector that knows all about older homes. Same for new construction. Seek out an inspector that is knowledgeable about new building methods and better yet, can inspect the construction of the home each step of the way as it is being built.
I strongly encourage you to have the property inspected again after any necessary repairs are completed. This ensures that the repairs were in fact completed and that they were completed correctly. Be sure to ask the Seller in the contract for receipts for all work so that you know which vendor did each repair and have a way to reach the vendor should any problems arise at a later date.
Once inspections, appraisal and your mortgage loan application are completed and approved, it’s time to prepare for the closing. Expect to bring a photo identification and a certified check with the funds you need to the closing. Don’t be surprised if both Buyer and Seller and their agents are all at the closing table together. If you are not comfortable having the other party in the transaction there, let your Realtor know so that arrangements can be made. When you are at the closing table, expect to sign lots and lots of paperwork. Be sure to ask questions when necessary and let the closing agent know if things are moving too fast or too slow for you.
Once the closing is completed, you are officially a homeowner and the joy of moving into your new place begins!
Keep an eye out for your deed to arrive in the mail at your new address within the next 6 weeks. Typically this will be mailed from the closing agent, so be sure to jot down the name and phone number of the closing agent in case you don’t receive the deed or have a question after the closing. Another thing to look out for will be your property tax notice. Read it carefully to determine if you need to pay the property tax or if the bill was sent to your mortgage company and the taxes are paid by them from your escrow account.
You’ll also want to look for notices from your homeowner’s insurance company with your policy documents. Keep these in a safe place in case of emergency and be familiar with the terms of your policy.
Sometimes after the closing questions may arise. Don’t hesitate to contact your Realtor for answers or advice any time.
