Are you in the market for a new home? Perhaps this is your first home purchase, or maybe it has been some time since you’ve last purchased a home. No matter the reason, the following guide can shed some light on what to expect during the process of searching for and buying your next home.
STEP 1. GET PRE-APPROVED. (Cash buyers you can skip this step and move to step two).
Sometimes buyers are eager to start booking showings with their real estate agent or visiting open houses, but before you step foot into that house, you need to find a reputable lender to help you with your purchase.
What is your credit score? What is your debt to income ratio? How long have you been working for your current employer? Are you self-employed? Do you have some recent late payments or a bankruptcy that could affect your ability to purchase a home right now? A good loan officer can help you answer these questions and let you know if you are ready to buy now or not. Some loan officers can even advise you of what to do to increase your credit score, or help you take other measures to qualify for a home loan in the future.
Don’t forget to discuss your budget and monthly mortgage payment objectives with your loan officer. You may qualify for a monthly mortgage payment much higher than what you are comfortable paying. Ideally, tell your lender what your maximum monthly mortgage payment amount would be and have them calculate a maximum purchase price amount so you do not exceed your mortgage budget when out shopping for houses. Keep in mind that the purchase price of the home is not all you should be looking at. How much are the real estate taxes? Does this property need flood insurance? Are there HOA fees? If so, how much are they? These items can have a serious impact on your monthly budget and affect how much you can pay for the house.
Your loan officer will check your credit score, verify income, collect pay stubs and tax returns, etc.; so be sure you have these items handy. Once you’ve secured a pre-approval letter from your lender. You are ready to go house hunting!
STEP 2. FIND A BUYER’S AGENT. Once you have been given the green light by your loan officer, you’ll need a real estate agent/Realtor, to help you find and purchase your next home. A buyer’s agent represents you (the buyer), with your purchase of a home. Don’t make the mistake of calling numbers from yard signs of properties you see while driving around, or calling the listing agent directly. The listing agent (the agent selling the property), works for the seller and represents the seller’s best interests, not yours. Get someone to represent your best interests, not the sellers!
It’s best to meet with an agent that works in the area in which you wish to purchase a home and ask them to be your exclusive buyer’s agent. In most cases you will not pay a commission to your real estate agent to work for you as a buyer’s agent, the seller will pay his or her commission at closing.
When you meet with your buyer’s agent you will want to let your agent know about your needs and expectations. Ideally when do you want to move? What type of home are you looking for? What is your budget? Do you need a move in ready home, or are you okay with a fixer-upper? How many bedrooms and bathrooms do you need? What do you absolutely need in a home and what can you live without?
Be realistic about what you’d like and what you can afford. Sometimes those two items do not go hand in hand. A good buyer’s agent will be able to let you know the average price ranges for different neighborhoods and locations in the areas you wish to move to, and give you an idea of what you can expect. Your real estate agent will also be able to search the MLS for you to find homes that match your criteria and give you a list of all homes currently for sale.
STEP 3. SCHEDULE SHOWINGS AND TOUR HOUSES. After you have found a buyer’s agent and discussed your needs and preferences, it’s time to go out and find your next home! Your agent will call and set up the showings for the properties you wish to see. Please note that most homeowners, especially those homes that are still occupied, prefer to have a notice before a home showing. If you see a home online and ask to see it immediately, it may not be possible. Most homeowners prefer to have at least a few hours of notice (sometimes longer) to get the home ready and leave the home before showings.
Please note, if you are house hunting during a seller’s market, or it’s a new listing, or something you just simply must see, schedule the showing right away and tour it as soon as possible! There is no guarantee that the house will still be available tomorrow. In some cases, there may be multiple offers on a home that was just listed a few hours ago!
If you are touring multiple homes in one day, you may wish to take a small notebook with you and make notes as you tour the home. Jot down things to help you remember the home. What do you like? What don’t you like? Are there any questions you’d like to have answered? Do you see anything that might be a potential issue? For example are those water stains on the ceiling? If so, is that from a current issue with the roof, or was it a problem that was already resolved? Asking for a copy of the Residential Property Disclosure form, can help answer questions about any known issues with the home.
STEP 4. OFFER AND NEGOTIATION. Yay! You’ve made it this far! You’ve finally found the house of your dreams. Now what? Once you’ve decided on a home, it’s time to make an offer. Your buyer’s agent/Realtor will help you write a good offer and submit your offer to the listing agent.
Things to take into consideration when making an offer:
- Price. How long has the home been on the market? Is it priced right for the condition/neighborhood? A good real estate agent will look up comparable sales for the area/neighborhood to ensure the home is priced right. Be wary of putting in a “low-ball” offer. If you really want to house, you don’t want to lose out to someone else or risk offending the seller.
- Possession. Will you have possession of the house right after closing, or does the seller need some time to move out and/or find another home first?
- Contingencies. Many contracts have contingencies, which are conditions which must be met in order for the contract to be performed. If you are getting a loan to purchase the home, you will want to make sure you have a financing contingency in the contract so you are protected should your lender not be able to give you a loan or finance the property for you. Other common contingencies are the sale of a home and inspections. If you need to sell your current home first or plan to have an inspection, make sure your agent includes these contingencies in the contract for your protection.
- What stays? What goes? Want the brand new stainless steel fridge and stove you saw when you toured the house? Don’t just assume the seller is leaving them for you. Make sure it’s written in the contract. Find out what will stay and what the seller is taking with them. That goes for draperies, blinds, the decorative electric fireplace you saw in the bedroom, and the playset in the back yard. Making sure you know what will convey with the house, can help ensure you aren’t surprised later once you walk through the door after closing.
Once you’ve signed the written offer, your real estate agent will submit the offer to the listing agent. Typically the contract includes a time frame in which the seller must respond. Twenty-four hours is common, but this may vary greatly, depending on the market, region, and if the property is a privately owned home, or an REO property. If the seller does not accept the offer or respond with a counter offer within the allotted time frame, the contract will void.
The seller may accept the offer as is, if you’ve written a great offer, but a counter offer is very common. A counter offer basically accepts the offer you wrote with some changes to the contract. For example the seller may agree with everything except the price, and may wish to counter only the purchase price.
STEP 5. INSPECTION. Congratulations! The seller has accepted your offer! Now what? If you’ve included an inspection contingency in your contract then you will have the opportunity to have an inspection of the property. Contact a qualified inspector in your area that is familiar with the type of property you are purchasing and has been in the business for a while. If you do not know any inspectors, your buyer’s agent may be able to give you some recommendations.
Please be cautious with the dates in the contract related to your inspection contingency. You only have a limited about of time to have the inspection performed and work out any issues with the seller. For example, you may have just 10 days after contract acceptance to have the inspection done. There may also be a request to remedy clause as well, which is the timeframe in which you can negotiate with the seller to fix or pay for any inspection issues that may have been uncovered by the inspection.
The home inspection uncovered issues with the house or property. What can I do?
If the inspector finds serious issues with the property, such as termite damage, electrical or plumbing issues, or several issues that will cost you a lot of money to fix, you have a few options. One option is to ask the seller to remedy (fix) unsatisfactory issues uncovered from the inspection. Or, you could ask the seller to reduce the price of the home (by the amount it will cost you to have the issues fixed after you take possession), or ask the seller to contribute more money towards your closing costs, etc. and take care of the issues yourself after closing. As a last resort, if the issues with the home are just too significant, and/or the seller refuses to remedy the inspection issues, you may choose to walk away from the deal. Please note, that if you are canceling the contract due to an inspection issue, you MUST do so within the time frame allotted in the agreed upon contract.
STEP 6. APPRAISAL. If you are financing your home by giving a mortgage, your lender will require an appraisal of the property and the lender will send an appraiser to the property to evaluate the home’s value. Please note, that if you are obtaining an FHA loan or a VA loan, the appraisal process can be a little more detailed and lenders typically have stricter standards regarding the condition of the property.
If the property appraises for at least the value of the purchase price or greater, and no serious defects are found by the appraiser that would prevent the lender from lending on the property, then you are good to go. If, however, the home doesn’t appraise for the purchase price or greater, you may need to put down more money towards the purchase of the home, or renegotiate the purchase price with the seller.
STEP 7. CLOSING. After your lender’s underwriter has reviewed and approved of the appraisal and received and reviewed all required financial documents etc., you will be “cleared to close”. Once you get the green light from your loan officer, your real estate agent will schedule a closing where all documents and paperwork related to the purchase and sale of the property will be signed.
How closings are done, can differ depending on the region of the country in which you live. Here in Central Ohio, round table closings are most common. Round table closings occur when the buyers and sellers, along with their real estate agents and a representative from the title company, meet at the same time and place, to sign all of the paperwork for the sale and purchase of the property. Most closings occur at the office of the title company, or at the lender or real estate broker’s office.
Ready to buy a home? Contact Jennifer Kitchen at 740.243.9536 and let me help you buy your next property!