Ten Steps to Homeownership
TEN STEPS TO HOMEOWNERSHIP
Step 1: Are You Ready?
Do you know what you want?
Whether you are a first-time homebuyer or entering the marketplace as a repeat buyer, you need to as why you want to buy. Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not now have? Do you have a purchasing time frame?
Do you have the money?
Homes and financing are closely intertwined. (Financing is the difference between the purchase price and the down payment, commonly referred to as debt or the mortgage). The good news is that over the years new and innovative loan programs have evolved which require 5 percent down payment or less. In fact, a number of programs now allow purchasers to buy real estate with nothing down.
In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan). Several newly emerging loan programs not only allow the purchase of a home with no money down, but also underwrite closing costs.
As to closing costs, in markets where buyers have leverage, it may be possible to negotiate an offer for a home that requires the owner to pay some or all of your settlement expenses.
Is Your Financial House in Order?
Those great loans with little or nothing down are not available to everyone: You need good credit. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time.
Step 2: Chose Erin K. Morse as your REALTOR.
DID YOU KNOW THAT AS A BUYER’S AGENT, WE WORK FOR YOU FOR FREE! That’s right, you don’t pay us a commission. The seller pays our commission. When you list your house, you will pay a commission on it, and it is typically split between the listing agent and the selling agent.
What we can do for you
We can help you determine how much home you can afford. Often, a REALTOR can suggest ways to accrue the down payment and explain alternative financing methods.
We, in addition to knowing the local money market, also can tell you what personal and financial data to bring with you when you apply for a loan. We are already familiar with current real estate values, taxes, utility costs, municipal services and facilities, and may be aware of local zoning changes that could affect your decision to buy.
We can research your housing needs in advance through a Multiple Listing Service – even if you are relocating from another city.
We can show you only those homes best suited to your needs – size, style, features, location, accessibility to schools, transportation, shopping and other personal preferences.
We often can suggest simple, imaginative changes that make a home more suitable for you and improve its utility and value.
A REALTOR is sensitive to the importance you place on this major commitment you are about to make. Look for a real estate professional to facilitate negotiation of a win-win agreement that will satisfy both you and the seller.
Step 3: Get Loan Pre-Approval
Loan pre-qualification vs. pre-approval. One of the best ways to determine your budget is to have a mortgage lender pre-qualify you for a loan. Pre-qualification is different from pre-approval because it is only an estimate of what you’ll be able to afford. On the other hand, pre-approval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a specified amount.
The loan officer will carefully review your financial situation, including your credit report and other information. The lender will then suggest programs which most closely meet your needs. For instance, a first-time buyer may qualify for state backed mortgage programs with little money down and low interest rates. While a repeat purchaser (someone who has bough a home before) with more equity (money invest in the home) might want to get a 15 year loan and the lower overall interest costs it represents. Typically, first-time buyers opt for the traditional 30 year loan, with either a floating interest rate or a fixed rate of interest over the life of the loan.
Step 4: Look for Homes
Determine your wants and needs. Your goal is to find the right home for your family without falling in love with one that doesn’t suit your needs.
Location is crucial. How far are you really willing to commute to your place of employment? How close are you to the areas you will go for entertainment? Will your new home be next to a vacant lot or a commercial property? Even a picture perfect dream home can be a mistake if it’s in an undesirable location, and a poor location home can be a particularly bad choice if you anticipate reselling the home within a few years.
Step 5: Choose a Home
There’s no doubt that choosing a home is a big decision and you want to do it right. Together we’ll look at homes that fit your criteria in neighborhoods of your choosing. We will look at the sellers asking price, research the comps in the area and prepare your offer. Negotiating the price of the home is key.
The seller will:
- Accept the offer and create a contract;
- Reject your offer completely; or
- Suggest different terms and make a counter offer
No aspect of the home buying process is more complex, personal or variable than bargaining between buyers and sellers. This is the point where the value of an experienced REALTOR will work in your favor. We will present your written offer to the sellers and negotiate on your behalf.
Step 6: Get Funding
Often the cost of real estate financing is routinely greater than the original purchase price of a home (after including interest and closing costs). Because financing is soo important, buyers should have as much information as possible regarding mortgage options and costs.
Step 7: Make an Offer
How much? You sometimes hear that the amount of your offer should be x percent below the seller’s asking price or y percent less than you’re really willing to pay. In practice, the offer depends on the basic laws of supply and demand. If many buyers are competing for homes, then sellers will likely get full price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.
How do you make an offer?
The process of making offers varies around the country. In a typical situation, you will complete an offer that the REALTOR will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter offer.
Because counter offers are common (any change in an offer can be considered a counter offer), it’s important for buyers to remain in close contact with REALTORS during the negotiation process so that any proposed changes can be quickly reviewed.
How many inspections?
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections.
Step 8: Get Insurance
No one would drive a car without insurance, so it figures that no homeowner should be without insurance. The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.
What kind and how much? There are various forms of insurance associated with home ownership, including these major types: Title Insurance: Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes “lenders” policies, which protect buyers up to the mortgage value of the property, and “owners” coverage, which protects owners up to the purchase price. In other words, “owners” coverage protects both the mortgage amount and the value of the down payment.
Homeowners’ insurance provides fire, theft and liability coverage. Homeowners’ policies are required by lenders and often cover a surprising number of items, including in some cases such property as wedding rings, furniture and home office equipment.
Flood insurance: Generally required in high risk flood prone areas, this insurance is issued by the federal government and provides as much as $250,000 in coverage for a single family home plus $100,000 for contents. Local REALTORS can explain which locations require such coverage.
Home warranties: With new homes, buyers want assurance that if something goes wrong after completion the builder will be there to make repairs. But what if the builder refuses to do the work or goes out of business? Home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems such as plumbing and wiring for the first two years, and structural defects for up to 10 years.
Home warranties for existing homes are typically one year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.
Step 9: Closing
In practice, closings bring together a variety of parties who are part of the “transaction” process. For example, while the history of property ownership has been checked, it’s possible that the records contain errors, unrecorded claims or flaws in the review itself, thus title insurance is necessary. At closing, transfer taxes must be paid another claims must be paid and other claims must also be settled (including closing costs, legal fees and adjustments). In most transactions, the closing agent also completes the paperwork needed to record the loan.
What to expect.
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.
Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with the local property record offices.
What you need to do. One of the best parts of settlement is that buyers and sellers need to do very little. Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At losing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interest. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.
Step 10: What’s Next?
You’ve done it. You’ve looked at properties, made an offer, obtained financing and gone to closing. The home is yours. Is there any more to the home buying process?
Whether you’re a first time buyer or a repeat buyer, there are several more steps you’ll want to take. Those papers you received at settlement are extremely valuable, so hold on to them! In the short term, they can help establish tax deductions for the year in which the property was purchase. In the future, such papers will be important for tax purposes when the property is sold, and in some cases, for calculating estate taxes.
Also at closing, determine the status of the utilities required by the home, items such as water, sewage, gas, electric and oil service. You want utility bills to be paid in full by owners as of closing and you also want services transferred to your name for billing. Usually such transfers can be done without turning off utilities. REALTORS can provide contact numbers and related information.
About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded. Such records are public notices that show your interest in the property.
It is generally understood that sellers will leave homes “broom clean” when moving out. This expression does not mean “vacuumed” or “spotless”. Broom clean makes sense because it means the house is ready to be painted and cleaned. Your home, your money.
For most owners, a home is the largest single asset they hold, so it makes sense to protect that asset.
Many owners make a photo or video record of the home and their possessions for insurance purposes and then keep the records in a safety deposit box. Your insurance provider can recommend what to photograph and how to secure it. You want to maintain fire, theft and liability insurance. As the value of your property increases such coverage should also rise. Again, speak with your insurance professional for details.
Lastly, enjoy your home! Owning real estate involves contracts, loans, and taxes, but ultimately what’s most important is that homeownership should be a wonderful experience. Enjoy!