A Buyer's Guide to Home Purchasing
- posted 8.31.2011
- Rosemarie Pirio
- Home Loans
Interest rates are at historic lows. Houses have never been this affordable. If you're in the market to purchase a home, you couldn't have picked a better time, especially if you're a first-time buyer. The process may appear daunting, particularly if you're going at it alone. For that reason, we have compiled a concise guide that will get you closer to the doorsteps of your new home.
Prepare Yourself Financially
Before any house hunting begins, you should check your credit rating with the 3 credit bureaus: Equifax, Experian, and TransUnion. Clear up any errors that may appear on those reports as soon as possible. You should also consolidate any debt you have. Your total debt shouldn't exceed more than 38% of your total income. When applying for a loan, your credit history and spending habits will determine the amount you'll be able to receive and how high or low your mortgage payment will be.
It's advisable to get pre-qualified first by a lender to give you an idea of how much house you can actually afford. Later, when you get all your expenses budgeted and are ready to look at homes, you can go back and get pre-approved for a loan. Getting pre-approved is a much deeper process than getting pre-qualified. The lender will make a thorough investigation of your credit history, assets, and ability to purchase a home, and then provide you with an exact amount for a loan. Having this information beforehand will make finding the perfect home much easier, since you won't be wasting time looking at houses out of your budget.
When purchasing a home, there are 3 specific payments you must make before and after finalizing the purchase:
- Earnest Money – Money you put up front to show that you're serious about purchasing
- Down Payment – Money that's paid towards the total of the home's price, usually 10-20%, but you can get it as low as 3% if you qualify for certain loans
- Closing Cost – Expenses associated with a home loan, such as processing fees charged by the lender, Title Company, the local government, and anyone else involved with the home sale. Mortgage lenders are required to provide you with a "Good Faith Estimate" (GFE) which gives you an estimate of all the closing cost fees
You'll also want to calculate any expenses that come with home ownership, like, utilities, home insurance, home warranties, and ultimately your mortgage payment. Once you've crunched all the numbers, it's time hire someone that will help you find a home and guide you through the rest of the process.
Hiring a Professional
A real estate agent is someone that will be with you from start to finish. They'll be responsible for finding you the perfect home, negotiate to get you the best deal, and handle all the tedious paperwork that's involved with buying a home. They are a well of knowledge and insight, not only in real estate, but also in the communities they work in. They know all the great spots in town, and what neighborhoods would best suite your needs.
So, how do you go about finding someone qualified for the job? The easiest place to start is by asking family, friends, neighbors, and co-workers for recommendations. Ask them about their experience. How helpful was their real estate agent? How long have they been in the industry for? Did they go above and beyond their expectations?
Another place to conduct your search is on the internet. Sites like Realtor.com offer you a database of over a million realtors you can browse through. The key here is to have options. Interview each of your candidates to see which one is the most qualified.
Begin the House Hunt
Now that you have an experienced and reliable realtor at your side, it's time to make a checklist of things you're looking for in a house. How many bedrooms? How far do you want it from your workplace? Do you want it in the suburbs or near downtown? The more details you provide, the easier it will be for your agent to find you something that accommodates your lifestyle. If you have some idea of what neighborhoods you'd like to live in, you should do a bit of research yourself, as well. Find out what the crime rate is, what schools are in the area, and what types of amenities are around.
Once you've found a house you'd like to settle into, you should schedule an inspection of the property. An inspector can find any defects with the house and you can then negotiate with the seller about either lowering the price of the house or arrange to have repairs made before you buy.
Closing the Deal
Now it's time to make an offer. Your realtor should provide you with a form that will enter you into a binding contract with the seller. This is your initial proposal, and it may or may not be accepted. There will be a lot of counteroffers thrown back and forth until the buyer and the seller agree on a fair price … or until a better offer is presented to the seller from another buyer.
It's a bidding war, and the prize always goes to the highest bidder. But there are some factors that can help you win that war. Remember the steps you took before you began your house hunt? If you got pre-approved by a lender, this can be a great bargaining chip in getting your offer accepted. Sellers are more likely to accept an offer from a buyer that has money at hand. You should also find out how much pressure the seller actually is under to sell the house. If you want to avoid haggling, or just really want that house no matter what, you can offer the listing price, or beat out the competition with an offer that's higher than the listing price.
All that's left to do after your offer is accepted, is to sign off on all documentation and prepare to move into your new home.