The Ultimate First Time Home Buyer's Guide
Buying a new home is a major step in nearly anyone’s life. If you’re thinking of making a purchase, congratulations on reaching this point. While the opportunity to buy a piece of property can range from exciting to nerve-wracking and everything in-between, first time buyers generally struggle to make it through the process on their own. To help you out, this guide will run through the major details of the home buying process, from deciding if buying is ultimately for you all the way through closing on your new home. While no replacement for the assistance of an experienced professional, you’ll have a better grasp on the intricacies of the home buying process after studying this guide. With all of that in mind, let’s get started!
Feel free to jump ahead to the sections that interest you most!
Renting vs. Owning Pre-Qualification and Pre-Approval Improving Your Credit
Do You Need Representation? Choosing a Realtor Determining Your Wants and Needs
Visiting Homes Putting in an Offer Accepted Offer Closing on the Home
There is no simple answer to the dilemma between renting and owning, and that is why both methods have remained popular throughout history. Weighing the pros and cons of each scenario, however, should give you a better idea about the best option for you.
The Pros and Cons of Renting
Before deciding on purchasing a new home, carefully consider all of the options. Renting a house or apartment isn’t without its upsides. Take these firmly into consideration before deciding to make a purchase of a new home.
- Ease of Mobility – This is possibly the largest benefit of renting a home. If you should decide to pick up and move to another area, renting makes that option much easier to achieve. A simple advanced notice to your landlord of the required length (typically about a month) will have you free and clear to move to another locale. This also works if you find better accommodations in another area of your city or town. In any case, the important aspect to remember is that you aren’t locked into a single area on a largely permanent basis. If you’ve still got wild oats to sow, renting could be a good stopgap option to consider for the time being.
- Free Maintenance – Another great benefit of renting a property is the landlord’s responsibility for upkeep and maintenance. If your water heater fails and leaks into your living room, the costs won’t fall on your shoulders for getting it all cleaned up and replaced. This can save you a lot of time and headache over the long run. For a renter, things should just work, and failures of appliances and equipment simply require a phone call to get repaired. With a good landlord, this is a major positive, as unexpected issues can really damage your budget.
- Avoiding Depreciation – When renting a property, your mind can remain free and clear of issues that come with paying for a potentially depreciating asset. Since your money goes directly towards time in the house or unit, any depreciation costs that occur fall directly to the landlord, limiting your financial risk and ensuring a safe, albeit short, investment in the life of the property.
Renting is far from a perfect endeavor, however. Cons are definitely present for your consideration before deciding on renting as a permanent or lasting solution. Consider these issues with renting a home instead of making a purchase.
- No Built Equity – While avoiding depreciation is great, you’re also avoiding any equity in your home by choosing to rent. Any monthly payment covers only a set amount of time in the unit, and ownership remains strictly in the hands of the property’s proprietor. What this means is that if the value of your rented home or apartment dramatically increases over time, you could be missing out on a great investment opportunity by deciding to rent.
- Fluctuating Rent – Leases are set for predetermined terms falling somewhere between a few months and a few years. These contracts between owner and renter usually set the rental cost for the duration of the lease, along with some other important details. Unfortunately, there is no obligation by an owner to maintain a consistent pricing scheme when your lease is up. If the value of a property increases, you can expect your rent to increase as well, which could very well price you out of your own home. Finding a new rental house or apartment in the right area with an acceptable budget can be difficult, so being forced to, potentially, search for new accommodations on a yearly basis could be enough to drive some people away from renting.
- Missing Out on Tax Benefits – Tax benefits for property and depreciation are in place to keep homeowners compensated for damages and costs that arise with their properties. While you’ll need the assistance of a tax professional to find the actual benefits, these are all forfeited with the decision to rent instead of own. If you’re looking for a few more exemptions when filing income taxes this year, it could be another push away from the rental solution.
- Limited Customization Options – Without the approval of your landlord, changes as simple as a coat of paint could cause issues when moving out of a rental unit. For full control over the layout and design of your home, renting offers an incredibly limited set of options. Any remodeling or changes to finishes are subject to approval, and, even then, the costs associated with these improvements are likely wasted upon vacating the unit. All-in-all, any fan of turning a home into a creative vision will have difficulties in the tenant-landlord relationship.
The Pros and Cons of Owning
Before deciding on renting as a solution, consider the serious upsides of owning your own home. Many of the downsides of renting fall by the wayside when you purchase a property of your very own. Take these pros of owning into serious consideration before making any decision.
- Building Equity – There’s something to be said about the feeling of building equity, or ownership, of your home with the passing of each monthly payment. You’ll have the knowledge that your money is going towards a greater purpose than simply paying for a place to live for the month, and many people find that satisfying. With this comes the potential for appreciation of value on your investment, and, if you want to sell in the future, an opportunity to make profit on your home. In any case, building equity is an enhanced use of your monthly housing budget.
- Creative Control – It isn’t just a term used by rock band members struggling for leadership. Being the owner of your home means that remodeling is at your own discretion. If you’d like to repaint a room, move a wall or replace some flooring, it is all perfectly acceptable. You’ll have an opportunity to create your vision of a perfect home or maximize return on each improvement, depending on your own preferences. The best part, however, is that every penny poured into your home has the potential to increase the value of your asset. High end finishes and fancy new appliances are great ways to immediately boost the value of your home.
- Tax Credits – Owning a home can present you with a multitude of options for tax benefits. Mortgage interest is deductible in most cases, and property taxes are an acceptable deduction from annual income taxes for the life of the loan. Improvement expenses count towards the purchase price of your home in most circumstances, which will net you more cash if you decide to sell. On top of all of these, special programs such as energy credits will give you an even larger tax break, all while increasing the value of your home. Owning a home can provide a nearly limitless array of tax breaks, so be sure to consult your tax professional about all of the available benefits.
- Potential for Rental Income – If your home is a duplex, has a rental unit or doesn’t serve as your primary residence, you’ll have the option of making some extra money each month by renting the property to a tenant. While being a landlord has advantages and disadvantages of its own, the potential for extra income is rarely a bad thing. Setting up your home to be a rental property will be subject to local codes and guidelines, so be sure to seek professional assistance if this is a route you’d like to look into more thoroughly with your new property.
Owning a home isn’t the perfect option for everyone. There are also some drawbacks to consider before pulling the trigger on a new mortgage. Consider the following carefully when deciding between renting and owning your home.
- Maintenance Costs – Unlike renting, owning a home means that you are the landlord, and you are responsible for all upkeep and maintenance expenses. If your water heater decides to go bad and ruins your new flooring, that’ll be an unexpected cost that you’ll need to take care of. The safety net of free maintenance is removed, and you are in charge of keeping your investment strong. On the plus side, your maintenance improvements are great ways to add value to your home and personalize it for your own tastes.
- Risk of Lost Value – Sometimes, through no real fault of your own, the market can turn sour. As we’ve seen in the past, values can dip, and you could find yourself upside-down in a 30-year mortgage. The real estate market can be fickle, so knowing when to invest in a new home presents a difficult scenario. Consulting with a professional realtor and studying market trends are the best ways to limit the risk of a bad investment, but it can’t be totally eliminated. This will be a constant risk for the foreseeable future, however, so, while it should be considered, don’t let fear control your housing search.
- Limited Mobility – If you believe you’ve found the place you want to live for the years to come, mobility probably isn’t a major concern. If you’re still searching for the job of your dreams or testing out new areas before settling down, however, buying a home could limit your ability to quickly relocate. In all likelihood, you’d need to list and sell your home before moving to a new area, and the added difficulty is enough to steer some potential buyers away from the home ownership path. If you aren’t ready to put down roots in an area, it could be beneficial to wait a while before jumping into the real estate market.
Deciding between Renting and Owning
Considering the pros and cons of each option, you will probably have a better idea of the path you’d like to take in finding a home. If renting seems better for you at the moment, that’s perfectly fine. Renting is a great way to find the area and options that are most important to you before making a large investment. However, if you believe you’re ready to move into the league of homeowners, continue reading to learn more about the process of financing, locating and closing on the home of your dreams.
The first step on the road to buying a new home of your very own is getting pre-qualified through a lender. Options for lenders vary widely from banks and credit unions to companies that specialize in mortgages, so finding the right fit for your particular needs will take a bit of research and calling around. An experienced realtor can make the process easier by studying your specific circumstances and recommending some reliable lenders in your area, so don’t try to do it alone.
What is Pre-qualification?
Pre-qualification is an initial assessment of your financial situation by a lender. You’ll start by supplying them with some basic details including your current debt, annual income and assets, and the bank or mortgage broker will use this information to provide you with a rough estimate of the amount for which you may qualify. This process can be easily completed over the phone or internet, and the results are usually available instantly or, at worst, extremely quickly. Detailed analysis of important factors such as your credit report are omitted for the pre-qualification process in favor of a speedy, simple estimate. This amount is far from guaranteed, and it should serve only as a jumping off point on your road to a new home. If you’re satisfied with your pre-qualification results, moving forward to pre-approval is the next step.
Pre-qualification vs. Pre-approval
For the process of buying a home, pre-qualification provides limited usefulness to both the buyer and the realtor. Basic details simply aren’t enough to fully assess an individual’s financial outlook. This is where pre-approval comes into play. Pre-approval is a full rundown of your financial details, and it is the best way to determine your actual housing budget. Since pre-qualification doesn’t require a credit pull, it provides a risk-free method of checking out mortgage lenders, but pre-approval will be the ultimate goal before beginning your home search.
Pre-approval for a mortgage takes information from your entire financial outlook and boils it down into a single answer from a lender. This can be an intimidating task to undertake, particularly for first time buyers, so don’t hesitate to request help from a professional if needed. However, if your financial life is in order, and you are ready to take a swing at taking the first step on your road to a new home, the following are the documents you’ll need to gather for submittal. Feel free to take advantage of the handy checklist to keep your files organized.
- Mortgage Application – This form is a basic requirement of any application. It is used to provide some simple information, such as your name and date of birth, as well as some more detailed information, such as your work and financial histories, to the loan officer. It is then used by the lender to pull your credit report and begin work on determining your approval status for the mortgage you’ve requested.
- Credit Report – Your credit report will be pulled by your potential lenders to study your detailed financial history and check for major credit issues. Recent bankruptcy, foreclosures, tax liens and unresolved judgments are all reasons that your application may be declined. On a side note, since this is a hard pull to your credit, your score will probably be negatively affected. Luckily, when shopping for a mortgage, all inquiries within a 45-day period are lumped into a single hard pull for the sake of your score. In other words, make sure to apply all of your applications within a single 45-day period to minimize the impact on your credit score.
- Payment History – The previous two years of W-2s and recent pay stubs are required to show a consistent income history to the lender. If you work on commission, as a teacher or in any other profession with unusual payment terms, the requirements could vary slightly. Your potential lender should provide you with more information. For the most part, however, this submittal is to ensure that you have made enough money in recent years to cover the costs associated with initiating the requested loan.
- Bank Statements – Proof of the origin of your down payment and closing costs are normally fulfilled by a bank statement. This is an easy-to-obtain document for showing proof of the needed cash for completing the opening terms of the loan. One or two months of statements are usually enough to satisfy this requirement. If you’ll be receiving a gift or grant from an outside party to cover the down payment, proof of these funds could also be required. Your loan officer should be able to provide you with this information.
- Additional Information – Other documentation can also be provided to prove your worthiness of a requested loan. Examples could be proof of assets, explanations of dings on your credit report or name variances resulting from marriage. Your loan officer should let you know of any additional information you’ll need to submit with your pre-approval package.
When completed, pre-approval will give you a serious advantage when searching for homes. In addition to giving you a more concrete estimate of your housing budget, your offers will be taken more seriously with financing already arranged. While pre-approval isn’t contractually obligated or insured, it is a much firmer estimate than is provided by a simple pre-qualification.
Deciding on a Loan Type
Deciding on a loan type is an important factor to consider in this phase of the home buying process. Since there are multiple types with varying requirements, looking at all of the options is a smart option before moving forward with the next steps of buying a home. Let’s take a look at two of the most common types of home loans and decide which, if either, is best for your particular needs.
- Conventional Loan – These are typical loans issued by a bank or lender with no backing from the federal government. As a result, they typically require a down payment of at least 10% of the total loan (although 20% will usually help you avoid private mortgage insurance costs). Credit score is a major factor in determining a borrower’s eligibility for a conventional loan. While a minimum score of 620 is advertised, anything lower than 740 will probably result in risk-based lender fees and higher monthly payments. With less red tape, these loans can be completed more quickly, and, as a result of the higher down payment, home equity is built more rapidly than with other loan types. If you have exceptional credit and savings to cover an adequate down payment, conventional loans present great opportunities for purchasing a new home.
- FHA Loan – These loans are backed by the federal government, and they are great options for individuals with poor or no credit. Down payment requirements are generally around 3.5% of the total loan, and gifts from relatives or charities are acceptable sources. As a result of the lower down payment, however, you’ll be required to pay a mortgage insurance premium (MIP) each month until 22% equity is attained. That means a 1.5% upfront fee along with a monthly 0.5% premium. If you have less than stellar credit and limited cash for a down payment, however, an FHA loan may offer you the best opportunity to own a home without spending years building your credit.
If your rates are too high or you were declined during the pre-approval stage, it is probably a good idea to take a break to improve your credit score. With the massive amount of attention placed on your credit report by lenders, it is difficult to overstate the importance of ensuring that your financial history remains in order.
An Introduction to Credit Scores
Credit scores can be tricky. Reports are available from three major agencies (TransUnion, Experian and Equifax), and it is likely that a lender will review most, if not all, of your reports when deciding on a loan. The most common score, your FICO score, is another tool used by lenders to assess your credit worthiness. So from where is this magical number derived? It’s difficult to know the exact formula. As the Fair Isaac Corporation produces the proprietary FICO score on its own, the exact importance of each portion of your credit history can only be estimated. Despite this, let’s take a look at a generally accepted ratio that is used to determine your credit score.
- Payment History – Comprising the largest portion of your FICO score (35%), payment history shows your reliability in fulfilling prior obligations on an array of account types. Major issues such as bankruptcy, accounts in collections and past judgments are all taken into account. The effect of past problems decreases as time goes by, but fulfilling unresolved debts and making payments on time is the cornerstone of improving your credit report.
- Amount Owed – The next largest determiner of your score (30%), the amount owed statistic takes a look at what you currently owe to lenders as well as some specifics about the number of accounts you have and the type of credit they provide. This is a quick way to boost you score, since amount owed is focused largely on your present financial outlook instead of your history.
- Length of Credit History – The amount of time you’ve reliably made payments is the next portion of your FICO score (15%). It gives benefit to those with lengthy credit history, particularly if they’ve reliably paid on time. There isn’t much you can do to improve this metric other than continue to take care of your finances, and let it build slowly over time.
- New Credit – Applying for new credit dings your score, as we’ve already discussed, so this measurement studies the number of hard pulls on your reports and translates that information to your FICO score (10%). It falls under the assumption that multiple, rapid applications for new credit signal some sort of financial pressure and, therefore, a risk to lenders.
- Type of Credit Used – FICO scores give benefit to those with multiple types of loans. The remaining portion of your score (10%) depends on the variety of credit accounts you keep open. For example, if you have a credit card, car loan and mortgage concurrently, with each staying in good standing, you’ll see a small boost to your credit score. This is a way to maximize your score, but there are better metrics to start with in order to get your reports in order when preparing to purchase a home.
Effects of Credit Score on Home Loan Rates
Credit tiers have a huge effect on the amount you’ll be paying each month for a mortgage. With lenders more picky than ever before, a mild increase in your score could pay huge dividends over the life of a loan. While a score of 620 can get your foot in the door with most lenders, you’ll be subject to additional fees that amount to an insurance policy for the creditor in the event that you default. Stepping up to the 740 FICO score tier, you’ll have a decent chance of grabbing one of the best rates from the majority of lenders. So what’s the difference between the tiers? In short, borrowers with lower credit can expect an interest rate of up to 1.5% more. On a $300,000 home loan, individuals with lower credit will be providing about $300 more per month. Over 30 years, that’s more than $100,000, or one third of the home’s value, paid in extra interest. So, is it worth taking a good look at your credit before getting too deep into the mortgage hunt? It certainly appears that way.
Quick Tips to Improve your Credit
Now that we’ve seen the massive savings that a better credit score can present, let’s take a look at some quick ways to boost your own FICO numbers. A long history of on-time payment is always the best way, but there are some more time-efficient tricks that you can use if you’re on the edge between credit tiers. By following this checklist, you could potentially see a noticeable rise in your FICO score in as little as 30 to 60 days.
- Get a Copy of Your Credit Report – Your credit report is available to you for free from each of the three major credit reporting agencies once per year. This means you can check them all at once, or order a new one every four months to ensure consistent reporting. Going to AnnualCreditReport.com will get you started. This is an official website, despite the bland URL, and it is the best place to start in getting your reports. Remember to check all three agencies, as the reports aren’t necessarily the same. A single negative item on one agency’s report could cost you big bucks if you aren’t diligent.
- Dispute any Errors – Occasionally, reporting agencies make mistakes. In fact, it may be more common that you’d like to think. Comb through your reports page-by-page and mark any errors that may have been reported. These mistakes can be disputed online, directly with the individual agencies. Removing errors could provide a quick, justified boost to your score.
- Negotiate your Debts – For those negative marks that aren’t errors, getting them taken care of is a necessary step to improving your credit. Some creditors may be willing to remove a negative account completely with full payment, while others can, at least, report the account as ‘paid in full’ to let your lenders know of the satisfied accounts. Whatever path you decide to take, get the agreement in writing from the creditor before submitting your payment. While a negative remark may remain on your credit report, lenders will look more favorably on a satisfied debt when considering you for a new line of credit.
- Open a New Credit Card – Remembering the formula for your score, you’ll notice that having a larger amount of available credit is a good thing in the eyes of lenders. Opening a credit card is a good way to improve your credit score if you remember to follow a few simple rules. First, always pay on time. Paying the full balance, if possible, is a great idea for eliminating pesky interest costs. Second, keep the amount of credit you use each month low. If this means paying twice every month, so be it. Reporting a high utilization rate will have a negative effect on your reports. Using less than 10% of your available credit is ideal for maximizing your FICO score. If your credit isn’t good enough to open a traditional card, secured cards are an option worthy of consideration as well.
- Pay your Bill on Time – This one may seem like a no brainer, but it is seriously important to your credit score. Remember, the largest portion of your score is payment history, so every late account can cause big issues when applying for a home loan. Payment automation is one option if you’re simply forgetful, but do whatever it takes to keep all of your accounts current. A few months of consistently on-time payments can do wonders for your credit outlook.
So, your credit is in order. You’ve got your pre-approval letter from the lender, and you are finally ready to begin searching for the home of your dreams. Not so fast! First, consider the option of representation during the home search. With the legal processes involved with the purchase of a home becoming increasingly intricate and confusing, many home buyers enlist the services of a professional to help navigate the experience. Does every buyer have representation? Absolutely not. However, the benefits of working with an industry professional are certainly worth taking a long look at before moving forward with your home search.
An Attorney or Realtor (or Both!)
The two types of professional assistance available to most home buyers are an attorney and a realtor. While each provides needed assistance to those inexperienced with the laws of real estate, they also add individual benefits that could lead you to enlist the services of both. Let’s take a look at the services provided by each of the professionals to make your home-buying process a little easier.
- Attorneys – Lawyers are always of value when signing contracts, but this fact is escalated with the home-buying process. A lawyer will be able to explain the details of agreements entered by the buyer and ensure that everything is in order. Since your lender won’t be able to provide legal counsel, you’ll need to find another professional to ensure that your interests are considered in every document. Complications with tax laws as well as negotiations of closing costs are all areas where the assistance of a legal professional can pay dividends to potential home buyers. Obstacles with the title of a property or other uncommon issues will require levels of real estate law knowledge with which a realtor may not be familiar. In order to prepare for these eventualities, keeping an attorney on hand during your home search is a great option.
- Realtors – The value of having a real estate agent on your team can be priceless. First, they tend to be experts at searching for the perfect home for your needs. While internet search engines are becoming more popular, there is no substitute for an agent who is knowledgeable of the area with access to so many housing databases. On top of that, realtors can provide years of pricing expertise to help you get the best price possible, and they’ll take the emotion out of negotiating on your behalf. When it comes time to close, real estate agents can tackle the mountains of paperwork and get you through the process quickly and painlessly. If that’s not enough, consider the fact that realtors present no fees for representing buyers. Seriously, there’s no need to go it alone.
- The Benefits of Both – While many forgo the services of an attorney, acquiring the assistance of both professionals is a great way to prepare for all eventualities. It is great to have a legal professional review contracts and other documents, but the true benefit is when unexpected situations present themselves. A realtor can do the majority of the legwork in finding your home, and you attorney will be ready in the event of title issues or other legal problems. Having a team on your side while making one of the largest investments of your life is surely a worthwhile venture for any inexperienced home buyer.
New Construction without Representation
If you’ve got your eye on a new subdivision or housing development, don’t make the mistake of approaching the builder alone. Many people interested in new construction skip the realtor when purchasing new construction and find themselves with negative consequences. Just because you don’t need to search for a suitable home doesn’t mean that the entire process will take care of itself. Builders have a tendency to present the opinion that there is no room to negotiate on new construction. This simply isn’t the case! Real estate is a huge investment, don’t fall into the trap of overpaying for new construction.
Until the subdivision is completed, the market price of the homes in the area are controlled by the builder. The sign by the road with a price is the amount that people will assume they should pay. However, when construction is complete and an appraisal of the homes are given, will the number on the sign hold up? Let a real estate professional take a look for you, at no cost to the buyer, and determine a reasonable value for the new construction. There are no downsides to free representation in this scenario, and the potential savings could be huge.
Many of those searching for a new home rush into a relationship with a realtor without properly questioning qualifications and experience, and that could be a major detriment to a successful housing search. Taking some time to interview multiple real estate agents and determining their fit for your particular needs will ensure that you’re receiving the best guidance possible when hunting for your new home. From knowledge of the area and experience on the job to capability with a certain type of housing purchase (i.e. short sales and foreclosures), each realtor will bring a unique perspective to ensure that you have an enjoyable and fulfilling housing search. Don’t settle for the first agent that comes along. Take your time, and ensure that this massive investment is guided by the correct professional for your scenario.
Sample Questions for Realtors
You’ve got a few realtor interviews lined up, and you’re ready to find the perfect agent for your needs. So what should you ask realtors when interviewing them? Let’s take a look at some sample questions to get you started.
- How long have you been in real estate sales, and is it your full-time job?
- Is experience always a sign of a great realtor? Of course not. It is, however, a good indication that they are doing something right. With the previously discussed intricacies of buying a new home, most buyers are more comfortable with an experienced agent. Also, many buyers prefer the allure of a full-time agent, as they could have more time to focus on your requests. The answers aren’t black and white, so find an answer that suits your own personal needs.
- How many homes did your real estate brokerage sell last year?
- This will give you an even clearer picture of the experience level of a realtor. By comparing the answers from a few interviews, you’ll get a better idea of where their experience lies among your potential agents. Is experience a major factor in your hunt for an agent? While many people rely on this indicator, use your own judgment to find the best realtor for you. After all, even the greatest realtors didn’t have much experience at some point. Certifications and references may be enough to convince you to overlook lesser experience by an agent.
- Can you recommend service providers who can help me obtain a mortgage or make home repairs?
- Realtors are often immersed in all things real estate, so they can be extremely helpful in finding mortgage lenders, home improvement contractors and service providers. They can generally recommend a couple of options to make your life a bit easier, but be sure to find out if they receive any compensation or finder’s fee for sending business in the company’s direction. In any case, finding reliable help with your housing search is always a welcome relief. If you’re having trouble obtaining financing, a connection or two couldn’t hurt your chances of getting a new home search up-and-running.
- What is your business philosophy?
- This is just another opportunity to determine if an individual agent is a good fit for your needs. Do they place emphasis on aspects of the housing search that are most important to you? Are you satisfied with their response to the question? There isn’t necessarily a correct answer, but you’ll have a better idea of what makes the agent tick when searching for a new home, and that’s a good way to decide if they are acceptable for your individual requirements.
- What is your marketing plan for meeting my needs?
- A brief outline of the plan an agent has for your home search can give you a much better idea of his or her fit for your needs. This can include the way in which the agent plans to search for your home as well as the number of homes you’re likely to see. Find out if they are likely to have multiple clients viewing (and offering) on the same homes, and how the agent will handle those types of situations. Finally, find out if the agent brings his or her own offers to the table on homes. Competing against your own realtor on a property doesn’t give you the best chances of securing a great deal. The way a real estate agent handles individual properties could give you a better idea of the experience you’re likely to have as a client.
- Can you provide some references from past clients?
- Recent clients are a great source of information about the experience of working with an individual realtor. First, ask if they are relatives or close friends to ensure you receive fair and honest critiques of the agent’s performance. Afterwards, you can learn more about the work ethic, follow-up and communication style of the realtors you are interviewing before deciding which one to work with on your home search. Internet reviews are also a decent source of knowledge about realtors’ past work, but be wary of fabricated reviews and feedback. If it seems too good to be true, well, you know the expression.
- What haven’t I asked you that I probably need to know?
- No matter how great of an interviewer you may be, there is some detail or facet of the housing search that you probably need to know about that wasn’t mentioned. Asking a question such as this one allows you to gain some additional knowledge, but, more importantly, it shows the expertise and knowledge of the realtor you’re interviewing. If they don’t have an answer to this question, it could be as a result of a lack of knowledge about the real estate field. As always, use your judgment to ensure that you enlist the services of the best agent for your requirements. When making one of the largest investments of your life, there is little room for error at the hands of a real estate agent.
With a great realtor on hand, your search for a new home just got easier. From this point forward, you’ll have a wealth of experience and knowledge at your disposal regarding the processes of acquiring real estate. With that taken care of, it’s about time to start thinking about what is most important to you in a home. Making a comprehensive list of your wants and needs in a property will give your real estate agent a better idea of the perfect option for you. So what should go on this list? It ranges from how you plan to use the new property to the amenities that you’d like to see. By creating a thorough list, you’ll have a clearer vision of which aspects are most vital to your search, and you’ll determine where compromises can be made. Remember, every home buyer needs to make some sort of compromises during their housing search. Whether you need to increase your budget slightly or go forward without a feature you’d like to see, be prepared to make a concession or two. Start by determining which parts of your list are the most important to you.
Long-term Home or Investment Property
The first step to formulating your list is to take a serious look at how you plan to use the property. Are you on a search for a long-term home for your family, or are you simply looking for a good investment property? Do you plan to live in the home, or will you rent it out to tenants to make some extra money? The answer to these questions will alter the way you search for a property. Let’s take a look at a few differences depending on property usage.
- Long-term Home – If you are planning to live in this property for an extended period, your wants and needs in a home become more vital. You can search for finishes and amenities that match your own personal preferences. You’ll probably want a more finished product to move into and live, and any minor renovation work is likely to be completed quickly to ensure a more livable environment. For a long-term home, your own list will more closely define the property for which your realtor searches.
- Investment Property – For an investment property, it may be best to lean on the knowledge and experience of your realtor. Finishes should be more neutral to suit the tastes of the most tenants possible, and renovations should keep with this theme. Whether you plan to rent the property for a while or simply resell it after sprucing the home up a bit, consider your target audience more than your own personal preferences. Finding a great investment property could take some time, but take your time. Don’t rush into a bad venture.
Important Home Features for You
For the sake of this checklist, we’ll assume that you’re looking for a new primary residence for your family. These are a few options to consider before presenting a list of important features to your agent, but remember to consider your own preferences as well. After all, there are a near limitless number of possibilities when it comes to options for a new property. When you’ve completed your list, mark the most important features, as well as the ones that you could live without. This prioritization will help your realtor find a great property for your needs more quickly and effectively. Let’s begin with some common options that homebuyers consider.
- Turnkey or Work in Progress – Are you prepared to put in a little elbow grease to get your new home perfect, or would you prefer that work to have been completed already? Doing renovations on your own is a great way to save some money, but the difficulty and risk make it a frightening option for many homebuyers. If you’d prefer to have a turnkey home, ready to move into immediately without any work, let your realtor know. If you’re a little more adventurous, minor renovations could stretch your budget a little farther in some cases.
- Location – We’ve all heard the old cliché; the three most important things in real estate are location, location and location. Well, sayings don’t get overused without having some element of truth. The location of a property can affect the schools that your children attend and the length of your daily commute. Would you like to be able to walk to a park or café? Is a gated community important to your sense of safety? Whatever the case, studying the area of potential homes and choosing the right region are vital to ensuring your satisfaction with your new home. Remember, however, that location can have a huge impact on your budget.
- Size of the Home – A lot of buyers simply search for the largest home they can afford, and this is okay if it’s what you want. A smaller home, however, could also present benefits. Decreased utility costs, easier upkeep and cheaper renovations are all reasons to consider the size of home you want to purchase. The difference between a three bedroom/two bathroom and a three bedroom/one bathroom can be huge when considering budget, so don’t be afraid to leave some wiggle room when deciding on home size. Also worthy of considering, of course, is the lot upon which the home is placed. If you’d like a bigger yard or some nice trees for shade, remember to make a note of your preference.
- Time in the Home – Going hand-in-hand with home size is the length of time you expect to stay at a property. Is your family growing? If you’re planning for children in the near future, a larger home will provide you with the needed room for your family’s growth. Are your kids ready to move into homes of their own? A smaller property could be great for empty nesters. In any case, consider the future when determining important aspects of a property.
- Extra Features – These feature could be anything. A swimming pool, garage or office are all things that some homebuyers want in a new property. A finished basement or a fenced-in yard are at the top of other buyers’ lists. Decide what extra features you need, and which ones can be added later on. Extras such as these can increase the value of a home, so they could be great opportunities for you to build equity down the line. If there are features you need right away, be sure to let your realtor know, so he or she can adjust the search accordingly.
- Budget – This is an extremely important feature for every home search. It is likely to be a limiting factor for potential homes, and it is, most likely, the item on your list with the least room for adjustment. Let your realtor find a selection of homes in and around your budget to show you how realistic your list is, and move forward from there. Your agent should be able to provide you with a better idea of the type and size of properties you can afford.
Presenting the List to Your Realtor
When you’re happy with your list, it is time to discuss it with your realtor. Based on your desired location and budget, he or she should be able to determine the likelihood of finding the perfect home for your needs. As your agent locates some options for your consideration, remember to be open-minded when considering properties. Large cost savings could give you more options for improvements in the future, while stepping a bit outside of your target area could increase the amount of home you can afford. Keeping an open-mind and viewing each property individually will give you the best idea of which home checks the most boxes for you. With the help of an experienced realtor, you’ll be able to find a great option to meet most of your requests.
All of your ducks are in a row, and the time you’ve been waiting for has finally arrived. Viewing potential homes is an exciting opportunity to receive concrete feedback on the extents of your budget and a better idea of your actual housing outlook. Internet listings and flyers are great, but few things can compare to walking through a home and studying its character and features firsthand. Before going with your realtor to look at homes, however, some simple preparatory work will make sure that you don’t miss anything important. With all of your diligent preparation to get to this step, now is certainly not the time to begin cutting corners.
Preparing for Visits
When viewing multiple homes in a single day, record keeping can help ensure that you don’t get mixed up about the details of different properties. A few simple tools will allow you to take down specifics of the homes you view for future review and final decisions. Let’s take a look at a few simple steps to improving your home visitation experience and ensuring you find the right property for your needs.
- Print Home Listings – Having a printed flyer describing the details of each property you view is a great way to take note of important details such as home size and list price. Knowing a little more about a property before viewing it will help you align your expectations to match the value for investment offered by a property. Home listings will also be useful for future discussion, as they can assist you in arranging your notes more clearly and effectively. While many homes have printed listings available on-site, it is always a good idea to print them before arriving at the property, just in case, to account for a depleted supply.
- Take Notes on the Visit – Taking a notebook is always a great idea to help you organize your initial thoughts on a property. Write down any questions or concerns you may have about the property, and discuss them with your realtor to make sure everything is in order. When you’ve finished looking at homes for the day, your notes will refresh your memory about which homes were best for satisfying all of your requirements. Your own written record is half of the references material you’ll gather from your visit to review with friends, family and your agent before deciding on a property. Just like in school, it is rarely a bad thing to have too many notes for future reference.
- Take Plenty of Photos – Photos are the other half of your reference materials. In the past, remembering a camera may have been an issue, but, today, most people carry cameras around every day in the form of cell phones. Take plenty of pictures of all areas of the home to ensure that you can remind yourself of the feel of the structure later on. See something that doesn’t look quite right? Take a photo. Your real estate agent should be able to help you get the information you need about a property, but a photo can help remind you to follow up if they couldn’t answer your questions on the spot. A photo tour of the home is also an effective way to introduce friends and family to a property when looking for an additional opinion before making an offer.
Knowing what’s Important
Importance is largely in the eye of the beholder during a home search, but there are some easy things to take note of before moving too far with a property. Potential issues that will present themselves later on usually have warning signs if you know how to spot them, and finding serious problems during your housing search will save you some time and heartache in the future. If you’ve got a question, rely on the knowledge and experience of your realtor before jumping to a conclusion. So what are some important factors to study before moving forward with an offer on a property? Let’s take a look.
- Study the Neighborhood – If you aren’t familiar with the area to which you are moving, find out more about the community in which each property is located. Major statistics to look into before investing in a property include crime levels (crime reports are available for any property by searching on the web) and cost of living. Has the neighborhood had many foreclosures recently? How are the schools serving the area? Each detail could have a major impact on both your life while in the home and your potential for a profitable investment when you’re ready to relocate. With all of the free tools available on the web, studying an area before committing to a home is definitely worth your time. Your realtor should also be able to assist you with details about recent sales of comparable properties in the area.
- Signs of Structural Damage – You have a safeguard built-in for structural damage in the form of a home inspection later on, but catching major structural issues early on will save you the time and effort associated with making an offer on the home. A few issues to watch out for when viewing a home are as follows:
- Take a step back, and view the home from across the street. Do the walls look straight? Do you see any issues with roofing pitch? Is there noticeable sagging anywhere along the roofline or fascia? Sometimes major issues occur as a result of faulty foundations, but they are difficult to see up close because of uniform settling.
- Look straight down exterior walls for serious bowing in either direction. Walls that aren’t relatively straight could be an indication of structural issues.
- Are there large cracks on the exterior of the home? For brick homes, these issues are generally easy to spot. If the brick has separated from the mortar and a canyon is forming down the wall, a corner of the home is probably sinking. For vinyl-sided homes, this issue can be more difficult to see.
- Feel the floor as you walk around the home. Are there soft spots or sloping areas? Softness could be a result of water damage, while sloping could be indicative of foundation problems.
Combining all of this information, you may notice some issues with the structure of a home. Discuss this with your realtor and a professional home inspector to determine if the home is worthy of an offer, or if the costs of potential repairs would destroy your budget.
So you’ve found the perfect house for you, and you are ready to put in an offer to make it yours. As with previous steps in the home buying process, the assistance of a realtor in putting in an offer is priceless to inexperienced home buyers. From properly completing the offer sheet to deciding on the right price with which to open negotiations, the experience and knowledge of a good realtor will save you a lot of time and stress. That’s good news, because if you’re ready to make an offer there is no time to delay. Don’t let the perfect property slip away as a result of your procrastination with this important process. Get with your real estate agent, and begin the process of placing an offer on the property as soon as you possibly can to achieve the best results.
Completing the Offer Sheet
Offer sheets are relatively standardized legal contracts that formalize your intent to purchase a piece of property at a certain price point if noted requirements are met. With this form, sellers will know that you are a serious buyer and can proceed according to their opinion of your terms. To review a standard offer sheet, check out the following link:
As you may be able to see, the offer sheet provides your financing information to the seller as well as details about other costs and fees. While your realtor will be the best source of information when completing this contract, let’s take a closer look at some of the terms and definitions as used in the New Home Contract to give you a better idea of their meaning and usage.
- Sales Price – In this portion of the contract, you will submit your proposed price to the seller. The offer sheet separates this information into cash portion (down payment) and sum of financing (mortgage and loans) before combining into a single, total price for the property.
- Financing – This section is used to specify the total amount of the home loan, as well as to give the buyer the option to walk away from the property if the lenders’ underwriting requirements aren’t met by the property. In other words, if your bank won’t approve the property, you won’t lose your earnest money as a result.
- Earnest Money – This is a portion of your down payment which will be held in an escrow account in good faith to show that you are serious about purchasing the property. This helps sellers determine legitimate offers and avoid lengthy missteps with potential buyers who can’t attain financing. If you walk away from an offer without justified cause, you could lose your earnest money as a result. Always carefully consider your options before placing an offer.
- Title Policy – Title insurance can be furnished at either the buyer’s or seller’s expense, depending on the completion of the offer sheet. Title policies will protect the buyer in the event that liens or title defects arise which complicate the ownership of a property. If an issue presents itself regarding the property in the future, title insurance could save your investment.
- Survey – If no survey documentation can be presented, a professional survey is required before finalizing the sale of property to ensure the boundaries of the lot being transferred. The costs of a new survey can be at the expense of either the buyer or the seller, depending upon the preference specified on the offer contract.
- Property Conditions – In this section, you’ll specify whether the property is acceptable in its current state, or if repairs and treatments are needed before the offer can be accepted. Be specific with needed repairs to avoid potential problems down the road.
- Closing – This section details the timeframe in which closing of the sale is expected. If closing isn’t completed by this date, the opposing party will have the opportunity to walk away from the sale without penalty.
- Termination Option – The option period is the amount of time in which the buyer can cancel the contract without losing earnest money and walk away from the sale by paying the predetermined option fee. Time is vital to this section, so consider it carefully before submitting the offer.
Waiting for a Response
After submitting your offer sheet, there are three possible responses that you could receive from the seller. Depending upon the answer, you will have a clearer path for the remainder of your housing search.
- Counteroffer – This means that, while your offer wasn’t accepted, the seller is prepared to enter into negotiations with you regarding the contract. This could be as a result of another offer with which you are competing, but it doesn’t necessarily mean that you have competition. Review the counteroffer and, if it is acceptable, accept. Otherwise, you can send back another counteroffer to work towards more agreeable terms.
- Rejected – This means that the seller isn’t interested in your offer. It could be as a result of an insultingly low offer price, or another buyer could’ve recently sealed the deal. In any case, a rejection means that your housing search will continue for a bit longer.
- Accepted – If your offer has been accepted, congratulations. The home of your dreams is inching even closer to being a reality. Pending the results of a home inspection, you should be able to complete the purchase in the near future.
With a little persistence, you’ll have an accepted offer before you know it. When you reach that step, you’re ready to take your home search into its final stages.
After your offer has been accepted, your path to becoming a homeowner rounds its final corner. Barring any unforeseen complications, you’ll be closing on the property in no time. First, however, you’ll want to check on those unforeseen complications. This is where a home inspection comes into play. Clearly outlined in your original offer contract was the contingency for a home inspection to check for any issues with the home. This is the professional backup plan to find out how well you did while originally critiquing the home on your visit. With the clock ticking on your inspection period, there’s no time to delay in getting the home checked out and processing the results. Let’s take a closer look at home inspections.
So, what exactly is a home inspection? It is a process in which a professional defect detective looks over the property in question with a big magnifying glass and a fine-tooth comb. Any problems with the structural integrity, electrical systems, piping or other issues will be compiled into a report for your review. From this point, you’ll decide if the problems are large enough to alter your offer on the property. Continue to get advice from your realtor when undertaking the home inspection phase, as they will be able to give you a better idea of the costs associated with needed repairs and modifications. For a better idea of what the home inspection will focus upon, check out this checklist:
Are you on the fence about getting a home inspection? Don’t be silly. A professional home inspection can save you from massive problems within a home that weren’t clear to you before. Obtain a list of trustworthy inspectors in your area from your real estate agent, and call a few of them to get quotes. When you’ve found an inspector with a good combination of knowledge and cost, set up an inspection of the property. Have the inspector review the results with you afterwards to ensure that you don’t miss anything important before moving forward.
If your home inspection results have serious problems, there are a few option for you to consider before proceeding. Before moving forward with closing, ensure that you are satisfied with the value of the investment, and don’t feel forced into making a purchase if a middle ground can’t be found. So what are you options when serious issues are making you question the value of your prospective home? Discuss your choices with your realtor to find the best option for your scenario, but these are two of the most common choices for homebuyers in this situation.
- Renegotiating Price – If an issue causes a serious effect on the value of the property, you’ll need to renegotiate the price if you’re still interested in making a purchase. A lower price point could make necessary repairs feasible if you are interested in taking the risk. Alternatively, asking the seller to make the repairs before moving forward with the sale could be an option. Finding a middle ground that is acceptable to both parties is the only way to navigate this sizeable speed bump.
- Walking Away – If renegotiations fail, don’t be afraid to walk away from the property. You’ve had your heart set on being a homeowner, but don’t let that distract your mind from a potentially disastrous investment. Issues that are found during a home inspection can have a huge impact on the value of a property, so consult with your realtor to determine if the problem home is still a good option for your needs.
When you’ve got any and all issues with the property sorted, you’re ready to move on to the final hurdle of the home buying process. It’s time to close on the home.
Depend on the expertise of your realtor and, if available, your attorney to guide you through the closing proceedings for your new property. There are a few steps to ensuring that everything is in order before moving into your new home, so take advantage of this checklist to make sure you’ve got everything covered.
- Lock in your Interest Rate – If it hasn’t already been completed, approach your lender in order to lock in your interest rate on your home loan. Rates move around constantly, so rely on the help of the professionals to get you a low rate. Don’t fret too much if the rate isn’t the absolute rock bottom, just make sure that it is close enough to be reasonable for your needs.
- Remove Contingencies – Your offer contract was loaded with contingencies to protect you in the event of issues with your lender or a bad home inspection report, but now is the time to remove those catches and proceed with the purchasing agreement. The original offer had a date by which these contingencies must be removed in order to sustain the contract, so be mindful, as always, of the timing.
- Fund the Escrow Account – Remember the earnest money that you placed in an escrow account when placing an offer? Now is the time to place the remainder of your down payment into that account, as well as your portion of the closing costs. In many cases, the seller pays for closing costs, so remember the details of your own agreement to avoid paying too much. As always, use your realtor’s advice and knowledge to guide you along.
- Final Walkthrough – Taking a last tour of the home before finalizing the purchase will help you to ensure that nothing has changed to negatively impact the value of the home. Keep an eye out for recent damage or missing elements when doing your last walkthrough before purchasing the home.
- Sign the Paperwork – Prepare for the cramps in your hand, because there will probably be about 100 pages for you to review. Ignore pressures from those that seem to be in a hurry and take your time reading the fine print of these contracts. After all, this is a massive investment, and care should be taken accordingly. Watch out for prepayment penalties in the event that you want to pay off the home early, and double check closing costs to ensure that they are similar to the estimate you were originally afforded. Don’t be afraid to ask questions and get numbers corrected if they are in contrast to what you believe to be correct.
- Wait – The closing process involves a lot of moving parts, so you’ll have a good amount of time to wait and worry about the status of your sale. Try to remain calm and rely on the experts with which you’ve surrounded yourself to ensure that the closing goes smoothly.
When you’ve completed closing and received the keys, you’re all set to move into the final step of your home buying process.
Moving into your New Home
Congratulations on buying a new home. From this point on, the moving process depends on your own preferences. Pick up your furniture and move it to your new home. Alternatively, pay someone else to do it. If you’d like more information about taking your furniture from one location to another location, please read our informative, upcoming guide on moving things from one place to another place. All joking aside, thanks for reading. Enjoy your new property!