Home Buying Process

Part 1 – Contact a Mortgage Broker
It is important that this be the first step because a good mortgage broker will go over your employment and income history and your credit to help determine what price range you qualify for.  It is important to be truthful with your mortgage broker and provide all the information they need in a timely manner to speed the process along.Many people wonder why they can’t start looking for a house and THEN call the mortgage broker.  There are a few reasons:

  1. Your mortgage broker helps determine the price range and payment that you are comfortable paying and you can reasonably qualify for.  There is no point starting the home search process until you know that information.  Wouldn’t it be terrible to search and fall in love with a $300,000 home only to learn that you can’t afford more than $225,000?
  2. Your mortgage broker can also give you information about things you can do to make your credit more attractive to the bank.
  3. Your mortgage broker can determine whether you can purchase a home in the current credit climate.
  4. They may also have information about special programs that you can qualify for.
  5. If you have a pre-approval or pre-qualification letter from a reputable lender it makes for a stronger offer when you find the house you want to buy.

It is important that you are comfortable with the mortgage broker that you choose.  This person needs to be someone who is responsive and patient with your questions and who keeps in touch with you throughout the process.  Ask friends and family or your trusted real estate agent for referrals.

The home buying process can be very stressful and it is critical that you surround yourself with professionals who can help make this process as easy as possible.

It’s ok to change mortgage brokers if you are not satisfied with your current broker.

Part 2 – Determine a Budget
A mortgage broker can determine how much home you can qualify to purchase.  However, each individual has to determine how much home they can personally afford.To develop a budget, pay attention to all fixed expenses that you might have – car payments, student loan payments, etc.

Next consider all other expenses that you might incur when owning a home – utilities, home owner association dues, property taxes, home maintenance, mortgage, etc.

Don’t forget to budget money for food, fun, and saving.

It’s important to be comfortable with the amount of the home you purchase.  There’s nothing worse than having a huge home that you can’t afford to furnish or keep up.

Don’t be afraid to let your mortgage broker and real estate agent know what price range you are comfortable with.

I have a buyer now who qualifies for a home up to $250,000.  However, he would like to keep his payments at a certain level so we are instead looking in the $175,000 range.

Once you know how much home you can afford you are ready to begin the fun part of looking for a home.

Part 3 – Decide What Features You Want In a Home
Now that you know how much home you qualify for and how much you want to spend, it’s time to start thinking about what you want in a home.  I think it’s important to do this prior to beginning your home search.  There are several things that are important to consider:Location - drive around in different neighborhoods and decide which areas you like and which you don’t.  It’s much harder to find your perfect home if you are looking in too wide a geoprahic area.

Home Style - this is a critical decision.  Are you looking for a condo, townhome, or a single family home.  Within that decision, there are floor plan preferences, etc to consider.  Also think about things like lot size and home maintenance.

Features - I always advice making a list of home features that you want.  Put your wants and needs into three categories:  Must haves, would likes, and definitely don’t wants:

  • The must haves are the deal breakers.  For example, when we were home shopping my husband absolutely wanted a basement and a garage and I wanted a master bedroom with 2 closets.  We therefore, did not even look at homes that were lacking these features.
  • The would likes are those features that you would enjoy having but you would be willing to live without.  In my own home search things like a fireplace and hardwood floors were on the list.  We did eventually end up in a home that had neither of those features.
  • The definitely don’t wants are as important as the must haves.  These are the things that you absolutely do not want in a home you live in.  In my case again, some of my do not wants included a home on a main road, a fixer-upper, or a one-story home (I like stairs).

Other things to consider before you start looking include pets, storage needs, accessibility to public transportation, schools, crime, time-frame for moving, etc.

The more you know about the home you want the easier it will be to find your perfect home.

Remember you must be realistic in your expectations for your home.  If you are able to spend $150,000 in an area where single family homes cost $300,000 then you may have to compromise and purchase a condo or a town-home.

Flexibility and communication with your agent are the key to helping the home search process go smoothly.

Part 4 – Previewing Homes
When people think about home buying they automatically think about the home looking process.  This is an exciting time but it can also be very stressful.  If there are many homes on the market that meet your criteria it can be overwhelming.Be open minded about the homes you are planning to see.  Many homes look great online but not so great in person and vice versa.

Try to not see too many homes in one day.  Unless you are extremely time limited, it’s difficult to see many homes in one day.  After awhile it will be difficult to even remember the distinct details of each home.

When I go out with a buyer I provide them with a summary of each home we are going to see.  I encourage every buyer to make notes about the homes seen and to immediately rate homes as possibilities or not.

Homes that make the short list should be visited a second time if possible.  When you have found a home that you think might be THE ONE, drive through the neighborhood at different times of the day, do a dry run to work or public transportation, look into the schools and the crime stats.  It’s important that you check out all angles before making an offer, after all, this is likely to be the most expensive purchase you have made.

Do not let anyone rush you into making an offer on a home if you are not sure.

Part 5 – The Offer
Now you’ve finally found the home of your dreams and you are ready to make an offer.  This is the part where your agent will be really essential.  First of all, it’s important for the agent to look at all the comparative sales in the area.  This will help you determine what you want to offer for the home.  At this point you need to determine not just the offering price but also whether you want to request seller credit for closing costs, etc.The other thing you need to determine is what contingencies are going to be placed on the offer.  I ALWAYS recommend a buyer have a home inspection contingency.  Even if the home is listed, as-is, it is still important for the buyer to know what they are getting and to be able to have the option to walk away from the home.  Depending on the situation there may be other contingencies that need to be included.  These might include sale of previous home, mold inspection, lead based paint inspection, well, sewer, and septic inspections, as well as appraisal & financing contingencies.

During the offer, you will also need to determine when you want the settlement date to be.  Your lender will give good guidance as to how long he/she needs to complete the loan.  Related to this, it is the buyer’s responsibility to choose a settlement company.  Your real estate agent or your lender can provide referrals for trusted settlement companies.

To make your offer attractive to the selller, it is important to include a pre-approval letter from your lender.  Many lenders will provide a generic pre-approval letter with a maximum amount you can spend.  I prefer to have the letter tailored to each property.  This is especially true if your pre-approval amount is much higher than the amount you are offering on a property.

The earnest money depost is a very important part of the offer.  This is the amount of money that you submit with the offer.  This indicates how serious you are about the offer.  The amount of your earnest money deposit is relative to the purchase price and can be determined with advice from your real estate agent.  It is important to note that this check WILL be cashed and held in escrow.  It will be applied to your down payment/closing costs at closing.

Part 6 – The Home Inspection and Other Contingencies
InspectionsThe Home Inspection is a critical part of the home buying process.  I advice EVERY client to get a home inspection.  Usually these contingencies are between 7 and 10 days from the date of offer acceptance.  It is important to make arrangements to attend your home inspection.  A good inspector will use this time to educate you on your potential new home.  The home inspector will do a visual inspection of the roof, the heating & cooling systems, the foundation, walls, appliances, and often will check for mold.  After the inspection, the inspector will provide a report telling you what needs to be fixed on the home and what might be maintenance issues in the future.  Your real estate agent and you will then negotiate with the seller to get some or all of the items fixed.  If the home is listed as an AS-IS property the seller may not fix any items but you can decide whether the repair issues are ones you want to tackle.  The home inspector may also conduct a termite inspection.

Other inspections that may be requested include environmental inspections, well certification, and a septic evaluation.

Financing Contingency

Most contracts are contingent on the buyer obtaining the financing as expected.  It is important to make the formal application for the loan as soon as possible and provide the loan officer with all necessary documentation.

Appraisal Contingency

The ability to get the mortgage is contingent on the home being able to appraise for the purchase price.  This can be a huge problem in our current market as many homes do not appraise for as much as sellers want to sell them for.  If the appraisal comes back under the purchase price the seller must usually decide whether they are willing to lower the asking price of the home.

Part 7 – The Closing
Finally we have made it to the end.  This is the most exciting part.  At the end of this step you will be the proud owner of your new home.  The closing process is very important because this is where you will sign papers taking over ownership of the home and assuming the financial liability of the mortgage.The closing company ensures that there is a clear title to be delivered to the buyer – this means that all liens against the property have been satisfied.

The closing company will also provide you with a HUD-1 which is the form that breaks down all the costs associated with the mortgage and the closing costs.  This is the form that will let you know exactly how much money you must have present to complete the transaction. Each closing company has different rules about how the funds can be presented.  It is important to review this form very carefully to ensure that it is accurate.