Buying
a home can be an overwhelming experience. It's one of the largest
investments you can make, and involves many parties--not only buyers
and sellers, but agents, brokers, inspectors, lenders, attorneys,
appraisers, and others. For those reasons and others, it's important
to have an agent you can trust to not only be a sounding board and
advisor during your search, but to manage the mechanics of the
transaction in a business-like way. You're the coach making the decisions, but a good agent
is the quarterback directing your team on the field.
Learn more about the process by registering for one of Katie's First Time Home Buyer classes here There are several classes scheduled for this Spring. Want a look at some of the material before registering? Click here for a sneak peek.
Interested to know Katie's approach to working with buyers? Click here to read about how to get started.
Overview of the Process
1. Deciding to Buy
2. Choosing a Buyer Agent
3. Choosing a Lender
4. Shopping for a Home
5. Making and Negotiating the Offer
6. Inspections and Apraisals
7. Settlement (Closing) and Beyond
Deciding to Buy
The
decision of whether or not to buy is an important one, with long-term
impacts. There are many reasons you might decide now is the time to
buy a home: financial advantages, the security of knowing what your
payment will be, wanting to have a place to call your own. The tax
advantages can be significant--your mortgage interest is, in most
cases, deductible. When you sell up to $250,000 in profit ($500,000
for married couples) is also tax-free if you have lived in the home two
out of the last five years.
In
preparing to buy, the first thing to do is check your credit report.
You are entitled to annual free copies from all three major credit
bureaus. Simply visit www.annualcreditreport.com
Once you are satisfied that your credit is accurate, it's time to start
organizing your financial paperwork--pay stubs, tax returns, etc.
You can start getting familiar with the market by reading my newsletters,
which help you keep an eye on market stats and conditions. The
financial aspects of deciding to buy do not yield the same result for
everyone. Contact me to talk through the specifics, including how to calculate whether you should buy or continue renting.
Choosing a Buyer Agent
The
most common complaint consumers have is that their agent is not very
responsive. Finding a buyer's agent that will return your calls
promptly and will be available for your questions is important. An
agent's responsiveness should be evident pretty quickly. Test it!
A
good agent will work to make sure you understand the entire
transaction--from the decision to buy, to choosing a home, and all the
way through settlement. Make sure that your agent--and not some
subordinate team member--will be there every step of the way.
There are a few things you need to look for when interviewing agents:
» Is the agent a full time agent?
» Is the agent well educated and trained?
» Does the agent have business experience? Negotiation skills? Training in marketing?
» Is the agent seem responsive?
» Do you feel comfortable with the agent?
Don't automatically select an agent based on their claim of being the "neighborhood expert." You want to choose an agent that knows many neighborhoods and can help you find the best fit for you!
» Is the agent a full time agent?
» Is the agent well educated and trained?
» Does the agent have business experience? Negotiation skills? Training in marketing?
» Is the agent seem responsive?
» Do you feel comfortable with the agent?
Don't automatically select an agent based on their claim of being the "neighborhood expert." You want to choose an agent that knows many neighborhoods and can help you find the best fit for you!
And
remember, in most cases buyers usually don't pay for an agent's
services. All agents are paid by the seller at the rate negotiated at
the time the home is listed for sale. This is a common misconception
that first time buyers have. Contact me to discuss other common misconceptions about agent fees and commissions.
Choosing a Lender
A
good agent will have a team of professionals to recommend. While
you're under no obligation to use the lender your agent may recommend,
you should discuss your choice with your agent. Some lenders are
"niche" lenders, who focus on one or two products (e.g., ARM loans or
fixed rate loans). Some loans are advantageous if you plan to be in
the property a short time (2 to 7 years); others are more advantageous
for longer terms. If you have good to excellent credit, a large
national lender will tend to have the most competitive rates. Most
lenders will quote you a rate over the phone without you submitting a
formal application. You should choose a lender you trust to advise
you, as there are many loan packages and options available, and you
will want someone who will take the time to guide you through the
choices and scenarios.
A
lender will provide a rate quote, points, and a Good Faith Estimate of
Closing Costs. Make sure you review this GFE closely, asking the
lender which line items he actually controls (e.g., Lender Costs), and
which are driven by other factors (e.g., Prepaids, Escrows, Title
Insurance, etc.) Most closing costs are negotiable. Your lender
should help you determine not only the amount you are pre-qualified or
pre-approved for, but more importantly, the monthly payment you are
comfortable with, including estimates for the payment, interest, taxes,
insurance, and condo/HOA fees. Lenders will "pre-qualify" you based on
your verbal answers to questions about income and debt. To become
"pre-approved", a lender will ask to see proof of employment (w-2s,
paystubs), bank statements, and other documentation. Including a
pre-approval letter along with your offer makes your offer much
stronger and will make the seller take you more seriously.
Shopping for a Home
An
agent will meet with you to discuss your price range and what you are
looking for in a home, and more importantly, help you clearly see the trade-offs between price-location-condition. She may have suggestions for alternate housing
types and neighborhoods. She will arrange to send you listings, and
will work with you to choose some homes to visit. She may send you
open house listings that meet your criteria so that you can visit some
homes on your own, and may also arrange private viewings of homes.
There are many options for conducting your search, and you should work
with your agent to determine how you will best work together.
Making and Negotiating the Offer
Did
you know 95% of offers are rejected? There are many factors--in
addition to price, of course, that go into an offer. Contingencies,
settlement dates, escalations, inspections, rent-backs, are just a few
of the many options. It's important that your agent conduct a thorough
market analysis to aid you determining what price to offer, but it's
also important that she discuss with you the strategy behind crafting
your offer. Now, more than ever, it's important to have a
knowledgeable agent that you trust as you make such a large
investment. Along with your offer, you will write a check that
represents your "earnest money deposit"--a show of good faith that you
are serious about proceeding with the transaction. This money is held
in escrow until settlement, when it is applied to your down payment
and/or closing costs.
Inspections and Appraisals
Once
the offer is "ratified", that is, the parties agree on the terms, your
contingencies will begin. Depending on how you crafted the offer you
may have a bank appraisal, home inspection, termite inspection, radon
inspection, a period to review condo or HOA documents, and a variety of
other clauses to act upon. At this time, you should make sure your
lender has all the information needed, arrange for hazard insurance,
and arrange to have your new utilities turned on for the day of
settlement.
Settlement (Closing) and Beyond
On
the day of settlement, you will conduct a final walk through of the
home. At settlement, you will sign your loan paperwork, provide the
remainder of your downpayment (after the earnest money is applied) and
closing costs, and receive keys to your new home. Your lender may
attend, and a good agent will always attend. Settlement costs include
title insurance, attorney's fees, recording and transfer taxes,
prepaids, escrows, and other charges. You should estimate about 2-3%
of the purchase price for closings costs.
You will want to begin to keep good records so you can take advantage of all the new tax breaks you are now entitled to!
You should work with your agent to monitor your investment using a neighborhood market analysis.
If you want to take on some remodeling or other projects, you can check out the Best Home Remodeling Projects
