One of the keys to making the homebuying process easier and more understandable is proper planning. In doing so, you'll be able to anticipate requests from lenders, lawyers and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the homebuying process. A REALTOR® can guide you through this process from selecting a home to preparing the purchase agreement and eventually closing the transaction.
Step 1: Work with a REALTOR®
Buying real estate is a complex matter. It is in your best interest to work with a local REALTOR® who knows and services your area. He/she can also guide you through the maze of paperwork required as well as assist you with negotiating the transaction, procuring financing, inspections and eventually closing the deal.
"Preapproval" means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power. You can visit as many lenders as you like and get several preapprovals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.
Although not a final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained.
Real estate financing is procured from numerous sources but most commonly involves banks and mortgage companies. Based on his or her experience, your REALTOR® may suggest one or more lenders with a history of offering competitive programs and delivering promised rates and terms.
Most of today's home buyers begin and continue their search for homes on a variety of Internet web sites because they provide all of the necessary detailed information along with multiple photos of the property.
Each of us is different and so it's important to list the features and benefits you want in a home. Consider such things as pricing, location, size, amenities (extras such as a pool or extra-large kitchen) and design (one floor or two, colonial or modern, etc.).
Next, it's important to set your priorities. If you can't get a home at your price with all the features you want, then determine which features are most important? For instance, would you trade fewer bedrooms for a larger kitchen? A longer commute for a bigger lot and lower cost?
Lastly, consider what your circumstances will be in several years. For instance, if you'll be needing a larger home, maybe it is best to purchase a bigger house now rather than moving or expanding in the future.
Once you have made your selection, a purchase agreement is prepared indicating the various terms of the transaction along with the price you are willing to pay. Typically your REALTOR® will then present the offer to the seller and the seller's representative. No aspect of the home buying process is more complex, personal or variable than negotiating between buyer and seller. This is the point where the value of an experienced REALTOR® is extremely beneficial to you. The seller may accept the offer, make a counter offer or reject it. Because counter offers are common, it is important to keep in close contact with the REALTOR® so that any proposed changes can be quickly reviewed. Once there is an agreement on all issues, you have purchased your new home. The next step is financing.
To obtain a loan you must complete a written loan application and provide supporting documentation. Your REALTOR® will provide you with a list of documents that will be needed at your loan application.
How many inspections? A number of inspections are common in residential real estate transactions. They include structural inspections, checks for termites, well and septic where applicable, surveys to determine boundaries, appraisals to determine value for lenders, and title reviews.
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.
Homeowners' insurance provides fire, theft and liability coverage.
Flood insurance is only required generally 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.
Home warranties are generally provided from the builder on new homes. For existing homes, warranties 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 the replacement cost.
Prior to closing, buyers typically have a final opportunity to walk through the property to assure that the condition has not materially changed since the purchase agreement was signed. The closing process, which in different parts of the country is also known as "settlement" or "escrow", has become increasingly computerized and automated. All paperwork has been prepared by closing agents, title companies, lenders and lawyers. In some cases, buyers and sellers don't need to attend the closing as the signed paperwork is sent to the closing agent via overnight delivery.
The actual settlement is generally a brief process where all of the necessary paperwork needed to complete the transaction is signed. The closing is usually held in an office setting, sometimes with both buyer and seller at the same table or with each party completing their papers separately.
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.
For most people, their 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.