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THE BUYER'S GUIDE TO
PROPERTY PURCHASE
Buying a home can be both exciting and scary at the same time. Most first time home buyers experience a full range of emotions as they go
from elation to depression and back again. This is a completely normal reaction, so don't hit the panic button if you find that things are seeming to "move too fast" at times.
Br>Take a deep breath and think of the benefits of home ownership...
- Improved Credit Rating - having a mortgage that you pay on time every month improves your credit substantially.
- Solid Investment - home values are constantly appreciating, and this helps you build equity. Meanwhile, of course, you have "your own roof" over your head.
- A Sense of Pride - there's nothing like owning your own home to give you a great sense of achievement.
- Tax Advantages - don't forget that interest on your home loan is tax deductible.
It generally needs a combination of three criteria to buy a house: some cash,
a dependable income and good credit. If you fall short in any of these areas, there are plenty of programs that can still help you achieve homeownership no matter what your financial situation.
Getting Started
Before you begin the process of buying a property you should consider the following:
- Determine Your Buying Objectives. Why do you want to buy a home? Do
you need more room? Are you downsizing? Are you tired of paying a monthly rent
with nothing in return?
- Determine Your Needs. Prioritize what is most important to you when
you buy. Is it the style of the home? The size of the property? The standard of
the neighborhood? The quality of the local schools? Keep in mind that there is a difference between what you
need and what you want, so be realistic.
- Become Informed. If you're a first-time buyer, learn everything you can about the buying process. This
article will help, and so will our other online articles.
Research the market using the internet to see what homes are for sale in the area you
want to live. Check out the classified ads and home for sale magazines, Drive around neighborhoods you're interested in
(particularly in the evening and at night).
- Get Your Financing in Order. Now is not a good time to make major purchases on
your credit cards. And don't change your job just before making a mortgage
application.
Know What You Can Afford
When making the decision to purchase a new home, the first thing you must decide is how much you can afford. Determining this early in the
decision process will save you a lot of time and frustration later. Not only will you have a clearer idea of the amount you can spend, but you can also eliminate all those homes that are not in your
price range.
Pre-Arranging your Financing
- Credit Report - Contact a credit bureau and get a credit report on yourself, just to make sure
the details are accurate. If you don't like what you see then you need to clear up any problem items
or mistakes.
- Save Money - Skip a vacation, a few movies or dinners out to save money for a down payment and closing costs. Try not to buy anything on credit and, if you do, pay it off quickly.
Avoid taking on any large credit expenses, and do not apply for another credit card.
- Get Pre-Approved for a Mortgage - It pays to get pre-approved for a mortgage
as soon as possible. Pre-approval gives you a lot more negotiating power once you've found that perfect house. Pre-Approval...
- Gives you More Buying Power. It lets you know in advance how much you can afford to spend on a home.
- Gives you More Control. You have the negotiating power of a "cash" buyer when you can show that your financing is already in place.
- Faster Closing. You can close in as little as 15 days compared to the average 60 days for non-approved borrowers.
- Saves Money. You can lock in at a better interest rate. (Ask your lender about a 30-day rate lock instead of the normal 60 days.)
Don't confuse "Pre-Qualification" with "Pre-Approval".
Pre-Qualification is a "guesstimate" of what a buyer might qualify for prior to actually submitting a mortgage application. Based on the unverified financial information you provide, the lender uses a quick calculation to arrive at a
*possible* loan amount. Pre-Approval means that the lender has verified your financial information and has actually committed money in your name for a specific loan type and amount. With today's technology, you can receive loan pre-approval in minutes.
By now you should be well into your home search. If you haven't already been pre-approved for a loan, now is the time. Pre-approval lets you know in advance how much you can afford to spend, gives you more negotiating power because you have financing in place and can save you money by locking in an interest rate early in the buying process.
What Type of Loan Is Right For You?
When choosing a mortgage, make sure you find out…
- The down payment that is required
- Both the interest rate and the annual percentage rate (APR)
- Standard closing costs (and any extra fee the lender may charge and why)
- Be aware that your mortgage may be resold on the secondary market, so you could end up paying somebody different to when you made you application.
There are many different types of loans available. Here are just a few
Bridge Loan. Should you sell your present home before buying a new one or buy first and then sell
your existing home? Most people need the equity in their current home to purchase a new one. But what if you sell first and don't have anywhere to go? A bridge loan may be an option. A bridge loan is a temporary loan that you obtain from your lender until the permanent one can be put in place.
Normally they are only made available when you have a definite buyer for your own home.
Once the primary mortgage is in place, the bridge loan is paid off and closed out. But
be aware that, while waiting for a closing on your current home, you will be making two mortgage payments. You will owe your present mortgage payment plus the payment on the bridge loan. Be
sure you can afford it.
Conventional Mortgages. A conventional mortgage offers a fixed rate. They typically come in 10, 15 or 30-year loans. Although conventional loans used to require 20% down, most people today put 10% down (68% of buyers today put less than 20% down). Just keep in mind, if you put less than 20% down, you'll be asked to carry private mortgage insurance (PMI). If you're a first-time homebuyer, there are many low down payment loans available that ask for 3-10% down.
Adjustable Rate Mortgages. Adjustable rate mortgages carry an interest rate that changes to keep pace with current market rates. This is a good idea for buyers planning to stay in their home for a short time. If you plan to stay in the home for an extended period of time, you're better off locking in
at a fixed rate with a conventional loan.
FHA Mortgages. Loans through The Federal Housing Administration (FHA) help low-to-moderate income home buyers purchase homes with low down payments (approximately 3%). You can use a gift or unsecured loan for the down payment and closing costs. Also, these loans are usually assumable (along with the current interest rate) by the next qualified home owner when you sell your home, which is an added benefit when it comes time to sell.
VA Mortgages. Veteran Affairs loans are great because they provide the opportunity to buy a home with no down payment. They are offered up to a predetermined loan amount (not more than $200,000) and are
only for veterans who are either on active duty or have a discharge
and who can claim one of the following:
- 180 days active (not reserve) duty between September 16, 1940 and September 7, 1980
- 90 days service during a war (Korean, Vietnam, Persian Gulf, etc.)
- Six years service in the National Guard
Balloon Mortgages. The Balloon Mortgage has a fixed rate for a certain time frame, typically seven years, followed by a "balloon" payment requiring repayment of the entire home loan balance. Interest rates are generally lower than conventional loans. People may choose this type of loan because they plan on either selling the home, paying it off, or refinancing before the balloon payment is due.
For all types of loans, most lenders require you pay real estate taxes and insurance on a monthly basis. This cost is included in your monthly mortgage payment, placed in an escrow account, and paid out by your mortgage company.
Searching for a Home
This is where the fun begins!
If you choose to buy a property directly through having seen the
property in a "For Sale By Owner" web site like Property-Seekers, the home seller may
well reduce the price by up to 5% if there's no buyer's agent involved. There's no certainty about this since the seller may well have appointed a selling agent who is going to charge commission even if he didn't introduce the buyer himself!
It's a good idea to protect yourself with a real estate attorney. Choose your attorney before you start shopping for a home, because it's too late for legal advice
once you've signed a contract.
Beginning your home search
Become familiar with the area where you're considering buying. Make sure it meets your needs (e.g. near a park, shopping, public transportation, etc.) Drive around
(particularly during the evenings). Attend open houses. Talk to friends and colleagues. You may want to select two or three neighborhoods to broaden your options.
It may also be helpful to take photos of each of the homes you're interested in. Make personal notes
about each of them. This will help you stay organized and remember what you've seen.
You may also want to create a profile of the ideal scenario you'd like
to find in your next home.
- Goals - why are you buying a new property?
- Features - what you need vs. what you want?
- Location - is it close to work, in a particular school district, near shopping, etc.?
- Style - what type of home fits your needs, lifestyle and taste?
- Lot - what is the size? What does it feature (wooded, fenced in, etc.)?
- General condition - is it in good shape?
- Neighbors - try to get an idea of what kind of neighbors you will have.
- Taxes - verify taxes and any current assessments on the home you're considering buying.
If you would like information on a specific community in U.S.A., you can CLICK HERE to get great information
Where to find homes?
Yard Signs. Hit the pavement and drive around neighborhoods that interest you.
Classified Ads and Homes Magazines. Start reviewing your local newspaper and pick up a free homes magazine at your local grocery store.
Internet. More than 72% of home buyers today begin their home search on the Internet. Chances are the real estate companies in your community post their homes on their own website or on aggregator real estate sites like Realtor.com, Yahoo! RealEstate or MSN HomeAdvisor. To find For Sale By Owner homes for sale in your area use Property-Seekers --- it's as simple as that!
Open Houses. Check out the local newspaper and local real estate websites to identify open houses you would like to attend.
Making an Offer
Okay, so you've found the home of your dreams! But before you make a formal offer, you need to make sure the home is priced correctly. You don't want to overpay. Typically used when selling a home, a comparable market analysis (CMA) lists the recent sale information of nearby homes, including how long each home stayed on the market, how close the asking price was to the actual sales price, etc. It then compares the information regarding these houses with the one
you're interested in.
If you're using an agent, they will do this for you to help you determine a realistic price. There are
many online appraisal services that can provide you with a CMA. Just open your favorite web browser, type in online property appraisal service followed by the city of area you're interested in.
As you go through this buying process, remember that everything is negotiable, and everything should be in writing. You should be very specific when you prepare your purchase offer, and the seller should be equally specific when they issue their counter offer. Don't forget to think ahead in terms of the top price you're willing to pay. It's a very emotional time and making some decisions early on is a good idea. Other tips include…
- Don't make a verbal offer.
- Don't offer full price (even if the home is a real steal). You always need room to negotiate.
- Include home inspections. Make sure you have an "out" written into the contract if the inspection turns up major repair problems that cannot be resolved with the seller.
- Make sure the contract includes an "out" in the event you cannot secure financing.
- If you're not using an agent, make sure you consult with a real estate attorney.
Earnest money proves to house sellers that you're serious. After all, they're going to take their home off the market on your behalf. Earnest money is typically between 1-5% of the purchase price, but less is possible. The money should be held by an attorney or title company in escrow.
Never give the money directly to the house seller. Such a deposit does not mean you're bound to the contract. Your full deposit is credited toward the down payment and closing costs.
Once your offer is accepted, it becomes a binding contract, so be sure to include the necessary contingencies. Contingencies are clauses that, if not met, will render the contract null and void. Common contingencies are the sale being subject to approved financing, the sale of an existing home and/or a satisfactory home inspection.
Home Inspections
You've made your offer. Now you need to have an expert verify "what you see is what you're buying." A formal inspection determines if anything needs to be repaired or replaced. If you're using a real estate agent, they'll arrange the inspection for you. If you're on your own, make sure the contract indicates who pays for the inspection and whether you or the seller is responsible for any necessary work. The contract should also include a contingency in case the inspection reveals any repairs that cannot be resolved with the seller.
Licensed home inspectors inspect homes to determine what, if anything needs repairing or replacing. Typical inspections may include...
- Termites - signs of termites in the home or foundation.
- Plumbing - checks for leaks, dripping faucets, toilet tank leaks, etc..
- Electrical - up to code? Checks that all light switches and wall sockets are working properly
- Exterior - settling cracks, paint peeling
- Interior - signs of leaks in walls or ceilings, structure and general condition
- The Roof - checks for leaks or damage
- Windows- good condition and sealed
- Insulation - up to code?
- Appliances - checks that they work along with heating and air conditioning units
- Radon Gas - an odorless and colorless gas that is sometimes found in the earth's rock and soil
- Lead-Based Paint - some older homes may still have lead-based paint that can be hazardous if ingested
- Asbestos - homes built in the early 1970s and before often had asbestos tile floors and asbestos ceiling tiles. This substance poses a health risk and must be removed
The home inspector will write up an inspection report with all minor and major
defects itemized. Good inspectors will find minor flaws in nearly any home. It's
up to you to decide how important they are. It is also helpful to be present
during the inspection. Inspectors often provide you tips on the maintenance and
upkeep of the home and its systems.
Now that the inspection is done, it's time to move into the title and closing phase.
Understanding The Legalities
Some people can get confused about the legal side of the real estate
transaction, but with a little knowledge and guidance, it's easy to
understand...
Title Insurance
When you buy a home, a title company examines the chain of titles (previous owners) to insure that there are no problems with obtaining clear
ownership of the property. Parties other than the current owner of the home may have rights to it for things such as mortgages, liens due to unpaid taxes, lien claims to those who the owner owes money, etc. As a new owner, you may know nothing about these risks, but you are still vulnerable to such claims on your property. A deed is not sufficient protection. That's why title insurance is necessary.
It is very common for title companies to also handle the escrow portion
of the transaction, meaning they serve as a neutral party to exchange funds and
make sure both parties adhere to the agreed upon terms of the contract.
Home Appraisal
Lenders require appraisals to confirm that the home for which they're providing you a loan is in fact worth the amount you're paying. Appraisers are independent agents normally hired by the lender, however you may have a choice. The fees appraisers charge vary and are typically built into your loan costs. Your lender may also require a Location Survey that certifies the house is within the boundaries of the lot. The lender often selects the surveyor, but again, you may have a choice. The lender usually pays for the cost of an appraisal. Then it's factored into the buyer's closing cost.
Homeowner's Insurance
If you are not assuming the seller's homeowner's policy, you will need to buy your own. Title will not be transferred until you can prove you have the home covered by insurance. This protects you for things such as fire, flood, tornados, or any other damage to the home. You may also consider additional levels of insurance to cover natural disasters that are more prevalent in your area.
Escrow and Closing
Congratulations! You're only a few steps away from being in your next home! You've purchased
the property, but you don't actually own it yet. You need to finalize the deal. This is known as closing or settlement.
The escrow agent conducts the closing and is often affiliated with the title insurance company. Their job is to ensure the buyer obtains a clean title, the lender obtains a good mortgage, that the costs of the transaction are paid, that the seller's mortgage is paid off, and that the seller receives their proceeds.
The escrow agent prepares a closing statement that outlines what the required funds are, who's paying and where the funds are going toward They will not disburse funds until they can guarantee that the above noted items have been taken care of.
Other Items
Utilities - Water, gas and electric meters will be read on the day of closing and the seller will owe for the utility usage up until that day. You may also need to make deposits with both the water and electric companies.
Service Contracts - If you are taking over any service contracts from the home seller, you will owe the seller for the unused portion of those contracts that have been pre-paid. These could include pest control, pool and/or lawn services, home maintenance contracts, etc.
The Check - The title/escrow company you are using will tell you how much you need to bring to closing. Personal checks are not accepted, so bring a cashier's check.
Home Warranty - It's highly recommended that you purchase a home warranty. This will cover the repair or replacement costs in case items such as appliances break down after you purchase the home. The peace of mind is worth the expense.
There's nothing like the dream of homeownership. The pride and stability you feel when you come home to a place that you know is yours is hard to describe. The goal of Property-Seekers is to empower home buyers with easy to use information to ensure they make informed choices. We hope this guide provided you insight into and help with the home buying process.
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