Home Buyers: The Definitive Guide
No matter what stage of life you are at, buying a new house should be an exciting and rewarding experience. Whether you are a first-time buyer just starting out, upgrading to accommodate an expanding family, or settling into your forever home, navigating the real estate landscape and sorting through the paperwork (and there will be a lot of it!) can be a daunting task.
This guide will serve as an overview of the steps and procedures of purchasing a new home and what things you will want to consider during the process.
Before searching online, before going to open houses, before considering an offer, your first step should be visiting a mortgage lender or bank to determine what you can afford.
Keep in mind that what you can comfortably afford and what you are pre-approved for may be quite different. Most lenders will calculate a number that they would be willing to lend you based on your income, debt and monthly payment obligations (ie. heat/hydro, etc.).
This number might look great on paper, however, calculating an in-depth number of your own, factoring in variable expenses such as gas and groceries will help determine what monthly payment amount you can afford and still maintain your desired way of life.
When you meet with a mortgage broker or bank representative you will need to provide a lot of paperwork. The agent may want to have copies of tax returns, pay stubs and information regarding debt obligations.
Your lender will also be pulling your credit score, potentially from a number of sources, so it would be a good idea to check on the health of that number to ensure you don’t get stopped before you even start in the house search.
If your credit score needs some work there are a few options available. You can have a family member or friend co-sign, find a high-risk lender (however, this will probably come with a higher interest rate), or wait and work on improving your score.
Hire A Realtor
Once you have a mortgage pre-approval in hand, you are ready to move on and find an agent to assist you with your purchase.
There is no downside to having a realtor to assist in your purchase of a new home as it is at no cost to the buyer. (Exceptions apply when agreed upon by a purchaser).
Having a knowledgeable, informed and professional agent will ensure that all steps of your transaction will go as smoothly as possible.
When you are in the market for an agent, it would be a good idea to speak with family, friends and co-workers about who they might recommend. Many times you will know someone who has used a realtor and they will have first-hand experience to report about how they interact with clients and how effective they are at getting things done.
If you are looking online, make sure to look at customer reviews and make note of any issues that seem to be repetitive.
This is a significant purchase, and for most, it's the biggest purchase of their lives so making an educated and informed decision on who you would like to represent you should be a priority.
If you’ve narrowed down of a list of potential agents, setting up a meeting and asking questions will help determine who is a good fit for you and your situation.
Find A Home
Now comes the fun part! The search is on for your perfect home!
Before you go through open houses, compiling a list of things you can and cannot compromise on will help weed out homes that won’t fit your needs.
Bedroom and bathroom numbers, square footage, and property size should all be at the top of the list as those things have a huge impact on the functionality of a home.
Paint colors, layout and fixtures are all things that could be changed if desired so those probably will find themselves closer to the bottom of the list.
Other important things to determine, are which area of town you would like to live; the location is a key factor in this decision. Whether you want to have a short commute, be close to particular amenities or parks, or would like to be in a quiet subdivision vs. a downtown area, determining the area will impact the number of houses you will be looking at.
Knowing the answer to these questions will make sure you don’t find the “perfect” house miles outside of your desired neighborhood or “the one” with no backyard and garage.
List in hand, you are ready to start a search of potential houses. Checking out houses online will give you a chance to know if they are potentials before setting up a showing, thus saving you time.
Once you find a house that is worth taking a look at, you will either go to an open house if one is being held or have your realtor schedule a walk through.
It may be a good idea to look through a number of houses before settling on one as it will allow you to get a feel for what you want and need.
When walking through potential homes, make sure to make note of things such as the age of the roof, furnace, windows and doors. Take a look at the electrical panel and test out the plumbing by flushing the toilets and turning on the taps.
Make sure to also be clear on what is included in the asking price, (ie. the appliances, window treatments and outdoor equipment such as gazebos or hot tubs). Most times these are items that can be negotiated upon when you are submitting your offer for consideration.
Purchasing a new home is a large investment and should not be something that is rushed into with little thought. Take as much time as you need to find a house that will suit your needs and lifestyle.
Having a clear and thorough discussion with your family and realtor will help alleviate a lot of frustration and disappointment in the house hunting process, so make sure to keep those lines of communication open.
Submit An Offer
You found the one! Now it’s time to make an offer on the property. This part of the process is exciting and nerve-wracking as you wait to see if your offer is accepted.
Your realtor will either submit a written or verbal offer to the vendors or the vendor’s agent and they will do one of two things. Hopefully, your offer will be accepted and you can sign an agreement of purchase and sale.
If the sellers do not accept your offer, chances are they will submit a counter offer to your realtor and you will have the chance to either accept their counteroffer or submit a counteroffer of your own.
Once you’ve agreed on a price and conditions, you will have a contract drawn up by your real estate agent. At this point, you will submit a deposit, or “escrow fund” or “earnest money”. These funds are held by a third party and are credit to the buyer on closing.
Within a couple days of receiving an accepted offer, you realtor will aid in setting up a home inspection.
Even if your mortgage company doesn’t require a home inspection it is a good idea to have one done. The average cost of an inspection is between 300-500 dollars and can save a lot more than that if it uncovers costly repairs and extensive damage to the home.
Most offers are contingent on a home inspection and will allow the buyer to have an opportunity to renegotiate the offer or withdraw without being penalized if the inspection reveals major issues.
You will receive a copy of the home inspection along with your agent and if there is nothing alarming or concerning to you, the offer will proceed as agreed upon.
Accepted offer in hand, you are now ready to submit for mortgage approval.
Your mortgage agent or lending officer will now start the process of having your mortgage drawn up and funded by a bank or lending agency.
This step in the process will likely be the lengthiest one and will require good communication between yourself and your mortgage agent as they will have a number of documents you will need to submit and/or sign.
Your mortgage broker will be able to find you the best deal available from different lenders. You will then choose one and proceed with your loan. The funding will most likely come in closer to the end of the closing period.
Make sure to have all the necessary documents and information in order as this is the area where most problems can arise.
Appraisal & Insurance
Your lending company will most likely require a home appraisal as they will want to protect their loan as best as possible.
A home appraisal is required to ensure that the agreed-upon purchase price is not more than the value of the house. This is important to protect their interest as they will need to be able to recoup their loan in the event of default. If by chance, the home is valued at less than what you’ve agreed to pay for it, you will then need to either renegotiate the purchase price or finance the difference yourself.
You will also want to set up homeowners insurance for your house to protect yourself and your lender in case of fire, flood, or earthquake for example. Now is the time to shop around and find the best rate and fit for your needs.
Your lender will also be requiring title insurance for the property and may require you as the buyer to purchase a buyer’s title insurance policy as well. Regardless of if your mortgage company requires one, it may be in your best interest as a buyer’s title insurance policy protects against things such as liens or unpaid taxes.
It is a good idea to do everything you can to ensure the money you are putting into your house is protected as best as possible.
Final Walk Through
Your final walkthrough is a chance to go through the house one last time before you become the official owner.
This is the opportunity to ensure that all agreed upon work has been completed and that the home is in the condition you agreed to purchase it in.
You will also want to make sure there is no additional damage or unexpected issues with the home as it will be easier to address the problems before closing than trying to deal with them after the fact.
Another thing you will want to ensure is that all the agreed upon fixtures are still at the property. For example, if your purchase contract stated that you will be buying the appliances in the agreed upon price you will want to make sure they are at the property and are the same ones you looked at.
The big day is finally here! One final step before you become the proud owner of a new home.
On closing, you will need to have your pen well inked as you will be signing numerous documents pertaining to the purchase and your loan.
You will meet with a title agency and realtor to finalize all the paperwork. The sellers will also have their teams there to sign paperwork as well.
There will be a lot of documents that you will need to go through so take your time and make sure you are comfortable and fully understand all the terminology and contracts before they are signed.
Depending on your state, you may require an attorney to assist you with the closing documents. If this is the case, your lawyer will be present for this meeting as well.
Once all the appropriate documents are signed, you will need to provide the lawyer or title agent with certified funds to cover the remainder of the closing costs. These costs will differ from state to state and even city to city. It would be in your best interest to have a clear understanding of all the fees associated with closing so you are able to provide the funds on the day of closing.
Now that the signing is all done, the documents are submitted, money changes hands and depending on the agreement made with the seller, you will be getting the keys to your new place!