Buying a Home
Buying a home is a process; a series of events. Sometimes the process only takes a few months and for others it can take years. But no matter which time frame you fall into, it can be a complicated process!
Are You Ready to Buy?
For most buyers, the condition of the market is the least important factor when deciding whether and when to buy a home. Everyone hears it is best to buy a home in a "buyers market," when home prices and interest rates are at their lowest. But trying to time the market is very difficult. Many buyers get caught up in the game of trying to make sure they buy at the absolute bottom of the market. Often times they end up losing out on other favorable conditions.
For most people, the most important considerations when deciding whether and when to buy a home are personal, not market driven. Most buyers decide to buy when it makes sense for their life plans; their family plans; their career plans; and their financial plans. This is up to you and can be the most difficult part of the entire process!
I. Determine Your Price Range and Get Pre-Qualified
If you do not have a lender that you trust, talk to your real estate agent. You need to find a lender that you are comfortable with and one that has the ability to get transactions closed in the timely manner required of today's real estate sales contract. Otherwise, you may end up working with a competent mortgage broker who has a great track record when it comes to refinancing, but can't keep up with the pace and common obstacles of getting a home financed in the context of a sale. You also want a lender that has a wide variety of loan packages available for you to choose from. You need to consider how long you plan to keep the home, if you are eligible for any government backed loans, how much down payment money you have, and what your credit rating and debt ratio is. Many mortgage companies and banks are competitive when it comes to interest rates and the various fees that they charge. Any lender you speak with should be able to provide you with a Good Faith Estimate (GFE). This is a form that breaks down all of the fees, closing costs and expenses associated with closing on a home. It is not enough to simply compare interest rates. In addition, lenders are now required to guarantee that these fees and expenses do not vary much from what they originally told you. As a result, there should be no surprises at the closing table. It pays to shop for a mortgage!
Determining how much home you can comfortably afford is crucial before you go out and begin looking at homes to purchase. Many sellers require that buyers submit a prequalification letter with an offer to purchase. Thus it is important to visit a lender and have them pre-qualify or pre-approve you. Prequalification is simply an estimate of what a lender thinks you can afford based on the information provided by you. Loan approval is a step further where the lender has verified the information provided by you and agrees to lend you a specified amount of money. Once you have been pre-qualified by a lender, they can provide you a letter stating that they have previewed your information and you are qualified to buy a home. For more detailed information on the various types of loans available, see Mortgage Financing.
Find Your Dream Home
Hire a Buyer's Agent! Check out our information on Hiring a Buyer's Agent and Accredited Buyer Representative. You may also want to review our information on Short Sales and Foreclosures, especially in today's market.
Short sales and foreclosures have grown to comprise roughly 30 percent of the homes sold on today's market, even higher in some areas. However, it's not always the case that foreclosed homes or short sales - homes which are being sold for less than what the seller owes on their mortgage(s) - offer the buyer the best deal.
Mortgage servicers and asset managers who make decisions about distressed properties are on the hook to their investors to recoup as close as possible to the current fair market value of every home they sell. Some banks even have a general rule of rejecting offers more than 10 percent or so below the home's list price. They prefer instead to reduce the price by that amount and put the home back on the open market to see if any new buyers are activated by the price reduction to make an offer better than the lowball offer. On short sales, the bank is trying to get as close as possible to recovering what the seller owes - and may or may not be concerned with what the fair market value of the home is. Most of the time, there will be a big gap between fair market value and the seller's outstanding mortgage balance. If there wasn't, the seller wouldn't need to do a short sale!
With so many distressed properties and homes with depressed values on the market, in many areas, the individual, non-distressed home sellers who are putting their homes up for sale right now are those who are very motivated to sell. Further, they are more likely to be flexible with you on everything that is negotiable, from contingencies, escrow periods, price, repairs and personal property.
Also, individual sellers can be emotionally motivated to sell to move on with their lives, get into their new house, or move on to their next job. Banks, on the other hand, lack that emotional sense of urgency to get the properties sold, no matter how urgently you may think they should be trying to get rid of the foreclosed properties they own. Long story short: you can sometimes negotiate a better deal with an individual seller on a "regular" sale than with a bank on a distressed home sale. So, don't limit your house hunt to foreclosures and short sales, if you're looking for a good deal on your home.
At NC Realty Solutions, we are dedicated to helping you find the right home for you and your family. Don't spend hours searching all the websites out there on your own! If you are not working with another Realtor, we can set you up on your own private search engine that will allow you to search the local MLS in "real time." There are many websites out there that advertise homes for sale. Not many of them are capable of keeping you in touch with the static market. Our search engine will allow you to keep track of homes that fit your criteria. Once your search is set up, you will be notified by email when a new listing comes on the market, photos are updated, or if it has a price reduction or goes under contract. This can save you hours of searching on your own, while also allowing you to be first in viewing homes as they come on the market!
Once you have a list of properties to view, your Buyer's Agent can schedule appointments to see them all. In viewing homes, you will look at condition, location, size, price, amenities, adverse qualities, re-sale issues, etc. Many buyers wonder how many houses they should look at before selecting one to pursue. There is no standard answer. It is what YOU are comfortable with. We do caution about trying to see too many, as this often causes more confusion and doubt than necessary. On the other hand, if there are not many properties that fit your criteria, why not see as many as possible to determine if one is distinctly better than another. In addition, as agents, we do this for a living. We can recognize "deals" or issues faster than you can. The only way to learn the market is to see homes first hand and decide what you can "get for your money." Our job as your buyer agent is to help you get the best price, terms and conditions possible. We also want to ensure that you are investing wisely. Remember: we may have to sell this home for you down the road when you are ready to relocate to another property! Your job in viewing properties is to keep good notes, know what you want, and be ready to write an offer when the right house comes along. Your agent will help you sort through all the details, disclosures and market values.
Submit an Offer to Purchase/Negotiations
Again: Hire a Buyer's Agent! Do not attempt to navigate this difficult process on your own. A professional, experienced agent knows the market, the ever-changing forms and addenda that are required, and they can prepare you for any potential obstacles that you may face. Before you write the offer, your Buyer's Agent will show you what the fair market value is of similar homes to the one you are considering. In addition, they will review with you what the Due Diligence fee and process is, as well as the role of Earnest Money. They will review and explain all disclosures associated with the property and the neighborhood. They can investigate utility companies, schools and nearby amenities before you write the offer, saving you time and money in your decision to purchase the home. Once the Offer to Purchase and Contract is submitted to the seller, the negotiations begin. You already knew what the seller wanted for their home. They put it in MLS. Your offer tells the seller what you are willing to pay for their home and under what conditions. Very few offers are simply accepted as written. Be prepared to give and take. What is important to you may be a flexible point for the seller and vice-versa. Keep in mind that you both have the same goal: they want to sell you their house and you want to buy it. Your agent will work to negotiate on your behalf and get you the best deal they can. Only you can decide if the terms are acceptable. Keep in mind you will have paid for a Due Diligence period in which you can inspect the property, get your financing in order, request repairs and decide if you want to continue with the sale. Up to that point, you can terminate the contract for any or no reason.
Due Diligence to Close
At this point, your offer has been accepted and the Due Diligence period and inspection process begins. We recommend that you attend your home inspections. When it comes to inspections, many first-time buyers expect that a home will either pass or fail. But, the home inspection is more about educating you, the buyer, as to the details and nuances of the home's condition than about seeing if the place hits a particular target for "good" or "bad" condition. Home inspectors don't just look for things that need fixing, they also look to understand the home's systems and features, as well as to point out areas that will require your ongoing maintenance, highlight emergency shutoffs and other need-to-knows, and indicating where you should have specialists further inspect items of concern. Many home inspectors create detailed electronic reports - some, complete with color photos. In addition, many inspectors can give you a range of what it might cost you to do various repairs, indicating whether the needed repairs are a "big deal" or "$10 home improvement store" fix. You'll get much more of the detailed information you need to know for negotiating repairs and whether to move forward with the transaction if you attend the inspection. Your Buyer's Agent will attend this with you to help you in your decisions.
In addition to inspections, you should be working with your lender to secure your financing. The lender will require a lot of documentation regarding your income, credit rating, work history, tax returns and more. You may need to pay for a professional appraisal and order an official survey. You will also need to hire a real estate attorney to prepare the closing documents, complete a title search and conduct the actual closing settlement. Your Buyer's Agent should be able to assist you with all of these details from recommending a qualified inspector to communicating with the lender and attorney to coordinate all your paperwork. Once the Due Diligence period expires, you cannot easily terminate the contract and get your earnest money back. It is important to pay attention to this date and act accordingly. Again, your professional Buyer's Agent has experience with this and can advise you along the way.
Once the closing attorney has completed the settlement, disbursed all the money and recorded the new deed in your name, the property is yours. Congratulations on your new home!