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Are You Ready?
One of the keys to making the home-buying process easier and more understandable is 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 home-buying process.
Do You Know What You Want? Why do you want to buy? What would you like in terms of real estate that you do not now have? Do you have a purchasing timeframe? The more you know about the real estate marketplace, the more likely you are to effectively define your goals.
What Can You Afford?
The price you can afford to pay for a home depends on several factors, such as:
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gross income |
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the funds you have available for the down payment, closing costs and cash reserves required by the lender |
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your debt |
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your credit history |
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the type of mortgage you select |
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current interest rates |
Over the years new and innovative loan programs have evolved which require a 5 percent down payment or less. In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan). Less money down means higher monthly mortgage payments, so most home buyers choose to buy with some cash up front. Make sure you know what monthly payments you can afford before you start looking.
Are Your Finances in Order? Buyers need good credit. Your credit history or credit record is a record of your past borrowing and repaying, including information about late payments and bankruptcy.
When you fill out an application for credit from a bank, store or credit card company, your information is forwarded to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files. This information is used by lenders to determine an individual’s credit worthiness. That is to determine an individual's willingness to repay a debt. The willingness to repay a debt is indicated by how timely past payments have been made to other lenders. Lenders like to see consumer debt obligations paid on a monthly basis. The other factor in determining whether a lender will provide a consumer credit or a loan is dependent on income. The higher the income, all other things being equal, the more credit the consumer can access. However, lenders make credit granting decisions based on both ability to repay a debt (income) and willingness (the credit report) as indicated in the past payment history.
Get a Professional Realtor®
A basic rule in real estate is that all properties are unique. No two properties — even identical models on the same street — are precisely and exactly alike. Homes differ and so do contract terms, financing options, inspection requirements and closing costs. Also, no two transactions are alike.
In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with professionals who know the community as well as all the intricate legalese of real estate.
Get Loan Pre-approval
Few people can buy a home for cash. The real issue with real estate financing is not getting a loan (many people willing to pay high interest rates can find a mortgage). Rather, the idea is to get the loan that's right for you — the mortgage with the lowest cost and best terms. Henkle Schueler strongly encourages potential buyers to start the mortgage process well before looking for a home. By meeting with lenders and looking at loan options, a buyer will find which programs best meet their needs and how much they can afford.
A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you’ll be able to finance through a loan and what your monthly payment will be. It pays to check with several lenders before you start searching for a home. Preapproval enables you to move swiftly when you find the right home, especially when there are other interested buyers. Although not a final loan commitment, the preapproval letter indicates to the buyer that you are serious and can afford to buy the property. 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.
There’s another reason for preapprovals: purchase forms often require buyers to apply for financing within a given time period, in many cases it can be seven to 10 days. By meeting with loan officers in advance and identifying mortgage programs, it won't be necessary to quickly find a lender, check credit and rush into a financing decision that may not be the best option.
Look at Homes
Before you start looking at homes, consider what you want. It’s important to list the features and benefits you want in a home. (Open House Buyer Checklist) Consider such things as pricing, location, size, amenities and design. Next, consider your priorities, your lifestyle and type of home you want. Focus on the features you must have, would like to have, definitely don’t want and would prefer not to have. What do you absolutely need/want? Where do you want to live? How far are you willing to commute to work? Then, consider what your needs may be in several years. Henkle Schueler’s real estate professionals have the expertise to help you narrow down the choices. For more suggestions, see Buyer’s Tips.
Choose a Home
After touring each home, write down what you liked and didn’t like. Perhaps you’ll want to use a ratings system that will help narrow the field. Once you have found “the home,” be prepared to make an offer. This is the stage when your real estate agent’s experience is absolutely essential to guide you through the financial and contractual side of the purchase. The bargaining between buyers and sellers is all about strategy. No aspect of the home buying process is more complex, personal or variable. An experienced Henkle Schueler sales associate knows the community, has seen numerous homes for sale, knows local values and has spent years negotiating real estate transactions.
Get Funding
Once your offer has been accepted, you need to finalize your financing. There are thousands of loans from a variety of lenders but, in general, the mortgage you choose will likely be determined by at least several key factors, including:
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How much do you want to put down? |
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If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as a private mortgage insurer. |
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How’s your credit? |
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Are you a first-time buyer? Currently there are special programs for first time buyers. |
To obtain a loan, you must complete a written loan application and provide supporting documentation. There are a variety of mortgage and loan options to consider. Talk to lenders about which options might work best for you. A home inspection must also be done before a lender gives the final loan approval.
Get Insurance
Real estate insurance is essential to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime. There are various forms of insurance associated with home ownership, including these major types:
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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). |
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Homeowners' insurance (provides fire, theft and liability coverage). |
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Flood insurance (generally required 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). |
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Home warranties (with new homes, buyers want assurance that if something goes wrong after completion the builder will be there to make repairs). |
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Henkle Schueler also offers home warranties on pre-owned homes. Ask one of our sales associates for details. |
Closing
The closing process, also called "settlement" or "escrow," is a brief process in which all of the necessary paperwork is signed to officially transfer ownership of the home from the seller to you. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately. All papers have been prepared by closing agents, title companies and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests.
Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.
What’s Next?
At the closing, determine the status of the utilities, including water, sewage, gas, electric and oil service. Utility fees should be paid in full by the owners as of the closing and the services should then be transferred to your name for billing.
About two weeks after closing, check your local property records office to confirm that your deed has been officially recorded.
Maintain fire, theft and liability insurance.
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