If you are buying your first home,
you are to be truly commended. It is a
tremendous undertaking, and certainly nothing to be taken lightly. Whether you are looking to buy a fixer-upper,
or a move-in ready home, buying a home requires some actual homework. Not a lot a homework, but enough to be able
to maneuver through the process so that you will know what is around the next
turn in the home buying process. With
that said, there is no guarantee that the process, if fully followed, will
result in the successful purchase of your home, but at least, your strategy to
buy a home will be more informative and reliable when you make an offer,
conduct an inspection, or close on your home.
Now, let’s get into the home buying process.
Calling in?-While it may seem insignificant, stopping by a For Sale sign and calling the office or
agent is just one aspect of the home buying process. Or, maybe you called from the
internet, or left your name in a drop-down menu for them to capture your info
where they either called you or email you for a follow up. No matter how it started, you were already on
the road to becoming a home buyer. It
may have not been a lot of fireworks when it began, but you were off to an
exciting opportunity, and from there, unless you were fully aware of what you
were about to get into, you were in for an experience of a life time. Welcome aboard!
From the initial contact, the home
buying process has an overall order that can’t be by-passed. Although there are some blurred lines at the
beginning, there is one part that once you get through it, there is no question
about what is to follow. Here is where
the blurred line occurs, but only for a short period of time.
What comes first, the agent or the lender?-Depending on whom you
ask, the answers may vary. But no matter
who you ask, the lender or the agent, starting with one will lead you to the
other, and that’s for certain. If you
ask me, an agent, you should start with your lender. Why?
If you are looking to buy a home with financing, you might as well get
pre-qualified
. Pre-qualified is one of two terms that are
confusing to buyers. The other term is
pre-approved. Pre-qualifying occurs in
the preliminary process and can be conducted by your lender or agent. The process takes a few moments of gathering
some preliminary financial information from the buyer in terms of their sources
income, how much monthly, and household expenses. From there, an estimate is determined of how
much home a potential buyer can purchase.
A Pre-approval
,
is conducted by the lender. Their process
is more extensive, where it takes into account all of the previously mentioned
information, but also looks into credit history, overall expenses, rental
history, taxes and bank statements, all in an effort to determine a score that
helps the lender, the buyer, and the agent to make sure that the house of
interest is affordable to the potential buyer.
Below is an overview of the home
buying process. Again, I caution that
your results may vary. One of the key
components to the home buying process, when financing, will be confirming your
ability to buy your first home. This
obviously means that as a buyer, you have the financial wherewithal to obtain
the money to buy a home. The ability to
buy a home, as many of you will learn, does not necessarily mean that you have
to run down to your local bank or loan office to buy a house. You may be able to finance your first home
through the seller him or herself. We
will discuss that option in a different forum.
But if you do decide to do owner financing, know your rights and
limitations if you decide to go for non-traditional financing.
The outline below does not tell
you how to buy a house, it gives you an insight as to what should ordinarily
occur in the process of a buying a home.
There is no absolute ABC’s to buying a home, but the manner in which the
home buying process is laid out here is designed to a give you a close to an
ABC approach as possible.
How much
home can you afford? There is a
formula for determining how much home you can afford. It generally states that your house note
should account for no than 28% of your monthly income, and that your total
expenses should not exceed 36%.
In theory, if you make $2,000 a month, your
house note with P&I, Insurance and taxes (someone correct me if I am wrong)
should be approximately $560.00. If you
are following with that formula, your total expenses should not exceed $720.00
a month. This formula follows the
government’s FHA loan requirements,
but differs for a conventional type loan,
where the amount that you can carry for total expenses maybe higher.
Is this a
good time to buy a home? That is a great question. When is it the worse time to buy a house for
a real estate professional? Wrong answer! Never! Is this the best time to buy a house? Well, if you find yourself asking, then it
must be a good time to buy a house. You
may run into those who will point out that interest rates are too high; that
flood insurance is going up; that you probably could rent cheaper than you can
buy a house; or, that to maintain a house is extremely expensive. All of these maybe great reasons to not buy a
house, and sufficient enough for anyone who was willing to hedge their bets, to
not buy a house at this time. But, if
you are sincerely interested in buying your first home, interest rates maybe
the least of your concerns, the cost to maintain a home will be
inconsequential, and insurance can be shopped for on the best deals. The flood insurance is in limbo, but none of
these things are of any issue if, and that’s a big IF! you are ready to buy
your first home. And IF you are ready to
buy your first home, then the time is right!
Who can I
trust to help me through this experience?
However you are going to decide to buy a home, unless everyone you know
is in every aspect of the home buying process, you are about to meet some
fantastic people. What makes them
fantastic is that each set of professionals are dedicated to helping you
accomplish something magnificent in buying your home. Whether it is a lender, Realtor®, home
inspector, Insurance provider, Appraiser, or Title Attorney, you are going to
meet a dedicated team of professionals who are well versed in helping you make
a tremendously important and well worthwhile decision in buying your first
home. Your means of selection will need
to be based on little more than a pretty smile, or a firm handshake. Research websites, and or check with family
and friends to see whom they may have worked with that they were most impressed
enough to recommend an outstanding professional to help you make this important
decision.
Finding a
Real Estate Agent- In the
New
Orleans area, you can search for an agent on the NOMAR
site, at
www.nomar.org, or check out the
Louisiana Real Estate Commission’s website to locate agents in your area (
www.lrec.state.la.us) . When
you find a few agents that catch your interests, be prepared to interview them
to see what kind of experience they may bring to the table to help you in
buying a home. Here are a few questions
to consider:
v
How long have you been a Real Estate agent?
v
Have you sold homes in this area?
v
Are you a member of any professional
associations?
v
How will you help me sell my home?
v
Why should I select you to be my agent?
Additional questions may be found
at the following site to help you formulate in your mind whom you believe would
be a great help to you in making this decision on who may represent you as an
agent. You may also want to include a
trusted family member or friend to help you in the selection process.
15 Questions to Ask an Agent-
Choosing a
Lender- The best place to start for
a lender is with your own bank or credit union.
If you are not comfortable with this option, consult with the Realtor®
you have selected. They often team up
with great lenders who can help you in the effort to finance your new
home. But even at that point, know that
you are not obligated to select a lender that is suggested by your Realtor®. The lenders suggested are only that,
suggestions. You may want to use some of
the same questions that you used to screen an agent in selecting your potential
lenders.
House
Hunting- When do you start hunting for a house? As experience real estate professionals, we
know that many home buyers begin searching for a home before they even consider
an agent, a lender, or….if they have the money.
It is understandable that a first time home buyer is trying to fulfill
their dreams, and a little thing like money, shouldn’t be a hindrance, now
should it?. It is understandable that
seeing the home of their dreams may actually motivate a first time home buyer
more than the process. But the process must
be adhered to, even if it begun inadvertently, out of order. Fortunately, there will be no penalties for
starting the home buying process by first looking at the houses. Other ways that you may go about looking for
a house maybe the following:
o Internet
o Open
houses
o Driving
around
o Newspapers
o Asking
around
Making An
Offer-Once you have found a house that you believe is THE house, you will
need the advice of your real estate professional. Why?
Most houses that are offered for sale are featured with an asking
price. Unless otherwise stipulated, the
price listed is subject to an offer. How
much you may offer is entirely up to you.
But before making an offer, ask your real estate professional to conduct
a Comparative Market Analysis
or
a CMA. This analysis will give you, as a
buyer, an indication of what other homes of similar design, and in the area,
are selling for. Of course, the sales price
is still subject to an appraisal (see The Home Appraisal below). There are three possible responses to an
offer and knowing how to handle any one of them is important. For example:
§
The Rejection- A seller may reject a buyer’s
offer by writing rejection on an offer to purchase, without so much as a
counter offer;
§
The Counter Offer- The seller may respond with a higher sales price
more closely aligned with what they need
to see in order to sell their home. It
doesn’t mean it has to be accepted, it’s just a counter to the offer made by
the buyer;
§
Accepted-
Enough said!
Consult with your real estate agent
for the best direction to take under above set of circumstances.
Insurance-In
Louisiana,
especially here in the southeastern portion, as real estate professionals, we
are encouraging buyers to immediately begin the search for quotes on insurance
(Homeowners and Flood). While both can
be obtained from one source, both aren’t necessarily managed by the insurance
company of record. Your insurance
provider will explain to you what your options are available as you work to
obtain sufficient coverage for your proposed new home. Additionally, if possible, and FEMA
hasn’t
stepped in to prevent it, as a buyer, you should try to see if you can obtain a
copy of the current flood policy on the home you are considering buying. If still approved, you maybe able to do what
is called “grandfathering”
of
a policy. In this instance, you would be
allowed to assume an existing policy on a current home, providing that policy
is sufficient to cover the cost of the home and your individual personal
items. Consult with your insurance
professional to be sure. In addition,
you can go to the FEMA website at
www.fema.gov
for further information.
The Home
Inspection-A home inspection is strongly advised when purchasing a
home. No matter how good a home looks,
or how new it is, a home inspection is highly recommended by real estate
professionals. Generally, a home
inspection consists of a licensed home inspection company going through the
home to be bought and using a set of state approved guidelines to conduct a thorough(*)
inspection of the home. The inspection
is an overview of various systems components of your perspective new home. For example, a home inspection includes but
is not limited to:
§
The roof
§
The foundation
§
Plumbing
§
Electrical
§
HVAC
systems
§
Termites
§
Mold
§
Lead-paint
The home inspection portion of
buying a home is critical, but not necessarily a deal breaker. A home inspection will reveal problems. Why?
Because no home is perfect. Even
brand new, a home will have problems.
Generally speaking, unless the problems revealed by a home inspection impacts
your qualify of life, the problems can most likely be corrected. It does become
a balancing act between the buyer and seller as to what problems from an
inspection will be addressed. Some
problems revealed in an inspection may require additional professional
evaluation. For example, a plumbing
system may require a video pipe inspection, or the heating and A/C unit may
require a licensed technician to give their perspective. These addition inspections maybe paid for by
the buyer, but repairs maybe requested of the seller. Your circumstances may vary.
The
Home Appraisal-Earlier,
we spoke about your Realtor® conducting a CMA, or a Comparative Analysis when
considering making an offer to purchase.
An Appraisal, when financing, often at the expense of the buyer, will
provide an opinion of value of the selected home to be purchased. The Appraiser, often selected by your lender,
when financing, will conduct an assessment of the property to be purchased
comparing it to other homes in the area.
The appraisal goes deeper than a CMA, and for a fee, will be determined
to be at, above, or below the sales price.
Generally, if the appraisal is at or above the sales price of the home,
the lender will most often finance the home, pending whether the contracts
stipulates otherwise as to whether the seller will accept the fact that the
buyer maybe acquiring equity at the seller’s expense. See your agent or lender for further details,
as to the seller’s response when the property appraises below the sales price.
Pre-Closing/Pre-Settlement-
While we are bringing this part of the home buying process in at this time,
the title work, or abstract of title, is generally in play, generally from the
moment the contract is accepted between buyer and seller. For the most part, this activity calls for
the title company to conduct what is called an abstract of the title.
From their research, they are looking for any
clouds on the title. This basically means that the ownership of the
property that is in play, doesn’t have any liens, or questionable transfers
between the current and/or previous owners.
What both the buyer and seller want in order to close on the home is
what is called a “clear title”.
What is also going on during this process,
especially when a loan is under consideration, is the fact that the loan’s
underwriter(s) are finalizing a closing packet for the buyer(s). This may require the lender seeking some additional
information, or information that has yet to be submitted from the buyer, such
as check stubs, income taxes, W-2’s,
Profit and Loss Statements (if you are an Independent Contractor), or a
statement regarding a past due payment. When
it is finally ready to close, the buyers and sellers will be presented with a
preliminary HUD Settlement Statement
. This statement will break down the charges,
fees and costs of the loan to the buyer(s) as well as any costs to payout any
outstanding loans on the subject property for the seller(s). There maybe references to insurance
(homeowners, and flood) as well as title insurance, which is often strongly
recommended. An aside, Title Insurance
generally protects the buyer against any possible legal activity that may arise
later from either a former family member, or lien holder (consult with your
title attorney for further information).
The
Walk Thru- The Walk-thru is a
recommended portion for the buyer. In
this instance, the buyer takes advantage of the opportunity, perhaps 5 days,
but no less than 2 days before closing on the home, to literally walk through
the potential home. This walk-thru may
consist of an inspector or contractor, but not necessarily, to confirm that the
property contracted, is in as in good if not better condition than when first
contracted between seller(s) and buyer(s).
Any opportunity to point out any problems should be done at this point,
giving the seller a chance to address the problem, and also to ensure that the
buyer does not have any unresolved issues, that once the property has closed,
the possibility of having problems corrected or relatively slim.
The
Closing Process/The Settlement-The closing, where the sale of your intended
home is finalized can occur in any agreeable setting. It may occur in the home itself. But most often, the closings are conducted in
the Closing Attorney’s office. The
benefits go without saying, but many closing attorneys are flexible and
sometime hold the closings at a real estate office. The overall benefit, is that the buyer(s) and
seller(s) come face-to-face, perhaps for the first time, to sign off on stacks
of papers, all necessary to proclaim that one is selling and that the other is
buying a property, free and clear of all encumbrances
. After fingers are worn to a nub from all of
the signing, buyers and sellers exchange niceties and keys, and both receive
their respective final papers declaring their respective positions from buyer
to owner, and from owner to… non-owner?
Well, I am sure that the former owners are now going to their new homes
or, are perhaps in the market to buy a new home. At any rate, good luck to both parties and
best wishes going forward.
Conclusion-
We have discussed an overview of the home buying process. Our discussion covered getting insurance
quotes, finding a lender, and an agent, as well as knowing the importance of
getting a home inspection. We also
discussed the difference between a CMA and an Appraisal, knowing that one costs
and the other is a courtesy of your agent in making an offer on a perspective
home. Other aspects of the home buying process include but are not limited to working with
your lender to provide needed information to get pre-approval to provide the
necessary documents to ensure that you, as a buyer, meet the ratio formula for
buying a home. We covered a number of
important aspects, but the home buying process is much deeper than what we covered
here in this small forum. You are
strongly encouraged to access the services of the professionals who are
licensed and ready to provide extraordinary service to you as a buyer to ensure
that buying your first home is an experience worth repeating. Good luck and best wishes in buying your
first home.
Disclaimer: No information provided here should be
considered as legal advice, please consult with your respective attorneys or
related professionals for advice concerning your finances, etc. All information provided here is deemed to be
from reliable sources, but not guaranteed. This blog is not attempt to solicit
the business of any brokerage or agent.
Labels: FHA, First Time Home Buyer, Home Inspection, HUD Settlement Statement, Pre-approved, Pre-qualify, Qualifying Ratios
