Ramp Up Your Home Search
You know about financing, interest charges, and fitting a house payment into your budget.
The fun part is shopping for your new home.
HOW WOULD YOU LIKE TO GO ABOUT IT?
- Drive around neighborhoods you like looking for sale signs?
- Use real estate Web sites to narrow your search?
- Check foreclosures in your area for great deals?
- Hiring a Realtor to guide you through the process?
Any and all of these approaches would serve you well. I’d go so far as to recommend using all of them simultaneously to get the most thorough canvass of your market.
Keep these in mind as you search:
- Think about the future: Will your family grow while you’re living in the new home. Try to think about how you’ll be using the home in five years. Will you need more bedrooms, a home office, a guest room, a three-car garage?
- Pretend you’re the seller: Eventually, you will likely decide to sell the home you’re thinking now about buying. How hard would that be? If there’s a wacky addition on the back of the house that you’re not crazy about but can live with, future buyers may not be so forgiving.
- Talk to would-be neighbors: Someone who has lived in the neighborhood a few years has insight even a Realtor may not have. Your would-be neighbors will probably share the ups and downs of the area if asked.
- Don’t expect HGTV standards: Do you watch “Flip or Flop” or “House Hunters?” Not all houses on the market, depending on your price range, will live up to those standards. If glistening appliances, quartz countertops, and double vanities get your blood pumping, you may want to lean toward new construction.
Should You Get a Real Estate Agent?
Realtors make a living by handling real estate transactions. They are experts on the nuances of their markets. Yet we routinely meet buyers who aren’t all that eager to hire a Realtor. Often, they cite the agent’s commission as an unnecessary fee since they can search up houses online for free. Give this some serious thought before deciding, though. A good agent can be your advocate throughout the buying process, protecting you from issues you may not even be aware of yet. And about that commission: If you’re looking at listed properties (not for sale by owner properties), the seller has an agent who will be earning a commission from what you spend.
When you also have an agent, the two agents will split the same commission. So, you’re going to be paying the same commission anyway. Why not let half of it go to someone who has your back instead of the seller’s?
Offers, Counteroffers, and Contracts
Every real estate market can be different, and your local market will also fluctuate from year to year. Sometimes the market favors buyers; other times it’s sellers who have the most influence over transactions. If you’re shopping for a home in a seller’s market, you may face some fierce competition from other buyers. So how can you make an offer that will get the seller’s attention amidst a flurry of other offers?
OTHER THAN MAKING A CASH OFFER EXCEEDING THE ASKING PRICE, WHICH IS HARD TO BEAT, YOU COULD:
- Have a mortgage pre-approval: The seller will know you’re serious if you already have your financing in order.
- Make a reasonable offer: You may enjoy some back and forth in your negotiations, but don’t start so low that the seller doesn’t take your offer seriously. If the asking price is $200,000, don’t start with $120,000 unless you think the house really is worth $120,000 or so.
- Be flexible on closing costs: In a buyer’s market you can get away with drawing the line against paying any closing costs. If it’s a seller’s market, though, a buyer will likely have to take on some, if not all, closing costs.
- Mix and match: If closing costs are a big issue and you really need the seller to pay them, make a higher offer on the house itself. Or, if you’re making a lower offer, consider taking on the closing costs as a way to sweeten the deal. Again, if it’s a buyer’s market, ask for the moon.
Your Realtor can guide you here by providing specifics about your market. He or she may know in advance how the seller’s agent would be inclined to respond to your offer.
A Counteroffer is a Good Thing
When you’ve made an offer and the seller counters with a higher offer, you know you’ve gotten the seller’s attention. Let the negotiations begin. Discuss with your Realtor whether you should accept the counter offer or make another offer of your own. Once you and the seller agree on terms, it’s time to enter a contract.
Going Under Contract
With a contract, you’re agreeing to buy the house under the agreed-upon terms (from the offer) as long as certain conditions remain true. Likewise, the seller is agreeing not to sell to anyone else while under contract with you. The seller or her agent may ask for earnest and option money. This is not a down payment on your loan, but it will go toward the purchase of the home assuming you close.
The earnest is usually 1% of the total home price and is refundable if you decide to not move forward during option, and option can vary from $100 to $1,000 and is non-refundable — it shows you’re serious about the home purchase and buys you the time to take the home off market and do an inspection to make sure the home checks out up to your standards before you fully commit.
If something happens and you do not buy the house, make sure you ask for the earnest money back. Option is non-refundable so don’t put a super high option unless you need to due to competition or unless you have a very high certainty it is the perfect home for you no matter what.
Negotiations Continue While Under Contract
While under contract and in option, you’ll need to hire an independent home inspector to explore every corner of the house, from the pillars to the roof vents. Your Realtor, of course, may suggest some home inspectors, but consider finding one for yourself. This is your long-term investment. You stand to gain or lose money. So you’ll want to know for sure that the inspector is looking out for you.
About your home inspection
Read your home inspection report thoroughly. If you’re buying an older home, don’t be surprised if the inspector uncovers some minor problems with the plumbing or the insulation or the duct work. Issues like those shouldn’t prevent you from buying the house, but you may want to consider asking the seller for a concession. You could ask for a $500 discount on the home to fix a problem in that price range, for example.
Or you could ask the seller to fix the problems before closing.
The inspector may also find serious flaws with the home. If the inspector questions the structural integrity of the home, either because of foundation problems or some kind of extensive rot, it may be time to seriously consider moving on to a different property.
The same is true for safety issues. Old wiring or an ancient or poorly installed heating system could spell disaster down the road. Yes, such problems can be fixed, but the cost and the amount of work may prove too big a hassle if you have other home options on your list.
As you can tell, you’ll be plenty busy during these few of weeks between agreeing to an offer and closing on your home. Don’t forget, you’ll also be packing and preparing to move.
And, there’s still work to do at the bank.
Applying for Your Mortgage Loan
Wait a minute. Didn’t we already talk about mortgage loans? Yes, but only for a pre-approval. When you have a house under contract and you fully intend to see the purchase through, you’ll need to make the loan application official. With your pre-approval, the bank would have made some assumptions. Specifically, it assumed the information you shared about your income, your employment, your bank balances, and such, was true.
Now it’s time to prove it.
The lender will ask for documentation to support your application. Expect to share tax forms and recent checking and savings account statements. Don’t be surprised if the lender calls your place of employment. It may feel as though nothing is sacred by the time you finish the application.
Don’t sweat it, though.
As long as your fiscal house is in order and you can document it, you should be fine.As you apply, it’s time to decide about your loan’s terms. Can you afford a 12-year or a 15-year mortgage? Should you play it safe with a 30-year loan? (Scroll up to the types of mortgage session for a refresher on this subject if you need it.)
YOUR LENDER WILL BE DOING SOME WORK OF ITS OWN DURING THIS TIME THAT YOU’LL WANT TO BE AWARE OF:
- An appraisal: The bank will hire someone to appraise the value of the property you’re buying. If the loan amount exceeds the appraised value of the property, the bank could pull the plug on your loan. Why? The bank is thinking ahead. If it repossessed the property because you failed to pay, the bank would become the property’s seller, and it would need the sale to re-pay your defaulted loan. That’d be harder to do if it loaned you more than the value of the home. (This protects you as well, especially if you needed to re-sell the property within the first few years of the loan.)
- A title search: The lender wants to know for sure whether the seller owns the house and has the right to sell it to you. To find out, it will hire someone to research the history of the home you’re buying. The search should reveal names of previous owners, dates of ownership, prices paid during previous transactions, etc. The result of this search can be interesting, especially if you’re buying an older home.
If all this, along with your financial documentation, checks out, you should be good to go. The lender will issue a loan commitment, which means you’ve got the financial backing to make your homeownership dream come true.
Preparing for Your Closing Date
Your contract should include a closing date, which may be scheduled a month, or even longer, into the contract period.
Until after the closing, either party could back out of the deal, so people tend to think of closings as stressful.
In reality, you should know days or even weeks before your closing date whether everything will happen as planned.
Call a Lawyer
Your real estate attorney (your Realtor can recommend one or you can hire an attorney yourself) should be experienced and have a knowledgeable staff. When you’re in good legal hands, even the most complicated parts of your transaction will seem easy. Your attorney will find out about any past due taxes on the property and make sure you’re not held responsible for property taxes accrued before closing. Your attorney will do a separate title search and be able to show you any encroachments on your new property.
If a neighbor, for example, has placed a storage building across the property line, you’ll find out.
You’ll hand over your down payment if you haven’t already, and the money from your mortgage lender.
Then, you’ll sign document after document after document until they all begin to look the same.
You Have More Work, Too
Before the closing, you still have a few things to take care of on your own:
- Homeowners insurance: You will need a homeowners policy in place and ready to go into effect as soon as you make things official at the closing. Shop around for a policy that will meet your home’s precise needs. Your policy will have a big job to do: protecting your new investment from a wide variety of perils.
- Transferring utilities: If you’re renting, be sure to tell your landlord that you’re under contract on a home of your own. If possible, give yourself a week or two after closing before your lease ends so you can move your stuff without as much stress. And don’t forget to cancel the Internet, water, electricity, etc., at the old place.
- Hiring movers? Maybe you have a couple friends who own trucks? If you can afford it, though, professional movers can make life a lot easier. Be sure to read reviews on Trustpilot or Facebook before hiring a company. Try to call companies a couple weeks before moving day to get on a schedule, and look into the costs beforehand. You don’t want to be surprised by a $1,000 moving bill.
Opening an Escrow Account
Your closing attorney will most likely mention an escrow account for insurance and taxes. You don’t have to go this route, but many homeowners find it helpful.
Here’s how it works: Each time you make a house payment, part of your payment goes into a separate, escrow account.
The money builds up as the months pass, then when it’s time to pay your property taxes or the insurance premium, you have the money available.
Your lender will maintain the escrow account and even pay the tax and insurance bills.
Other than monitoring it once in a while, it doesn’t require much thought from you.