Buying a home is usually everyone's dreams. However, if sufficient thought isn't applied to realizing this dream, the process can be a nightmare.
Carefully weigh the options and advantages of renting, compared to the responsibilities of buying a home and being a homeowner.
Get your finances in order
There'll be a down payment. Be sure you know what this is and can realistically meet it, plus other costs. Not everyone finds it s easy to find a down payment which usually averages 15 to 20 percent of the overall cost.
If you want to realize this dream, begin saving for the down payment through income tax returns, loans from parents or close relatives, personal monthly savings, a second job, job bonuses, loans from 401K, etc.
For the down payment, try to put down the most you can, as this lowers your monthly mortgage payment.
Be aware of your credit status
Obtain your credit report from credible credit reporting agencies like Equifax, Trans Union and TRW. The key is to ascertain your FICO or credit report score. A credit score above 650 makes it easier not only to secure a housing loan, but at a lower interest rate.
The better your credit score the more likely it will be to secure a housing loan. Try to improve your credit score if it's poor, and/or dispute and correct errors. Try to reduce monthly debt obligations by paying down outstanding loan balances immediately.
Check mortgage lenders/brokers and compare rates and fees. Start with your own financial institution, then contact a few brokers and choose a loan product you completely understand.
Try to get a preapproval letter from a lender. This shows the seller you preapproved for a loan, giving you an edge during negotiation.
Get a real estate agent
While it's tempting to buy a house on your own, it's wise to work with a good real estate agent who can guide you with information based on experience and market knowledge.
Most good real estate agents are very knowledgeable of the housing market and they'll have more experience then you in knowing what is involved in looking for your ideal house. Plus, an experienced agent can help avoid making mistakes such as choosing the wrong home or offering too much.
Other advantages in getting a real estate agent includes: them acting as buffers - the appropriate liaison between you and the seller; securing general knowledge about the neighborhood in which you want to purchase your home; provide guidance pertaining to the best price to offer for the house; assist with negotiations with the seller; assist you in handling the volume of paper work entailed in home purchase.
To find an experienced agent, ask around for referrals, or search online for agent listings; pay attention to neighborhood signs selling houses; peruse print ads as real estate agents tend to advertise in newspapers, or ask another real agent, probably one who does not work in the market in which you are looking for a house to give you referrals.
Make sure you are comfortable with your agent before committing to work with him/her.
Avoid home buying mistakes
Don't rush into the purchase and make mistakes. You'll be stuck with this house for a long time. Your first priority is buying a house in a desirable location that has a future.
For first-time buyers, start your search online. The vast majority of home sellers place the pictures of these homes for sale on the Internet. Newspaper ads also give leads to houses for sale.
It's important to know where you want to buy your house, the number of bedrooms, and other facilities, proximity to schools, churches, shopping malls, etc. Knowing the dream house you need, cuts down on the time searching for a home. The better you know what you want, the quicker you'll realize the dream. This is another important reason to work with an experienced real estate agent.
Knowing beforehand the house you need to buy, avoid mistakes involved in viewing too many homes, especially within a short time frame. This can lead to crisis-like confusion and a gap between the funds you can realistically secure to buy the house, and the houses you cannot afford. It's best to avoid confusion in the quest to purchase a home.
Ask your agent to look at homes before showing them to you, and tour only those that meet your needs and circumstances. The confidence the agent has in the house/houses he is showing boosts your confidence in making the ultimate decision.
Make an offer and negotiate
Don't be shy or hesitant to negotiate the best price you can get for the house. If you really want the house, chances are another buyer also wants it. Try to negotiate your way with a positive, enthusiastic and confident stance.
It's common for sellers and buyers to negotiate and renegotiate through counter offers. Be prepared to have a counter to the seller's counter offer.
The buyer should adapt a humble approach to the seller. The seller often is weighing the personality of the buyer in selling what was once his dream home. Don't come off arrogant or cynical. The more humble you are, the more pleasant your nature, the better chance you have of negotiating down from the sellers original price. Make the seller feel a connection with you whether your offer is being made face-to-face, through a phone call, or a letter. Although you're being represented by an agent, at some point you'll have to meet the seller.
In the current high demand housing market, a seller will receive multiple offers. Try to lock down your offer with an instant pre-deposit on the required down payment, which is usually refundable. Show the seller your pre-approval letter which is indicative that you are qualified for the required mortgage.
Get a home inspection
Never buy a home without getting a home inspection. Get a home inspection list, go through this list copiously and ensure your home inspector doesn't miss anything crucial.
Sellers are responsible to notify you if there any major defects in structure, electricity, plumbing, air conditioning, etc., prior to the inspection.
• The home inspection should cover:
the structure of the house - walls, ceilings, floors, roof and foundation
exterior - landscaping, elevation, drainage, driveways, fences, sidewalks, trim, doors, windows, exterior
roof – type of roof, gutters, when last repaired with certification
plumbing –pipes, toilets, sewer, sinks, drainage, showers
air conditioners, water heaters
electrical –wiring, circuit breakers, panel box, sockets, ceiling fans, switches, light fixtures
appliances – stove, refrigerator, washing machine/dryer, dishwasher, etc., and if the house has a garage – garage door, automatic door opener, lights, air vents.
The home inspection report should list every item that needs to be fixed.
If you think the seller will not spend enough to secure defects are adequately repaired, get your own estimate for the repairs, have them done and negotiate with the seller to deduct this from the original selling price at the closing.
Closing on your home
You have found, and are satisfied with the home you want to buy, have secured the loan, and now are ready to close the deal. Transactions generally close within 30 to 60 days after your offer has been accepted.
You'll need property insurance before closing. Often, the company that insures your automobiles may offer property insurance at good rates.
On closing day, all parties will sign papers officially sealing the sale/purchase, and ownership of the property is transferred to the buyer/borrower.
The closing is an opportunity to make any last-minute changes to the transaction.
It's advisable for buyers to take all related documents to the closing including: good-faith estimate, contract, proof of title search and insurance if necessary, flood certification, proof of homeowners insurance and mortgage insurance, home appraisal and inspection reports. These may be needed as reference at closing.
Have another walk-through inspection of the property 24 hours before closing. This ensures the seller has left the in the condition specified in the sales contract.
If there are any major problems, the borrower can ask to delay the closing or request that the seller deposit money into an escrow account to cover the necessary repairs.
At closing, the buyer/borrowers participation involves:
• Signing legal documents. This includes signing the agreement between borrower and lender regarding the terms and conditions of the mortgage and the agreement between buyer and the seller transferring ownership of the property. Buyers must read all documents carefully before signing them, and not sign forms with blank lines or spaces.
• Pay closing costs and escrow items. Borrowers handle the numerous fees associated with obtaining a mortgage and transferring property ownership in one of two ways: they either roll them into the principal balance of the new loan or agree to pay higher interest rates and have their lenders foot the bill. Some buyers may have to pay these out-of-pocket fees.
Those present at closing
• Closing agent, who might work for the lender or the title company. An attorney each for the seller and the buyer, the title company representative to provide written evidence of the ownership of the property; the seller or the seller's real estate agent; the lender and, of course, you the borrower.
The closing agent conducts the settlement meeting and makes sure that all documents are signed and recorded and that closing fees and escrow payments are paid and properly distributed.
The borrower will receive the following important documents:
HUD – 1 settlement statement: This is a precise record of the settlement costs, and is signed by borrower and seller. By law the borrower has the right to review the HUD-1 24 hours before closing
The final TILA statement that outlines the cost of the loan, APR and any modifications in interest rates and points between application and closing
The mortgage note or the promise to pay the loan stated, the terms of the loan, and the consequence of default, the mortgage deed of trust – securing the note and giving the lender a claim against the home if the borrower defaults
A certificate of occupancy if the borrower is buying a newly constructed home.
Sources: www.realtor.com; About.com: Elizabeth Weintraub, Broker-Associate, Lyon Real Estate, Sacramento, California.