Buying a home can seem like a daunting prospect. Whether it’s your first home or your fifth, so much is at stake; your savings, your credit rating, and your financial freedom. It can be difficult to know where to start so that your home purchase goes as smoothly as possible with the least amount of time and money.
We suggest that you read this entire report before you go house hunting. You’ll learn how to separate whims from true needs and examine the whole picture from emotions to economics. You’ll discover how to prepare a game plan for your real estate venture, how to research effectively, choose wisely, finance appropriately and survive the whole procedure with your smile in place.
Nine Steps for Success
- Establish your needs and your wants.
- Determine how much you can afford.
- Find a good real estate agent to help you.
- Get pre-qualified or pre-approved by a lender.
- Find a home that meets your needs.
- Make an offer to buy a home.
- Get a Home Inspection.
- Save as much as you can on the purchase.
- Be responsive to the contract deadlines.
Step One: Establish Your Needs and Wants
Begin your search for a perfect home by making a careful assessment of the kind of home you need and want. We recommend that you write it down. Take time, right now, to be as specific as you can about your particular requirements.
First, make a list of “necessities” in your home. Next, list the features that you “desire.” Rank them in order of importance, so if you need to make a tough choice between several homes, you’ll have your priorities right in front of you to help you make the best decision.
Step Two: Determine How Much You Can Afford
Set up a budget for yourself. Decide how much you can really afford to invest and be comfortable with your monthly house payment. Be realistic. Most lenders suggest that your payments be no more than 28 percent of your total monthly income. Don’t forget to include taxes and insurance if you plan to escrow (have money automatically set aside by the lending institution) for these costs to be paid at the appropriate times.
Step Three: Find a Good Real Estate Agent to Help You
You can learn a lot about an agent by letting him talk to you about how he helps his buyers and how he does business. Within a few minutes, you will probably be able to determine if this agent’s style is in line with yours.
Ask as many questions as you can up front. Finding a good agent will save you huge amounts of time, effort, and frustration. Remember, a “buyer’s agent” is working for YOU!
Step Four: Get Pre-Qualified or Pre-Approved by a Lender
You can save yourself time and heartache by meeting with a lender before you start your search for a home. A lender can listen to your needs and goals and let you know what specific loan programs would be best for you. He can also help you understand what it takes to qualify for the loan that you want. By taking a look at your financial situation and looking at your credit history, a lender can usually give you a good idea if you can qualify for the loan amount that you want. Many lenders call this ‘pre-qualifying’ a buyer.
To be absolutely certain that you can be approved for a loan, you may want to ask to be “pre-approved.” In the approval process, a credit report is pulled and all of your documentation is completed and submitted to an underwriter. The pre-approval that you will receive is an actual loan commitment from a lender – your guarantee of loan approval.
In light of how competitive the current Orlando area real estate market is, we strongly suggest that you take the step of becoming pre-approved for a mortgage before you make an offer on a property because of how much it will strengthen your hand in the negotiating process. With many homes receiving multiple offers on them, you will want to be able to prove to the seller that you are ready, willing, and financially able to purchase the home.
It is also important that you are 99.9% sure you will get the financing needed and your lender will be able to perform according to the time limits in a purchase contract. If not, you could end up in a situation where your lender won’t be able to close the loan. If this happens, you could lose your deposit, which could be as much as 3% of the purchase price.
It is often much to your benefit to work with a local lender who has a good relationship with your Realtor. This will make the communication regarding your transaction flow more smoothly, and the Realtor can have more influence with a lender he knows and trusts to tell the lender about any special situations or needs to expedite the loan process. A local lender also will have working relationships with reputable property appraisers who have thorough knowledge of the local market. A non-local lender may not know which appraisers are experts on the neighborhood you need, or have any influence with the appraiser if there is a problem with the appraisal.
We can provide you with the names of reputable lenders whom we’ve worked with successfully in the past.
Step Five: Find a Home That Meets Your Needs
Seven tips for successful house hunting:
- Tell your agent about your priorities in a home. Talk with them about what your necessities and desires so that they can get the picture that is in your head into theirs. This will better enable your agent to show you only the kinds of houses that you really want to see.
- Keep an organized record of all your research data. Write down comments about the homes that you see. Keep track of your likes and dislikes. If your priorities change, communicate this with your agent.
- Make sure that your agent is aware of your time schedule and your expectations. Discuss all of this with your agent.
- Tell your agent about any homes that perk your interest and those you’d like to know more about. Include those homes you discover as you explore the area yourself or those you see advertised in the newspaper.
- If you want to spend time driving around previewing neighborhoods before you start looking at the insides of homes, ask your agent for input on areas that have homes that would meet your criteria. Your agent can then show you homes in the areas that you would most prefer to see.
- Be prepared to preview a new property quickly. In the current market conditions in the Metro-Orlando area, homes sometimes sell in hours.
- Express your likes and dislikes to your agent after you see a home. Honest communication is essential. Some buyers are shy and hesitant to tell an agent what they really think of a house. They think the agent may take it personally. Remember, the homes don’t belong to the agent! You must be straightforward about your likes and dislikes to enable the agent to do the best job for you.
Step Six: Make an Offer to Buy a Home
Your Realtor will put together a Current Market Analysis or ‘CMA’ to show you the prices of homes selling in the area and the length of time it takes to sell so that you get a good idea of value. They will also give you the rest of the information necessary to make an intelligent offer in your best interests, discuss your options, give you a list of the estimated costs for the purchase, and put together an offer to buy the home that you select.
Enhance your chance of getting the home of your choice by doing the following:
- Have your Realtor send your pre-approval letter from the lender along when you submit your offer. This shows the seller that you are serious and on the ball about purchasing their home.
- Submit a strong competitive offer. Submit the offer as if there will be multiple offers. Include substantial earnest money deposit if possible. Acceptance of an offer is sometimes determined by the amount of the deposit. A larger amount may signify a bigger commitment to the seller.
- Minimize or eliminate contingencies; the fewer contingencies, the stronger the offer.
- In the current market conditions in the Metro-Orlando area, homes sometimes sell in hours. Because of this, be prepared to make decisions quickly and be accessible to change the terms instantly if necessary. Buyer and agent need to have instant communication access via office phone, voice mail, fax, email or cellular phone.
Step Seven: Get an Independent Home Inspection
A home inspection reports on the structural and mechanical condition of the home. After the inspection, you will have the facts you need to make a decision about buying your home. A well-qualified building inspector who has adhered to federal licensing standards can spot problems that you might not be able to see.
Expect problems to be clearly explained and a written report delivered within a day or two. Most contracts are written conditional on the outcome of a home inspection and a Wood Destroying Organism inspection (also called a WDO or Termite inspection). These inspections may include several items, including inspection for wood boring insects, structural soundness, and the condition of the heating, wiring and plumbing.
Your Realtor will write the contract addressing who will be responsible if there are problems with the results of any of these inspections. Unless you are purchasing a home in ‘AS-IS’ condition, the contract will most likely be written that the seller is responsible for repairs up to a certain dollar figure. The contract should also be written so that if you are displeased with the results of the inspections or the estimated cost of repairs is above what the seller is required to take care of that you can exit the contract and get your earnest money back.
A thorough home inspection by a qualified inspector can prevent a lot of extra cost, heartache, liability, and potential lawsuits by giving you a thorough picture of the condition of the home you are buying. If the home you are purchasing is in great condition, the inspection will confirm it and give you even more peace of mind. If it brings up a handful of items, you have as many as the contract allows for taken care of by the seller and know exactly what you are dealing with. Lastly, a good home inspection can save you from buying a ‘lemon’ that has serious structural, mechanical, or pest infestation issues.
You are always welcome to choose whichever inspection company you wish. As a courtesy, we can give you the names of inspectors whom our clients have used successfully in the past.
Step Eight: Save as Much as You Can on Your Initial Investment
There are only two major investments to consider when buying a home. These are the initial investment (including down payment and closing costs) and the monthly payment (including principle, interest, taxes, and insurance).
Here are some ways to save on your initial investment:
- Choose a low down payment loan. You do not necessarily have to put 20 percent, or even 10 percent, down. You can put 5 percent, or even 3 percent, down on some loans. Ask your lender whether or nor your loan includes “private mortgage insurance” or PMI.
- As part of your offer, you can ask the seller to pay some of your closing costs. Sellers are usually allowed to contribute to a buyer’s closing costs. In many cases this is a negotiable item. Ask for your Realtor’s guidance on whether asking the seller to pay for closing costs would be a wise option given the particular circumstances surrounding the home you wish to purchase and the current market conditions, and if so, what would be the best way to ask the seller for these costs.
- Shop around for your home insurance. A little shopping can save you a significant amount of money.
- You can deduct money paid for discount points from your gross income before computing your tax, which would effectively reduce the cost to you. Always check with your CPA to find out specific guidelines in your area.
Keep your monthly payments low:
- Get a loan with no monthly mortgage insurance premiums. You may be able to reduce or eliminate them by paying a little more at closing. By putting 20 percent or more down, you may be able to eliminate them entirely. (Mentioned above in in item #1 in the ‘Here are some ways to save on your initial investment’ section)
- Ask your lender if an Adjustable Rate Mortgage or ‘ARM’ would be right for your situation. ARMs can be up to 3 percent lower than fixed rate mortgages.
Remember that interest payments on a primary residential mortgage are fully deductible in most circumstances. Your property taxes may also be deductible. Tax rates definitely favor homeowners.
Step Nine: Be Responsive to Contract Deadlines
Once you have a home under contract, be attentive to the steps that the real estate contract requires you to take, and complete them in a timely manner. Your Lender and your Realtor and his team will keep you informed of what you need to do. These steps include:
- Giving the earnest money deposit check(s) to your Realtor to deposit in the escrow account by the deadline the contract specifies.
- Calling to set up a home and/or termite inspection of the property within the time allotted in the contract (usually 3 or 5 days).
- Attending the inspection if at all possible.
- Signing and initialing addendums and memorandums to the contract in a timely manner.
- Making sure that your lender has all of the documentation that he requests from you.
Your Realtor and his team and your lender will keep you informed about what you need to do at each step of the process so that you know what you need to do, and how long you have to do it. Being responsible to meet the obligations of the contract in a timely manner will enable your transaction to progress as smoothly as possible to the closing. Failing to fulfill the terms of the contract in the time frames that are specified can put your earnest money deposit at risk, and you may lose your chance to purchase the home.
If you have any questions about this article, or would like to set up a time to speak with David Gallup, please email me or call our office at 800.458.6863 x353. We’d be glad to help you.