Home Buying Advice

If you’re tired of paying rent with nothing to show for it, and you believe that it’s time to get into a home of your own. But you have butterflies and concerns on how to move forward with the process.

It’s quite normal to feel this way simply because, you are thinking about  spending hundreds of thousands of dollars and making probably the most important financial purchase of your life.

So it makes sense to come into the home-buying process with as much information as possible. Every state have slightly different requirements and steps to buying a home, but they are basically very similar.

Here are some of the basics:

Is Buying a Home Right for You?

Many people have fears about buying a home, and some of those fears are justified. This is why it’s better to plan ahead and prepare yourself now before you go under contract.

• Compare Renting vs. Buying.
• Contemplate some of the reasons you want to buy. Other than the sound investment and peace of mind that owning real estate can bring there are tons of benefits to buying and owning real estate; keep these in mind if you start to get cold feet.

Find a Real Estate Agent to Help You

Whatever you do, don’t go it alone. Buying a home is not as easy as it seems. You will benefit from professional assistance, and it’s a free service for you. Plus, agents often see many of the new listings before they are available online.

Do not try to call the listing agent in hopes that the agent will “cut you a better deal” and do whatever it takes to earn twice the commission under dual agency. Most agents are more ethical than some people give them credit for. You will also lose the individual representation that you deserve. This may put you in a situation where you either receive neutral representation or no representation at all. (The only exception to this is when the agent is the listing agent and buyer’s agent. The agent then has the fiduciary responsibility to look out for the best interests of both parties).

Ask friends for a recommendation to a Realtor. Search for agents in your area on a search engine, look at agent websites. Try to find a real estate agent that is right for you.

• Your agent will represent only you and have a fiduciary responsibility to look out for your best interests.
• Your agent may ask you to sign a buyer’s broker agreement, but it is the seller who pays the commission. This may sound strange that a seller would pay your agent, but that’s generally how it works.
• Interview agents until you find an agent with whom you trust and feel comfortable. Try to hire experience. Your best advantage against mistakes will be an agent with experience.

Get Your Finances in Order

Line up your financing, set aside a down payment and study the loan programs that are available. By doing a little homework, you will know exactly how much you can afford and what it will cost you. Little is more disheartening than to learn in the middle of a transaction you cannot close.

If you already have found a real estate agent to represent you, then you might ask your real estate agent for a lender referral. Please note: Lenders are not allowed to compensate agents for referrals. Therefore, your agent will refer only the top lenders who perform well because your agent wants YOU to win.

• Order a Free Credit Report. Give yourself time to clean up a credit report that contains mistakes. Dispute errors. Try to reduce your monthly debt obligations now by paying down those loan balances car notes etc…
• Do not open new lines of credit or close old lines of credit.
• Find a Lender. Check out places to get a mortgage and compare rates and fees. Interview a few mortgage brokers and choose a loan product you completely understand. Pick a lender you trust, who communicates well and promises to meet your anticipated closing date.
• Determine the most you can afford for a Down Payment. Remember, the more you put down, the lower your monthly mortgage payment. Your chosen loan program may stipulate the minimum down payment, but you can always pay more. The higher the down payment, the bigger your equity position.
• Pick your loan program. You may want to consider a FHA Loan. Most FHA loans carry competitive interest rates, come with minimum down payment requirements and allow sellers to pay some or all of your closing costs. Some first-time home buyer programs utilize FHA loans as part of their financing and also lend you the money for closing costs and / or your down payment.
• Get a Preapproval Letter. Having this to show the seller you are already preapproved for a loan may give you an advantage during offer negotiation.

Look at Homes for Sale

This is the exciting part, the (relatively) non-stressful part of buying a home. Try to withhold judgment until you have toured a home in its entirety. And don’t dismiss potential homes because of superficial issues that could easily be remedied by a coat of paint or some landscaping. Go inside and look.

• Narrow your search to those homes that fit your specifications to find that perfect home. This might be more difficult to accomplish in a market with tight inventory.
• Ask your agent to give you MLS print-outs of comparable sales in your targeted neighborhood. With printouts in front of you, you can take notes as your tour. Rate homes on a scale of 1 to 10. This will help to shorten your list to the best homes for you.
• Consider all homes on the market, including fixer-uppers, REOs, foreclosures, short sales and those overpriced homes with longer days-on-the-market. You will find this approach helpful when your choices are slim.
• Observe open house etiquette. If you go to an open house , tell the hosting agent if you are represented by a real estate agent.
• Tell your agent which online home listings you are interested in previewing and ask for additional input. Your agent can gather more information by talking to the listing agent, and will get more insight than you could, so don’t call the listing agent yourself.

Make an Intelligent Offer

Part of the problem of looking at homes for sale is you are not viewing homes that have sold. Only the homes that have sold in your targeted neighborhood will provide you with adequate comparable sales to know if a home is overpriced, underpriced or just right.

• Consider which market you are writing an offer in. Is it a seller’s market offers or a  buyer’s market. This is very important. Simply because in a sellers market a “lowball strategy” does not work, for example.
• With input from your real estate agent select a home offer price based on the amount you feel a seller will accept or counter. This price is generally based on the comparable sales.
• Ask your real estate agent to verify the price for you if you are considering a lowball offer. In most cases you will need to justify such an offer for the seller to accept this type of offer, it can’t be based on nonsense.
• If the home is considered desirable in a “hot” location prepare for multiple offers. Don’t be discouraged when multiple offers are being presented. Somebody has to win. Why can’t that be you?
• Don’t automatically blame your agent if your offer is rejected. Ask your agent to explain why and try not to repeat that mistake with your next offer. Maybe the problem is you didn’t offer enough.

Negotiate Counter Offers

It is normal for a seller to send a counter offer. So again, don’t be discouraged it doesn’t mean your offer wasn’t good enough or that your agent did anything wrong. Some sellers issue a counter offer simply because they like to have the last word.

• Even if you offered list price, expect the seller to issue a counter offer. A counter offer usually means the seller is interested and is almost ready to accept.
• The first counter is not always the last. If the seller counters at full price, continue to negotiate. You may find that continued negotiations can result in a final offering price that is acceptable to both of parties.

Make an Earnest Money Deposit

Purchase contracts typically contain a good faith deposit, called an earnest money deposit. It shows a buyer is committed to the transaction when a buyer is willing to place a deposit into escrow. Most earnest money deposits are refundable.

• When your offer is accepted, deposit your earnest money check with the appropriate party.
• Do not ever make your check payable to the seller. Do not pay the seller directly. 
• Your offer should contain contingencies that will return your earnest money deposit to you if you cancel the contract. Usually, the contingency periods will specify a time period for performance.

Order Title Commitment or Prelim

The title company will prepare escrow instructions.  The title company will act a neutral third party to process your transaction by collecting or preparing documents, obtaining signatures, recording documents and disbursing funds.

• Your agent or agent’s transaction coordinator will open escrow and title, if the listing agent hasn’t already done so.
• Ask for the title company’s name, phone, email, and escrow file number. The title company is bound by confidentiality.
• Give this information to your lender and your insurance agent. Get quotes for a homeowner’s insurance policy some insurance companies are reluctant to insure all homes in all neighborhoods.

Obtain an Appraisal

Most purchase contracts contain a provision for the appraisal, making the appraisal a contingency of the contract. This means if the home does not appraise for the amount you offered to pay, you are not obligated to complete the transaction. The lender will order the appraisal.

• Your lender will require an advance payment for the appraisal. Every so often, a lender will, as a promotion or incentive, agree to pay for your appraisal. Ask about it.
• If you receive a low appraisal, discuss options with your agent. As a buyer, it is natural for you to want the seller to reduce the price, but that might not be the only solution.
• Ask for a copy of the appraisal. If you paid for the appraisal, you are entitled to receive it.

Comply With Lender Requirements

Your loan file will contain a significant amount of paperwork. It contains your loan application, credit report, last two years of tax returns, payroll stubs, W2s, copies of bank statements and other financial documents, in addition to state- and federal-mandated forms.

• Lenders may ask for additional information. Comply quickly, it could be the difference between getting the loan or not getting the loan.
• Do not alter your financial situation while in escrow. Do not make any major purchases or acquire any additional debt. This can stop you from buying a home.
• When the file is complete, the lender will submit it for final underwriter approval. Being in underwriting can make you quite anxious and frustrated, but try to remain patient it could take a week.

Acknowledge Receipt of Seller Disclosures

Sellers are required to deliver certain disclosures about the property to the buyer. It is the sellers’ obligation by law to reveal everything a seller knows about the property, including material facts.

• Read and question items you do not understand on the TDS, Seller Property Questionnaire, natural hazard report, pest inspection/completion and other documents such as a preliminary title policy.
• Realize you have 10 days to review for lead-based paint, which is a federal disclosure.
• Read every document in its entirety; ask questions about all seller disclosures. If you encounter unfamiliar terminology, and few buyers understand every single term, ask your agent to explain it to you. There are no dumb questions when buying a home.

Order Homeowner’s Insurance Policy

You might start with the company that insures your automobile. Sometimes insurance companies will give you a discount if you maintain more than one policy with that company. In addition to homeowner’s insurance, you might also consider flood insurance.

• Order your homeowner’s insurance early. As mentioned earlier, not every insurance company will insure every home, especially older homes or homes located in hazardous places.
• Get replacement coverage. It doesn’t cost that much more to obtain replacement coverage, which will rebuild your home if it is destroyed. Sadly, many victims of acts of nature did not carry replacement coverage.

Conduct Inspections

In most states, the purchase contract gives a buyer a certain number of days to conduct inspections, including a home inspection. You might also consider a pest inspection, a fireplace or septic inspection. If you uncover a major defect that you cannot accept, you are often free to cancel the contract.

• Hire a reputable home inspector. Not every state requires inspectors to possess any licensing or credentials. A home inspection is for your edification and is not a laundry list to present to the seller to repair.
• Bring a home inspection checklist with you. You will want to make sure every area of concern has been inspected and your questions addressed.
• Attend the home inspection. Avoid following the home inspector around. Let the inspector do the job of inspection with no distractions. Wait until the home inspector is finished before asking questions.

Consider a Request for Repair

The seller is not obligated to fix anything, not even lender required repairs. Some appraisals might contain what is called “conditions,” which are defects of some sort that need to be corrected before the lender will fund the loan. Either party can take steps to satisfy loan conditions, this is negotiable.

• If the home inspection turns up significant and unexpected problems, you can sign a request for repair by asking the seller to either address those issues, give you a credit toward closing costs or lower the sales price. Realize the seller might say no and determine whether you can live with that kind of response.
• Realize no home is perfect, and the inspector will find faults. Don’t expect everything on the home inspection report to be fixed nor allowed for in the sales price.
• Be reasonable. I know this is a tough one because it’s subjective to some people, but being reasonable means making rational inquiries. Your agent can guide you.

Remove Contingencies

Not every listing agent will ask for a release of contingencies, but those are the lazy agents. To fully protect a seller, most listing agents will demand the release of all contract contingencies by the date those releases are due.

• Try to make sure your loan is firm and the appraisal is acceptable before removing your loan contingency. If your lender can’t confirm your loan, you might still need to remove the loan contingency, if you are contractually obligated to.
• If you refuse to remove contingencies, the seller can issue a Notice to Perform and then unilaterally cancel the contract.

Do Final Walk-Through

The purpose of the final walk-through inspection is to essentially ensure the property is in the same condition as when you last viewed it. If you discover exposed damage to the hardwood floors, for example, after the seller has removed furniture or removed rugs this is the time to ask for some sort of compensation.

• Do not pass up doing a final walk-through. You might be tempted to forgo this formality, but those who choose that option often regret that decision. You can learn from your own mistakes but learning from others is far preferred.
• Make sure toilets flush and there is no water leaking from the removal of the refrigerator or washing machine. Turn on all lights, operate all appliances.
• Inspect the property to make sure it’s in the same condition as when you agreed to buy it. This is not a license to demand more repairs unless you find a new defect not previously disclosed.
• If you find a serious issue, address it now before you close. Due to the urgency of some situations, you might find a fast solution that will not hold up closing. Try to avoid financial arrangements that could change your closing disclosure or your loan docs could need to be redrawn.

Sign Loan and Escrow Documents

If you cannot physically come to the escrow company, the escrow officer may send a mobile signer to you. You will probably pay extra for this service but for many buyers, it is a beneficial service. Mobile notary signers will come to your home, office or any other place you designate.

• Bring a valid picture ID. Make sure the name on your ID is the same name as on your loan documents. If you’ve recently married and changed your name, this could cause a problem.
• Be prepared to spend at least 30 minutes to an hour signing loan documents. You will probably be presented with at least 100 pages to sign.

Deposit Balance of Funds

This is where the rubber meets the road. Now that you have checked out the home to ensure it meets your expectations and your loan is ready to close, this is when you deposit the rest of the down payment and closing costs.

• Bring a certified check payable to the title company. You cannot deposit cash nor a personal check. Personal checks are acceptable if there is adequate time to clear prior to closing.
• Consider asking your bank to wire the funds directly to the title company, saving you the hassle of physically delivering the cashier’s check to title company.

Close

•  Change the locks immediately, and enjoy your new home!