Buying

Still renting when you can own a home? It's perfect time to make up your mind. Click to compare is it better to buy or rent.

FIND OUT HOW MUCH YOU CAN SPEND

The first thing you need to do is figure out how much you can afford to pay in monthly installments.

  • Each periodic payment includes a Principal and Interest Payment plus a contribution to the escrow account set up by the lender to pay insurance premiums and property taxes on the mortgaged property.
  • Unless you can afford to pay appropriate down payment, usually 20% to avoid paying insurance for your loan.
  • You can pay property taxes yourself without escrow account to avoid possible miscalculations. Additional payment may include HOA or condominium fee. 
  • Also call insurance company (one you’re considering) and ask what it would cost you to insure the new home.

Keep in mind that the results of your calculations will only be an estimate. Until you have chosen a home and the type of loan you want, and communicated with a lender, you can only use the calculated amount to help you determine a price range of homes you want to preview.

CHECK YOUR CREDIT

Your credit score has become a bigger factor in the loan rate you get. Go to FICO Score Estimator to see your score. For tips on how to raise your score, see Credit scores.

GET PRE-APPROVED FOR A LOAN

  • The real-estate agents don’t want to take someone home shopping who might not be able to get a mortgage in today’s tighter loan market.
  • Go to a mortgage broker or a direct lender and find out for certain the size of mortgage for which you can qualify.

Ask lender to estimate what you will pay over the life of the mortgage for the same loan amount, loan term, and type of loan so you can compare properly. Make sure you also get an estimate of the closing costs and all the additional fees you’ll owe, including loan origination or underwriting fees, broker fees, and transaction and settlement costs.

HIRE AN AGENT, PARTICULARLY A BUYER'S AGENT

Using an agent can help you in numerous ways, especially because you are already paying for those services in the purchase price of the home. Both the seller's agent and the buyer's agent are paid out of the transaction proceeds that are included in the marketing price of the home. If you don't take advantage of an agent, you are paying for services you aren't getting. If you are planning to buy a home available through foreclosure or a for-sale-by-owner (FSBO), you can still use the services of an agent. Agents will negotiate with you on their fees and the amount of service you will receive for those fees, and you can arrange for them to be paid out of the transaction, not out of your pocket.

SIGN A BUYER'S AGREEMENT

Again, if you find an agent you like, go all the way and sign a buyer's representation agreement. This agreement means that you will have one agent representing you as a buyer. The agreement empowers the agent to not only search out the latest Multiple Listing Service list, but to seek alternative means of finding you a home, including searching foreclosures and homes for sale by owner. With a signed agreement, the agent becomes a fiduciary and must act, by law, in your best interests.

BE AWARE OF YOUR LIKES AND DISLIKES

As you shop for homes, keep in mind what you like and don't like and pass along your feelings to the agent. You should feel comfortable looking at numerous homes, but neither you nor your agent is interested in wasting time on homes that aren't appropriate. Like any relationship, your home will not be perfect. If you are finding that most of your criteria is met, it shouldn't be long before you find the right home. Think in terms of possibilities as well as what you see is what you get. Perhaps a home isn't move-in perfect, but with a little work it could be the home for you. Don't let cosmetic or minor remodeling problems discourage you. Many remodeling jobs add tremendous value to a home. Talk with your agent, friends, relatives, and contractors and find out what it will cost to remodel the home the way you want it.

WRITE A CONTRACT

When you find the home you want, you will write a contract through your agent. Your offer should spell out what you are willing to pay for and what you are not, when you want to close, and when you want to take possession of the home. Your contract should be contingent upon getting an inspection and evaluating the results. If the inspection reveals a big problem, you and the seller can renegotiate the purchase price if you are still interested in buying.

GET THE LOAN UNDERWAY

As soon as the seller agrees to the contract, you must start following through on your loan. Take the contract to the lender and let it start the loan process in earnest. If you have been preapproved, much of the legwork has already been done and your loan will process more quickly.

THE HOME WILL BE APPRAISED

The lender will arrange to have the home appraised, which may affect whether the loan is granted. But the likelihood of a homeselling for more than a lender is willing to lend is slim. The real estate industry not only keeps up with how quickly homes sell, but how much they sell for in an area. Most lenders will have a ceiling on the amount of square feet per home they will lend in a certain neighborhood. If a home is overpriced, it will quickly be obvious. You can then go back to the seller and renegotiate.

THE HOME IS INSPECTED

In many markets, you will have the inspection after the contract is signed, rather than before. This is a better protection for the buyer. The inspection can reveal some nasty shocks, though. Your inspector may find a major problem with the furnace or the foundation. These are problems that must be fixed or the home cannot be conveyed. The seller then has to arrange to pay for the repairs, or have the repairs paid for out of the contract proceeds via a mechanic's lien. Before you can truly set the closing date, the repairs have to be made and approved by the buyer. Find out if there are any problems with the property (it’s located on a flood plain, or there’s some hazard that has caused previous injury claims). For information on flood insurance, go to www.floodsmart.gov.

NEGOTIATIONS CONTINUE AS YOU GET READY TO MOVE

You think you may have addressed all the issues and closing will proceed without any other hitches, but negotiations still continue as you reevaluate the inspection report, or find out the chandelier you thought was included is actually excluded from the contract. As you revisit the home to show your relatives, your hopes raise, even through your doubts that the home will ever be yours increase.

CLOSING -- BE PREPARED FOR ANYTHING TO HAPPEN

Until closing, and even during closing, anything can happen. You find out that your closing costs are higher than you thought they would be because some additional service fees have been added by the lender. A glitch could come out in your credit report that delays the sale; a problem the owner was supposed to fix wasn't repaired in time; the homeowner can decide that she or he doesn't want to pay for the home warranty after all; the appraisal may come in the day before closing and be short of the asking price of the home. If so, the buyer, seller, and their agents have to figure out how to make up the shortfall. Do they lower the price of the home? Do the agents pay for the difference out of their commissions? How will last-minute problems be handled? The negotiating table is an emotionally explosive place. That is why closings are generally held in private rooms with the buyers and sellers separated and represented by their agents.

YOU GET THE KEYS

It's all over. The home is yours. Congratulations.

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