A GUIDE TO THE HOME BUYING PROCESS
Most buyers who begin the process of looking for a home begin the journey filled with excitement and a bit of trepidation. This is understandable when you consider that purchasing a home is one of the biggest financial decisions you will make during your lifetime.
Not only do we understand this, we believe that home ownership is something you can be proud of. We believe it’s an honor and privilege to ensure that the home buying process is the most pleasurable experience possible.
Whether this is your first home or your tenth, this guide is intended to help you navigate the home buying process.
Let’s get started on the journey of getting you the home you want!
TOP 10 REASONS TO BUY A HOME
Quality of Life - Home ownership is part of a better quality of life for most buyers. The quality of our living situation directly impacts how we feel.
Avoid the Tax Man | Tax Deductions - Buying a home helps you avoid the tax man with tax deductions for both mortgage interest and property taxes. Property taxes and qualified interest are deductible on an individual's federal income tax return.
Spend Money to Make Money - With the right real estate consultant, home ownership and the potential for appreciation means that ultimately you have the opportunity to get a return on your investment.
Deferred Gain and Capital Gain Treatment - A homeowner can exclude up to $500,000 of capital gain tax if married and filing jointly or up to $250,000 if single or filing separately when you sell your home. The home must have been the taxpayer's principal residence for the previous two years.
Principal Accumulation - As a homeowner, a portion of each amortized mortgage payment typically goes to principal, which in the long run is an investment.
It’s The American Dream - Owning a home is THE American Dream. We work with many first-time home-buyers, and it truly is a dream come true for them. Independence - For many homeowners, one of the greatest freedoms is acquired through home ownership. They can get rid of their landlord and are no longer surrounded by neighbors in an apartment with thin walls. The freedom to do whatever they wish with their homes is a big incentive for many new homeowners.
Leverage - At the current interest rates, you can put your money to work somewhere else. These days you can still purchase a home for as little as 3.5% down.
Why rent when you can own?
The real cost of renting at $700 per month with 6% rental increase per year means you will pay $110,719 over 10 years. Just think, you could almost pay off a home for that amount!
Because you get to work with us!
7 CRITICAL QUESTIONS
To Ask An Agent Before You Buy
Now that you have a background regarding the Reasons to Buy a Home, the question is how will you be able to make sure that you not only find your dream home but that you ensure that the real estate agent you choose to represent you has the knowledge and expertise to help you with the biggest financial decision you will make in the next 5 years?
Do you have a personal assistant or other support staff working for you?
Most top agents employ (out of their own pocket) an assistant or staff. It is imperative that the agent has support in order to take care of the details of the transaction. How can your agent be actively showing homes to clients and working on the details of your closing at the same time? Things will fall through the cracks and that could cause critical problems for you.
What will you do keep me informed?
Do you want daily or weekly reports from your agent? Will the agent be able to meet these expectations? Determine how much communication you want, and then find an agent who will give you the attention and time you want and deserve.
Can you provide me with further resources I may need?
The best agents have built strong relationships with their “Teams” and can often get expedient service or be able to “cash in a favor” for you should a crunch or problem arise.
Can you give me some references from other clients you have worked with?
Don’t be afraid to ask for references. An agent who provides raving fan service and is proud of their work will be happy to provide references. Look at their ratings and reviews on sites like Google, Zillow and Yelp.
What is the best way for me to get in touch with you?
You should know exactly how to get through to your agent or assistant.
What awards or accolades have you received in the past couple of years?
Make sure that your agent is a professional, well regarded and at the top of the industry. They will be more knowledgeable and will be able to best represent your interests based on experience and reputation.
Are you a fiduciary? And how will you represent my best interests?
Absolutely do not hire someone that you don’t believe will represent YOUR best interests at all times. Have your agent give you examples of how they represent their client. Remember that finding the home is the easy part, true representation begins when you sign a contract and continues through negotiation and closing. Ask around for horror stories and you will find that they don’t involve the home search BUT after the contract was signed!
10 STEPS TO BUYING A HOME
- Get pre-qualified with a lending specialist.
- Shop for your dream home with an accomplished real estate professional.
- Choose a top 2 list.
- Place an offer on #1.
- Be prepared for a counter offer.
- Sign and date the effective contract.
- Take note of the option period.
- Order inspections and negotiate repairs.
- Terminate or proceed with the contract.
- After final approval, go to closing to sign and own your new home.
In addition to the 10 steps to buying a home, you will need to consider the following up-front costs in order to determine if you have the appropriate cash reserves to get started:
- Earnest Money – typically 1% of sales price - the amount of earnest money is negotiable and varies with the value of the property
- Option Money - $100 - $350
- Inspection Fee - $400 - $450
- Appraisal - $325-$425
- Credit Report - $75
Now that you know the upfront costs, let's explore what you will need in order to determine your buying power and how to get pre-qualified for financing.
And Pre-Approval Process
Now that you know you want to buy a house, how do you know how much you can afford and if you can qualify for a loan? The way to get started is to go through the pre-qualification and pre-approval process with a lending specialist.
Pre-Qualification versus Pre-Approval
1. Pre-Qualification is how much money a bank will lend you based on your income, assets, and debts. Pre-Qualification is typically done over the phone with a lending specialist. This is the first step to get started in the buying process. The lending specialist will do a minimal credit review over the phone which means discussing your credit background. When you begin the
2. Pre-Approval process the lending specialist will actually check your credit but during Pre-Qualification, they will simply gather basic information regarding your financial and credit situation.
3. Pre-Approval is a more formal process and includes completing a loan application online and providing documentation regarding income and assets. During the Pre-Approval process, the lending specialist will ask for authorization to check credit in order to analyze debt ratios. Pre-Approval is typically done when you start looking at houses with a real estate agent or prior to writing an offer.
What Factors Affect What I Can Afford?
There are three factors that affect how much you can afford when you decide you would like to buy a home.
1. The down payment - do you have enough liquid cash to make a down payment?
2. Your ability to qualify for a loan - as mentioned earlier this is determined during the Pre-Qualification & Pre-Approval Process.
3. The associated closing costs on your home.
How Much is My Down Payment?
Most loans today require a down payment between 3.0% to 20%. Contrary to what many people think, there are still loans that have lower down payment requirements depending on the type and terms of the loan. Keep in mind, if you are able to come up with 20-25% down you will eliminate mortgage insurance.
The Pre-Qualification & Pre-Approval Processes
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How Much are Closing Costs?
You will be required to pay fees for acquiring the loan and other closing costs. These fees must be paid in full at the closing unless you are able to include them in your financing. Typically, closing costs will range between 3-6% of your mortgage loan.
What Does my Monthly Mortgage Payment Include?
Most lenders require that your monthly payment range between 29-36% of your gross monthly income. Your mortgage payment to the lender includes the following:
The principal on the loan (P)
The interest on the loan (I)
Property taxes (T)
The homeowner's insurance (I)
This is what we call PITI and your total monthly PITI and all debt (from installments to revolving charge accounts) should range between 36-45% of your gross monthly income. These key factors determine your ability to secure a home loan: Credit, Assets,
Income and Debt Ratios.