Like so many things in life, when it comes to buying Real Estate, properpreparation is one of the keys to success. Don’t want to find yourself in aneighborhood you don’t like? Don’t want to be making mortgage payments on ahouse in which you are uncomfortable? Don’t want to waste your time falling inlove with houses you can’t afford? In a word, prepare! One of your mostimportant tasks will be determining your needs. It can help to avoid either anasty disappointment or the pain of buying more house than you need (or canafford). Distinguishing needs from wants will go a long way in preventingexpensive mistakes in the house buying process. Establish some basic parametersand stick to them.
When house hunting, it is easy to get swayed by the emotionof the moment–and end up with more house than will be financially comfortable. Do your mortgage investigation early. Odds are strong that you will be workingwith Real Estate Agents when you buy a house. Before you go on a house search,familiarize yourself with how Agents work and most importantly, who theyrepresent.
Thousands of buyers have made the huge mistake of assuming that theAgent with whom they were working represented them in the transaction, when, inreality, the Agent represented the seller. Determining Needs Want to save a lotof aggravation and possibly a great deal of money when you buy a house’spend afew hours determining precisely what your needs are before you begin your housesearch. Examples of NEEDS Examples of WANTS ? Enough square footage forcomfortable living ? Carpeting color, paint color, exterior color, roof color,etc. ? Enough bedrooms to accommodate your family ? Pool or Jacuzzi (unlessfor medical reasons) ? Adequate number of bathrooms ? Wood floors ? Eat-inkitchen ? Bay windows ? Garage or basement for storage needs ? Built-inentertainment center ? Lot size to accommodate children’s play area ? Brasslighting fixtures ? Adaptation for Handicapped ‘skylights ? Proximity to aspecific school ? A pretty view Gameplan If you haven’t already done so,investigate your housing needs and wants to determine what types of houses youshould be considering.
Learn who “The Players” are in a Real Estatetransaction so that you will know who is responsible for what. Get yourfinancial picture in focus as soon as possible. Get a copy of your Credit Reportto see if there are problems or disrepencies that you need to deal with. Familiarize yourself with the mortgage process. Get Pre-Qualified from aMortgage Lender.
Do this first. Your Agent will need your mortgagequalification, and it will significantly strengthen your offer when you find ahome. At LendingTree, you can submit a quick application, and within 2 businessdays get up to 4 offers from lenders so that you can compare terms and rates. Find an Agent that you trust.
It is important to do this before you go rushingoff looking for homes or you may end up with no representation. See the AgentRepresentation section for an important discussion regarding “whorepresents whom. ” When you find an acceptable house, write a contract. Negotiate your best deal. Make a formal loan application.
Arrange for homeinspection. Arrange for closing agent or attorney. Make moving plans–for aninnovative and money-saving approach to moving, click here. Secure final loanapproval and commitment from the lending institution. Do a final walk through ofthe house.
Final closing and settlement. Move to your new home and beginenjoying it!! “The Players” Real Estate is never bought and sold onyour own The vast majority of home buyers enlist the services of a Real EstateAgent, a Lender, a Professional Home Inspector, and a Closing Attorney or EscrowAgent. Knowing what each is responsible for will help your understanding of theprocess and eliminate confusion as you proceed. Sellers: Familiarize yourselfwith seller motivations and psychology. Real Estate Agents: An Agent may or maynot be your representative. an Agent will arrange to show you houses that areavailable through a Multiple Listing Service.
Without the use of an Agent, youwill be limited only to those houses that are For Sale By Owner. The Agent willcoordinate the offer, negotiations and the contract of sale. Lenders: A broadterm that refers to the person originating the loan to familiarize yourself withthese lenders, whether they be banks, mortgage companies, or brokers. HomeInspectors: Responsible for a whole house inspection of a prospective property. Closing Attorney or Escrow Agents: Handles the details of the closing, wheneverything is finalized and the buyer takes possession of the house. Willcoordinate with the lender, title insurance company, Real Estate Agents, buyerand seller to make certain that everything is in order.
Summary: Advantages ofBuying Real Estate On Your Own or With an Agent On Your Own With an Agent Youcan try to find a “For Sale by Owner” who is willing to sell at areduced price. A much wider choice of properties–every home that is listed withany Real Estate Agency. You are completely in control of the pace of theprocess. If represented by a Buyer’s Agent, the availability of a ComparativeMarket Analysis to see how the price of the house compares with the currentmarket.
For better or worse, you are your own representative. An Agent hasexperience in negotiation. Can offer choices and suggestions in Home Inspectors,Closing Agents, etc. The Agent can follow up in all of the details related tothe Closing Lenders When you speak of Real Estate Lenders, it can encompass alot of territory: Banks, Savings and Loans, Credit Unions, exclusive MortgageCompanies, Mortgage Brokers and others. Any of them may be a good source offinancing, depending on your personal situation.
Banks, Savings and Loans,Credit Unions: Their primary business is “Full Service” banking andoffer mortgages as part of their product line. This may be your small, localbank, a large national bank, or your Credit Union. Note: Many Credit Unions donot offer mortgages. If you have a Credit Union available to you, check to seewhat their policy is.
Mortgage Companies: Their primary or exclusive business isthe servicing of mortgages. Mortgage companies may be a separate entity, or theymay be a subsidiary of a large bank. Mortgage Brokers: Mortgage Brokers do notdo the actual lending, but act as a middleman between you and the lender. Theycan do the loan shopping for you, since they will represent several–ormany–different lenders. Attorneys and Closing Agents One of the most important”Players” in a Real Estate transaction is the person(s) who will bebringing everything together at the time of Closing: The Attorney, Closing (orEscrow) Agent.
Although actual procedures will vary from state to state andprovince to province, some of the duties that will be assumed by the Attorney orClosing Agent will be: ? Coordination with the buyer, the seller, and the RealEstate Agents involved in the transaction. ? Preparation for transfer of thetitle or deed. Legally preparing for taking the house out of the seller’s nameand putting it into the buyer’s name. ? Coordination with the lendinginstitution.
Receiving all paperwork from the lender to be signed by the buyer. ? Review of the Contract of Sale. Determining that contractual obligations aremet by both the buyer and the seller. ? Responsible for filing with the propergovernment agency (e. g.
, the county) of all items, such as the deed, that willbecome matters of public record. Legally filing the change of ownership from theseller to the buyer. ? Title Search. Arranging to make certain that the titleor deed is “good and marketable. ” ? Receipt, verification, anddelivery of various funds. ? Verification and review of the various insurancesassociated with the ownership of Real Estate.
Mortgages Probably one of thereasons that buying a home is such an emotional experience is because not onlydo you have the actual house buying to deal with, but for most home buyers youalso have the mortgage process to encounter. This can be a smooth and almostuneventful process, or an unnerving one. A great deal depends on the preparationof the buyer as well as the selection of an efficient mortgage company. What aMortgage Payment Consists of 1) Principal: The repayment of the original amountborrowed on a monthly basis. 2) Interest: The cost of borrowing the principalamount, repaid on a monthly basis.
3) Taxes: Real Estate taxes paid to a localgovernment agency. 4) Insurance: Homeowners insurance on the home. Also anymortgage insurance, which is paid to protect the mortgage company. The total ofthese items is known as the PITI (Principal/Interest/Taxes/Insurance) payment.
Negotiating When it comes to Real Estate matters, the 3 most important aspectsof an effective negotiation are: 1) Information 2) Preparation 3) RealismInformation CMA’s–Comparable Market Analyses Once you have found a home thatyou are prepared to buy, the first step in your process of negotiation is todetermine the fair value for the home. Your Agent can be of great help here,since Real Estate Agents have access to the information that you need:Comparable Market Analyses (CMAs). A CMA will show exactly what propertiessimilar to the one in which you have an interest have sold for. These analysesare based on fact, rather than opinion, and that information will always be ofmore value to you. Generally, CMAs will list houses in a particular locationthat are currently on the market, have sales pending on them, have expired fromthe market, and have sold.
Be forewarned: it is primarily the SOLD propertiesthat you need to be concerned with. What houses are on the market for is notalways a good indication of what their value is, those that have pending saleswill only tell you what the listing price is (not what it is going to sell for)and those that have expired because they haven’t sold may indicate that theydidn’t move because they were overpriced. Preparation Just having the rightinformation is not enough. You must prepare yourself in order to use iteffectively.
The most important factor in your preparation is your emotionalframe of mind. Buying a house is emotionally charged enough, without adding morefuel to the fire by letting your emotions override your common sense. It is notunusual to be excited–in fact, it is normal–but you must keep your excitementin check or you will lose the value of all the information you have gathered. Inaddition to your emotional frame of mind, your financial frame of mind should bein order. An offer to purchase will carry a lot more weight if you have nodangling financial problems and you have been pre-qualified for a mortgage.
“You can’t be afraid to let it go. ” You must convince yourself that ifthe price is not to your liking (or worse, above your budget), you will be ableto walk away. It is important for you to set a realistic limit and then stick toit. Overpaying for a house is epidemic among buyers who let their emotions ruletheir better judgment. It becomes very easy to regret paying too much for ahouse when you make a mortgage payment every month. Unlike a product that youoverpay for once when you buy it, a house reminds you every 30 days that youmade a mistake! Finally, plan your work and work your plan.
Organize yourinformation and have it quickly available. When it comes time to make an offer,you don’t want your “ammunition” scattered on scraps of paper in theback seat of your car. Realism Don’t throw away all of the information gatheringand preparation you have done by making a ridiculous offer on a well pricedhome. Nothing will turn a seller off more than a low ball offer on a house thathas been realistically priced. Often, negotiations will stop, rarely to berevived again.
If they are re-opened, the sellers generally will show theirdispleasure at the initial low offer by locking at or near the listing price. Anexample: Mr. and Mrs. Buyer have been looking at houses for months. Finally,they find the perfect house, which is an ideal match for their needs and wants.
The house is listed at $155,000. Mr. and Mrs. Buyer have a CMA in hand thatshows average selling prices in the neighborhood to be in the $148,000 to$153,000 range.
Ignoring the information they have, they make an offer of$120,000. Mr. and Mrs. Seller, annoyed at the low offer, counter offer at fullselling price, $155,000. The Buyers, still convinced that they can”steal” this house, make a 2nd offer of $125,000. The Sellers, nowvery frustrated, do not move from their $155,000 price.
Suddenly, there is wordthat another offer is forthcoming, this time from Mr. and Mrs. Smith. In fear oflosing the house, Mr. and Mrs.
Buyer up their offer to $154,000 (still needingsome concession) and the Sellers accept. Consider, though, that a realisticfirst offer in the $150,000 range (remember, the CMA showed $148,000 to$153,000) may well have been accepted by the Sellers. If this were the case, theBuyer’s paid $4000 more than they had to. The moral: An unrealistic offer on ahouse that meets your needs and is priced correctly could end up costing morethan it would with a realistic offer.
Offers An offer in a Real Estate purchaseis a good deal different than one in other negotiations in which you manyparticipate. A Real Estate offer can become a legally binding contract: If youoffer to buy a house at a certain price and with certain terms, and the selleragrees and notifies you of their acceptance, you have bought a house! Yes, theclosing and escrow details may still need to be finalized, but an offer can turninto a contract in a matter of hours, so it is important that you understand thepotential consequences of an offer. ‘sales price ? Any concessions made bythe seller ? The amount of buyer’s “earnest money” or deposit thataccompanies the offer. ? Financing contingencies (subject to you securing anacceptable mortgage) ? Inspection contingencies (subject to an inspectionreport that is acceptable to you) ? Time and date of settlement and possessionContracts Once the perfect home has been found, it is time for the house buyerto take the step that makes so many of us tremble with fear: the sales contract. To take some of the mystery out of the house sales contract, we will discusswhat the contract involves and the components of most Real Estate salescontracts. What: A legal description of the property as well as the streetaddress.
How much: The selling price. Mortgage contingency: Subject to obtaininga mortgage (if applicable) and the specifics of the mortgage–amount, rate andterm. Application to be made in X number of days. Deposit: How much moneyaccompanies the contract and who will hold it Closing: When and where.
Inclusions and exclusions: What is and is not included in the sale of theproperty. Home inspection: Contingency for and to be done in X number of days. Warranties: Any that are included with the house and description of thewarranty. Condominium: If the property is a condo, other provisions will applyWell and Septic: If applicable, they must be tested (and pass). Termite and Pestinspection: Who will pay and if there is infestation or damage, who will repair.
Possession Date: When the buyers take possession of the house–before, at orafter closing. Acceptance: How long the sellers have to respond to the offerwith either acceptance or a counter-offer. Arbitration: Any provisions forarbitration of disputes. Insurance: Whose insurance covers the property up untilthe closing date. Property Disclosures: Notices of any property disclosuresconcerning the house.
Inspecting After you have found a property that meets yourbudget and needs, the next step is to determine whether the physical conditionof the property will be acceptable. All Real Estate is definitely not createdequal–there is a great variance in the way individual homeowners maintain theirproperties. In addition, you need to be aware of any hidden defects that couldsubstantially affect the value of the home. The only way to safely determine thecondition of a property is to take advantage of every opportunity you have toinspect it. Closing It is the proverbial “signing on the dotted line:”the process of which will put the title to the house in your name, verifyhomeowners’ insurance on the property, commit in writing to the terms of themortgage, and usually, put the keys to the house in your hands. In general, youwill leave the closing and go to your new home as a homeowner.
The weeks andmonths of anticipation are all settled in the short amount of time that youspend at the closing. What items will we need? The following are the mostimportant items that you will need prior to or at closing and some hintsregarding them: A Closing cost estimate: This should first be given to you byyour Agent at the time of the contract, and then given to you by the Lender, aGood Faith Estimate, shortly after the application for the loan. This shouldgive you a reasonably close estimate of funds you will need at the time ofclosing. Homeowners’ Insurance Policy: This must be secured prior to the date ofclosing.
Settlement Statement: You should have a copy of the SettlementStatement before the date of Closing. Generally this will not be available untilone or two days prior to the actual Closing, but it is important to have itbecause it gives you the total amount of cash you will need at Closing and alsohow those various funds will be dispersed. In addition, it gives you anopportunity to iron out any discrepancies prior to sitting down at the Closingtable. Your Agent should also have a copy for review. Start asking for thesettlement statement 4 or 5 days before the scheduled closing.
This will saveyou having to chase it down the night before your closing. Certified Funds: Onthe day of Closing you will need certified funds for closing costs and downpayments. This is an important reason for needing a copy of the SettlementStatement a day or two in advance–so you know the amount of funds needed and sothat any problems can be handled in advance. Insurances One of the primaryactivities at the closing or escrow is the verification of all of the insurancethat is needed or desired when buying Real Estate.
Title Insurance: Insures thatthe title or deed to the home is good and marketable. This is only issued aftera successful title search. Title Insurance would most likely protect you, forexample, if an unknown additional seller (for example an ex-wife or husband)suddenly surfaced months or years after you took possession of the property. Homeowner’s Insurance: Insures the home against damage or theft.
This insurancewill be structured to protect both you, as the owner, and the lender. There canbe a good deal of variation in policies. See the section on saving money onhomeowner’s insurance for hints on getting the most insurance for the leastamount of money. Personal Mortgage Insurance (PMI): This insurance, althoughpaid for by you, protects the lender against a loss should you default. It ispresent and required on the majority of loans that have less than a 20%downpayment.
Recent changes in laws affecting PMI will make it easier to getthis insurance removed when the equity in your home reaches 20%. Do not confusePMI with mortgage life insurance, which would pay off your mortgage should youdie before it is paid off. Mortgage life insurance can be purchased through yourInsurance Agent, but is not required.
