How to Buy a Home: A First-Time Home Buyer's Guide, Part 5
In case you're just tuning in, here are the links to parts 1 through 4:
Part 1- Finding a Real Estate Agent to Represent YOU
Part 2- Getting Pre-Approved for a Loan
Part 3- Finding Your Dream Home
Part 5: Under Contract- It’s Where the Real Work Begins
Many times, people think that the most difficult part of buying a home is finding the right house. If only it were that simple!
The real work begins when you’re “under contract," and it’s during this stretch that many deals fall apart. This is the time during which contingencies must be met, more information is discovered about the home, and more negotiating ensues. In other words, there are plenty of things that could go wrong.
If you're working with a real estate agent (and as a first-time home buyer I highly recommend that you do) this is where the agent's expertise is crucial. Certainly some things are unavoidable, but a good real estate agent will know how to help you avoid some road blocks entirely, and will help you maneuver around others, if at all possible.
Here are some things that may occur while you're under contract along with a brief description of each:
Home Inspection:
Yes, you should have a home inspection done by a professional. No home is perfect and every inspection will reveal defects...even on new construction!! This is your opportunity to find out about things that may be wrong with the home, to investigate the issues, and to ask the seller to take care of or contribute financially to any major items that need to be addressed. If the seller refuses and an agreement can't be reached, then you may have the ability to walk away from the sale without penalty. In this area, a home inspection will generally cost around $250 - $350 and it’s a small price to pay for peace of mind.
Environmental Inspections:
Here in Illinois, you will have the opportunity to have the home professionally inspected for lead-based paint, radon, or both at your expense. Your agent will provide you with information about each of these environmental hazards, and should you be interested in having inspections done, your real estate agent can then recommend local professionals to assist you.
Loan Application:
Now that you have a signed contract, you will be working with your lender to complete the loan application. The lender will not only be verifying that you qualify for a loan, but will also be making sure that the home you’ve chosen is a good investment (from the lender’s perspective). After the lender has verified everything on your application and has completed a satisfactory appraisal of the home, the lender will issue a “loan commitment” which is a fairly safe indicator that the sale is a go.
Appraisal:
As mentioned above, the lender will order an appraisal of the home, meaning that a licensed professional will conduct a thorough analysis of the value of the home you are purchasing. The point is to make sure that the home is worth what you’re paying for it. In other words, the appraised value of the home needs to be greater than or equal to the amount you’ve agreed to pay for the home in the sales contract. On occasion the appraisal will come in low. It doesn’t happen often, but if it does, your real estate agent will advise you of your options.
Termite Inspection:
Per the sales contract used most often here in Champaign County, a termite inspection should be conducted by a licensed pest control company between 10 and 30 days prior to closing. Termites are destructive little critters, so if the home has an infestation, you need to know about it and your lender needs to know about it, too. If a problem is discovered, the standard sales contract spells out who has an obligation to do what to remedy the situation.
Title Work:
Title is, in essence, ownership of property. "Title work" is a process where a title company is hired to: investigate the ownership of the home you are purchasing, make sure there are no liens on the property, and issue title insurance to you and to your lender to protect you both against losses that could arise from title defects. As a buyer, you probably won't be involved in this process unless an issue is found; however, you will be responsible for the cost of the lender's title insurance policy to be paid at closing (I'll talk more about closing costs in the next part of this series).
Final Walk-Through:
Like the home inspection, the final walk-through is an important step that you do not want to skip!!! The final walk-through is where the buyers take one last look at the home right before closing to make sure that: the sellers have left the home in acceptable condition, the sellers have left all personal property included in the sale, and the sellers have completed all repairs negotiated. The final walk-through is your chance to find problems, if any, and have them resolved while you still can... before you take ownership of the home.
Phew! I told you it would be a lot of work ;-) But if you’ve made it through all of the above then you can breathe a little sigh of relief. It won’t be long now before you can call yourself a homeowner.
Any questions? Let me know! Otherwise, you're ready for the final chapter in buying a home…
*This home buying guide is specific to the Champaign-Urbana, IL area. Practices may vary in other locations.
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