You dream about buying a house and the time is now here. Purchasing a home, whether it's your first or your 5th can be a fun, exciting time. A time of fresh starts, new beginnings, adventure, emotions and let's face it...stress. No matter how much you have everything in order, there are times when obstacles will surface or bumps will be found while going down the home purchase road. The reality is, it's bound to happen. The good news is, you will get through this, especially if you have the guidance of a great real estate professional that is looking out for your best interest.
To help you understand the home purchase process, let's break it down for you in a simple home buying process step by step format.
Your lender is the one who will answer the question, "How much can I get approved for?". Before you even begin looking at homes it is crucial that you get with your lender to find out how much payment you can afford which will, in turn, tell you how much house you can afford. A pre-approval will not only tell you what you can afford, but at that time you and your family can decide what your maximum purchase price will be. Also, at this time you can discuss different types of loans with your lender. Depending on your credit score, how much you have to put down, debt to income ratio and other variables, there are loans that would be more beneficial for you than others. Depending on the type of loan that you qualify for will also have a factor in how much your house payment will be and how much loan you can afford.
There were a few times in the beginning of my career that I began showing clients homes before they met with a lender and then it turned out that they were not qualified for the purchase price we had been looking at which was not only disappointing for my clients, it also delayed the process because we had to start from the beginning in their home search. So, by meeting with your lender, or even giving them a call and being pre-approved you will save yourself a lot of time and will have a plan before we even begin.
Finding The Perfect Home
Great! You have your pre-approval letter and your ready to rock and roll! Now for the fun part! Looking at all of the incredible houses to find that future home. Here are some questions to answer before having your agent start your home search:
- Where would you like to live?
- What school district?
- How close to work would you like to live?
- What is your price range?
- Do you want the home to be move-in ready or are you willing to do some TLC work?
- How much work are you willing to do? Full rehab? Small cosmetic stuff?
- What is your timeline for buying a house? Do you need to be moved by a certain date?
- Do you have a home you need to sell before you can purchase something else?
- How many bedrooms?
- How many baths?
- Is a basement important to you? Finished? Unfinished? Walkout?
- Garage? 1 car? 2 cars? More? Attached? Detached?
- What type of yard are you wanting? Big? Small? Fenced? Partially fenced?
- What type of house? Older? Newer? 2 Story? Ranch?
- Kids rooms all upstairs?
- Laundry on main floor? Upstairs?
Do you see where we are going with these questions? Make a list of your 'must-haves' and a list of your 'desires'. Where are you willing to compromise if needed? Are you okay with a big backyard but it not being fenced with the goal of eventually adding a fence later? Are you okay with a two car garage instead of three if there are not many three car garages in your price range? Are you okay with finishing a basement later if you found the perfect home that met all of your criteria but didn't have that finished basement? It's good to play around with scenarios and discuss with crucial family members so that you are on the same page. Doing this ahead of time will help make the process more fun and less stressful and will help you answer the question, "How to find the perfect house?".
On a side note, when you begin looking at homes, after the first three, everything can easily begin to start blending in together. Check out our tips for keeping track of the homes you are viewing.
You just left the most perfect house. It's better than you had even hoped for and you are ready to make an offer. So what now? Your agent will take care of the paperwork and get everything ready for your review after you both discuss what you would like in your offer. A lot of agents today even have a system that allows them to put an offer together electronically which really is fantastic, especially when there are time-sensitive deadlines during the process. Instead of having to meet with your agent they can send you an email for your review and electronic signature. It saves on time and doesn't pull you away from your commitments.
Before making an offer on a home, you will want your agent to run a comparable report to see what other houses that are similar have sold for in the past 30-90 days. This will help you to gauge a good offer price. Your agent will guide you and make suggestions depending on the market at that time. This is a great time to utilize your agent. No one knows the housing market better than real estate professionals who are in the midst of the real estate world day and night. Especially if they have been putting other offers in that area or have listings there. They will be able to give you an idea of what may or may not be accepted.
When making an offer on a house, it's so important that you make an intelligent first offer so that the seller is willing to work with you. I have seen people put in very low offers on houses that were in a high demand area with houses flying off the shelves and wondered why they didn't even receive a counter offer back. Sometimes low ball offers on a house can really offend sellers where they don't even want to try and work with a buyer. On the other side, you do not want to overpay and offer full price if the house is overpriced. Your agent will guide you through this step by giving you the facts so that you can make the best decision. Discussing all of the variables with your agent will help you to know how much you should offer on a house.
Along with the offer price you will also need to decide on the closing date. Because of some changes going on in the industry, you will no longer be able to close in 30 days beginning October 3, 2015. Your lender will need anywhere from 45-60 days to close [and this is assuming all goes smooth] so keep this in mind when making the offer. Other items to take into consideration for your offer is the title company where you would like to close. Title companies are very critical in the home buying process. They assure that the title is clean and clear at closing and if there are any issues, they are the ones that will find them and work to getting them resolved.
You will need to decide how much earnest money you would like to put down. Earnest money is really used to show good faith and seriousness to the seller that you really do want to purchase their house and will not back out unless inspections, financing or title issues are not resolved. We will discuss these possible issues more in detail in future articles. Usually a good rule of thumb for earnest money is nothing lower than $1,000 or 1%. Sometimes, strategically, it is better to give more earnest money if there is a chance for multiple offers. Again, your agent can offer you information that will help you to decide what is best for you.
A standard inspection period is 10 days, however, if you need more time then it's usually fine to ask for up to 15 days. We would not recommend asking for more than this. If you do, chances are that you may receive an adjustment in a counter offer. Sellers do not want to tie up their house with an extended inspection period in case an agreement does not happen and they have to put their house back on the market.
A few other items for consideration when making your offer: Would you like to ask for a home warranty? Most of the time sellers don't mind paying for one of these and they are very reasonably priced. Do you want to see if the Seller will pay for your closing costs? For those that do not have a lot of extra money over the downpayment, this is a good option and something requested quite often.
Depending on your situation there may be other items you wish to ask for while making an offer, however, the above are the most often items that are given attention.
After everything has been signed, with a deadline response time for the seller, your agent will send all paperwork, including a copy of the earnest money check as well as pre approval letter to the listing agent. By the response deadline you will receive one of three possibilities: An acceptance. A rejection. Or A counter offer.
In our next article we will discuss what happens When The Offer Becomes A Contract as well as What's Next?
Houses just came on the market in St Louis County.
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