Buying a home can be a monumental decision. It can also be a monumental hassle too, if not done right. Though nothing worthwhile ever comes without a great amount of effort, the home-buying process can be simplified, when taken in small, sensible steps, allowing you to get through it without a great deal of stress or hand-wringing.
Reduced to three easy-to-understand practices, the entire process presents itself in a logical manner.
Making an Offer
There are many factors that influence the asking price of a home, as well as help you determine how close you’ll come to that asking price in your offer. Your real estate agent should help you start the negotiations on the right foot by helping you find answers to the following questions:
- Why is the seller selling? The difference between the true and perceived value of a property can be determined with this question. If something is wrong with the property or no longer suits the needs of the owner, you’ll be able to adjust the offer accordingly.
- How much did the seller pay for the home? Though current market value and improvements are major influences on the price of a home, the length of time that an owner has owned the property can help you in drafting an offer that ends in a great deal for you.
- What does the seller like most and least about the property? By understanding more fully the nuances of the home and its surroundings, you’ll be able to ascertain if there are areas of improvement that you could use as negotiation points. For example, if a homeowner loves “the quirky character” of their home, you may see this as issues with water, electrical systems or a simple need for more storage and updated bathrooms. Use these points as sensible reasonings in your lowered offer.
- What are the problems with the home? It is the law in most states that a seller disclose any major problems that they are aware of when selling. Therefore, make sure to ask about roof and foundation issues, if flood damage has ever occurred or if an older home’s electrical system has ever been updated. Look for dealbreakers and areas for negotiation.
- Are there any nuisances or problem neighbors? The funny thing about buying a new home, especially when in a condo, townhouse or shared living community, is that there is little you can do about the neighbors. Make sure you understand the community surrounding your next potential house by finding out about airplane traffic, barking dogs, school bus stops, and planned changes to the neighborhood, like widening streets or a plan for a new shopping center.
How are the schools in the area? Even if you don’t have children, the perceived quality of the neighborhood school has a definite impact on current and future home values. Good schools attract good families and keep property values strong.
Understanding Closing Costs
Though technically not an actual step in the process of buying a home, knowing what closing entails and what costs are involved can be extremely helpful to getting through closing without stressing over it. With many players being involved in the transaction, you’ll probably feel a bit overwhelmed at times, watching the costs of closing rise, seemingly, each and every day. The fees that should not surprise you include the following:
- Appraisal fee – Paid to the appraiser for his evaluation of the property required by the lender.
- Credit report fee – When you applied for your home loan, the lender requested a full credit report. These reports cost money and the lender is asking you to pay for it.
- Loan origination fee – All that loan-processing paperwork costs money. The typical fee for processing your loan is one percent of the total mortgage.
- Loan discount – Applicable if you chose to pay points in order to lower your interest rate. Each point equals one percent of the total loan.
- Title insurance fees – The title company has already performed all the legally required paperwork that is needed by the closing date. This fee covers the cost of the title search, title examination, insurance, documentation and any other expenses incurred.
- PMI premium – If you paid less than 20 percent down on your new purchase, it’s likely that your lender will require you to carry mortgage insurance. The PMI premium is the initial cost of this insurance that you will pay every month.
- Prepaid interest fee – Covering the interest payment from the date of closing until your first mortgage payment, this fee adjusts to the amount of time between the two. Therefore, if you close at the beginning of the month, your fee will be much higher than at the end of the month.
- Escrow Accounts – Though not common in all areas, some mortgage lenders start these accounts to hold funds for future annual property taxes and home insurance. Ask about these costs if required at the time of your closing.
- Recording fees and transfer taxes – Most states charge these fees to transfer ownership of a property and to record the purchase documents.
Every fee or expense charged to you at closing should be disclosed to you by your real estate agent during escrow. Don’t forget that closing costs can be used as negotiation points in your offer, some even offer to pay all closing costs so don’t be afraid to ask. Consult with your agent about when is the best time to do so.
The In’s and Out’s of Escrow
So your offer was accepted and you’re on your way to owning that fabulous home – Congratulations! After delivering your down payment to the mortgage lender, and obtaining an escrow company, you’ll enter the actual buying process, often referred to as escrow. This period of time is when all required paperwork is started and steps such as inspection and appraisal take place. Working as your advocate during this period, your real estate agent is charged with the responsibility of ensuring that all aspects are handled before the date of closing. Here are some important aspects of escrow that you should be aware of:
- Escrow periods are generally about 30 days. Within this period, all items specified in the contract must be completed satisfactorily, including inspection, which should be done early enough so that contingencies can be made or the contract can be canceled if problems cause you to want to do so.
- Obtaining financing can delay closing. This is why it’s so important to get pre-approved for a home loan. If you obtain financing after your offer, then you risk not being able to get the funding you need by the period of time granted to do so.
- Use your right to obtain a title report. An attorney or title officer will be able to tell you if a title is clear, giving you the confidence of knowing that there will be no legal issues regarding you purchasing the property in question.
- Get homeowner’s insurance during this period. Most lenders make this a requirement before the closing of the transaction can take place. Apply for home insurance as soon after signing the contract to buy as possible. This will strengthen the possibility that you’ll get the property insured in time (in case any issues arise that make the property uninsurable – you’ll know in plenty of time to cancel).
- A final walk-thru inspection is your right and is a good idea. A second look, at about 24 hours before the scheduled closing will ensure that nothing has changed or been replaced since you placed your offer.
You’ve made it! Once the sale has closed, you’re the proud owner of a new home. Congratulations!