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HomeHomes
Published: Thursday, 11/3/2005

Buying a Home: Understanding the Process

Home ownership is the quintessential American dream. Each year, couples, families and singles make the decision to take the home-ownership plunge and set out on a course of finding their ideal home.

Purchasing a home involves a roller coaster of emotions, a pile of paperwork, and nerves of steel. Beginning the process without a cursory course in home buying is not a wise venture. As an informed individual, you'll be better equipped to make the right decisions for your future and avoid being taken for a ride.

Step 1: Affordability: Before you visit a real estate agent, decide on a price range. The best way to do so is to sit down with a financial consultant or mortgage broker who will weigh your current debt against your income and savings.

Lenders use guidelines to determine how much you can spend on a house and whether prospective home- buyers will be able to pay their monthly mortgage payments comfortably. The guidelines generally state that a household should spend no more than 28 percent of its income on housing expenses and no more than 36 percent of its income on total debt obligations.

You will then be presented with a good example of the mortgage amount for which you'll qualify -- often termed a pre-approval. For example, you may qualify for a mortgage of $250,000 if you make a down payment of $50,000. This means you should only look at homes that cost $300,000 or less to meet your budget allowance.

A realtor may ask to see a pre-approval to help you determine your price range and to also be sure that you are serious about buying a home.

Step 2: Finding a home: Finding your prospective home can be a time-consuming process. Currently, it is still a sellers' market, meaning that sellers are receiving top-notch prices for homes amid a home-buying market that is in high demand. You may find yourself outbid or too late for many properties. Consult with a real estate broker, who has current listings and up-to-date information, or set out on your own search by visiting open houses.

Create a list of requirements you have for your dream house. It should include the number of bedrooms, basement or garage preference, square footage and items of this nature. Also consider the style of house you prefer: colonial, ranch, split-level, Cape Cod, Tudor, etc. These factors will help a real estate agent narrow down the appropriate properties that are available in your area.

When visiting homes for sale, keep an open mind and try to look beyond the current owner's design scheme and belongings. Understand that, unless money is no object, you may have to make concessions on your dream home. Look mainly at the structural integrity of the home, the possibilities for change, and the location of the property. You may have to visit dozens of properties to find the house that's right for you.

Step 3: Making an offer: In most states, you'll be required to make a formal offer on the house in the form of a written contract. It will state your intended offer price as well as information on a down payment and proposed closing date. Your broker can also jot down other information in your favor, like "flexible closing date," "no other existing house to sell," etc. You are usually required to leave a deposit or a binder as well, which will be held in escrow by a third party. Should the sale fall through, your deposit will be refunded.

The seller will consider the price and let your broker know if it is acceptable. He may require that you counteroffer if there are other bidders on the home. If your offer is accepted, you're on your way to home ownership. At this time, a formal purchase contract will be drawn up by your broker addressing the terms of purchase and agreed-upon price.

Step 4: Securing a mortgage: Now that you know your purchase price, find a lender who will agree to lend you the money. Shop around for the best offer from several financial institutions, keeping in mind the current interest rate.

It could take several days or weeks for your mortgage documents to be finalized. Remember that the seller will need to receive copies of the finalized agreement in order to continue the selling process. If you cannot secure a mortgage in a timely manner, the house will go back on the market.

Step 5: Contact an attorney: You'll likely want to contact an attorney who will guide you through the legalities that will ensue. (The seller probably has an attorney working for him.) A lawyer can review the contract and advocate for items in your favor -- like improvements that need to be made or appliances you'd like to keep. Your attorney will also facilitate contact between the seller, so you won't need to be involved so thoroughly in the process.

Step 6: Home inspection: You are urged to contact a home inspector to arrange to have your prospective home inspected. Your attorney or a friend may be able to recommend one. A licensed professional can best assess if the home is structurally sound and built according to code. Should anything be illegal or just not up to par, the inspector will include it in his report. Your attorney can then negotiate a lower sale price or give you the option to make the repairs yourself or back out of the deal at this time. Or you may be advised of what the seller legally needs to repair.

Step 7: Walk-through: In most cases, you'll be able to walk through the prospective home right before the closing to make sure the house is in the agreed-upon condition. Make sure no damage occurred when the previous owners moved, or intentional damage was made (yes, it sometimes happens). If repairs are necessary, it could delay the closing process further. The seller could be responsible for paying for damages that were incurred.

Step 8: The closing: If you're still proceeding on course, a closing date will be scheduled and finalized. (It may vary from the original date agreed upon in your contract.) At the closing, you may be present with your attorney and the seller's attorney. You'll be required to sign paperwork and present fees, called closing costs. Examples of closing costs include:

* down payment

* property taxes

* attorney's fee

* points

* title insurance

* clerical/processing costs

* proof of homeowner's insurance

Your attorney or real estate broker should be able to give you a rough estimate of your total closing costs in advance. But you probably won't know the actual amounts until a few days or even a few hours before the closing. Oftentimes, a certified check or cashier's check is required to pay these costs. Make sure you've factored closing costs into your home-buying budget.

After you've signed what seems like a million documents and initialed a million more, you will receive the keys to your new home. Congratulations on being a homeowner!



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