The Home Buying Process – A Brief, Step-by-Step Overview
If you’re like most people, buying a home represents your single biggest investment – and debt. As such, the home buying process can be one of the most exciting, but sometimes also stressful, experiences you ever go through. This may be true whether you’ve bought many homes or you’re looking to buy your first, whether you’re in the market for a new primary residence, an investment property or that perfect vacation getaway.
Moreover, never has the real estate market offered more great opportunities, or been fraught with more risks, than now. There are many factors to consider and many decisions to make. That’s why, when buying, it’s crucial for you to have all the available resources necessary to make a well-informed decision, together with the time required to make complete use of them. That’s also why you should enlist the help of a trusted REAL ESTATE AGENT who’ll be able to provide you with expert consultation at each step of the buying process.
Generally, finding and purchasing a home includes the following steps, some of which are examined in more detail throughout this booklet:
1. Define Your Goals, Research Your Options, Make Your Plans.
Given that buying a home is such a big step, it’s all the more important for you to educate and prepare yourself as much as possible in advance. This means clearly determining why you’re buying and what kind of home you’re looking for. And because buying and financing a home are so closely related, it also means examining your current financial situation and projecting how much you can afford.
Once you’ve answered these questions, even tentatively, you’ll be in a better position to research your housing and mortgaging options, as well as create an action plan and timelines for moving forward. You may want to do this yourself, but you may also benefit by consulting an experienced REAL ESTATE AGENT right from the start.
2. Contact A REAL ESTATE AGENT.
Buying real estate is a complex matter at the best of times, given that there are so many factors to consider and no two homes or transactions are alike. However, with all the unique opportunities and potential pitfalls of the current market, it’s even more important for you to contact a REAL ESTATE AGENT once you’ve definitely decided to buy.
In choosing a REAL ESTATE AGENT to guide you through the property search, financing, negotiation and transaction processes, you should consider their local market knowledge, experience and track record.
3. Get Pre-Approved For A Loan.
Generally, it is recommended that you get pre-qualified for a loan before you start viewing homes with the serious intention of buying. The pre-approval process involves meeting with a lender and authorizing them to examine your current financial situation and credit history. On the basis of this examination the lender will provide you with a document that details how much you can borrow to buy a home.
The benefits of pre-qualification includes:
• You’ll have information about what you can afford and be able to plan accordingly
• As a qualified, motivated buyer you’ll be taken more seriously when you make an offer on a home
• Lenders can tell you whether you qualify for any special programs that will enable you to afford a better home (particularly if you’re a first-time buyer)
Real estate financing is available from many sources, and an experienced REAL ESTATE AGENT will be able to suggest lenders with a history of offering excellent mortgage products and services. For more information about the benefits of pre-approval and the loan process in general. It is much better using Bond Originators than using your banks facilities as these service providers monitor the process and ensure your application is expedited.
4. View Homes and Select THE ONE.
Simply put, key to the home search process is knowing what you’re looking for. Among other things, that means distinguishing between “must-haves” and “like-to-haves”. To help you to target your search and define your home preference priorities, this guide includes a Home Search Worksheet on page 28.
That said, here are a few recent facts about the search process that might put your experience in perspective:
• Almost 90% of buyers use the Internet to search for homes
• The typical buyer searches for 12 weeks and views 12 homes
• 81% of buyers view real estate agents as very useful in the search
There are many benefits to starting the search process at a real estate website like REALTOR.com®, the world’s most extensive source for property information. You can view many homes and their details, take video tours and access neighbourhood info.
However, it’s also important to view homes in person. While their property details may seem similar online, homes can actually be very different in terms of layout, design, workmanship and other aspects. In addition, you should ideally view homes with the help of an experienced and eagle-eyed REAL ESTATE AGENT who’ll notice things you might miss, provide expert analysis, and act as an impartial sounding board.
5. Make An Offer And Negotiate With The Seller.
Now that you’ve found the home you’d like to buy, it’s time to make an offer. Your local real estate association, working with legal counsel, has developed the contracts that are used for transactions in your area. These contracts enable you to specify a sale price and also include many clauses for specifying various terms of purchase, such as the closing and possession dates, your deposit amount, and other conditions. You should carefully review these clauses with your REAL ESTATE AGENT to ensure that they express your desired offer. In addition to drawing up the contract, your REAL ESTATE AGENT will be happy to address all your questions about the offer process.
Once you’ve written the offer, your REAL ESTATE AGENT will present it to the seller and/or the seller’s representative. At that point, the process – given that a home’s eventual sale price is subject to supply and demand – will depend on the kind of market you’re in. Generally though, the seller can accept your offer, reject it, or counter it to initiate the negotiation process.
Successive counter-offers, with deadlines for responding and meeting conditions, will be exchanged between you and the seller until a mutually-satisfactory pending agreement is reached or the negotiations breakdown.
Negotiations can involve many factors relating to different market conditions, homes and sellers, some of which are examined in Negotiating The Deal
6. Secure Your Financing.
Once you have a pending agreement, it’s time to go back to your chosen lender to finalize your mortgage details so you can close the deal. This means finalizing your down payment, interest rate, regular payment schedule and any other financial conditions associated with the closing.
As noted in the section on loan pre-approval, if you’ve already been qualified with a lender for a certain loan and home purchase, this phase of buying your new home should be a relatively straightforward matter that centers around finalizing the loan details and signing the mortgage papers.
As the old saying goes, ‘let the buyer beware’. Particularly in these times, when so many buyers are suffering the consequences of having not fully understood their financing decisions, it’s crucial for you to work with people you trust. In this regard, a good REAL ESTATE AGENT can be a true friend for life.
For more information on the loan process, see The Loan Process - Financing Your Home Purchase, on page 17.
7. Close The Deal.
If you’ve efficiently taken care of everything connected with purchasing your new home, the experience of taking ownership will be a positive joy with no surprises. Key steps to the closing, also referred to as the “escrow” or “settlement”, include:
• Getting a Title Search – an historical review of all legal documents relating to ownership of the property – to ensure that there are no claims against the title of the property. It is also necessary to purchase Title Insurance in case the records contain errors or there are mistakes in the review process.
• The Final Walkthrough – you’ll be given the chance to look at the home to make sure it’s in the same condition as when you signed the sale agreement.
• The Settlement – typically, on the Closing Date you’ll go to a lawyer’s office to verify and sign all the paperwork required to complete the transaction. The settlement will include paying your closing costs, legal fees, property adjustments and transfer taxes. At that point, you’ll receive the property title and copies of all documentation pertaining to the purchase.
• Oh, and one more thing – you’ll get the keys. In most cases at the Occupation Date stipulated in the contract, which is normally at registration date and will normally fall within a couple days of the end of a month.
To Buy or Not to Buy – Considerations For First-time Home Buyers In This Market
Buying your first home is a major step. There’s a lot you need to know to make the right decisions – and also to avoid making the wrong ones. And that’s particularly true in this current buyers’ market, when there are so many homes available and sellers have such diverse motivations.
The good news is that if you know what you’re doing, or if you’re working with a highly-experienced REAL ESTATE AGENT who does, this market offers fantastic opportunities to get a great home at a great price.
Owning Versus Renting.
Without question, owning a home comes with responsibilities and risks that you don’t have to worry about when you rent, such as a mortgage, taxes, homeowner’s insurance, maintenance and repairs, to name a few.
You might be surprised to know that there are many renters who financially qualify to own their own homes, but don’t realize it. Are you in this category? It would be a shame if you wanted to own your own home, but didn’t know you could – particularly in this perhaps once-in-a-lifetime buyers’ market.
Is It A Good Time To Buy?
Generally speaking, if you’re financially qualified, your timing couldn’t be better. In fact, few markets have ever offered the kinds of opportunities that currently exist for first-time home buyers, because:
• Home prices are down generally
• Mortgage rates are historically low. You might be able to lock-in at a very low rate on a 30-year mortgage!
• There is a large listing inventory generally – i.e. plenty of homes to choose from
• There are many foreclosed homes and distress sale listings available at greatly reduced prices
• There are many builder liquidations – i.e. new homes – available at greatly reduced.
So the bottom line is that if you are currently renting but really want to own a home, this is a fantastic time to buy. And again, you may qualify to buy and not know it. So talk to a knowledgeable, experienced REAL ESTATE AGENT about your options. Your REAL ESTATE AGENT will not only be able to guide you towards getting all the financial support you qualify for, but you’ll also get the scoop on the many and various great real estate opportunities currently available.
Not only that, but in case you didn’t know, all the work that a REAL ESTATE AGENT does to help you find, finance, and purchase a home won’t cost you a penny – it’s all paid for by the seller.
The Loan Process – Financing Your Home Purchase
Unless you’re one of the rare few able to pay cash for your home, central to buying is finding the right lender and mortgage product. There are many different kinds of lending institutions, offering a wide range of loans and special programs. In fact, you should diligently research your options and shop around for a mortgage with as much care as you take when looking for a home.
Here are the main steps to securing the mortgage that best suits your needs.
Educate Yourself About Your Options.
Sad to say, but we’re currently in a time when many people are suffering the consequences of having made poor – and perhaps ill-advised – mortgage decisions. That’s why it’s crucial for you to learn as much as you can about your mortgage options.
There are myriad loan types and programs available through thousands of banks, finance companies, credit unions, and other assorted lenders. Not surprisingly, there are just as many sources of information about mortgages. Websites like PRIMEVIEW.CO.ZA, books, news articles, seminars, mortgage brokers, lenders, and knowledgeable REAL ESTATE AGENT can all help you make your way through the labyrinth of financing possibilities, so make use of them. And be sure to get a few opinions.
In short, do your homework before you put your name on the line, because what you don’t know could hurt you.
Sincerely Examine Your Financial Situation.
Together with educating yourself about your loan options, you should be asking yourself how much mortgage and down payment you can really afford.
Make yourself accountable. What might you be giving up – not just every month, and also perhaps 20 years down the road – by extending yourself further? Maybe taking on a larger mortgage will pay off greatly as an investment, maybe it won’t. Be sure to weigh the risks and opportunity costs.
Along these lines, PRIMEVIEW.CO.ZA provides you with a variety of loan calculators that will help you determine what your regular payments will be based on your projected down payment, the loan principal, the interest rate, the mortgage term, and so on.
One other point to note is that some lenders will qualify you for the maximum they’re willing to lend which, however, may be more than you can truly afford given all your other responsibilities. Additionally, be sure to factor all related taxes, insurance, improvements, homeowner fees and all other potential costs into the equation. The bottom line is that you should make a list of your monthly expenses, as well as project your financial commitments during the life of the mortgage. This will provide a realistic figure of what you can afford.
In shopping for a loan you should consider two main sources: direct lenders and mortgage brokers. Direct lenders have the money and make the decisions, but have a limited number of in-house products to offer. Brokers are intermediaries who charge a fee, but who can provide you with loan options from many sources and can often save you money overall. In this case, you might consult your REAL ESTATE AGENT as they may have some beneficial connections.
Your Basic Mortgage Options.
Generally, there are two ways you can go: a fixed-rate mortgage with an interest rate that remains the same for the life of the loan, or an adjustable-rate mortgage (ARM) with a rate that adjusts up or down, depending upon economic trends.
The advantages of a fixed-rate mortgage – particularly if you lock in at a low rate – are that they protect you against the risk of rising interest rates, and their stability can also make it easier for you to plan and budget your short and long-term expenses. Their down side is that they generally have higher rates than ARMs at any given time, and by locking in you run the risk of being trapped at a relatively high rate if interest rates fall.
Another main consideration with a fixed-rate mortgage is the term. Shorter term mortgages, like a 15-year, have lower rates than a 30-year. The shorter term and lower rate mean that you’ll pay less interest over the life of the loan, although your monthly payments will generally be higher.
On the other hand, an adjustable-rate mortgage’s (ARM) rate is commonly based on the U.S. Treasury index for a one-year Treasury bill, although it may also be geared to other indexes. Generally, lenders add 2-4% to the index rate to get their ARM rate. Initially, the rate is lower than the fixed rate by a quarter point to two points or more. This rate will periodically adjust within set limits or “caps” that are specified by the terms of the loan.
Finally, it must be reiterated that the loan you ultimately qualify for will depend on your credit status. The best rates and terms are only available to those with solid credit so, if possible, pay off your credit cards and make all other bill payments in full and on time.
Apply For A Mortgage.
Once you’ve reached a pending agreement with a seller to buy a home you’ll have all the details you need to formally apply for a mortgage.
When you meet with your chosen lender to complete the application you’ll need to provide information – if you didn’t during the pre-approval process – about your household income, job tenure and stability, assets and existing debt, and regular expenses. This may take the form of pay stubs, bank and investment statements, tax returns and other documentation. The lender will also check your credit status.
During the application process, you’ll discuss your different loan options and programs you qualify for, as well as finalize the size of your down payment.
Generally, because there are so many considerations and so much at stake, make sure you bring all your questions to the table, and this includes asking the lender to explain all terms of the mortgage. You may find that having a trusted and knowledgeable REAL ESTATE AGENT by your side to explain every aspect of the mortgage contract will increase your peace of mind.
Lastly, if you qualify for the loan you’re seeking, the lender will often have the home you’re buying professionally appraised to ensure that it is worth the purchase price.
Successfully Negotiating the Deal
Negotiating the transaction is usually the most complex aspect of buying a home. At the same time, it’s the one that can involve the most creativity. That’s why it’s important to have an experienced and savvy REAL ESTATE AGENT who has successfully worked through many different transaction scenarios.
That said, what follows are a few strategies for negotiating a good deal in a buyer’s market like this one, all of which involve: presenting yourself as a serious buyer while, at the same time, keeping your emotions in check; trying to understand and respect the priorities of the seller; being creative and, where necessary, willing to compromise to get the deal done.
Strike A Balance – Motivated But Not Too Eager.
For you, as a buyer in a buyers’ market, it all starts before you even make an offer, the first time you see that home you think might be THE ONE. It’s important that you do not give yourself away to the listing agent by getting too excited about your “find”. If anything, ask a few questions, maybe take a few notes, and let your REAL ESTATE AGENT do most of the talking.
Ideally, you’re trying to strike a balance by appearing to be a qualified, motivated buyer while, not appearing to be too eager. You’ll demonstrate that you’re a serious buyer – the kind sellers look for – at the time you make the offer, particularly if you:
• Have already sold your present home (if you have one); or in any case, make it clear that you’re not dependent upon selling in order to buy
• Make an all-cash offer or show that you’ve been pre-approved
• Provide an attractive “earnest” deposit with the offer
• Make an offer that still gives you room to negotiate your price
Not only will this approach show that you’re qualified and motivated, it will place you in a stronger negotiating position overall. The sellers won’t want to lose you and so will be more inclined to reduce their price a little and/or make some concessions with respect to terms
Understand And Respect The Seller’s Priorities.
If, through the negotiations, you can find out more about the seller’s situation and priorities you’ll not only improve your position, but you’ll also be able to resolve any obstacles more creatively and sensitively.
For instance, if a seller is adamant about the sale price they might be more flexible about taking care of a few repairs or part of the transaction costs. Or if they need a certain closing date, you might be able to get them to concede some other terms. There are no “one size fits all” approaches to negotiating, particularly in the current market when there are so many distress sales. In general, the more you know about the seller’s priorities, the more you’ll be able to work with them in order to achieve your own priorities.
Look Beyond The Price.
While a home’s sale price is generally the focus of negotiations, often sellers will have needs such that the terms of purchase can significantly influence the final deal.
Additionally, it is in relation to the terms – which can represent thousands of dollars in value – where you can get most creative when it comes to resolving the obstacles to transacting. Here are some elements in the purchase agreement that you might put on the table for discussion:
• An all-cash offer by you
• The amount of earnest money deposit you provide
• Closing and Possession Dates
• Inclusion of furniture, fixtures, etc., not considered part of the property
• Payment for repairs required by your lender
• Payment of taxes, utilities and rents
• Payment of title search and insurance
• Payment of survey, transfer taxes and recording fees
• Payment of general and termite inspections
• Payment of attorney’s fees
Along these lines, the key is to get all terms of purchase in writing within the agreement. These terms should then be carefully reviewed and clearly understood by both you and the seller so that you’re on the same page and the negotiations move forward.
Is It Really THE ONE? If So, Make It So.
Even in a buyers’ market like this one, if you’re really interested in buying the home you’re negotiating over – if it really is THE ONE – you should be willing to make some compromises to make the deal happen. If that’s not the case, then you should listen to your heart and consider looking for another home – it just might be out there waiting for you . . .
That said, here are a few basic principles of successful negotiation to consider if you’re committed to completing your purchase:
• Remember your priorities and respect the seller’s – don’t let small things get in the way of your better judgment
• If necessary, defer until later – if small issues do get in the way in the midst of big ones, focus on and consolidate your agreement on the big issues and come back to the small ones later
• At the end of the day, if there are disagreements about relative small expenses, split the difference and smile
The reality is that most negotiations proceed without much problem. In the event that there are difficulties but you’re committed to buying the home, remember: where there’s a will there’s a way.
Expect great service from your REAL ESTATE AGENT
Many REAL ESTAE AGENTS are buyer specialists who focus on helping people successfully find and buy the homes they’ve always wanted. One benefit of using their services is that they hear about listings right when they come on the market – in fact, sometimes even before they’re on the market. And that’s just the first step. When they work for you they will:
In short, they’ll provide you with comprehensive, high-quality buyer’s service. So when you decide to buy a home, or if you hear that any of your family and friends are looking to buy, be sure to take advantage of the knowledge, experience and professionalism of a REAL ESTATE AGENT.