Tuesday, September 10, 2019

Tips for Buying a Home

Once you have your financial house in order, as explained in my article Critical Financial Steps When Buying a Home, it's time to actually buy a home. These tips are generally for the buyer of existing homes, but can apply to purchasing a newly built home. 

 1. Hire a real estate agent

An experienced real estate agent can be the key to help you find your dream home and negotiate with the seller on your behalf. This person should be on your side, helping you make informed decisions and refer you to other professionals like home inspectors, contractors (if needed), appraisers and title companies. That said, you should still shop around and compare fees from other professionals, too.

Before hiring a real estate agent, find out about their track record, knowledge of your desired neighborhood and what their workload is like (some agents may be over-scheduled).

An agent with knowledge of an area can also tell if your budget is realistic or not, depending on the features you desire in a home, They can also point you to adjacent areas in your desired neighborhood or other types of considerations to help you find a house.

How this affects you: A real estate agent can save you time and money by helping you look for a home that suits your needs.

Some key points about hiring a real estate agent:
  • Sign a buyer's broker agreement. It creates a relationship between you and the agent and explains the agent's duties to you. 
  • If  you're not ready to sign a broker's agreement, do not expect the agent to show you homes.
  • Make sure there is a cancellation clause to the broker's agreement. 
  • Do not call the listing agent. Arrange the view with your agent. 
  • Practice Open House protocol. Check with your agent if it's OK to go to an Open House alone, or does your agent wish to be there?
  • Have realistic goals and let your agent know what they are. 

2. See multiple homes

Once you meet with your real estate agent, you’ll likely be set up with a profile in the local Multiple Listing Service, which houses all listings for sale in a given area. Your agent can set you up on automatic searches for homes that meet your criteria. You can then let your real estate agent know what specific homes you want to see, or you can search online yourself. It’s also a good idea to drive through neighborhoods you want to live in to see what’s for sale, and attend open houses.

It's important to keep in mind that you may not be able to check off everything on your home amenity wish list, so you’ll want to prioritize what’s most important to you aside from location. Also, keep notes on each property you visit. After a few showings, it’s easy to forget which homes you liked and why.

Keep your schedule open so you can pounce when a great home is listed, especially if you’re in a competitive seller’s market. If a home comes on the market, you could gain an edge over other buyers the sooner you see it and put your offer in.

While its important to look at several homes, don't take this to extremes. You'll lose the interest of your agent if you look to long, or are too picky. 

3. Make an offer

Once you find “the one,” it’s time to make an offer, which your agent can help with. A complete offer package should include your offer price, your pre-approval letter, proof of funds for a down payment (this helps in competitive markets), a personal letter to the seller to help your offer stand out, and terms or contingencies.

Typically, a seller has about 24 hours to counter on an offer. In my experience, they'll come back much faster.

Sellers might counteroffer on your price, terms or contingencies. From there, you can choose to respond to the counteroffer or reject it and move on.

Once an offer is accepted, you’ll need to sign a purchase agreement that includes the price of the home and estimated closing date. Then you’ll pay an earnest money deposit, which shows that you’re serious about purchasing the home. It’s typically about 1 percent to 2 percent of the total purchase price. The seller may have a right to keep the money if you back out of the contract.

However, there are cases where you can back out of a contract without penalties. That’s where contingency clauses come in and typically include appraisal, financing and home inspection and are designed to protect the buyer. For example, if a home inspection report shows major problems, you can back out of the contract and get your earnest money back.

Understanding how to make an attractive offer can increase your chances the seller will accept it, putting you one step closer to getting those coveted house keys.

4. Get a home inspection

A home inspection helps you get an overall picture of the property’s mechanical and structural issues. Depending on your contract and state of residence, you’ll need to complete a home inspection 10 to 14 days after you sign a purchase agreement.

Your real estate agent may have recommendations, but you should do your homework before choosing an inspector. To make sure the home inspector has enough experience, read online reviews, ask for past client references and look at their credentials.

Remember, an inspector doesn’t investigate all aspects of a home, so it’s helpful to look at a home inspection checklist to see what is and isn’t covered. As a buyer, you’re responsible for paying the home inspector, and while the fees can vary, you’ll pay an average of $300 to $450, according to Angie’s List.

The home inspection will help you figure out how to proceed with the closing process. You might ask the seller for repairs, decide to back out of the deal if you have a contingency in the contract, or simply anticipate future repairs after moving in.

5. Negotiate repairs, credits

Your home inspection report may reveal issues in the home — some major, some minor. The minor issues may be a sign that you’ll need to do repairs in the future, but major problems will likely need to be dealt with before a lender will finalize your loan.

Your agent can help you with negotiating any repairs — either the seller oversees the repairs, or you can ask for a cash-back credit at closing and handle them yourself. Some sellers may not agree to extensive repairs, and that’s why a home inspection contingency is a good idea to give you a way out of the purchase if the home is in less-than-ideal shape.
If there are safety or hazard issues like structural damage or improper electrical wiring, some lenders might not approve you for a loan. Plus, you might not have the budget or desire to handle those repairs after buying the home. Enlist your agent’s help to negotiate these items with the seller.

6. Secure your financing

At this point, you may need to submit additional paperwork as your lender completes the underwriting process. Documents might include bank statements, tax returns and additional proof of income, as well as a gift letter and written statements about any major deposits into your bank account.

Generally, it’ll take anywhere from 21 to 30 days to complete the financing process. Delays mostly happen when buyers either don’t respond to disclosures quickly enough or don’t provide the exact documents that the lender needs.

Another tip: Keep the status quo in your finances until closing day. In other words, don’t run up credit cards, take out new loans, close credit accounts or change jobs. Doing any of these things can hurt your credit score or impact your debt-to-income ratio, and that can imperil your final loan approval. A pre-approval doesn’t mean you’re in the clear until a lender has given the final stamp of approval, so it’s important to keep your finances and credit in good shape from pre-approval to closing.

Getting final loan approval means you need to keep your finances and credit in line during underwriting. Respond promptly to requests for more documentation and double-check your loan estimate to ensure all the details are correct so there are no hiccups later.

7. Do a final walk-through

A final walk-through is an opportunity to view the property before it becomes yours. It’s a good idea to have your real estate agent there who can act as a witness and help answer any questions you may have. Come with your home inspection checklist and other documents, like repair invoices and receipts the owner conducted, to ensure everything was done as agreed upon and that the home is in move-in ready condition.

This is your last chance to view the home, ask questions and address any outstanding issues before the house becomes your responsibility.

6. Close on your house

Once all contingencies have been met, you’re happy with the final walk-through and the closing agent has given the green light to close, it’s time to make it official and close on your home. Your lender will issue you a “clear to close” status on your loan.

Three business day before your closing date, the lender will provide you with a closing disclosure, a document that outlines all of your loan details, such as the monthly payment, loan type and term, interest rate, annual percentage rate, loan fees and how much money you must bring to closing. Review the closing disclosure carefully and compare it to the loan estimate to ensure closing fees and loan terms are the same. This is your final chance to ask questions about your loan and correct any errors (like your name or personal details) before you sign closing paperwork.

At the closing, you (the buyer) will attend, along with your real estate agent, possibly the seller’s agent, the seller, in some cases, and the closing agent. Depending on where you live, the closing agent may be a representative from the escrow or title company or a real estate attorney. This is also the time where you’ll wire your closing costs and down payment, depending on the escrow company’s procedures.

Once all of the paperwork has been signed, the home is officially yours and you’ll get those house keys. Congratulations! Now comes the fun part: moving in and making the house your home.

Closing is the last step before you become a homeowner. Review all of the documents you sign carefully, and ask for clarification on anything you don’t understand. You’ll leave closing with copies of the paperwork (or a digital file) and your new house keys.
Bottom line

Buying a home involves a lot of moving parts and complex steps, but this guide — along with the professional expertise of your real estate agent and lender — can help you navigate the process smoothly. Don’t be afraid to ask questions along the way and learn as much as you can before diving in. By doing your homework ahead of time, you’ll have more confidence in your decision and relish getting those coveted house keys on closing day.

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