The Smart Home Buyer’s COURTESY OF: Handbook FINDING AND NEGOTIATING THE PURCHASE OF YOUR DREAM HOME. Own your niche.™ Six Steps to a Successful Home Purchase CHOOSE A REALTOR® The only way to make sure you see the widest selection and get the best possible deal when you buy a home is to hire your own Exclusive Buyer Agent to represent you before you start shopping. Why do you need your own agent? Because the seller’s agent does not work for you—in fact, he or she works against you. By law, the real estate agent who lists a property for sale typically has an exclusive fiduciary duty to the seller. In fact, no matter how friendly and helpful the listing agent is, they must do everything possible to give the seller any advantage in the transaction. The listing agent’s job is to sell the home for as much money as possible, for the most seller-friendly terms that can be negotiated. It costs you nothing to hire your own Exclusive Buyer Agent. Typically, our fee is paid by the seller. So you get expert representation, usually at no out-of-pocket cost to you. ARRANGE FINANCING Pre-Qualification Before you start shopping for your next home, it’s a great idea to get “pre-qualified.” This informal process is offered as a free service by most mortgage lenders. You simply share a thumbnail sketch of your income, debts and assets, and the lender estimates how much they may be willing to lend you to buy a home. The good news is you can get pre-qualifiedin just a few minutes, and the lender doesn’t pull a credit report, so there’s no impact on your credit score. Being pre-qualified gives you a ballpark figure to shoot for when you’re shopping for houses. You’ll also know what your approximate monthly payment is going to be. The bad news is, because pre-qualification is non-binding, you can’t typically lock in an interest rate. And sellers may not think you’re a serious buyer until you take the next step: pre-approval. The Smart Home Buyers Handbook 1 Pre-Approval FIND YOUR HOME The single most important step in the home buying process—especially in a seller’s market—is getting This is where all your hard work starts to pay off and the fun begins. To help your Realtor help you, pre-approved for a mortgage loan. take the time to spell out exactly the kind of home you want to buy. Where is it located? How many bedrooms does it have? How many baths? What style is it? Do you want a finished basement? How The Consumer Finance Protection Bureau suggests that you assemble the following documents before about a swimming pool? How do you feel about HOAs? Be honest with yourself: which items are really starting the pre-approval process. (If you are self-employed or your income is irregular, you may need must-haves and which are like-to-haves? additional documentation). A Proof of your identity (typically a drivers’ license A Documentation of the source of your down Now that you have a specific list of must-haves, your Realtor will do their best to meet them, given your or non-driver ID) payment: investment or savings account budget and what’s currently on the market. She will generate lists of homes for you to consider, and set statements showing at least two months’ A Documentation of legal name change, if recent up private showings of your favorites on your behalf. history of ownership. If some of the funds were A Social security number a gift, get a signed statement from the giver You can also go to open houses on your own, but be sure not to share confidential information with A Pay stub(s) for the last 30 days stating that the funds were a gift. the Realtor hosting the open house. Remember, he works for the seller, and if you tell him how much A A W-2 forms, last two years Certificate of housing counseling or home you love the house, and how much you’re willing to pay, he is obligated to share those details with the buyer education, if you have one A Signed federal tax return, last two years seller. Your Realtor will typically give you a stack of business cards so you can give one to the agent A If you’re applying for a VA loan, get a copy hosting the open house to let him know you’re represented. A Documentation of any other sources of income of your Certificate of Eligibility from the VA. A Bank statements, two most recent MAKE YOUR OFFER The lender will pull a credit report to examine your credit score, payment history and debt-to-income Once you’ve found the home of your dreams—congratulations! Now it’s time to make your best offer. ratio, among other metrics. After a thorough examination of your finances, the lender will conditionally Your agent will advise you on an appropriate offer, based on recent comparable sales, how long the pre-approve you in writing for a specific loan amount, which often allows the borrower to lock in a house has been on the market, how motivated the sellers are, and other factors. If your first offer specific interest rate. is declined, your Realtor will handle all of the negotiations with the listing agent until you agree on a price and terms. If you can’t agree, or if you are outbid, your agent will help you find other homes This pre-approval gives you instant credibility with sellers, because when you make an offer, it won’t be to look at. contingent on obtaining financing. Thisis especially important when you’re competing against other buyers for the same home. If two offers are very similar, the seller’s Realtor will almost always advise them to take the offer with pre-approvedfinancing. GET INSPECTIONS Great! You have an accepted offer, and the houseis now under contract. Most contracts include Down Payment, Fees & Closing Costs an inspection contingency. A home inspection conducted by a qualified home inspector can help You’ll need some cash reserves to buy your home, so keep these line items in mind uncover hidden problems in the house that impact its value, habitability, and even its safety. when you start saving: Home Inspections typically cover the following systems: A Upfront Fees: Fees may include earnest money, A Closing Costs: When it comes time to close A A A option fee and appraisal cost, as well as fees for on your new home, there are a number of fees Plumbing Air Conditioning and Heating General Structure home inspections. owed to lenders and other third parties. These A Electrical A Foundation A Ventilation fees are to be paid in full at the time of closing A Down Payment: Many loans require and typically account for 2 to 5 percent of the a minimum down payment between 3.5 and You may need to hire specialty inspectors to check for issues such as wood-destroying insects, lead home purchase price. Your Realtor may be able 5 percent. However, the more you can put paint, mold and radon gas. to negotiate for the seller to pay some closing down, the better. You can avoid paying Private costs on your behalf, but it’s a good idea Mortgage Insurance (PMI) if you put at least If the inspection reports include expensive repairs or maintenance items, or safety issues such as mold to have extra funds available to cover them 20 percent down with some types of loans, and or radon, the inspection clause in your contract should allow you to renegotiate the deal with the seller. just in case. typically you’ll pay a lower interest rate if you You may ask the seller to reduce the selling price or fix the issues from the inspection reports before put at least 10 percent down. you’ll move forward to closing. However, in a seller’s market, there may be so many buyers competing for each house that the seller may choose to sell the house as-is. 2 Provided Courtesy of NicheZips The Smart Home Buyers Handbook 3 CLOSE THE DEAL Now that you’ve agreed on a price and terms, the title company takes over and completes the final parts of the transaction. They typically include: A Tax Check: Assessors are contacted A Document Preparation: Appropriate forms and to determine what taxes are owed on the paperwork are assembled for conveyance and property, if any. Your purchase contract settlement. should state who is responsible for paying any A Settlement: An escrow officer oversees the outstanding taxes. closing of the transaction. The seller signs the A Title Search: Title company representatives deed, you sign the mortgage note, the title search public records to examine the chain company cuts a check to pay off the old loan of title and verify that the seller is the current with the new loan, and all third parties acting and sole owner of the property, and has the on behalf of the buyer and seller are paid. legal right to sell it to you. Title insurance is issued to the buyer and the buyer’s lender. BUYING NEW CONSTRUCTION Newly constructed homes are springing up all over the the country. Many buyers don’t know that they can work with their own real estate agent when purchasing semi-custom or build-to-suit homes, as builders typically have an onsite agent that can execute the sale.