10 Steps to Buying a Home
Buying a home is probably the largest single expense you will make during your
life. Like a marriage, there will be endless planning, compromises and ultimately,
satisfaction. In many cases, there is also unnecessary stress involved in the
process. Hopefully, you are reading this
before you start your search.
I believe that this stress is not a prerequisite for this experience and if
you are aware of some of the bumps in the road that may happen, you will be
able to take them in stride, enjoy the experience, and not have this be the
most stressful experience of your life.
This list comes from being personally involved as 3 of the 4 parties that are
involved in buying a home. As the mortgage professional, as a homebuyer and
in the experience of being a homebuilder I have managed to experience one or
another of the pitfalls I have described and perhaps I can save some of you
from having to experience the same.
The 10 Steps
There are basically about 10 steps to buying a home. There are articles throughout
DailyInterest.com that go into more depth on thes subjects and I have provided
links to each of them to assist you in your quest for a new home.
Pay particular attention to the order of these steps because taking these one
by one, and in order, will help you be prepared for what is to come. Much of
the stress caused by the homebuying process comes from performing these steps
in the wrong order. I have also covered some of the pitfalls you may encounter
along the way.
Step 1 : Get Pre-Qualified or a Pre-Approval for a Mortgage
Step 2 :
Use the Homebuyers Checklist to set your Priorities
Step 3 :
Get a Real Estate Agent
Step 4 :
Talk to your Mortgage Professional again Before making an offer
Step 5 : Make the Offer on the Home / The Offer is Accepted
Step 6 : The Mortgage Process
Step 7 : Appraisal, Inspections and Possible Renegotiations
Step 8 : Setting Up The Closing
Step 9 : The Closing
Step 1: Get Pre-Qualified or get a Pre-Approval, learn
what you can afford
Visiting your mortgage professional before any of the other steps will remove
as much as 50% of the stress that may be involved later on. The first step should
be to get pre-qualified.This is where a pre-qualify makes sense. Please read
Pre-Approve vs Pre-Qualify to understand
the difference.
As you get closer to finding a home, and are choosing an real estate agent,
then it is time to pre-approved.
There are many mortgage professionals like myself out there who will be more
than happy to help you through this step. You don't have to wait until you get
a house, do this now! In fact, getting pre-qualified before you start looking
will lead to the answer of many other questions, such as
the size and price of the home,
the size of your downpayment,
the type of loan you will need
and most important what you can afford, NOT what you can qualify for!
You may want that dream home, but you may want to consider other ways to accomplish
getting to that goal. Read my article how to avoid being
housepoor
to give you some ideas and to understand how working with a good mortgage professional
as the first step can help you determine what you can afford versus what the
bank will qualify you for!
Getting pre-qualified doesn't cost anything more than a little time and the
cost of a credit report. There is no obligation, but it would be the right thing
to go back to the mortgage professional who took the time to pre-qualify you!
Finding the home first and then going to the mortgage company to ask if you
can afford the home, just doesn't make sense, does it? Still, thousands of homebuyers
per year go in just that order. Finde the house, make an offer, get a loan.
The results of doing this step later on can result in higher interest rates,
dissapointment or more time to get the loan closed as a lender is found who
will accept the terms of the deal that you already negotiated. Isn't it better
to negotiate a deal that fits your terms?
This is also a great time to be able to interview the mortgage professionals
to find someone you communicate well with and the pre-qualification process
can give you an idea of their competence and will give you a good indicator
of how the rest of the mortgage process will go.
Step 2: Use The Homebuyer's Checklist to set your priorities
I have put together a
Home Buyer's Checklist
for you to fill out before you go looking at homes.
Now that you have an idea of what you can afford, take an evening to sit down
and answer these questions and fill in the order of importance column.
It is almost guaranteed that you are going to have to make a choice or two where
it comes down to one or the other and by filling this checklist out in advance,
you can see what you thought before you started looking versus what you think
in the heat of the moment.
Nothing is written in stone. This list may change.......or I should say probably
will change! That is why there is a printable copy, so you can do it again!
Step 3: Get a Real Estate Agent
You can drive around on your own and get an idea of how much house you will
get for that amount you and your mortgage professional have decided you can
afford, but getting an agent to work with will definitely save you time.
Also, since you are buying a home, get yourself a Buyer's Agent. If you just
go to a Realtor and they hook you up with an agent that has listed the home,
they are a Seller's Agent. No matter how nice they are, you must remember that
a seller's agent has a first priority and obligation to get the seller the most
for the house that they can.
The Buyer's Agent will negotiate on your behalf and will ensure that the documents
you eventually sign will have your best interest's included in the final agreement.
This is also a great time to interview. Just like interviewing a mortgage professional,
finding an agent that you can communicate well with and feel comfortable with
will save tons of stress down the road. Don't sign any agreements until you
are comfortable with the agent you have chosen.
Some of you are likely also thinking about the FSBO (for sale by owner) homes.
Just a thought to throw out there is that the owner is most likely selling by
themselves in order to keep the money they would have given to an agent, not
so that they can offer the home cheaper to you!
In addition, many homes are sold through referrals from other agents as they
will call their netowrk of agents when they get a new listing. Having a good
buyer's agent with a good network can get you a home before it ever hits the
market.
You found an agent you like and have chosen to sign the "Buyer's Agreement"
and are on the way to finding the home.
If you haven't already done so, now would be a good time to take the extra step
to get a true pre-approval instead of just a pre-qualify.
Step 4: Talk to your Mortgage Professional again Before
you make an Offer
You found that house, it's time to make an offer. You're excited and the agent's
are telling you that more offers will come in today, you need to make an offer
now if you really want to get
this house.
STOP
Gather your thoughts, call your mortgage professional and structure an offer
that you can afford.
Maybe that home is a little more expensive than you promised to hold the price
down to. Maybe you know you stretched it a little.
Well, your mortgage professional might just have an idea or two to make it all
work out and still be affordable.
Perhaps this involves a seller's concession. This is where you pay a little
more for the house in return for the buyer paying some of all of your costs.
Perhaps you can make it affordable with a different program, such as a piggyback
mortgage or a 5 or 7 year ARM instead of that 30 year fixed.
Perhaps a simple phone call will let you know that the differnce is only $28
a month and you really can afford that home you fell in love with!
Aren't you happy you visited you mortgage professional and can call them on
Sunday Afternoon to run the house by them and know you are doing the right thing?
Step 5: Make the Offer on the Home / The Offer is Accepted
An offer on a home is what is the exciting stage, and if you have been following
all the above steps you should be covered.
Your agent will help you draw up an offer that will protect you make sure that
the home really is what it appears to be. Not only is the price of the house
included in an offer, but also the things that are included and are not included,
when you want to close and when you will actually take posession of the house.
When you want to close should be in accordance with what your mortgage professional
has told you it should be! More stress comes over the timing of the closing
or someone trying to get a house closed fater than is possible than perhaps
any other item in the process.
If you haven't seen that movie where the buyer's show up to take posession of
the home and there is a big hole in the backyard where the pool used to be and
all the light fixtures are gone, then you might want to give this a thought!
Of course there is no need to be quite so specific, but the movie made a point.
There are more than a few arguments between buyer and seller over things that
one party thought was included and the other did not that it is worth taking
the time to include things you expect to see left at the home when you take
posession.
In addition, make sure that this offer is contingent upon passing inspections,
an appraisal verifying the value of the home and upon a mortgage approval.
Step 6: The Mortgage Process
The offer has been accepted and it's time to get down to the real business.
The Mortgage.
Show me the money!
I won't go into detail here, too fully understand the steps in the mortgage
process, you can read my article "
The
Six Stages of a Mortgage"
Basically, though, having gotten that pre-approval will cut out quite a bit
of time in this process. With pre-approvals, I have actually seen some houses
ready to set up a closing in a week or less. Wow!
However, if you do not have the pre-approval and maybe even if you already have
it, a good time period for the mortgage process is about 30-45 days out depending
on the complexity of the situation.
Step 7: Appraisal, Inspections and Possible Renegotiations
The Appraisal and Inspections are really part of the mortgage process, but more
than a few contracts have been changed or even cancelled depending upon the
results of these two items.
When an inspection reveals a defect or needed repairs (as happens many times!)
this is an opportunity for you. Often these are repairs that are fixable and
the contract is just adjusted. Other times, something nasty appears. The roof
is rotting, the foundation has a crack behind that pretty toolbench in the basement.
Inspectors find the things that are not easily seen by the naked eye. Always
get an inspection.
Either renegotiate a fair price for the repairs to be held back or decrease
the price of the home to cover the repairs or head on out the door and find
yourself another home and be thankful that you got an inspection.
When an Appraisal reveals that the home is not worth what has been offered,
this is a much more serious issue. Remember that an appraisal compares this
home to the prices of those that around it that have sold recently.
If the value comes in low, there is a reason for it! That reason is that other
buyers refused to pay that much for a similar home and this should mean the
exact same thing to you. Never, ever ask an appraisor to increase the value
of a home! "Oh, just have them stretch the numbers so I can close!"
"Find another appraisor who will get a higher value!"
Can you see how silly that sounds reading it?Why do you want to pay thousands
more for a home that it is really worth? Pressure from all parties sometimes
makes people do silly things and this is certainly one of them. Don't fall in
this trap. Make the price of the home meet the price of the appraisal or find
yourself another home. Do not pay too much because it can take years to catch
up on that mistake.
As a note from the mortgage end of things. Mortgage amounts can be reduced in
the underwriting department in 24-48 hours, this is a very simple process. Increasing
the mortgage amount involves a whole new approval.
Step 8: Setting Up The Closing
The hard part should be done. The contract is fully negotiated, the mortgage
is approved and you are ready to set up the closing.
Do you note the order that I just placed that in?? Contract - Mortgage - Set
up Closing
In the mortgage industry, the final approval is called a "Clear to Close"
and once the clear to close has been issued a closing can take place in 48-72
hours.
Many, if not most, closings that go smoothly have received this clear to close
about a week in advance of the closing.
The Pitfall of a Delayed Closing
A word of advice as a way to avoid a delayed closing, which is the number one
stress creator in Buying a Home, is that if a clear to close has not been issued
a week in advance, delay your closing.
It is so easy to move the date 7 days before, there is plenty ot time. Unfortunately,
those that are new or those that are just plain "living for the stress"
try to promise things that just don't happen and everyone ends up hating each
other and giving evil stares at the closing.
If your mortgage professional says "delay the closing" please, please
take that to heart. Do not demand a closing on the date you picked because you
are setting yourself up for a mess. A good mortgage professional who has been
through this process many, many times, knows whether this is going to close
on time
at least 10 days before the closing.
Another way to avoid the pitfall of a delayed closing is during the contract
process. If you have been following these steps in order, your mortgage professional
knows if your situation may have some bumps in the road and will suggest the
time to closing that they may need to secure the mortgage and have a smooth
pleasant experience.
Step 9: The Closing
Expect a closing on a home to take an hour or two. If you have been following
all the other steps until now, this really is a pleasant experience. Smiles
around the room, papers are signed and checks are passed out and you walk away
with the keys to your new home.
There are horror stories about botched closings and needing more money and of
course the dreaded delayed closing, but if the steps above have been followed
this is a very pleasant experience. The closing does not have to be an electric
situation where closing fees have changed, the amount of money you brought doesn't
match the paperwork or the seller really did leave you a hole in the ground
instead of a pool.
Part of the whole reason for this article is to save others from going through
one of those and if this saves just one person from having an awful experience
it has done it's job.
Summary
I truly hope that you have learned a little from these Steps to Buying a Home
and perhaps are able to avoid a problem or pitfall from sharing the order to
do things in.
When you deal with a mortgage company like Prime Financial, we show up at the
closing with the check and fund the mortgage ourselves to save you time. I have
worked for other companies who did not have the ability to do that and it is
truly a blessing.
When you deal with a mortgage professional who understands the mortgage process,
any changes in dollar amounts are known days if not longer in advance, because
the steps in the process were followed, any glitches were communicated and the
closing was set up properly.
May you have a pleasant experience, a wonderful homebuying and enjoy your home!
