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Basic Steps in the Home Purchase Process
What does a real estate agent do?
Real estate agents advise and assist you through the
entire buying process, from deciding what type of home you
want and finding it to tracking the progress of your loan
application. Once you have found a home, the agent helps you
to prepare an offer and negotiate with the seller.
The agent then follows-up on all the necessary paperwork,
including the mortgage application, setting up a home inspection,
and coordinating the work of the title company and any other
people necessary to complete the deal.
An agent does not arrange a mortgage or other financial assistance.
However, agents can recommend mortgage companies, attorneys,
inspectors and other professionals for you to interview.
If you are selling your home through an agent, the agent
will provide you with a comparative property report (CPR)
showing recently sold homes in your area that will help you
set a price for your home. They'll also explain their marketing
plan of advertising, direct mail campaigns, open houses, promotion
of your home to other agents, and other steps they plan to
take to ensure a quick sale of your home. They'll also take
care of the dozens of critical details that need to be addressed
after an offer to purchase your home has been made. Homeowners
who elect to sell their home on their own often overlook the
fact that a large part of the work is not just marketing and
selling the home, but making sure that the sale actually gets
to the settlement table.
Find a Home
Your agent can assist you in locating property for sale.
The agent as a member of the Multiple Listing Service (MLS)
has information on every property for sale by other agents
in this area. Since there are thousands of homes available
for sale,
your agent can save you a lot of time and energy by searching
for homes that meet your specific needs and desires.
Understand contracts
When an agreement is reached between a buyer and seller on
a home's price, the parties sign a purchase agreement (also
known as a sales contract). Before signing, you should make
sure that the document correctly describes your agreement
with the seller on such important details as the sale price,
method of payment, the time for your taking possession, and
what fixtures, appliances and personal property are to be
conveyed with the home.
Whether it consists of several pages of big type or a few
of fine print, the purchase agreement is a legal document.
The best time to become familiar with the contract is early
on in the home buying process. Ask your agent for a copy of
the purchase agreement and then review it, keeping in mind
that it has the force of law. If you do not understand the
document, seek the advice of an attorney. If there is a dispute
between buyer and seller, a court will hold you to what the
purchase agreement says, not what you thought it meant or
what you thought the REALTOR® said it meant. There are
several important points you need to be clear about. What
are the deadlines for loan application and obtaining financing?
Can you back out of the contract after the home inspection
report? Are appliances included with the sale of the house?
When will the closing take place? If you comprehend the agreement
and its clauses, you will minimize the likelihood of misunderstandings
and avoid a lot of stress.
Make an offer
When you have found a desired property and have arranged
a suitable mortgage (or at least agreed to it in principle
with your lender) you are ready to make an offer. When you
make an offer, you're negotiating an important investment.
Understanding the process will help you get the best possible
advantage in your negotiations.
The process of making the offer usually follows the steps
below:
1. Submit the offer to the seller or the seller's real
estate agent. Your real estate agent will have all the standard
documents available to make the offer. Pre-approval for
a loan could also make all the difference. If you are pre-approved
before making an offer, you'll be in a stronger position
to negotiate and have an edge over the competition. When
you make an offer, present a certificate or letter confirming
your pre-qualified status.
2. A "good faith deposit" (also known as "earnest
money") is also usually required to demonstrate your
commitment to the transaction. The amount of the deposit
varies from contract to contract. Your agent can give you
a good idea of how much should be offered. This deposit
is then applied against the purchase of the home when the
sale closes.
3. The counter-offer may be in reference to the price,
the closing date, or any number of variables. The offers
can go back and forth until both parties have agreed, or
one of you ends the negotiations.
4. Your real estate agent will act as a liaison by presenting
your offer and conveying the seller's response or counter-offers
to you. When you and the seller have both signed your agreement
to the same terms, you have a legally binding contract.
Conducting a home inspection
Buying a home is probably the largest single investment you
will ever make. In doing so, you should learn as much as you
can about the condition of the property and the need for any
major repairs before you purchase. A home inspection is usually
set up within a few days after the contract or purchase agreement
has been signed. However, before you sign the contract, be
sure that there is an inspection clause in the contract, making
your purchase obligation contingent upon the findings of a
professional home inspection. This clause should specify the
terms to which both the buyer and seller are obligated.
A home inspection not only points out the bad, but the good
aspects of a home, as well as the maintenance necessary to
keep it up. After a home inspection, you will have a better
understanding of the home you are about to purchase, and will
be able to make a more confident decision on buying.
While it is not required for you to be present for the inspection,
it is strongly recommended. By following the home inspector
around and observing and asking questions, you will learn
a great deal about the condition of the home, how its systems
work, and how to maintain it. You will also find the inspector's
written report, which you'll receive after the inspection,
easier to understand if you've seen the property first-hand
with the inspector.
No house is perfect. If the inspector finds problems, it
doesn't necessarily mean you shouldn't buy the house, only
that you will know in advance what to expect. A seller may
be flexible with the purchase price or contract terms if major
problems are found. If your budget is very tight, or if you
don't wish to become involved in future repair work, this
information will be extremely important to you.
Here are some Helpful Hints for a Hassle-Free Home Inspection:
- Select an inspector with training and qualifications .
As licensing for home inspectors is not required in most
of the United States, professional designations are all
the more important. Try to find an inspector who is a member
of a professional society, for example the American Society
of Home Inspectors.
- Use referrals . Most real estate agents encourage their
clients to seek a serious inspection. They're interested
in client satisfaction. Still, agents don't want to be seen
as pushing the services of any one inspector. That's why
you may get as good, or better, referrals from friends or
co-workers who have gone through the home inspection process.
- Don't select just on price. The fee for a home inspection
depends on the geographic area as well as the size of the
house. A home inspection usually takes about two to three
hours and runs between $200-$500, depending on these factors.
However, home inspector's prices are usually within 20 to
40 dollars of each other.
- Don't confuse an appraisal with an inspection. An appraisal
is requested by the buyer's lender and is designed to determine
the market value of the property. It is not a replacement
for a home inspection, which provides an in-depth look at
such basic home systems as plumbing, heating, air conditioning
and roofing.
- Understand the limits of a home inspection. The most thorough
home inspector can still miss some items. Some problems
are slow to develop, while others are hidden from view.
That's why it's best to choose a home inspector who is willing
to answer your questions -- even after you move in.
Obtain Financing
You have finally found your dream home and the offer was
accepted. Now you have to go about financing it!
When to Find a Lender
It is often a good idea to start this process when you start
thinking about buying a home. While you can't actually apply
for a mortgage until you've chosen your specific home and
signed a purchase agreement, you should start talking to lenders.
This way you'll have a better understanding of what you can
qualify for and afford and you will also have a good relationship
with a lender when it comes time to actually apply for the
mortgage.
How to Find a Lender
Often the only factor people consider when choosing a mortgage
lender is finding the lowest interest rate. Of course, financial
considerations are critical and you certainly should consider
the different rates lenders offer on comparable loans. But
you also want a lender you can trust, and someone you can
work with effectively. Here are some suggested steps to find
a mortgage lender:
1. Develop a list. Get referrals from family and friends
who have bought or refinanced a home recently, review the
newspaper's real estate or business section, or just consult
your local phone book under "Mortgages."
2. Talk to lenders. Call or visit the lenders on your list.
This will give you an initial feel for what it will be like
to work with them.
3. Compare rates for similar loans. Among the things you'll
want to discuss with prospective lenders are the rates they
offer on mortgages. But when comparing rates between lenders,
be sure the rates are for comparable loans -- and remember
to include fees and other costs.
Get Acquainted with Types of Financing
The first thing to do is find out what the current rates
are. You can get this information from your newspaper or your
real estate agent. When comparing rates, you need to look
at the annual percentage rate (APR), which includes interest,
extra fees and costs amortized over the life of the loan.
You should become familiar with the various types of loans
available; fixed rate, adjustable rate, government-backed
loans (FHA and VA), assumptions, blended loans, and more.
FHA loans, for example, allow first time buyers to put 5%
or less down.
Check how rates are calculated (fixed versus variable), and
whether charges are fully amortized over the life of the loan,
or whether you'll have to pay points up front and/or balloon
payments at the end. Is there a prepayment penalty clause?
Finding the Right Kind of Mortgage
Which loans are best for you depends on such factors as:
- Your current financial picture;
- Potential changes in your finances;
- What your length of stay in the home will be; and
- Your comfort level with having your mortgage payment change
from time to time.
For example, if you only plan to reside in the home for a
year or two, starting with a lower Adjustable Rate Mortgage
(ARM) might be the best choice. If you have no plans to move,
and feel that inflation will rise rapidly, a fixed rate would
obviously be better.
The best way to find the "right" answer is to discuss
your finances, your future plans and financial prospects,
and your preferences frankly with a mortgage lender.
Go to Closing
- At closing, your weeks of planning and anxiety finally
pay off. In a few circumstances, an escrow agent prepares
the documents and then collects and pays out the various
funds. More often, all parties to the transaction, including
the lender; buyer, seller, and their attorneys; real estate
agents; and someone from the title company will meet with
the closing agent to settle the paperwork and exchange moneys
associated with the deal.
- If your loan application process went smoothly there should
be no surprises at settlement. However, last minute problems
may arise. For example, a termite inspection report may
be missing or the loan applicant may have forgotten to bring
a one-year paid homeowner's insurance policy. Depending
on the parties involved, these instances may postpone settlement.
- You will be presented with a settlement or closing costs
sheet that reflects all the applicable details of the transaction.
The settlement sheet details the amount of money due to
and from various parties. Review this document carefully.
If you were fully disclosed by your lender before settlement
(as required by law) there should not be any charges you
do not recognize. You might want to bring along a calculator
and add up these charges. Although they are totaled on the
settlement sheet, errors may occur.
Your agent will review the documents, explain them to you,
and protect your interests. You will pay your portion of the
closing costs to cover the down payment, loan origination
fee (sometimes called points), an escrow amount to pay your
property taxes and mortgage and property insurance, services
such as a title examination, and document recording, among
other things. You'll sign numerous documents and receive copies
of them all. You will then receive the keys to your new home!
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