1. Do NOT jump into buying a home until you are ready
- There is nothing worse than moving into your dream home and later having to relocate into your parent’s basement because you couldn’t afford to make payments.
- How much can you afford when buying a home?
- Working with a lender/mortgage broker will help you out greatly. Additionally, it is always good to do your own due diligence to get a better understanding of what your mortgage payments will look like with each amount loaned. This website is very useful for just that as well as seeing what rates are floating around: http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
- Make sure you have enough money for the down payment and at least 6 months’ worth of mortgage payments saved up. Again, think about your parent’s basement.
2. Should I use a real estate broker?
- There are so many components to buying a home that I greatly recommend using a real estate broker. A real estate broker can guide you through the process as well as provide their knowledge and experience to deal with any conflicts. It is understandable that being a first time homebuyer is extremely nerve racking and having a guide show you the path makes the process much more pain free. Additionally, if you are a buyer, you don’t have to pay your broker. The broker works on a contingency fee meaning that he will not be paid unless you get the home you want at which point, the seller is responsible to paying all broker’s commissions.
3. Getting pre Qualified/Pre Approved
- If you are serious about buying a home, you MUST do this first to be considered serious by others.
- A prequalification is an estimation of the loan amount that the lender believes you may be qualified for. The benefit is that this is quick and does not require too much proof of your financials. The negative is that the estimated loan amount may not be accurate and you may actually qualify for more, or even less.
- With a pre-approval, the lender has already taken steps towards acquiring your financials and honing in more precisely on the amount you will be able to loan. Always get a pre-approval if you can. It may require a little more from you, but these documents required will eventually be requested by the lender, so why not take the time to get them all together and ready to go.
- Most sellers will require this from you to show that you are serious and qualified to purchase the home.
- You do not want wait until you find the home of your dreams to get your loan prequalification/preapproval, because the preapproval will take time to be processed and the home may be off the market by the time you have it.
4. Choosing a lender
- There are different kinds of mortgages ranging from VA, FHA, Conventional. A good mortgage broker/lender will present the pros and cons of each type to help you make an educated decision based on your financial situation.
5. In general, these are some things the lender will look at:
- W2 -It is good to have been at the same job for the previous two years or within the same industry or type of position. Lenders use this as a judge for job stability
- Bank statements and financials: Usually lenders will look at your last 3 months of bank statements to see if there were any unusual activities and confirm that the inflow and outflow of income is steady. Be prepared to explain what the transactions are.
- One month worth of pay stubs
- Some may consider looking at your assets and use them as collateral if the underwriters decide that the financials are not strong enough.
6. How is pricing decided
- Pricing is based off the area, size, bedrooms/baths and any other special features. A good agent will provide a recommendation for pricing and the reasoning behind this suggestion.
- Many buyers want to find a deal, however, I recommend that you do NOT waste your time with lowball offers. Many sellers will see this has a slap in the face and refuse to acknowledge it. It hurts your chances of getting a home and is very time consuming for every party involved.
- Understand that the price you pay for your home at one point does not guarantee that the home will be the same value at a future time. The Market is constantly fluctuating, however, it is worth noting that real estate is one of the least volatile investments.
7. What is the deposit for?
- The deposit also referred to as the good faith deposit (GFE), is used to show that you are serious in making this transaction. Depending on how your contract was executed, you may or may not be able to retrieve your deposit. It is not recommended you enter into a contract in bad faith, even though most contracts favor the buyer in retrieving deposit when falling out of escrow.
8. Deciding your down payment
- The government has regulated most institutions to require a minimum of 20% down payment if the borrower is the avoid paying a mortgage insurance. One method that many people use to create a winning bid is through the offering of a higher down payment
- Mortgage insurance – insurance policy taken out by lenders that is paid by the borrower and protects the lender in chance that the borrower defaults on payments of their loan.
9. Contract negotiation
- Other strategies to ensuring a deal gets accepted is based off of contingencies required, modifications requested, credits requested, repairs requested, etc. You will want to work with your agent to decide what’s best for you. Make sure you voice all your opinions because communication is key.
10. Offer Acceptance
11. Home inspections
- If your contract has an inspection contingency in place, any issues that are brought up by the inspection that you are not particularly fond of can lead to another round of negotiations. This is a very time sensitive step. Mention it as soon as you notice it or there may be conflict in the willingness of sellers to make repairs.
12. Personal due diligence
- A good real estate agent will research to confirm with the assessor’s record that the stated dimensions and attributes of the homes are correct
- Drive around the neighborhood, learn what the school districts are, where the public parks and services are, where the local shops are, what kind of neighbors are living in the area, etc.
13. Additional documents
- Good faith estimate – this will outline the costs that will be involved in your transaction. Know that this is not final and the actual closing costs may be higher or lower depending on the circumstances that may arise.
- HOA Documents – CC&R, HOA Finances, bylaws and budget.
- Preliminary title report – A good real estate agent will look over the title report and cover any possible issues with you.
- Final walkthrough – Make sure nothing significant has changed. I have had a walkthrough with a client where the air conditioning unit was stolen in between the start of escrow and close of escrow. The seller is responsible to replace this. The buyer has agreed to a certain condition and property which must be upheld.
- Exchanging keys – Both parties will come to an agreement on how they want to exchange keys.
- Closing costs – make sure to go over the closing costs and understand what the charges are and that all the allocations of funds are correct.
15. Moving into your new home
16. Renovating your home
- Get permits for any work you are planning to do. Some projects do not require permits and you will need to check with your local city hall to see what the rules are. Always work with a licensed professional in case any issues that may arise in the future, you have someone to go back to.