We hear you’re thinking about buying a home! So, that probably means you’re feeling a wee bit scared, yes? Don’t worry – we get it. Buying a home is scary. But it’s also really, really exciting! In fact, the real estate market offers tons of fantastic opportunities for you to take advantage of.
But let’s face it – with so much info floating around in cyber space, it’s hard to recognize fact from fiction. That’s why we’ve created this quick-start home buying guide that’s jam-packed with important info that will make the entire process a little bit easier. Best of all, we’ve made sure everything is clear and concise, so you won’t spend hours reading or relying on dictionary.com to figure out what the heck certain words mean (that’s what the glossary at the end of this guide is for!).
Some Quick Tips
Buying a home involves a lot of factors, so from the get-go, try to soak up as much information and knowledge as you can. And no, that doesn’t mean you need to read a million real-estate books; that’s what your Smart Path Realtor is for! It just means you should become familiar with the info in in this quick-start guide before you dive into buying a home. So, without further ado, let’s get started!
WHAT TO EXPECT FROM YOUR REALTOR
Your Smart Path Realtor is an expert on the home buying process. Since you will rely on them to be your trusty advisor for the next several weeks, you can go ahead and take a long, deep breath of fresh air. See, you’re already less stressed!
Help you find any professionals/services you might need
… & a whole lot more!
THE ”TYPICAL” PURCHASING PATH OUTLINE
While no two buyers are exactly alike, here are some stats that may help:
It takes the typical homebuyer 12 weeks to find their home.
A typical homebuyer views an average of 12 homes before they purchase.
More than 80% of homebuyers think that real estate agents are very useful when buying a home.
STEP 1: Create a Rough Plan.
Buying a home is a big purchase, which is why you need to make sure that you are prepared for the process. No, you don’t have to know EVERYTHING about buying a home, but it’s always a good idea to sit down and define your goals, look into options, and create a general plan. With this knowledge, you’ll be able to make realistic choices as you move through the real estate process. And don’t forget -you can always contact a Smart Path Realtor from the get-go to receive help from day one.
STEP 2: Get In Touch With A Smart Path Realtor
Buying a home is a whole lot easier when you have Smart Path Realty by your side. Smart Path Realtors know the ins and outs of the real estate market and provide expert advice every step of the way. What kind of advice and assistance? Well, to name a few: you’ll receive assistance narrowing your property search, figuring out the finicky financing details, negotiating on the price of the home – plus a lot more!
STEP 3: Loan Pre-Approval
You want to make sure that your purchasing plans align with your financial reality, which is why getting pre-qualified for a loan is a great way to make sure that the homes you view are within your budget. We highly recommend examining multiple lenders to find the best offer. During the pre-approval process, you’ll authorize lenders access to your financial and credit histories. Then, based on an analysis of your finances, the lender will give you a written document with the exact amount of money that you may borrow to purchase a home.
STEP 4: View Different Homes
With so many options to choose from, how fast or how slow this part of the process takes is totally up to you. Some home shoppers find exactly what they’re looking for early on, while others look at dozens of properties before finding THE ONE. You can usually save time by figuring out your needs and wants ahead of time. Not sure how to figure that out? No worries, we’ll give you a Buying Worksheet that will help you determine your must-haves.
Using Smart Path Realty’s Search Tool is the best way to begin house hunting. By viewing homes online, you can instantly see photos, take virtual tours, and gain instant access to valuable information about schools, transportation, etc. all from the comfort of your home or office.
STEP 5: You Found It!
You’ve found the perfect house! What do you do? Make an offer, of course! Your Smart Path Realtor will write up the offer for you. You (and your Smart Path Realtor) will outline the price and terms of the sale, including the closing dates, deposit amount, etc. You’ll want to take the time to read over the contract in its entirety, just to make sure that everything looks right. Your Smart Path Realtor will also verify that all terms and prices accurately reflect the agreed upon amount.
Then, your Smart Path Realtor will give the offer to the Seller/Seller’s Agent to evaluate. What they choose to do next is all dependent upon your local real estate market. The Seller can accept, counter, or reject your offer. In the event that a Seller opts to counter your offer, you will begin the negotiation process. Your Smart Path Realtor will help you determine the best strategy and negotiate on your behalf. You can count on your Smart Path Realtor to use their expertise to help you reach a favorable outcome.
STEP 6: Finalize Everything
After you and the Seller have signed a pending agreement, you need to finalize your mortgage with your lender. There shouldn’t be too many bumps in the road if you’ve already been pre-approved for a loan. You’ll just officially determine your down payment, interest rate, payment schedule, etc.
his is perhaps the most important part of buying a home. The worst thing you can do is skim over this process without asking questions or reading the fine print. Your Smart Path Realtor isn’t just there for moral support- they’re there to help you every step of the way. So, if you don’t understand something, or have a questions -then ask!
At the same time that you are finalizing your loan, there are a few other items that your Smart Path Realtor will help you accomplish. First, your Smart Path Realtor will deliver your signed agreement with earnest money and option fees to the title company. The title company will begin the title search when they receive the purchase agreement. Earnest money is your commitment to the home seller and shows that you are serious about purchasing the property. Earnest money is typically 1% of the purchase price, so it depends upon the cost of the property. The option fee is a small fee paid by the buyer (typically $100) to have an option period (typically 10 days) to back out of the purchase and still receive your earnest money back.
During your option period, you will want to hire a home inspector to take a closer look at the house to make sure there are no hidden surprises. Depending on the results of the inspection, you may want to negotiate the cost of repairs with the seller. Your Smart Path Realtor will assist you with all the details.
The inspection and additional negotiation needs to occur within the option period. Typically the option period is 7 to 10 days. During the option period, if you decide you no longer want to purchase the house for whatever reason, you can walk away from the deal and your earnest money will be returned. After the option period ends, you may lose your earnest money if you decide not to purchase the house. After the option period ends, you are committed to purchasing the property.
STEP 7: Closing Time
There are a few quick things that have to get taken care of before you’re officially the owner of a new home. However, with a Smart Path Realtor by your side, closing should be a breeze. You’ll need to have a Title Search performed, which is where all of the home’s legal documents will be reviewed to make sure that there aren’t claims against the property’s title. You’ll also need to buy Title Insurance to protect against errors in the records or review process mistakes. The title company will perform the title search and sell you the title insurance. Your Smart Path Realtor will accompany you on a Final Walkthrough, where you can double check that the home’s condition is the same as when you signed the purchase agreement. Next, comes the best part- The Settlement. This is where you go to a title company to sign all of the important documents. You’ll pay your closing costs, legal fees, property taxes, etc. Then, you’ll receive the Property Title and purchase documen-tation. Best of all – you’ll get the keys to your brand new home! The official Posses-sion Date usually occurs when the funds have been transferred. This is when you can officially move in!
FOOD FOR THOUGHT FOR FIRST TIME HOME BUYERS
Renting isn’t an awful option, but it also isn’t the most financially savvy one either. Sure, you don’t have to pay a mortgage, taxes, homeowner’s insurance, repairs, etc. but you do have to pay much higher rent.
Think you’re not qualified to buy? Think again!
If you think that you can’t afford to buy, but you would like to, we highly recom-mend double checking. A lot of renters aren’t aware that they actually do qualify for a mortgage. And there are tons of options out there that you may not know about – like the Veterans Administration (VA) or Federal Housing Administration ( FHA) loans.
Why should you buy now?
If you have the ability to buy a home, it’s a great idea to go ahead and purchase your first piece of property. There are tons of opportunities for first-time buyers and you just might be able to snag that great deal you’re looking for. Here are some of the perks of buying a home right now:
Low Mortgage Rates
Decently Priced Homes
Foreclosed & Short Sales = huge reductions in prices
So, if you’re a renter, but would like to buy a home, now is a great time to reach out to Smart Path Realty for help on finding and receiving financial support and access to great real estate opportunities in your area. Best of all – the Seller is the one who pays the Smart Path Agent’s 3% fee – so it’s literally at no cost to you! Pretty great, right?
Applying for a Mortgage
Remember how you shopped around for lenders and got prequalified for a loan? Well, now you get to choose the lender that offered you the best option. During the application process, you’ll discuss different loan options and programs, your down payment amount, and determine the best option for your financial situation. For down payments that are less than 20%, lenders often require a third party guarantor.
You’ll provide the lender with a bunch of details; like your income, assets, debt, and expenses. You can also submit pay stubs, bank statements, tax returns, or other forms of documentation and they will use the financial info to officially approve your loan.
A great way to remember everything you want to discuss during the application process is to jot down your questions or concerns in your phone, tablet, or computer and bring it with you to the meeting.
Finance Mumbo Jumbo
Like most things, lenders come in all shapes and sizes. From special loans and programs to lower interest rates, your mortgage options can vary a lot.
Research Your Options
The mortgage you select is going to impact your life for the next decade or more – so treat this process with the care and attention it deserves. Browse the web, pick up the phone and call, or go in-person to discuss financing options with a local lender. Above all – compare, compare, compare.
Take a good, long look at your financial situation
We’ll be blunt – don’t make stupid decisions. You need to determine how much you can afford to pay for your down payment and mortgage without stretching yourself too thin. Is your dream home affordable for you right now? Or, would you be better off settling for a little less? If you opt to go for the higher mortgage, are you willing to give up some things in return? You need to be honest with yourself, otherwise you might run into problems later on.
To get a better feel for your payments, you can use our loan calculator to explore your potential mortgage payments. You also need to consider all of the expenses that owning a home requires – such as taxes, insurance, etc. And remember – just because you’re qualified for a certain amount, that doesn’t mean you should borrow it.
Direct Lenders & Mortgage Brokers
A direct lender is the one with the money. They make the important decisions, however, they only offer a few products. On the other hand, brokers are the middle man. They charge a fee, but offer loan options from several sources and can wind up saving you more than direct lenders. Your Smart Path Agent can provide insight and/or help you find a lender that will offer you the best deal.
Most mortgages are either fixed-rate or adjustable-rate. The interest on a fixed-rate mortgage stays the same over the life of the loan, while the interest on an adjustable-rate mortgage (also known as an ARM) fluctuates depending upon economic trends.
Which one should you pick?
The truth is – they both have their advantages and disadvantages. A fixed-rate mortgage can be a great option because once a rate is locked in, you don’t have to worry about the interest rate rising. And since you know what to expect, it can be easy to plan for the future. On the other hand, a fixed-rate mortgage typically has a higher interest rate than an ARM, so if you don’t secure a loan when interest rates are low, you will wind up paying a high interest rate throughout the life of your loan.
An ARM is generally based upon the U.S. Treasury Index and to come up with the ARM rate, lenders typically add 2-4% to the index rate.
You can expect this rate to initially be lower than a fixed-rate, however, it will adjust within specified limits known as caps that are outline in the terms of the loan.
The term of the loan is also an important factor. For shorter term mortgages, the interest rate is lower. That means you’ll pay higher monthly payments, but pay less interest over the life of your loan.
Keep in mind, your loan options will be based upon your credit status. Those with great credit scores get the best rates and terms, so do your best to stay up-to-date on all your bill payment.
Negotiating the transaction of your future home can be extremely nerve-racking. But – it’s a lot easier when you have a Smart Path Realtor who has performed count-less transactions and knows how to help you get a favorable final sale price. Your Smart Path Realtor will handle all of the negotiations with the buyer. It’s always a good idea to prepare yourself for a bit of an emotional roller coaster, that way you’ll be able to keep yourself composed throughout the negotiation process. You need to remember that the Seller has their own set of priorities and the key to a great negoti-ation is compromise and creativity.
Act Motivated, Not Desperate
We know how exciting it is to find that perfect home you’ve been looking for! But -you need to keep it together. Don’t reveal your excitement to the listing agent. Instead, keep your composure and act engaged, but not overly interested. Why? Because when you place your offer and potentially enter into negotiations, you want the listing agent to view you as qualified, but not a slam-dunk. If the agent knows you’re extremely vested in this house they’ll gain the upper hand in negotiations.
So, how can you show the listing agent that you’re a serious buyer?
Provide proof that you’ve been pre-approved for a mortgage
Submit a competitive deposit with your offer
Make sure your offer has some room for price negotiation
If you appear as a motivated buyer, the Seller and the Seller’s Agent will definitely take notice. This will give you the upper hand in negotiations, because the seller won’t want to pass up an opportunity to sell to a motivated buyer like you.
Haven’t you heard that everything in life is negotiable? Well, it is! And the way that great negotiators get favorable results is by doing their homework on who they are negotiating with! That’s why it is always in your best interest to find out the Seller’s particular situation.
That way, if a problem arises, you can approach them from a strategic angle. The more you know, the better off you’ll be. Think of it this way: if a seller needs a partic-ular closing date, you can use that to your advantage by offering to close by that date as long as they knock off a bit of the final asking price, or make a few quick repairs.
It’s not all about the final price
We know, we know – it’s hard to get passed that final sticker price. But here’s a little tip that can go a long way: there are terms you can negotiate that can actually result in a better deal than just the face value of the final sale price. What are these terms? Well, they come in all shapes and sizes. Below are just a few terms that you are free to negotiate with the seller:
Fully Furnished Home
Title Search & Insurance Payments
Survey, Transfer, and Recording Fees
If you do decide to add certain terms to your purchase agreement, make sure that they are clearly spelled out in writing.
We’ve talked about ways you can use the Seller’s priorities to achieve a favorable outcome, but now it’s time to talk about your priorities and what you can do to make sure you land your dream home. First of all, you have to be willing to negotiate. You can’t expect the Seller to give all of the concessions you ask for without giving a few yourself. Be ready to consider compromising on some aspects of the sale. If you aren’t able to do that, then maybe this isn’t the home for you.
Focus on the big picture and let the small issues slide.
If you’re having trouble reaching an agreement on some of the minor issues, then skip them and come back to them once all of the bigger issues have been settled.
Splitting the difference on small issues/ expenses will make things a whole lot easier.
So, now that you’re armed with the facts, you’re ready to get started! And remember, if you start to feel stressed, simply remind yourself:
You’re not going the path alone; you’ll have your Smart Path Agent right by your side every step of the way!
Assessed Value – The value placed on a home by municipal assessors for the purposes of determining property taxes.
Closing – The final steps in the transfer of property ownership. On the Closing Date, as specified by the sales agreement, the buyer inspects and signs all the documents relating to the transaction and the final disbursements are paid. Also referred to as the Settlement.
Closing Costs – The costs to complete a real estate transaction in addition to the price of the home, may include: points, taxes, title insurance, appraisal fees and legal fees.
Contingency-A clause in the purchase contract that describes certain condi-tions that must be met and agreed upon by both buyer and seller before the contract is binding.
Counter-offer– An offer, made in response to a previous offer, that rejects all or part of it while enabling negotiations to continue towards a mutually-accept-able sales contract.
Conventional Mortgage– One that is not insured or guaranteed by the federal government.
Debt-to-Income Ratio – A ratio that measures total debt burden. It is calculated by dividing gross monthly debt repayments, including mortgages, by gross monthly income.
Down Payment – The money paid by the buyer to the lender at the time of the closing. The amount is the difference between the sales price and the mortgage loan. Requirements vary by loan type. Smaller down payments, less than 20%, usually requires mortgage insurance.
Earnest Money -A deposit given by the buyer to bind a purchase offer and which is held in escrow. If the property sale is closed, the deposit is applied to the purchase price. If the buyer does not fulfill all contract obligations, the deposit may be forfeited.
Equity – The value of the property, less the loan balance and any outstanding liens or other debts against the property.
Easements – Legal right of access to use of a property by individuals or groups for specific purposes. Easements may affect property values and are some-times part of the deed.
Escrow – Funds held by a neutral third party (the escrow agent) until certain
conditions of a contract are met and the funds can be paid out. Escrow accounts are also used by loan servicers to pay property taxes and homeowner’s insurance.
Fixed-Rate Mortgage -A type of mortgage loan in which the interest rate does not change during the entire term of the loan.
Home Inspection – Professional inspection of a home, paid for by the buyer, to evaluate the quality and safety of its plumbing, heating, wiring, appliances, roof, foundation, etc.
Homeowner’s Insurance -A policy that protects you and the lender from fire or flood, a liability such as visitor injury, or damage to your personal property.
Lien – A claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.
Market Value – The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Mortgage Insurance – Purchased by the buyer to protect the lender in the event of default (typically for loans with less than 20% down). Available through a government agency like the Federal Housing Administration (FHA) or through private mortgage insurers (PMI).
Possession Date – The date, as specified by the sales agreement, that the buyer can move into the property. Generally, it occurs within a couple days of the Closing Date.
Pre-Approval Letter-A letter from a mortgage lender indicating that a buyer qualifies for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer.
Principal– The amount of money borrowed from a lender to buy a home, or the amount of the loan that has not yet been repaid. Does not include the interest paid to borrow.
Purchase Offer – A detailed, written document which makes an offer to purchase a property, and which may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally-binding sales agreement.*
Title – The right to, and the ownership of, property. A Title or Deed is sometimes used as proof of ownership of land. Clear title refers to a title that has no legal defects.
Title Insurance – Insurance policy that guarantees the accuracy of the title search and protects lenders and homeowners against legal problems with the title.
Truth-In-Lending Act (TILA) – Federal law that requires disclosure of a truth-in-lending statement for consumer loans. The statement includes a summary of the total cost of credit.
Title Search – A historical review of all legal documents relating to ownership of a property to determine if there have been any flaws in prior transfers of own-ership or if there are any claims or encumbrances on the title to the property.