LEGAL
NOTICE
|
While all
attempts have been made to verify information provided in this publication, the
Publisher assumes no responsibility for errors, omissions, or contrary
interpretation of the subject matter herein. Any perceived slights of specific
persons, peoples, or organizations are unintentional.
In practical advice books, like anything else in life,
there are no guarantees of income made. Readers are cautioned to reply on their
own judgment about their individual circumstances to act accordingly.
This book is not intended for use as a source of legal,
business, accounting or financial advice. All readers are advised to seek
services of competent professionals in legal, business, accounting, and finance
field.
This manual is written in Georgia; therefore you are
always encouraged to print this book for easy reading.
Table of Contents
Introduction
- Looking Ahead.............................................................. 7
How
Clean is This Neighbourhood?.................................................. 11
What
is The Average Home Value in The Neighbourhood?..... 12
Suburban Living.................................................................................. 15
Other Location Consideration.................................................................... 18
Negotiators with Sellers................................................................... 30
Survey Neighbourhoods.................................................................... 31
Chapter 3 - Playing The Housing
Market........................................... 33
Cons............................................................................................. 39
Chimney/Fireplace............................................................................ 49
Attic/Basement/Crawl
Space.......................................................... 49
Balloon Mortgages............................................................................ 60
How Home Appraisal Can Affect Your
Home Loan.............................. 66
Homeowner
Reduces Selling Price............................................... 66
Higher Down Payment.................................................................... 66
Low/High Offers.......................................................................................... 77
Counter Offer.................................................................................... 78
Understanding The
Seller......................................................................... 81
Contingencies.................................................................................... 86
Sign Contracts................................................................................... 89
Conclusion....................................................................................... 91
Recommended Resources............................................................... 92
Introduction
If you are currently living in an apartment or renting a
house, you may be thinking about buying a home of your own for yourself and
your family. This can be an exciting time. Looking at properties, deciding
whether to buy a home or build a new one, and finding financing will take up a
lot of your time.
There will be a long list of things you will need to do
before you buy a home. This list includes:
§ Finding the right neighborhood
§ Finding a home
that is big enough
§ Finding the
features you are looking for
§ Choosing the
right size yard
§ Choosing a realtor
§ Understanding the
housing market
§ The ins and outs
of home inspection
§ Financing
§ Making an offer, and
§ Reading contracts
This list does not include all of the decorating, home
improvement, and other decisions you will have to make once you have purchased
the home.
If you are a first time home buyer, you will be nervous
about finding the right home, investing money on a down payment, and being
approved for financing. Once you have found a home, it will usually take
between two or three months before you will be able to move in. In the
meantime, you should plan the following:
§ Moving arrangements
§ Home inspections
§ Yard sales
§ Budgeting for
paint and other supplies
§ Taking time off
from work, and
§ Finding a lawyer
if necessary
Proper planning will help you transition into your new
home much easier than if you wait until the last minute to deal with these
details. If you are planning on moving yourself, you should find a few friends
or family members that will be willing to help as soon as possible.
New
Homes vs. Older Homes
Another decision you will have to make is whether to buy
a new home or look for an older one. Most first time homebuyers usually buy an
older home, but this should not deter you from visiting a few builders to see
what they are charging for the size home you are looking for.
Older homes may cost less, but they can be riddled with
problems. In this book, you will learn what to look for when viewing a home,
what to include in your purchase offer, and what to expect from a home
inspection. There are many older homes that will need only minor repairs.
Which Home To Choose?
After you have looked into all of your options, you will
be wondering which home to choose. There are many ways to find the home that is
right for you. When looking at homes, you should keep these criteria in mind:
§ Size
§ Price
§ Neighborhood
§ Mortgage payments
§ Repairs, and
§ Additional
features
While this is a short list, throughout this book you
will learn other ways to find your dream home. In the end, you will just know
when you have found the right home.
Moving into your first home will be an experience you
will never forget. You should be excited as this is a little piece of the world
that is just yours. Whether this is the home you will live in for a long time
or just for a short time, buying a home will give you a sense of pride and of
purpose. Not only will you have a mortgage to pay, you will also be responsible
for making the home your own. When thinking about purchasing a home, you should
begin saving your money for closing costs, repairs, and decorating materials.
One of the more rewarding moments will be when you get
the keys to your new home and you begin making it your own with a little paint,
furniture, and personal style.
Chapter 1 - Location, Location, Location
(Return to Contents)
Choosing where to live is almost as important as the type of home
you want to live in. While this is a very personal decision, there are pros and
cons to every neighborhood. But wherever you want to live, you will have to
know where the highways are located, grocery stores, schools, and how far from
work you will be. Buying a home means more than the structure you will be
living in. It is also the community and the accessibility to places and events
that mean the most to you and to your family.
Finding The Right
Neighborhood
How will you know you have found the right neighborhood? There are
many ways to tell:
§ You may feel a
sense of calm
§ The neighborhood
may remind you of a happy memory
§ You will be close
to places you frequent often
§ The neighborhood
aesthetics are pleasing, or
§ The rest of your
family is pleased
You may feel one emotion or five when you turn the corner onto the
street where you want to live. This will be an exciting time, especially if you
have been searching for a home for the past few months.
When looking
for the right location, you should consider the following:
§ How clean is this
neighborhood?
§ Is this a high
crime area?
§ What is the
average home value in the neighborhood?
§ Are there
community bylaws?
§ What is the home
close to?
§ Is there garbage pickup?
While these questions may not include everything you are looking for
when buying a home, they should be considered carefully as they will affect
your life once you move into the home.
How Clean Is This
Neighborhood?
You should look at the neighborhood at different times during the
day to see how those who live in the neighborhood take care of it. If there is
a lot of trash on the
ground, the yards are not kept up properly, or there are old signs
posted on trees and telephone poles, then the neighborhood may not be for you.
If the neighborhood looks clean and you see people outside caring
for their lawns, then you may have
found a community of people who care about where they live. This is an
important factor if you are planning on living in the neighborhood for many
years. All too often people will buy homes only to discover that they live in a
neighborhood where people do not have respect for their property or the
property of others. This can make selling the home much more difficult in the
future.
Is This A High Crime Area?
While all neighborhoods will experience some crime, you should
consider buying a home in an area that has a high crime rate very carefully.
While the home itself may be the right price for your budget, it may not be
located in an area that is right for your well-being.
Drive by the neighborhood at nighttime to see if there is adequate
street lighting, suspicious activity, or anything else that might cause you to
use caution. Research the neighborhood and find out how the crime rate compares
to other neighborhoods. If the crime rate is too high, then it may be best to
look somewhere else.
What Is The Average
Home Value In The Neighborhood?
You can find this information out very easily by asking your realtor
or by looking up this information at the county clerk’s office or on their web
site. You should be aware of the home values that are in your neighborhood for
several reasons:
§ Housing
prices will vary depending on the neighborhood and region. You want to buy a
home that you will be able to make a profit on when you decide to sell.
§ You do not want
to pay too much for a home.
§ Giving
a solid offer for the home means knowing what other homes that are similar in size are selling for.
Are There Community Bylaws?
If you are looking at a home that is inside a community,
you should be aware of yearly dues, rules about what can be in your yard (pool,
lawn decorations, ect.), and any other rules that they may have.
Many people enjoy living in a community because they feel safe and
want to meet others in the neighborhood. Communities usually have picnics and
other events during the year where neighbors can meet each other. Some
communities have pools, tennis courts, and other amenities.
What Is The Home Close To?
When choosing a home, you will need to find the nearest grocery
store, schools, route to work, and other necessities that will make living in
the neighborhood more convenient. Drive around the neighborhood to see what is
around it. This will help make your decision to buy a home in a particular
neighborhood much easier.
Is There Garbage Pickup?
While this may not seem like something you are interested in, when
it comes to disposing of your trash, you may need to haul it to the dump
yourself. Ask about trash pickup so that you can decide if this is something
you really want to do on the weekend.
City Life vs. Country Living
Choosing the neighborhood you want to live in will also include
deciding whether you want to live
in the city, country, or suburbs. Many people with families usually want to
live in the suburbs because there is more rooms for children to grow, but is
still close enough for parents to commute to
work.
But there are advantages to city and country living as well. Those
who live in the city will be close to work, close to restaurants, activities,
and events. Those who live in the country may have a longer commute to work,
but they will be able to enjoy the peace and quiet of having fewer people
around them.
Whichever lifestyle you prefer, you should construct a pros and cons
list that will give you a better idea of what to expect when looking for a
home. Once you have looked at your list, you will have a better idea of which
to choose. The following will get you started:
City Life
Pros
§ Easy access to
cultural events
§ More options when
eating out
§ More grocery
store and clothing store options
§ Public transportation
§ More people
§ Choice of home
styles, such as houses, condos, apartments, and
§ Private and
public schools
Cons
§ Crime rates higher
§ Pollution
§ More people
§ Higher housing costs
§ Higher taxes
§ Higher cost of
living, and
§ Not as much
housing is available
Country Living
Pros
§ More land available
§ New homes
available
§ Less people, and
§ Cost of living is lower
Cons
§ Fewer schools to
choose from
§ Further from
grocery stores and other stores
§ Less people
§ Not as many
cultural events, and
§ Longer commute to work
Suburban Living
Pros
§ Close to city and country
§ More land
§ Cost of living
less is expensive than city living
§ Close to cultural
events, and
§ Community feeling
Cons
§ More people in a
smaller area
§ Fewer schools to
choose from, and
§ Long commute to work
When choosing the type of environment you would like to live in, the
following may play a role in your final decision:
§ Finances
§ Schools
§ Size of home desired
§ Amount of land
desired
§ Taxes, and
§ Length of your
commute to work
You should check out both city and country living. While there will
always be proc and cons, you should be able to find a home that will help you
lead the type of lifestyle that is important to you and your family.
Making The Commute
You will have to count on the amount of traveling you will have to
endure to and from your job when buying your first home. Unless you are
relocating, you will have to find a neighborhood that is close enough to drive
to or is accessible by public transportation. While some people enjoy sitting
on a bus or a train for an hour or two during the day, you may not want to use
your time this way.
Unfortunately, living in the suburbs or in the country may require
you to make a longer commute.
If you want to remain relatively close to your job, you should not
search further than a thirty mile radius. Inform your real estate agent or
drive thirty miles in any direction and see what is out there. Many times there
will be neighborhoods you have never even heard of. You should find back roads
as well as highway accessible roads that will make your commute easier.
You should also look for a home during different times of day in
order to figure out the traffic patterns. If possible, live in an area that goes
against normal traffic patterns. That way you will not be stuck in traffic
going to work or when coming home.
Commuting to work can easily turn into a forty, fifty,
or even an hour long drive depending on the time of day. While this may be
inevitable, you should consider all of your options before purchasing a home.
Schools In The Area
If you have school age children, then you will want to find a home
that is close to schools in the area. This goes for both public and private
schools. If you find a neighborhood that you like, find out which school
district it is located in. Not all districts are alike and you will have to
send your children to the school district your home is located in.
While your children do not have to walk to school, being relatively
close to home will make it easier to pick them up, participate in after school
events, and give them a sense of community.
If you are planning on living in the country, the nearest school
could be very close to home or very far away depending on where you move. The
bus ride to and from school can be an hour or more. This could take time away
from getting
homework done or playing with friends. Be sure to weigh all of your
options when choosing a home if you have children. Also, find out where the
middle school and high schools are in the area. Eventually, your children will
be attending these schools. Be prepared and find out everything you can about
these schools as well.
Grocery Shopping And Other Necessities
While living in the country may seem peaceful, be prepared to do a
lot more driving. The nearest grocery store or pharmacy may be thirty minutes
or more. This is another factor you will have to consider when buying your
first home.
While small towns have centralized areas where the shops and grocery
stores are located, unless you live in town, you will have to drive in order to
get there.
Many people that live in the country will adjust their lives as well
as their priorities. They may go to the grocery stores once every two weeks;
they will not eat at restaurants as often, and will not go to the movies or
other social events as often either. You will have to decide what is important
to you.
Before buying a home, survey the town to see what is available. This
will give you a good idea of what it would be like to live in an area. Spend a
few days there if possible. This will save you from making a huge mistake later
on.
If you are planning to stay in the city, you will have the
advantages of public transportation, but you may still need a car for larger
grocery shops. While the city can be convenient in many ways, parking a car is
not one of them. You will have to pay for garage parking in many instances,
which will end up costing you more money than if you lived in the country. But,
you will be able to get to these stores quickly and easily at any time during
the day.
Other Location
Considerations
Other location
considerations include:
§ Weather
§ Road conditions
§ Location of
property in the neighborhood, and
§ Room to grow
You should be thinking ahead in terms of the weather. If you are
planning on living in the country, for example, you should pay attention to
possible flooding, snow, and other weather that could affect you getting to
work. If the road is a dirt road, you should ask if the county will clear the
road and how often they will do so. This is another advantage of living in the
city because you could always use public transportation if you do not want to
drive.
The location of the property is also important. If the property is
located at the bottom of a slope, you may have flooding issues after a
rainstorm. Also, as your family grows, you may need more room. You should find
property that can hold a home addition if necessary. Investing in a home
requires a great deal of thought and planning. Even if you do not have a
family, you should find a home that will allow you to grow as your interests
change.
Chapter 2 - Working With Realtors
(Return to Contents)
If you are like many people, chances are good you looked
around different neighborhoods, saw a few homes that were for sale, maybe
visited an open house or two, and then felt stuck. What is the next step?
Approach the home owner? Visit a realtor?
Finding the right realtor when buying a home depends on
what you are looking for in a home. You may have to visit several realtors
before finding one that listens to your wants and needs. After all, you will
probably be paying them a commission once you have found a home, so you should
be comfortable working with them during the house hunting process.
Choosing A Realtor
There are a few
ways to find a reliable realtor. For example, you can:
§ Ask friends and family
§ Ask other realtors
§ Attend a few open
houses and meet realtors
§ Find ads online
or in the newspaper
§ Walk into a local
office, or
§ Look
for local realtors in your neighborhood by paying attention to for sale signs
in the neighborhood
Asking plenty of questions before looking at houses may
seem like a lot of work, but when you visit a realtor for the first time, you
should think about questions that will help you get to know this person who is
going to help you find your dream home. The five best questions to ask are:
1.
Are you a certified realtor? (While
all agents need to be licensed in the states they are selling properties in,
not all realtors belong to the National Association of Realtors.)
2.
How long have you been in the real estate business?
3.
Which neighborhoods are you the most familiar with?
4.
How many homes do you have that will fit my needs?
5.
What is your typical commission on a home in my
price range?
Once you have asked these questions, you should be
looking for honest and complete answers, good communication, and eye contact.
These are questions that the realtor should have practice in answering and
should not have to give you a standard
‘salesperson’ answer.
If you feel uncomfortable, then you are under no
obligation to continue with this realtor unless they have some good property
matches to show you. Normally, if a realtor does not have properties that fit
what you are looking for, they will recommend you to another realtor in the
group. This is also a good sign because it shows that the group is looking out
for your interests and the interests of its employees.
You should also pay attention to:
§ How well your
realtor listens to what you are looking for
§ How well they
understand current real estate law
§ How many other
clients they seem to have
§ How they speak to
their co workers
§ How often they
communicate with you on the phone or email
In the end, you will have to be the judge of the real
estate agent. If they know what they are talking about, can find out the
information you need quickly, and are willing to take the time to listen to
what you need, then you should work very well with them.
In some cases, you may be asked to sign an agreement
that states you will only be working with a specific real estate agency or
agent when looking for a home. You are under no obligation to sign this
paperwork and you should only do so if you feel very comfortable.
While these agreements are not totally binding, it could
make buying a home more difficult down the road. Only sign agreements if you
feel comfortable.
During your search for a real estate agent, you will
find a variety of agents that will want to work with you. These include:
§ Experienced agents
§ New agents
§ Pushy agents
§ Absentee agents, and
§ Hard working agents
While all real estate agents have different
personalities, you will have to decide which ones you will want to work with
when looking for your new home.
Experienced Agents vs. New Agents
This is an age old debate that should be addressed. While
an experienced agent may have sold more homes and earned more commissions, new
agents can be just as helpful and need to get some sales under their belt,
which may prompt them to work harder for you.
While you should ask about their experience, you should
take into consideration other traits such as the ability to listen and the
ability to only show you homes in your price range. Experienced agents and new
agents have been trained in a similar fashion and only have their personalities
to bring to the table.
There are experienced agents out there who will drag
their feet because they are over confident or they are not as interested in
their jobs as they once were. Experienced agents may know more about different
neighborhoods, but some of them are not as proactive as they used to be.
You should not let inexperience deter you when looking
for an agent. Many times new agents will work harder because they want to gain
a reputation that they can use to build confidence in their future clients
Pushy Agents
Unfortunately, you will meet real estate agents that
will want to sell you more home than you need. In an effort to earn larger
commissions or to sell those properties that are more difficult, many agents
will try this tactic. This is where you will need to stand firm. You do not
want to waste your time looking at homes that are beyond your price range
unless you can find a way to lower the price.
While looking at possible homes is exciting, this will
not last long as you will grow weary of spending all of your available time
looking for a home. If an agent keeps
showing you homes that are out of your price range, then you should
consider finding another agent.
Absentee Agents
Absentee real estate agents are those agents who show
you a few homes and then disappear for a few weeks. These agents may be
overworked, may not be able to find a home in your price range or neighborhood,
or have higher priced commissions to find. Whatever the reasons, this is
unprofessional behavior and should be rectified immediately, especially if you
need to find a home quickly.
If an agent does not have homes in your price range or
neighborhood, they should recommend another agent in the group. Agencies never
want to lose customers. If your agent does not do this, find a new one.
Even agents that are overworked have time to make a
quick phone call. If you do not hear from your agent in a week after your last
meeting, find another agent.
Hard Working Agents
These are the best agents to find when you are buying
your first home. If you find an agent like this one, do not lose them. These
are the agents that will follow every lead, pass your wants and needs to
another agent, and try their best to find you a home. You should expect to see
a handful of homes when working with an agent like this one.
Now that you know more about what to look for in a real
estate agent, you should feel a little more comfortable about working with one.
They can be an invaluable source of information when you want to know more
about homes, neighborhoods, and other questions about the communities you are looking at.
When looking at homes with your real estate agent, you
should ask questions about the home, the neighborhood, the city or town, and
any other questions you need to know in order to make an informed decision.
Part of your real estate agents job is to research homes and neighborhoods so
that they can answer questions that may come up.
Preparing
To See Homes With Your Realtor
Create A List
Once you have found a realtor you are comfortable with,
you will want to make the most of your time when house hunting. Giving your
realtor a list of what you are looking for will help narrow the search and save
everyone some time. Your list should include:
§ Your price range
§ Number of
bedrooms you want
§ Number of bathrooms
§ Size of property
§ Basement
(finished or unfinished)
§ If you want a
porch, patio or balcony
§ Central heat and
air conditioning
§ Garage
§ Neighborhood, and
§ Any other
amenities you would like
Giving your real estate agent a list of your preferences
will allow them to spend more time researching homes that fit the criteria. You
should list these amenities from greatest to least important because no home is
perfect and you will not get everything you want or need. Let your agent know
that you are flexible, but that you really want to concentrate on certain items
when looking for a home.
Viewing Homes
When looking at homes with your agent, be sure to ask
any questions you may have. While these questions may seem small, they may be
important to your happiness. Common questions people ask their agents are:
§ How old is the home?
§ How many owners
has the home had?
§ What kinds of
renovations have been done to the home?
§ How old is the plumbing?
§ How low are the
sellers willing to go?
§ How old is the
carpeting and flooring?
§ How old are the
windows?
While your agent may answer some of these questions
before you ask them, you should ask any questions that may influence your
decision to buy a home. If you do not want to put too much work into fixing up
the home, you may want to buy a home that is ten years old or less.
If your agent does not know all of the answers to your
questions, they should be able to find out and will give you an answer within a
day or two.
Taking Pictures
One of the best ways to remember the homes you have seen
is to bring your camera and take pictures. Get permission from the agent first
before taking pictures of another person’s home.
Many times, after looking at a few houses, you will
forget how big the kitchen in home number two was in comparison to home number
five. Having pictures will give you a better idea of the square footage and how
much room you will have to work with.
Narrowing Down Your Choices
After a few weeks of viewing homes that fit what you are
looking for, you should be close to finding a home that you will want to make a
bid on. If you have other homes you would like to see or you have changed your
mind as to what you are looking for, you should tell your agent so that they
can look for other homes.
Many times, if a person likes the neighborhood but not
the home they were shown, they will want to see other homes in the neighborhood
that are for sale. You should ask to see all of the homes available in a
neighborhood that you like.
If you are still not finding a home that you like, you
may need to change the neighborhoods you are looking at. While this can seem
disappointing, your real estate agent will be happy to show you homes in
different neighborhoods. Sometimes if you compare homes to one another, you
will find redeeming qualities in a home you have already seen.
Once you have found a home that you like, you should
make an offer. Contact your agent as soon as you can so that they can draw up
the paperwork, contact the buyer’s agent, and make an offer before another
person does. Make an offer as soon as you can in order to avoid a bidding war.
Bidding can be long and drawn out in some cases. If you
do not have the time to wait out a bid or if you cannot bid any higher, then
you may be looking for another home to purchase. While this can set you back, you
should try to stay positive and find a home that is right for you.
Your agent should be there to guide you along during
this time. Ask all the questions you have to before making an offer on a home.
Information
Realtors Should Tell You
There is plenty of information that realtors can tell
you about the homes you will be viewing. Things they should tell you include:
§ The price of the home
§ The age of the home
§ Any renovations
that have been done
§ Any other Issues
with the home
§ Property taxes
§ Community dues
§ Schools
§ Neighborhood
crime rates, and
§ The median age of
those who live in the neighborhood
Usually, if a realtor does not have the information you
request on hand, they will be able to look it up once they are back at their
office. You should be able to find out all the information you need to know in
order to make an informed decision about buying a home. Realtors are required
by law to give you information concerning repairs, damage, and the history of a
home. This includes any incidents that have occurred inside the home such as
criminal activity, fire, and other events.
You can also do a little research of your own by using
the Internet, which has become a wonderful tool to use when searching for a
home. You can research past events that have taken place in the neighborhood,
the home itself, or the town where you want to live. Knowing a little history
may prompt you to look elsewhere or make an offer.
Other information realtors can tell you include:
§ Home
owner price reduction (your realtor will talk with the seller’s realtor once
you have made an offer or want to make an offer to see how low the owners will
go to sell the home)
§ Prices
of other homes in the area that are comparable to the one you are looking into buying
§ How quickly the
owner wants or needs to sell their home
§ How much you will
have to pay in property taxes each year, on average
§ Other taxes in
the area
Your realtor is a person that should be well acquainted
with the neighborhoods you are looking at when buying your first home. Don’t be
afraid to ask many questions.
Working With Seller’s And
Buyer’s Agents
As a home buyer, your real estate agent is considered
the buyer’s agent. While some people will forego hiring an agent at first when
looking for a home in order to save money on commission costs, they will
usually end up hiring an agent to:
§ Handle
negotiations with sellers
§ Do paperwork, and
§ Survey neighborhoods
It is in your best interest to hire an agent in order to
make buying a home a much easier, and faster process.
Negotiations With
Sellers
Most people who sell their homes are also working with
an agent. This agent is known as a seller’s agent. If you choose not to hire an
agent, you will be dealing with a seller’s agent who is looking out for the
home owner’s interests, and not yours.
Sometimes, though, the seller’s agent and the buyer’s
agent can be the same agent. This means that your agent is looking after the
interests of everyone involved. This is a rare occurrence, and it is best to
hire a real estate agent that can negotiate with other agents in order to get
you the best deal on a home.
Negotiating with agents can take a week or more
depending on how high you are willing to go and how low the owners are willing
to go. This can become a complicated game once you introduce home inspectors.
After an initial home inspection, if you feel there are repairs that should be
made prior to the sale of the home, or if you want a price reduction because of
the repairs you will have to make, you will have to negotiate with the owners
to settle on a fair price. Without an agent, you will have to do all of this
work yourself.
Paperwork
When buying a home, there is a lot of paperwork that must be
completed before the closing. This paperwork can include:
§ Offers
§ Counteroffers
§ Home inspection reports
§ Home appraisal
reports, and
§ Fixture
lists (Items that come with the home and items you would like removed)
Filing the paperwork is not difficult, but it can take
some time. Working with an agent will save you time and money when creating and
sending out various paperwork.
Survey Neighborhoods
Another advantage to hiring an agent is that you will
not have to do as much legwork in the beginning. You may have a few
neighborhoods in mind, but you will be able to leave it to your agent to find
homes for sale and setting up appointments to see them.
This is another time saver especially if you have to
work during the week. Taking time from your busy day to call other agents and
homeowners to set up appointments will distract you from your other daily
duties.
More Reasons To Hire A Real
Estate Agent
There are
several other reasons to hire a real estate agent. These include:
Peace Of Mind
The bottom line is that as a buyer, a buyer’s agent is
the best resource when it comes to finding and making an offer on a home. While
a seller’s agent will be able to tell you the basics about a home, they are
working for the homeowner. They will not try to get you the lowest price for
the home. If you enjoy negotiating, then working with seller’s agents might be
for you. But if you are like most people, hiring an agent to work on your side
will make the entire process more enjoyable and worthwhile in the end.
Wealth Of Knowledge
Your agent will be very knowledgeable about negotiating
the right price for your new home, they will be able to help you decide where
you want to live, and they will be able to guide you in buying or walking away
from any property you are not sure about. This is why it is so important to
talk with your agent and ask as many questions as you can before buying a home.
Confidence
If you are having doubts about purchasing the home you
have made an offer on, then you should tell your agent right away so that they
can postpone the offer made and help you reexamine what it is you are looking
for in a home. Many times the initial shock of being a home owner can be
overwhelming. Sometimes talking with your agent is enough to resolve your
feelings. Other times, you may need to see a few more homes before making a
decision. Your agent will be able to give you practical advice during this time.
Chapter 3 - Playing The Housing Market:
Buying vs.
Renting A Home
(Return to Contents)
Now that you know more about finding a real estate
agent, you should begin watching the housing market carefully in the weeks or
months before buying your first home in order to get a feel for whether it is
in your favor.
Watching The Housing Market
For the past year, the housing market has been favoring
buyers. Soaring market values were short-lived as many people decided they just
could not afford to live in certain areas because of the cost of housing. This
has caused many sellers to lower their prices. While this sounds like good news
for you, the housing market can be very fickle. Depending on where you want to
live, you may end up having to pay a small fortune for the home of your dreams.
This is why watching the market, surveying
neighborhoods, and finding a good agent will help you in your search.
While you should not become a slave to the housing
market, you should keep the following in mind before buying your first home:
§ The past market
value of the home you are interested in buying
§ How
much house your budget can get you in different neighborhoods and towns
§ Neighborhood value
§ How much the home
should increase over time, and
§ Price reductions
that may be available
Just because you buy a home for a great deal does not
mean you will make a huge profit when it is time to sell it. The housing market
will continue to change and since this is your first home, you may want to
choose something you can pay off quickly and make a larger profit on in the
future.
Also, remember that any improvements you make on the
home will increase its overall value. Just don’t spend too much money on
improvements. Creating a home improvement budget and sticking with it will help
you make those monthly mortgage payments and other payments that will be due.
One of the biggest mistakes that first time homeowners
can make is buying a home for a lot less than they budgeted and then making
improvements that will end up costing more money in the end. If you can find a
great deal on a home, use that extra money as a cushion in case you lose your
job or are too ill to work. Owning a home is a big responsibility. Knowing how
the market is moving and spending your money wisely will help when you are
creating a budget, applying for a mortgage, and deciding how much to put down
on a home.
Making
The Most Of The Housing Market
While you should be watching the housing market, there are other
areas of interest you should be watching also, such as:
§ National interest
rates for mortgages
§ Building rates in
your area
§ Number of
foreclosures in your area, and
§ Stock market and
gasoline prices
National Interest Rates For Mortgages
Even though the housing market may be going your way does not mean
that the interest rates you could be paying are. In the times when the housing
market has
taken a slump, interest rates tend to rise in order to
retain the natural balance within the economy.
The interest rate you receive will depend on many factors,
including:
§ Other loans
§ Current credit score
§ Credit history
§ Number of credit cards
§ Yearly income
§ Owed debts
§ Current interest rates
§ Type of lender
§ Time of year, and
§ Adjustable and
fixed rate mortgage
If you see housing prices dropping, you may opt to buy a
larger home than you would have if the prices had been higher a year ago. While
you will be saving money on that end, you may be paying more each month because
of the interest rate you received.
Building Rates In Your Area
If you notice the housing market has also caused the
building of new homes in your area to decrease, then you may have to enter into
a bidding war in order to buy your first home. When new home construction goes
down, this can mean one of several things:
§ The area is no
longer popular
§ The interest in
buying a new home has diminished
§ People can no
longer afford to purchase new homes
§ People
are opting for older homes that are less expensive to heat and keep cool during
the year
While that housing slump may bring a reduction of
housing prices, you should consider making a bid soon after finding the home of
your dreams because bidding wars will only end up costing your more money.
Number Of Foreclosures In
Your Area
When looking for a home, you should consider looking at
homes that are under foreclosure. This can be for many reasons, but usually
banks that hold the titles want to unload these homes quickly so that they do
not lose more money than necessary. Many times auctions will be held or the
home will be advertised as a foreclosure in the newspaper or online.
You should check out these homes because you may find
exactly what you are looking for in a home.
Stock Market And Gasoline
Prices
Even if you do not play the stock market game or own a
car, you should still pay attention to these areas because they are usually
what will dictate housing prices and the cost to heat and cool the home.
When the stock market is doing well many people will
spend their money more freely, which will give way to higher housing prices.
But when gasoline prices go up so will the price to heat and cool a home, which
may make homebuyers reconsider buying until the prices fall again.
This could be a good time to buy a home if you are
willing to pay a little more each month in utility costs.
The impact society can have on the housing market can be
huge, and it can also have lasting affects. Buyer’s market’s are created when
there are more homes available than buyers, while seller’s market occurs when
there are more people who want to purchase homes than there are for sale. These
housing markets go back and forth due to issues mentioned above.
In The End
In the end, when you are ready to buy a home, you should
make the decision based on what you can afford and how much money you can put
down for your new home. Just because you find a home that has a huge price
reduction and you are not comfortable financially, does not mean you must buy
that home.
Buy a home when you are ready. Many times, people will
buy a home because it is cheaper in the long run than paying rent each month.
The downside to home ownership is that you have to make your mortgage payments
on time each month. Very few lenders will give you more time to come up with
the money. If you miss even one payment, your home could be foreclosed upon.
You will have no place to live and your credit score will suffer severely.
If you can afford to make the move into your new home
now, you should not wait too long before making an offer. The housing market
can change quickly and with competition out there, you may end up losing more
money if you don’t make an offer after seeing a home that you like.
Buying vs. Renting
(Pros/Cons)
Even though in the long run buying a home is more cost
effective than renting a home because of the equity that will build over time,
many people are just not comfortable carrying the weight of paying for a home
on their shoulders. Also, those who have to travel often for work may not want
the day to day upkeep that owning a home requires.
There are plenty of pros and cons when it comes to
buying a home versus renting a home. Since you are thinking about buying your
first home, you should consider these
pros and cons for several reasons. First, if you are currently renting a home,
you may want to invest in property that you can later sell. Second, you will be
responsible for repairs and maintenance for the home instead of being able to
call your landlord or maintenance crew. The third reason you should weigh the
pros and cons is if you are planning to move in the next few years. Since the
housing market is a buyer’s market for now, you may have difficulty selling the
home later on.
Buying
A Home
Pros
§ Investment
property – value will hopefully only increase or remain the same
§ Build equity that
you can use later on
§ You can improve
upon your home any way you want
§ You can decorate
it to suit your needs
§ No landlord or
property management company
§ Sense of stability
§ Ability to live
in a community, and
§ You have
something to sell later on
Cons
§ You are
responsible for all repair and maintenance costs
§ Monthly payments
for utilities and mortgage are more expensive
§ Could take time
to sell later on
Renting A Home
Pros
§ You are not
responsible for repairs and maintenance costs
§ Free to leave
once the lease has expired
§ In many cases,
utilities are paid by the landlord
§ Many apartment
buildings have some sort of security system
§ Usually less
expensive than paying a monthly mortgage
§ Credit score is
unaffected if rent cannot be paid on time
Cons
§ Privacy issues
§ May have to share
washer and dryers
§ Rent to be
increased once lease expires
§ Landlord may not
fix items on time
§ Cannot paint
walls or add other features
§ Deposit may be
required
§ May not allow pets
§ Neighbors come
and go
As you can see, there are many factors that you should
consider when thinking about buying your first home.
But if you are ready financially and want to have your
own space, you should find an agent and start looking. The average time that
most people take to make an offer on a home once they start looking is two
weeks. If you have not found a home within that time, you should either
continue looking or rethink your decision. There is nothing wrong with waiting
a few months until you are ready.
Rent
To Own
Another option you may have is to buy the property you
are currently renting or rent a property that also offers you the option to buy
after a certain amount of time. This will give you a chance to see if you like
living in the home and will give you time to get your finances in order.
Rent to own properties are usually older than other
homes and have been rental properties for some time. This means that they may
not be in great shape. If you are looking for a property that you don’t mind
repairing, then this option may be for you.
When looking at a rent to own property, you should ask the following
questions:
§ How old is the home?
§ How many times
has it been rented out?
§ What is the
mortgage payment on the home?
§ What is the rent
per month for the home?
§ How long will I
have to make my decision?
§ What happens if I
change my mind?
§ What happens if
the home owner changes their mind?
You should still sign the proper contracts stating that
you are interested in buying the home after the given time period. This will
protect your rights and the rights of the current home owner.
New
Homes
When you think of your first home, you may be thinking
of a brand new home. Since the housing market is favoring buyers at the moment,
you may get a great deal from a builder that is developing a new housing
community, or you may find
a plot of land that is in an existing community. This
can be a great alternative to buying an older home for many reasons:
§ You will have a
part in designing the home
§ You will have new
appliances and lighting fixtures
§ You will have new
carpeting and flooring
§ You will be able
to choose all of the fixtures, carpeting, and
flooring
§ You will be able
to add a porch or a patio, and
§ You will be able
to place the home where you want it on your
property
A new home can be very exciting, but it can also be a
lot of extra work. The first step in buying a new home is to find property. You
should visit builders and real estate agents who will file all of the necessary
paperwork, permits, and other items needed to build on the property. This can
take a few weeks, so be sure to plan accordingly.
The next step is to design the home. This is the fun
part where you will get to personalize your home to suit your needs.
Once you have been approved for a mortgage, the property
has passed all of the land inspections, and the home has been designed,
construction will begin. Depending on the time of year, you will have to wait
about three months before you can move into your new home.
After construction is complete, you should complete a
walk through of the home, check all of the fixtures, and have the home
inspected before signing the final paperwork. Then the home is yours.
Many people hire a lawyer during the construction phase
so that all of the paperwork has been filed and there are no problems during
the walk through.
Buying a new home is just one more option you should
consider when looking for your first home. Home construction can vary as there
are a few ways to build a home, including pre-fab homes that will be built
elsewhere and delivered to your property where they will be assembled. Look
into all of your options before deciding on a home that is right for you and
your budget.
Using The Housing Market To Your Advantage
By paying attention to current housing trends and
keeping a watchful eye on the homes in your area, you will be able to make an
offer on a home that will be accepted. While the market is continually
changing, it is a useful tool for those who are on a budget, who want to find a
home that is large enough to suit their needs, and will be worth more when it
is time to sell it.
When watching
the housing market, consider the following:
§ The number of
homes that are in your area
§ The number of
days the homes have been on the market
§ The
price of a new home compared to those that are being sold by homeowners
§ The price of
renting vs. buying
§ The number of
homes that are in your price range
§ The highest price
you can pay when buying a home
§ Interest rates in
comparison to housing prices, and
§ The time of year
Springtime is a good time to buy a home for several reasons:
§ More people want
to sell
§ It is easier to
make appointments to view homes
§ Prices are
usually lower
§ People are more
willing to reduce their asking price
§ Income tax
returns can help with a buyer’s budget
There will be plenty of people who could not sell their
homes in the fall or winter months and who are trying to sell before the
summertime. Homeowners that need to sell their homes before a certain time are
more willing to reduce the price of their homes.
While you should consider looking at a home during any
time of the year, you will find that many homes will be lower in the spring to
attract buyers.
This is also the time when interest rates are
re-evaluated and many lenders are willing to give loans to those whose credit
is not the best. Take advantage of when interest rates are at their lowest even
if it means accepting an adjustable rate mortgage. You will have the option of
locking into a fixed rate at a later time.
While the housing market can change, the idea of selling
one’s home will not. Homeowners may choose to wait out the current housing
market, but if they are eager to buy another home or move to a new place, their
wait will be short-lived. Negotiate with homeowners until a fair price can be
reached. This is the same practice during a sellers market as in a buyers
market. You may have to play the bidding game for a week or two, but in the end,
it is the person who needs to make the transaction happen the most that will
end up compromising the most.
Chapter 4 - Home Inspections
(Return to Contents)
A home inspection will give you a chance to discover
more about the home before you purchase it. In case there are serious problems
with the foundation, mold issues, or underground leaks, you will be prepared to
ask for repairs, a reduced price, or walk away from the property.
The Importance Of Home
Inspections
Finding a home does not mean that your investigative
duties are over. Although most states do not have required inspections, your
lender may require at the very least a pest inspection that will need to be
conducted before they agree to approve your mortgage loan. If there are
termites or other insects, the home owners will have to take care of the
problem before they sell the home.
But what about full home inspections? Are they worth it?
In most cases, the answer is yes. Although you will have to pay for a home
inspection, it may save you a lot of money in the long run.
A thorough home inspection will include checking the following:
§ Electrical systems
§ Heating and
cooling systems
§ Foundation
§ Siding
§ Structural
elements
§ Roof
§ Insulation
§ Doors and
windows, and
§ Plumbing
If you are buying a new or used home, it is best to have
a home inspection before signing the final paperwork. Once the inspection
report comes back, you will the opportunity to ask the homeowners for a price
reduction, go ahead and buy the home anyway, or ask the homeowners to make the
necessary repairs.
You will receive a varied reaction from homeowners. Many
times, they will agree to lower the price a little.
When drawing up an initial offer for the purchase of the
home, you should include a statement that allows you to withdraw your bid if
any repairs are not taken care of or the price is not lowered due to the
findings by the home inspector. If the contract does not include this, then you
can still withdraw from the bid, but you may owe the agent commission fees.
Having a home inspection will give you peace of mind
when you are buying a home. Since you will be taking out a mortgage, it is
important to know what you will be buying, and the amount of money you will
have to invest after purchasing the home. A home inspection will also help you
make your final decision whether to purchase the home or to keep looking for another.
How To Find A Home Inspector
There are a few places to turn to when looking for a home inspector:
§ Your real estate agent
§ References from
friends and family
§ The phone book, and
§ Contractors
Ask around and see if you can get references of other
homeowners that will give you a good report. Many home inspectors work
freelance and only work certain days during the week. They are trained in home
inspection and many are retired contractors, builders, electricians, and
plumbers who know what they are looking for.
When you find a few home inspectors, give them a call
and ask the following questions:
§ How long have you
been inspecting homes?
§ How much do you
charge per hour?
§ What do you look
for when inspecting a home?
§ What types of
reports should I expect?
§ What days during
the week are you available?
§ Do you offer
septic system inspections?
§ What type of
licensing do you have?
A thorough home inspection should take an inspector
about three hours to complete. This will give you an idea of how much the
inspection will cost.
Once you have asked these questions, find out if your
lender has specific inspections that the home must pass before you will receive
a home loan. If the inspector can complete these inspections along with the
home inspection, then it is worth the time and the money to have the inspector
complete all inspections on the same day.
The next step after choosing an inspector and finding
out which inspections will be needed by your lender is to make sure the
homeowners will be home for the inspection. Usually your agent will arrange a
time for the inspector to perform the inspection.
It is up to you if you would like to be present for the
inspection or not. Many times, the reports will be enough to give you a clear
idea of what needs to be done. After the inspection is complete and the reports
have been completed, it is up to the homeowners to either make the repairs
necessary or lower their asking price.
If the repairs are minor and will not require too much
money to repair, they will usually agree to make the repairs. If you would like
to absorb the costs of the repairs, then you can offer to do so. You should
receive this decision in writing so that there is no confusion during the final
walk through before the closing. At the closing, you should have all of your
paperwork, including the home inspection reports with you in case there is a
discrepancy.
What To Expect From A Home Inspection
A home inspection can unearth many problems you did not
notice during your visits to the home. Typical findings include:
§ Crumbling foundation
§ Structural damage
to floors, walls, and ceilings
§ Water damage
inside and outside the walls
§ Termite damage
§ Porch railings or
posts in poor condition
§ Heating and
cooling systems need to be cleaned or do not work properly
§ Roof needs repair
§ Sinkholes
§ Broken or leaking pipes
§ Electrical wiring
not functioning or broken
§ Broken water
fixtures or light fixtures
§ Windows that do
not open
§ Uneven doorways
§ Improper insulation
§ Mold
§ Water contamination
§ Septic tank
issues, or
§ Hazardous chemicals
Most homes will only experience a few minor issues, but
some older homes may have more problems than they are worth. The damage to the
homes could cost you thousands of dollars if you are unaware of the damage
prior to purchasing the home. While disclosure of some problems is mandatory,
many homeowners do not even know that some of these problems exist until they
try to sell their homes.
On the day of the inspection, you should expect to hear
about some problems. You should be given a detailed report of the findings that
will outline drastic problems and those that can be fixed easily.
Some lenders will not approve the home loan until the
problems are fixed and another inspection is conducted.
Specific Places That Should
Be Inspected
When interviewing home inspectors, make sure to ask
whether the following areas are inspected:
§ Chimney and fireplace
§ Attic and basement
§ Crawl space
§ Swimming pools,
and
§ Smoke detectors
and appliances
These are important areas that can be very costly to repair
once you have purchased the home. Many homeowners are willing to replace a
chimney cap or remove mold from the basement. You should make sure that these
areas are inspected prior to the closing. You should also inspect these areas
during the final walkthrough.
Chimney And Fireplace
Inspectors
should be looking for:
§ Missing, broken,
or intact chimney caps
§ Mortar between
brick chimneys is intact
§ Metal chimneys
are not bent or contain holes and have all screws in place
§ Creosote
– this is buildup caused from wood burning fireplaces, and is flammable if not removed
Attic, Basement, And
Crawl Spaces
Home inspectors
should be on the lookout for the following:
§ Mold
§ Fire damage
§ Rotting beams
§ Insulation
§ Damage from
water, and
§ Damage from
animals and pests
Swimming Pools
When looking at
the swimming pool, the inspector should look at the following:
§ Swimming pool
plumbing, and
§ Swimming pool
shell
Smoke Detectors And Appliances
§ Make sure they work
§ No leaks
§ Check for broken
hoses or connections
§ Broken door
handles
§ Inadequate wiring
Termite Inspection
A termite inspection is a separate inspection that will give you an
idea of structural damage to the home that has been caused by termites and
other pests.
This inspection is required by most lenders before they
will guarantee you the money to purchase the home.
Termite inspections are not covered under the standard
fee of a home inspection, so you may have to pay for the inspection unless the
homeowners are willing to do so.
The inspection should take about an hour and will entail
the inspector looking underneath siding, in basements, attics, and on the
foundation of the home to see if there are termites present or if there are
other insects such as ants, or fungus that are destroying the wood. The
inspector will also conduct an inspection inside the home as well. Since
termites can live in different weather conditions, you should have the
inspection done even if you live in an area that has lower temperatures than
other regions.
Termites can be removed using an insecticide that is
specially designed to kill termites and their eggs, but the damage left behind
can be immense. If the home has been infested for a long time, then it may be
beyond repair.
You will then have to discuss a reduction in price,
repairs being made to the property, or walking away altogether.
How Homeowners Will React
How the homeowner will react to the results of the home
inspection could determine whether you continue pursuing the home or whether
you let it go and find another one.
Homeowners have their own agenda when it comes to
selling their home. These include:
§ Buying another
home
§ Moving to another state
§ Using the money
to pay for family medical emergencies
§ Retirement, or
§ Making money on
an investment property
This means that there are varying degrees as to what
they are willing to pay for and what they are not willing to pay for. If the
homeowner is not in a rush to sell, then they may contest the findings and
refuse to repair certain items. If they need to make as much money as possible,
they may agree to lower the price a little or make repairs that cost the least
on the list.
You will have to make some tough decisions at this
point. If the repairs that will be needed on the home are required by your
lender, you can:
§ Try to find
another lender
§ Try to get the
homeowners to pay for the repairs
§ Pay for the
repairs yourself, or
§ Walk away from
the home
Whichever decision you make, you will have to live with the
consequences.
Homeowners know they are taking risks when selling older
homes. But what about new homes? If your new home does not pass inspection, it
is up to the builder to make the necessary repairs. You should make sure this
is included in the contract before signing it.
If you are buying a home that homeowners have already
moved out of, you may be able to get the repairs paid for without having to be
too pushy. If the homeowners are paying another mortgage, they are eager to
sell and may opt to pay for the repairs upfront or give you a price reduction.
This will depend on the circumstances. There is always a certain amount of luck
that goes into buying a home.
Ways A Home Inspection Can Lower The Final Price
Even though you will have to spend money upfront for a
home inspection, you may save more money than you anticipated once the results
come back. This is especially true for older homes or new homes that were not
built using the right materials or according to safety codes.
There are a few ways you will be able to negotiate a
lower price on the home before signing the final contracts.
§ Ask homeowners to make repairs
This is the best way to save money on your new home.
While you will not see a reduction in the final price of the home, you will not
have to make as many repairs down the road. Also, you will not have to worry
about the repairs once you have moved into the home.
While all homeowners are different, you should be aware
that many do not want to make repairs unless the home absolutely cannot be sold
in the condition it is in because it will endanger the new owners. Even minor
repairs may pose a problem for homeowners. You should be firm, but friendly
when negotiating this part of the contract. If you do not want to make these
repairs and you strongly feel that the repairs should be made by the homeowner,
you can still walk away from the home and find another.
You should give homeowners a week to think about making
the repairs. Most homeowners will make their decision quickly because they want
the sale to go through.
§ Ask homeowners for a price reduction
If the homeowners do not want to spend money on the
repairs that you have requested, they may agree to drop the final price of the
home. While the price reduction will not be too drastic, any reduction is a
good one since you will have to make the repairs yourself down the road.
If the homeowners suggest a reduction in the final
price, you should consider the offer and find out how much the repairs will
cost you. If it seems like a fair deal, then take it. If not, you can always
ask for a larger reduction. Most buyers and sellers eventually agree on a price
that will suit both parties.
§ Ask homeowners to pay for all closing costs
Another way to save money without relying on the
homeowners to pay for the repairs is if they agree to pay the closing costs on
both sides. This will free up some of your money so that you can make the
repairs yourself.
You may have to have a separate contract drawn up that
will explain what the homeowners are responsible for paying, and what you are
responsible for paying. This will make buying the home much easier.
Any agreements that you make with the homeowners should
be made in writing. Verbal agreements do not stand up in court, and are not
common practice among real estate lawyers and agents when they are closing
a deal. Your agent should make this
clear to you at the beginning of the home buying process.
Do not be discouraged if there seems to be a lot of
paperwork. This is necessary and the usual standard practice for those who want
to protect themselves from wrong doing and lawsuits later on.
The Final Walkthrough
On the day of the closing, you should have a final
walkthrough whether you are purchasing a new home or an older home. Final
walkthroughs are a way for you to determine if there is anything else you will
need to discuss, get in writing, or have changed before you sign the paperwork.
The final walkthrough will include you, the homeowners,
real estate agents, and if necessary, your lawyer. Unfortunately, many buyers
skip the final walkthrough in anticipation of moving into the home quickly. But
you should have one more walkthrough just to be sure.
The benefits
of a final walkthrough include:
§ Making
sure all repairs that were conceded by the homeowners have been made
§ Be sure
additional repairs are not necessary
§ Walls are intact
§ Plumbing is intact
§ Flush toilets in
the home
§ Garage door opener
§ Test doors and
windows
§ All appliances
that were remaining are still in the home
§ Appliances are in
good working condition
§ Electrical
systems are working by turning on all lights
§ All junk is
removed from the yard as per prior agreements
You will feel much better after the final walkthrough
for many reasons. You will get to see first hand the repairs that have been
made, you will begin to see yourself living in the home, and you will be able
to plan for the future in terms of what you want to keep in the home and what
you want to remove.
In some cases, you will never meet the homeowners. If
they have moved before putting the house on the market, you may be dealing
directly with the homeowner’s lawyer. It is still a good idea to ask questions
about the home before signing the final paperwork.
The Closing
The closing is your last chance to ask for changes to
the contract, to bring up any concerns, and to ask the homeowners any questions
you may have about the home and the property.
At the closing, you should bring:
§ A notepad
§ Financial notes
and mortgage approval paperwork
§ Signed paperwork
you have received over the course of the deal
§ Identification,
and
§ The home
inspection report
At this meeting, you will be signing the paperwork that
will make the home yours. This is a very exciting time, but you should maintain
your composure to make sure that you are getting what you are signing for. If
repairs have not been made, then you have the option to wait until they are
complete.
When
To Walk Away
Any time after the home inspection if you begin to have
doubts about purchasing the home, you should contact your real estate agent and
voice your concerns. Many first time homebuyers need reassurance that they are
making the right decisions. Your real estate agent will want the sale to go
through, but they know that there are other properties they can show you, so
they are not really losing money if you decide to not buy the home.
There are many reasons to walk away from a home sale. These include:
§ A bad report from
the home inspector
§ The homeowners
are unwilling to pay for necessary repairs
§ You find another
home that suits your needs
§ The price for the
home is too high
§ You decide you
don’t like the neighborhood
§ Loss of your job, or
§ A medical emergency
Walking away from a home is not giving up on your dream
of homeownership. Unfortunately, there are times in life when buying a home is
not possible. If the financial strain is going to be too much, for example,
then you should seriously consider finding a lower priced home or a smaller
home.
If you decide to walk away from a home, you should give
yourself a few weeks to recuperate before going out there and finding another
home. You should contact:
§ The real estate agent
§ The lender, or
§ The builder
Let them know of your decision and that you will be in
touch when the time is right. Many times after a bad report from a home
inspector, it is just not worth spending the money on a home that will require
a lot of repairs down the road. While all older homes will have some repairs,
you should know the limits of what is acceptable and what will cost you too
much money.
If you can get enough financing and you want to pursue
the home regardless of the repairs that will have to be made, then go for it.
Sometimes buying an older home and fixing it up can be a fun activity for
everyone involved. Only you can
make these crucial decisions. A home inspection will
help you realize how much work and money may be involved if you decide to
purchase the home.
Chapter 5 - Financing Your First Home
(Return to Contents)
Financing your first home can be the most frustrating
part of the home buying process. This is the time when you will figure out how
to pay for the home. Most people have to take out a mortgage loan in order to
afford the price. Which mortgage loans are right for you? How much of a down
payment will be necessary? What is escrow?
You will have many questions about financing your first
home. By knowing the facts, paying attention to interest rates, and looking
into all of your mortgage options, you will be able to choose repayment terms
that will fit your current income and allow you to safely make those monthly
payments.
Types Of Home Loans
Deciding which home loan is the right one for you will
depend on what you qualify for and what your lender is willing to give you.
There are a few types of mortgage loans, including:
§ Fixed rate
mortgage loans
§ Adjustable rate
mortgage loans
§ Balloon
mortgages, and
§ Jumbo loans
You should be familiar with these loans so that you will be able to
make an informed decision when it comes to financing your new home.
Fixed Rate Mortgage Loans
For first time home buyers who are on a strict budget,
choosing a fixed rate mortgage may be the loan for you. Your monthly payment
will never change for the life of the loan because you will lock into the
interest rate given at the time the loan was processed. You can take out loans
that range from ten to thirty years.
There are many advantages to taking out mortgage loans
that have fixed rates. You will be able to create a monthly budget for
yourself, you will never be surprised by the amount you will have to pay each
month, and you will be able to lock into a low interest rate.
The disadvantages may not mean much to you now, but as
your family or your income grows, you may want to refinance and pay less each
month so that you will be able to afford renovations, vacations, and other
luxuries. Since your mortgage is fixed, if interest rates drop, you will be
trapped paying a higher rate. While you can refinance your mortgage, you will
have to wait a certain amount of time, and even then there may be complications.
For those who have limited income, who have lower credit
scores, or those who want the security of paying the same amount each month,
then a fixed rate mortgage is the loan for you.
Adjustable Rate Mortgage Loans
If you expect to make more money in the next few years,
and want to buy a bigger home, you may be interested in an adjustable rate
mortgage. The major difference between an adjustable rate mortgage and a fixed
rate mortgage is that the interest rate will vary year to year in an adjustable
rate mortgage.
While the interest will be capped, you will still be
paying more for each year that you own the home unless interest rates drop over
an extended period of time. Most adjustable rate mortgages cannot be raised
more than 2 interest points per year, and up to 7 points for the life of the
loan.
These loans are good for those who want a larger home
and who expect to increase their earning each year to afford the increase. If
you are in a position to take out an adjustable rate mortgage, you will be able
to lock into a fixed rate that may be lower than your original rate. This is
the main advantage of these loans. Most lenders will only give you two years to
lock into a rate or the loan will remain adjustable for the life of the loan.
Balloons Mortgages
If you are only planning on living in your first home
for a few years (usually five to seven), you should look into a balloon
mortgage. These mortgages require that you pay them off in five to seven years.
They have a lower interest rate that is fixed.
If after the term of the mortgage has passed and you
want to remain in the home, you will have to refinance and choose a fixed rate
or adjustable mortgage to pay off the existing mortgage, as balloon mortgages
cannot be renewed.
Only consider this mortgage if you are planning on moving after a
certain amount of time or if you think you can pay the mortgage off in that
amount of time.
Jumbo Loans
Most first time home buyers will not need to take out a
jumbo loan unless they are buying a very large home. These loans are valued
over $275,000 and are used to purchase land and a home. More collateral will be
needed in order to qualify for one of these loans. The interest rates are
comparable to fixed and adjustable rate mortgages, and have the same payment terms.
Now that you know about the types of mortgages that are
available, you should be thinking about which lender to use. With so many
lenders out there, it may be difficult to sort through all of them and find the
right one. Doing a little homework will help you get the lowest interest rate
possible.
Where To Find A Lender
These days there are many places to find a mortgage lender, such as:
§ Newspaper advertisements
§ Television advertisements
§ Family or friends
§ Your Current lender
§ Your Current
bank, or
§ Online
As you can see, finding a lender should not be too
difficult. You may have to contact several lenders before you find a lender
that will give you a loan that meets your needs. When you apply for a home
mortgage loan, the lender will check the following:
§ Your credit score
§ Your credit history
§ Your current income
§ Income of co-signer
§ References
(professional and personal)
§ Current interest
rates based on the amount you are asking for
§ Status of other
loans you may have
§ Number of years
you have been eligible to work, and
§ Number of years
you have had credit
There are many factors that will go into your approval
or denial of a home loan. You will have to be patient. You should contact a few
lenders to see which ones will give you the best deal. Once the offers have
been received, you will have to make some important decisions.
You should feel free to contact your lender at any time
during the home buying process with questions and concerns you may have. Other
important information the lender will need before granting you a loan include:
§ The home
inspection report
§ The termite
inspection report, and
§ The home appraisal
These reports are very important to a lender because
they will tell the lender how much the home is actually worth and the types of
damage that have lowered the overall value of the property. Lenders expect
homeowners to remain in the home for at least five years. This will allow them
to make a profit on the money they have loaned you. It is not worth it to them
if you have to sell the home shortly after buying it because there is too much
damage and you can no longer live there.
Applying For A Home Loan
When applying for a home loan, you will have to bring
the information listed above to the lenders office, or if applying online,
supply copies that are faxed to the lender. You will be asked additional
questions that will help lenders determine if you are able to pay the loan back
on time. These questions include:
§ Number of years
renting a home or apartment
§ Late payments on
credit cards and other loans
§ Active loans
(such as student loans or car loans)
§ Number of years
at your current job
§ Additional income
§ Amount of the
loan and number of years to pay it back
§ Number of years
living in an area
§ Dependants that
are living at your home
§ Tax returns and
bank statements
Applying for a loan can take a week or more. This is
because background checks, credit checks, and references must be checked first
before the loan will be processed.
In the meantime, you should be concentrating on
gathering your paperwork, calling friends and family that you want to use as
references, and sorting through your papers in case you cannot find everything
the lender requests.
If you do not have your back tax returns, you can
contact the IRS and request them by year. Many times, lenders will need to see
returns from at least three years ago. Bank statements and bill statements from
the past year should be enough to secure a loan.
If you are turned down for a home loan, you will be
notified as to the reasons why. This can be devastating, but you should find
other lenders and try to apply again. If you have poor credit, you may need to
go through a lender that specializes in granting loans to those with poor
credit. You may have to pay a higher interest rate, but at least you will be
granted a loan.
Reasons for possible denial include:
§ Poor credit or
not enough credit
§ Length of time at
your job is too short
§ Income level for
the amount of loan requested
§ Loan default
§ Failure to pay
rent or other bills, or
§ Too much credit
Applying for a home loan can be stressful, but if you
have good credit, steady employment, and enough income, you should have little
trouble qualifying for a loan.
What Not To Do When Applying
For A Home Loan
There are a few
things you should not do after applying for a home loan:
§ Buy a new car
§ Begin a new job
§ Buy new furniture
and other large items using your credit cards
§ Apply for a
credit card, or
§ Default on
student loans or other loans
All of these actions will cause your credit score to change which
will give lenders an inaccurate view of your spending habits and your overall
credit score. If you
take a job that pays less than you noted on your home
loan application, your lender may not agree to grant you the loan.
If possible, do not begin a new job until you have moved
into your home. Try not to spend money on credit cards. Buy furniture and other
items using cash, or wait until you have signed the final contract and are a
homeowner.
Increase
Your Chances For Approval
There are a few ways to increase your chances for loan approval that
will also help you determine what you will be able to afford each month:
§
Pre-approval
Many experts agree that applying for a loan before you
find a home and being pre-approved will help you create a budget, buy a home
that is in your price range, and help lenders make their decisions faster.
§
Ask for only the amount you
will need
One way to increase your chances for a home loan is to
not ask for more than you will qualify for. This means you will have to look at
your income level, the amount of debt you have, and the expected monthly
mortgage payment. You should also factor in cost of living expenses, because
your lender will. Apply for the amount you will need and nothing more.
§
Pay off credit cards
If you are thinking about buying a home in the next few
years, you should prepare by paying off those credit cards and only using them
for emergencies. Do not cancel your existing cards since this may actually
lower your credit score. By showing you have a zero balance on your credit
cards, you will be showing lenders that you know how to use credit wisely and
you have been paying your cards off on time.
§
Always pay bills on time
This includes your electric bill, rent, student loans,
and other bills that you may have to pay each month. By creating a track record
that can be traced, you will be showing lenders that you are a responsible
person who deserves to have a home loan.
How Home Appraisals
Can Affect Your Home Loan
Unfortunately, a home appraisal can affect the status of
your loan. If the home appraisal comes under the selling price of the home,
most lenders will not grant the loan. This can be heartbreaking, but there are
a few solutions that may work depending on the rules of the lender. The following
options are available:
The Homeowner Reduces The Selling Price
Depending on the appraised value in comparison to the
asking price, some homeowners will be willing to lower the price of the home if
they need to sell quickly.
You should not count on this happening since many
homeowners want to receive the price they are asking for. You may have no
choice but to find another home.
A Higher Down Payment
Some lenders will grant you the loan if you agree to pay
a larger down payment on the home and assume the financial risk. This is only
an option if you can afford to pay a larger down payment. Do not risk your
financial security in these cases; it is just not worth it.
Dispute
The Appraisal
You can send a letter to your lender disputing the
appraisal or have another appraiser determine the value of the home. You will
have to pay for this second appraisal, which may or may not yield the same
results. There is no guarantee that your lender will accept the second
appraisal.
Find Another Lender
This is a last resort move because it will postpone the
closing for another month or so and there no guarantee that the lender will
accept the appraisal.
Since home appraisals are required by most lenders, you
should find out during the loan application process the policies that the
lender has when dealing with appraisals. If your lender will not accept a lower
selling price, you putting a larger down payment, or other solutions to a low
appraisal, you should consider finding another lender just in case there are
any problems down the road.
Home appraisals are based on the current value of homes
in the neighborhood, homes that are comparable in size, the housing market, and
the age of the home. While you can expect to hear different numbers from
different appraisers, you will see that these numbers will usually not be too
far off.
The only real benefit of a low home appraisal is that it
will tell the homeowners to list the home for less money so that they will be
able to sell it. In the meantime, you will have to find another home.
How Home Inspections Can
Affect Your Home Loan
While a poor home inspection will usually not deter a
lender from granting a home loan, you should be aware that some lenders will
not grant a loan if there is termite damage or structural damage to the home
due to water or age.
This will also lower the overall appraisal of the home,
which could be another issue that lenders may have when deciding to approve a
home loan.
If the home inspection is not favorable, ask your lender
what will need to be done in order to rectify the problem. Many times removing the
termites and correcting the water damage is all that will be needed. Many times
homeowners will foot the bill for these types of repairs.
Additional Fees For Home
Loans
You may notice that you will have to pay small fees
throughout your home buying experience. It seems that every piece of paper you
sign, file, or request will cost you some money. Here is a list of fees that
you may be charged:
§ Credit report fee
§ Loan discount fee
§ Lender’s
inspection fee
§ Appraisal fee
§ Loan origination fee
§ Mortgage
insurance application fee
§ Assumption fee
§ Hazard insurance
§ Title search, and
§ Title insurance
These fees can add up, so you will want to be prepared
and have a little extra in savings for when these fees come up. Some of these
fees can be put off until the closing, but you should be planning for them in
advance.
Good Faith Estimates
Many lenders have turned to good faith estimates that
are supposed to help you afford your new home. Many of the above mentioned fees
may be added up and paid at the closing.
When looking for a lender, you should compare good faith
estimates to see which lender is the lowest, which are the highest, and which
are in the middle. All too often these estimates are too low. Some lenders will
do this on purpose in order to get you to take out the loan. By comparing
estimates, you will be able to get a better idea of which lenders are honest
and which is not.
As a rule, you should expect to pay between three and
five percent of your loan in closing costs. A good faith estimate will give you
an idea of the final cost, but you should keep track of what everything costs
and try to have extra money set aside just in case.
Escrow And Other Loans Terms
As you are going through the home loan process, you will
run across a few terms that you will not understand. You should ask your lender
to explain these terms so that you will fully understand the type of loan you
are applying for, the lenders policies, and other information that will be
important throughout the life of the loan. Here are some common terms you may encounter:
§
Escrow
While this term can mean different things in different
situations, you will see it often when closing on a home. If you place a down
payment on a home, it will be in escrow until all the paperwork has been
signed. The money is held by a neutral third party, such as another bank or
escrow service, and will be distributed once the deal is over. You can ask your
real estate agent about escrow services in your area.
§
Mortgage
Even though you have heard of a mortgage before, you
probably thought of it as the home loan you will be paying once you move into
your new home. Technically, a mortgage is a lien on your home created by your lender.
If you cannot make payments on your home, the lender will have the right to
sell the property in order to gain the money that they have lost.
§
Foreclosure
This is a term that refers to homes whose owners could
not make payments each month. Once a lender has decided to sell the home, it
will be in foreclosure. You should find out ways to work with your lender in
case you miss a mortgage payment at any time. Having this knowledge in advance
will make financial emergencies easier to deal
with.
§ Mortgage Broker
A mortgage broker is a person who does not work for a
bank, but rather works on commission to match homebuyers with many lenders that
may not be in your area. If you have poor credit, you may want to secure a home
loan through a mortgage broker because you will have a better chance than going
through a bank that only has one lender to choose from
– themselves.
§
Points
This refers to the interest rate on your loan. If you
choose an adjustable rate loan, for example, your points may be capped each
year so that they cannot exceed a certain number.
§
Down Payment
A down payment is helpful in several ways. It will lower
the amount of money you will need for a home loan, it will allow lenders to see
that you are responsible for paying off a mortgage, and it will move the home
buying process faster. Most first time homeowners will put down no more than
20% for a down payment.
You do not want to overextend yourself by putting a huge
down payment on a home because you may not have enough money to pay your
mortgage, afford new furniture, or make home repairs.
§
Debt to Income Ratio
This is one way that lenders will sue to determine if
you can afford your monthly mortgage payments on your current income. The
lender will subtract all your reoccurring debt to determine how much is left
for a mortgage payment.
This is why not buying a car or spending money on your
credit cards is so important when buying a home. The less debt you have will
mean more available money for your mortgage payment.
§
Private Mortgage Insurance
If you cannot afford to put down more than 5% on a home,
you may not be approved for a loan. But if you purchase private mortgage
insurance, your lender may agree to give you the loan. This extra insurance
will protect the lender in case you default on the loan by paying them at least
15% of the total loan value. This will cost you a little extra each month, but
it may be worth it.
§
Credit Report
Before you apply for a home loan, you should obtain
copies of your credit report so that you can check for errors; see how much
money you owe on credit cards and loans, and to see what your credit score is.
This is another way that lenders will determine if you will receive a loan.
There are three credit reports that you should obtain,
because you will not know which one the lender will base their decisions on.
While the numbers from these credit reports should not vary too much, if you
see any major discrepancies, you should contact the agency and have the mistake
corrected. You are entitled to one free credit report per year by contacting
the IRS for more information.
Chapter 6 - Making A Realistic Offer
(Return to Contents)
By this point, you should have found a real estate
agent, contacted a few lenders, and seen a few homes. If you have not made up
your mind on a home yet, you should take your time and keep looking. But keep
in mind that if you wait too long, you may end up in a bidding war with another
buyer.
Making an offer on a home is a huge step. You will be
taking on the responsibility of a mortgage, repairs, lawn care, and other
chores that homeowners sometimes gripe too much about. While you should be
cautious, you should also make a bid on a home that you really like within a
week after seeing it. This will put your mind at ease so that you can think of
all the other items you will have to get done before the closing.
What To Do Before Making An
Offer
Before you make
an offer on a home, you should do the following:
§ Attend open houses
§ Find out more
about a property
§ Find out about
taxes in the area, and
§ Have an appraisal
done before making an offer
These suggestions will help you make the most informed decision
possible when it comes to buying your first home.
Attend Open Houses
Attend as many open houses as you can in homes that are
in the area where you want to live. This will give you the opportunity to see
what is out there, the going price of homes in the area, and also give you a
basis of comparison when looking at other homes.
Open houses are fun because you will be able to look
into every area of the home without having to worry about the homeowners and
real estate agents following you around. Many times, you may even find your new
home this way.
Almost every weekend in most neighborhoods, there will
be an open house. Stop by and see for yourself what the homes in the area look
like and what you can get for your budget.
Find Out More About A
Property
If you find a home that you might want to buy, you
should find out everything you can about the property first before making an
offer. Visit the county clerk’s office or land records office to see how much
the current homeowners paid for their land and the value of their property.
This will give you an idea of how much you should offer for the home. If the
home is in an area that has seen better days, then you can make an offer that
is less because when you sell the property some day, you may have to lower your
price as well.
Find Out More About Taxes In
The Area
As a homeowner, you will be paying yearly property taxes, local
taxes, school taxes, community dues, and other taxes that could drive your
household spending
through the roof. Before you commit to living in a
certain area, make sure you understand everything you will be paying each year.
Your real estate agent should have the neighborhood
information that will help you decide where you want to move. You can also
visit your local tax office and see how much the current homeowners paid in
taxes last year.
When you visit a lender, you will have to figure in your
taxes as household expenses. This will be deducted from you income, which will
leave you with less each month to pay your mortgage. Just because you may have
found a home that is within your budget, you may not be able to afford the taxes
that come with it.
Have An Appraisal Done Before
Making An Offer
Most first time home buyers do not have an appraisal
done until their lender asks them for one. But you are well within your rights
to ask for a home appraisal before making an offer. You will not have to share
the findings with anyone until your lender asks to see the appraisal.
Even though this may stall the home buying process, you
may want to have an appraisal done, especially if the home is older and in a
neighborhood that has homes that are of different values. This could save you
from making a mistake later on.
How To Write A Purchase Offer
This is the most important step when making an offer to
buy your first home. The purchase offer should outline everything you expect
from the homeowner and what they can expect from you. You should include the
following in your offer:
§ price being
offered
§ amount of deposit
on the home
§ amount of money
you will be putting down on the home
§ mortgage terms
§ Contingencies
(such as appliances that will stay repairs that will need to be made, removal
of items in the yard, etc.)
§ when closing will
take place
§ specify who will
pay which fees
§ any reports that
will be needed, and
Each of these categories should be explained in its own
paragraph. You should try to be as specific as possible when writing up a
purchasing offer. Each state has its own laws concerning contingency, amount of
time a buyer has to respond to the offer, and fees that are to be paid. Be
aware of these laws before sending your offer or you may end up with a counter
offer or a rejection.
Have a lawyer or your real estate agent look over the
purchase offer before sending it. They may have some advice or additional
categories you should add depending on the age of the home, the neighborhood,
and the laws that exist. If you make an offer that is reasonable, well written,
and hard to break, then you will be on your way to buying a home.
Making An Offer
After completing your research, you will be ready to
make an offer on your first home. You will have to visit your real estate agent
to sign a formal agreement that will outline your offer and for how long you
will be making this offer. Most agreements will give sellers three days to a
week to consider the offer.
In this time, the offer may be accepted, rejected, or a
counter offer will be made. You will have to decide what you will want to do
next if the offer is rejected or
another offer is made. If the offer is accepted, then
you will have to contact your lender, a home inspector, and make arrangements
for your move.
Most homes will go to closing within a month after an
offer has been accepted. This may seem like a long time, but it is not. You
will have plenty to do in the meantime.
Low Or High Offers
Hopefully, by researching the neighborhood, the
property, and the value of the home, you will be able to come as close to the
seller’s price as possible. Sometimes, though, this is not possible. There may
be circumstances that may prohibit you from making an offer that is close to
the selling price.
Low Offers
Low offers are usually the result of the selling price
being too high, ignorance of the buyer, or the buyer not having enough money to
pay that asking price. Whatever the reasons, you should be careful when giving
a low offer to a homeowner.
If you have specific reasons for offering a lower price,
they should be mentioned in the offer so that the homeowner has a better
understanding of how you came to the price offered. In some cases, the seller
may offer a counteroffer, which you can either accept or reject. But if the
homeowner feels insulted by the lower offer, they may just reject the offer and
move on to another.
High Offers
The only time you should make an offer that is higher than the
asking price is if other offers have been made. While this could be the
beginning of a bidding war,
if you offer just a little more than the highest bid,
you may win. You should only do this if the property is worth it and you will
be living in it for a long time.
If you make an offer that is high, then you will not
leave any room for negotiation. Depending on the homeowner’s circumstances,
they may have been willing to go a little lower in order to sell the home. But
since you made an offer that was higher than the asking price, you will end up
paying more than you should have.
Many times, first time home owners make the mistake of
wanting a home so badly that they are willing to pay a few thousand more than
the home is worth. This is money that could be used for a down payment.
Making The Right Offer
The closer you can come to the asking price, the better
off you will be. Once the home inspection is complete, the homeowners may have
to come down in price anyway because of the repairs they will have to make.
Making the right decisions when buying a home are not
always made quickly. You should play by the rules and just see what happens. If
you get into a bidding war and cannot bid any higher, then it is best to let
the home go and find another. You should not be a slave to your first home by
buying one that is over your budget. There are many homes available if you keep
looking.
How To Handle A Counter Offer
And Offer Rejection
Sometimes, if you give homeowners an offer that is lower
than their asking price, they may offer a counter offer. This is usually an
offer that is more than your offer, but a little less than the asking price.
Counter Offer
Depending on where you live, the laws pertaining to
counter offers will vary. Typically, the number of counter offers is limitless,
but no counter offer can be the same. While counter offers are usually
concerning money, these offers may also contain the following:
§ Ownership of appliances
§ Repairs
§ Time frames for
closing, and
§ Time frames for
counter offers
Buyers and sellers may only have hours to accept,
reject, or offer another counter offer after receiving one. This can be a very
stressful process, especially if you are dealing with a seller that has other
offers on the table. While most homeowners will reject an offer if it is too
low or they have received another, some will try to get the most they can from
the sale which can include the smallest items in the home.
If you are determined to buy a home, but still want a
lower price after the buyer has reacted with a counter offer, you can try to
find a price that will suit everyone’s needs. If you are making a counter offer
that does not make that much of a difference, you should weigh the odds that
another offer has been made, the homeowner will reject your offer, and that
time is ticking for everyone.
Try your best to accept the counter offer before making
one of your own. Is it really worth losing your dream home over one or two
thousand dollars?
Dealing With Rejection
The hardest part about an offer rejection is that the homeowner does
not have to answer your offer. If you do not hear from the homeowner within a
week, it is
safe to assume they are not interested in your bid.
While this can be frustrating, you will have to move on. Begin your house
hunting again and try to stay positive.
If the homeowner gives you a response in the form of a
rejection, they may site the reason why in the paperwork. If your offer was too
low, they had another offer, decided not to sell, or want to wait for a higher
offer, at least you can move on without wondering why your bid was rejected.
Considering
Items In The Home
When you are writing your purchase offer, you should
consider the items that you would like to keep and items you would like to have
removed from the home. These items can include:
§ Certain
appliances (such as the washer and dryer)
§ Lighting fixtures
§ Storage fixtures
§ Single air
conditioning units that fit into windows
§ Hardware from
windows and doors, or
§ Pools
You should put these items in writing so that you will
get them with the home. Some homeowners may try taking certain items with them
either because they didn’t know that you wanted them or because they were not
supposed to be sold with the home to begin with. Be sure to obtain a list of
items the homeowner is selling with the home so that you can compare it to your
list.
This can also work in reverse. If there are items that
you would like removed from the home or the property before you move in, you should
specify these in the offer. These items can include:
§ Old patio furniture
§ Mechanical equipment
§ Old appliances, and
§ Light fixtures
By putting all of these items in writing, you will be
helping to move the buying process along. While the homeowners may not agree
with everything that you may want to keep, it will be up to them if they want
to continue the process. Having everything in writing will leave people with no
surprises during the closing.
Understanding
The Seller
One of the key elements of making a solid offer is
having an understanding of the seller. Your real estate agent will be able to
tell you a little about the seller that may help when trying to come up with a
fair offer.
When deciding on an offer for the home, you should find
out the following about the seller:
§ How eager are
they to sell their home?
§ How long have
they lived in the home?
§ How many offers
have they received?
§ How many have
they turned down?
§ Have they lowered
their asking price?
§ Are they
relocating to another area?
§ Do they need to
sell their home quickly?
§ Are they waiting
for their asking price?
These questions, although you may not know the answer to
some of them, will help you make an offer that will be looked at by homeowners
and taken seriously. Sometimes when a homeowner needs to leave the area in a
certain amount of
time they will lower their asking price. This could be
an advantage for you, but if the homeowners have already lowered the price,
they may not want to lower it any further.
Make a reasonable offer and see what happens. Depending
on the circumstances, it may be accepted.
What To Do In A Buyer’s
Market
In a buyer’s market, you will have more choices when it
comes to the types of homes you can purchase. Depending on how long the market
favors the buyer, you will also have the luxury of taking your time because
bidding wars are much less. When buying your first home, you should check out
all your options. That home you couldn’t afford a few years ago may be in your
price range today.
When looking for a home in a buyer’s market, you should do the following:
§ Stay current with
the listings in your area
§ Sign up for free
email listings and newsletters
§ Check out homes
that have recently been reduced
§ When making an
offer, ask for closing fees to be paid for by the seller
§ See if there are
other offers, such as appliances that come with the home
§ Ask for certain
allowances (carpeting, roofing, siding, ect.)
§ Do not be afraid
to offer a lower price, and
§ Ask for a shorter
response time
In a buyer’s market, homeowners may offer these options
to you as incentive to buy their homes. They may also offer warranties on appliances
that you should take advantage of.
There are dangers that you should consider when buying
in a buyer’s market, however.
§ If
you are not planning on living in the home for more than three years, you may
want to wait until the market changes or plan to live in the home longer. Many
times, market trends can last for a few years. If you need to move after a year
or so, you may have difficulty finding a buyer and you may have to sell the
home for less than what you paid for it.
§ While
most homeowners stay in their homes for at least two years in order to save
money in taxes, marketing trends have been known to last longer. You should be
prepared for this when buying your first home.
§ Make
sure a thorough home inspection has been completed before buying the home. If
you decide you cannot live there after you have bought the property, you may
have difficulty selling it and you will have to spend more money making repairs.
Even though you cannot predict how the market will
change, you should consider a home that you can afford, that you will want to
live in for a long time, and one that can be improved upon while you own it.
What To Do In A Sellers
Market
In a sellers market, you will have to play the game
slightly different than you would in a buyer’s market. In this type of market,
there are many buyers who will want to buy homes that are attractive and priced
within their budget. Homeowners will have their pick of offers to choose from
so your offer will have to stand out in more than just price.
When looking for a home in a seller’s market, you should:
§ Make an offer
that is close to the asking price or slightly
over
§ Send a
pre-qualification letter from your lender with the offer
§ Choose a closing
date that is sooner rather than later
§ Do not ask for
too many contingencies
§ Send a personal letter
§ Promise more of a
down payment, and
§ Use a real estate
agent that gets things done quickly
In a seller’s market, you may also want to think about
the dangers of buying a home. If you make an offer that is too high and you
find out later on that the mortgage payments will be a struggle, you may have
to sell. Depending on changes in the market, this may be more difficult than
when you were looking for a home.
Buying your first home during this time may also be
difficult because you will not be able to put much down, you may only qualify
for a certain amount of money which may not be enough to compete during a
bidding war, and you may be out bid by those who have more experience than you
do.
When you decide to buy a home, you should be looking at
your finance situation, the market, and the asking price for the homes you are
interested in making an offer on. If you can wait a few months to see where the
market is headed, then maybe this is the best way to save more money and find a
home that is affordable. This is a waiting game that no one wants to play, but
may be necessary, especially if this is your first home purchase.
Seller’s markets and buyer’s markets have their
advantages and disadvantages, but in the end, the offer that you make will
determine whether your offer will be accepted.
Chapter 7 - Contracts, Home Warranties, and the Closing
(Return to Contents)
Drawing up contracts, having the final walkthrough, and
going to the closing are the last steps you will have to take when buying your
first home. This is the time when having a real estate agent you can trust, and
a little knowledge of home buying comes in handy.
But what about all of those other miscellaneous fees
that will come up before and during the closing? You should be aware of
additional fees when you apply for a loan and when you are closing on your new
home.
Contracts
Your purchase offer was the first contract you will be
involved in when you want to buy a home. You should refer to this contract
during the closing period to make sure that your rights are covered and that
you are getting everything you pay for.
By writing a solid purchase offer that outlines what you
want from the homeowners, you will be protected in case of disagreements and
other issues before closing. But a purchase offer is just one of many pieces of
paper you will
have to see and sign before you can move into your home. Other
contracts include:
§ Contingencies
§ Builder contracts
§ Mortgage
contracts, and
§ Closing agreements
These contracts may vary in length depending on the forms being used
and the information that will have to be included.
Contingencies
Real estate contingencies can be added onto an existing
contract or can be created as a separate contract depending on what you would
like to include in the purchase offer. Contingencies can include a wide range
of items, including:
§ Home inspections
and pest inspections
§ Home appraisals
§ Financing
§ Septic system tests
§ Appliances that
will stay in the home, and
§ Property surveys
Contingencies can make or break a sale, so you should be
sure to use the correct forms when filing contingencies and to word them
correctly.
You will need to include a resolution for repairs that
may need to be done before you can move into the home. If it is agreed upon in
writing that the homeowners will take care of all or some repairs that may be
found during a home inspection, this will save time later on.
You should also include ways to get out of the deal that
include loan denial, repairs that cannot be fixed, and lead, mold, or radon
that is found in the home. Having a way out of the contract will save you money
and time.
If you are buying a home that is for sale by owner, you
should find an attorney or real estate agent that is willing to help you create
a contingency list and edit it where necessary. Do not rely on the seller’s
agent because they are after their client’s best interests and not yours.
Builder Contracts
If you are buying a new home from a builder, you will
have to sign a builder’s contract that states you have the financial means to
pay for a new home, that you have decided on a location for your new home, and
that you are ready to build.
You should hire an attorney at this point to go over the
contract to see if there are any problems that will have to be ironed out
before you begin building the home.
Mortgage Contracts
In order to complete your home buying, you will have to
be approved for a mortgage by a lender and you will have to sign a contract in
which you agree to an interest rate, monthly payment schedule, rate plan, down
payment, and other fees.
These contracts are standard loan contracts that will
explain the consequences of not paying your mortgage. You should read this
paperwork carefully before signing anything.
Closing Agreements
These are the final contracts you will have to sign
before you get the keys to your new home. You should read this paperwork
carefully and be prepared to pay any closing costs at this time.
Home
Warranties
If you are buying an older home, you may want to
purchase a home warranty that will cover repairs that will have to be made
during your first year of ownership.
While a home inspection will catch any immediate
repairs, no one can foresee an oven falling apart or a dryer burning out. Since
you may not have a lot of extra money left over after paying for closing costs,
down payment, and mortgage payments, having extra insurance will allow you to
make the repairs you will need.
Most policies will cost between three-hundred and
five-hundred dollars. Coverage will begin the day of your closing and will last
for a year. You will have the option of renewing the policy if you would like
at that time. If you need to have an appliance repaired, you may have to pay
small co-pay at the time of the repair.
Not all policies are the same, so you should do your
research to find the best deal. Compare the types of repairs that are covered
under the policies and choose the one that fits your home.
Closing
When you finally
arrive at the closing, you should expect to:
§ Sign contracts
§ Do a final walkthrough
§ Pay closing
costs, and
§ Get your keys
The closing can take an hour or two, but usually moves
quickly because there is little left to do. At the closing you will probably
meet the homeowners. This could be the first time you will meet them. This is a
good time to ask if there is anything
about the home you will need to know.
Sign
Contracts
When you sign the contracts, read them carefully to make
sure that everything that has been discussed is in the contract. Ask questions
that you may have at this time.
Final Walk Through
The final walkthrough of the home will take place before
or during the closing. This is the final chance for you to see the home before
it becomes yours. Make sure the items on your contingency are in place so that
you can sign the contracts.
Paying Closing Costs
Typically, the buyer will have to pay the closing costs
associated with buying a home. But in a buyer’s market, you may be able to add
a contingency that states the seller will be responsible for all costs. This
may appeal to sellers who want to sell their home quickly.
When deciding who should pay the closing costs, you
should research laws that may be in place that dictate who pays for what. Many
times, buyers and sellers
will agree to split all costs including closing, home
inspection, pest inspection, and home appraisal costs. You will have to
negotiate with the sellers to see which you will be responsible for.
Get Your Keys
After signing the contracts, you will receive the keys to your new
home. This is an exciting feeling and one that will be with you for a long
time.
Conclusion
When it comes to purchasing a home you will find that it
takes along time. You will have at least seven homes shown to you before you
make the decision to buy. There are some realtors who will show you that many
in a day. How many homes that you see are completely up to you and how good
your realtor is?
The realtor will ask you some basic questions about
price and features, but a good realtor will find you a house within three
shows. Why? Because everyone knows that a good realtor will be able to match a
home with the couple's personality. When you go with your realtor to purchase a
home you should plenty of rest the day before and you need to eat a hearty meal
because you don't want to quit early in the day because you don't feel well.
Also, you need to make sure that you are at your best so
that you can make the best decision for you and your family. Buying a home is
very big deal.
At last, you will want to make sure that everything goes
according to plan so that you can have a smooth adjustment into owning a home.
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