Home Buying Guide from Showrates an easy way to familiarize yourself with the steps to buying a home.
1. Ready to Buy a Home? How Much Home Can You Afford?
2. Shop for a Mortgage Loan, Before You Start House Hunting
3. Finding the Right Real-Estate Professional
4. What are You Looking for in Your New Home?
5. You’re Ready to Start House Hunting!
6. You Found a Home and Are Ready to Submit an Offer!
7. How Do You Determine Your Offer Price?
8. Negotiating and Counteroffers
9. The Steps to Closing Your Home Purchase
10. Home Closing and Getting the Keys to Your New Home
Determine how much home you can afford. Use our Mortgage Rate Calculator to estimate your home price range!
When you’re ready to get serious about buying a house, you will need to figure out how much house you can afford. Remember that in addition to your mortgage and home maintenance, home ownership also includes the additional costs of home property taxes and homeowners insurance. If your down payment is less than 20% you will also probably have to add Private Mortgage Insurance (PMI).
Many lenders prefer that your housing costs -- mortgage, property taxes and homeowners insurance -- amount to no more than 33% of your monthly gross income. Before you start the house-hunting process and fall in love with a house you can't really afford, it's smart to first speak with a reputable mortgage lender to determine exactly how much house you can afford and what it will cost you.
Knowing what kind of mortgage programs and offers are available to you can be confusing and overwhelming. You will want to consult with a reputable mortgage broker. By submitting Showrates’s simple online form you can connect with multiple Mortgage lenders who will get in touch with you to discuss your options.• Check Your Credit History
Make sure your finances are in order before you start house hunting. Get copies of your credit report a few months ahead and correct any errors you discover. (Be prepared to explain any past credit problems with your loan officer.)
The usual rule of thumb is that you
can purchase a home that is about two-and-one-half times your annual
Get a better understanding of your debt to income ratio and what you may be able to afford by using our
Mortgage Rate Calculator
In most cases, you will need to come up with a down payment of 10-20% of your estimated purchase price before you start home shopping. If you qualify, there are lenders who offer mortgages that require a down payment as small as 3%, as well as lenders that will work with buyers with less than perfect credit, but these type of mortgage loans are usually at a much higher interest rate. If your down payment is less than 20% you will also have to add Private Mortgage Insurance (PMI). To secure the best interest rate, plan to have a minimum of 20% of the sales price to put down. Of course the more you put down, the lower your monthly mortgage payment.
What Is PMI?
Private Mortgage Insurance - PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.
You're much better off getting pre-approved or pre-qualified for a mortgage loan prior to starting your house hunting so you can know more precisely how much home you can afford.
Showrates’s Mortgage Rate Calculator is a helpful tool for estimating your home price range.
Getting a pre-approved mortgage loan will you save you from wasting valuable time looking at houses you can't afford and put you in a better position to make a serious purchase offer when you do find the right house. Many home sellers will accept your offer over another if you are pre-approved and the other party is not.
What are the differences between mortgage pre-qualification, pre-approval and final loan approval?
Pre-Qualified - The mortgage lender will look at a basic copy of your credit report and give you unofficial estimate of the home you can afford based on your income. No credit accounts or employment information is verified.
Pre-Approved - The mortgage lender verifies all credit and employment information, considers your debt-to-income ratio, and determines what specific home mortgage amount is approved for you. Pre-approval is much closer to the actual Final Loan which is subject to the appraisal of the property you have chosen to buy.
Final Loan Approval – Final loan approval and funding takes place after the property has been appraised, all documentation is in the hands of the mortgage lender, and all contingencies have been met.Connect with multiple Mortgage lenders and find the right one to assist you with your mortgage financing options, by simply filling out Showrates’s quick and easy online form.
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You can go it alone but you are much better off using a professional real estate agent for your house hunt. Get a family or friend referral or check newspapers and real estate web sites to see which real estate agents are actively marketing homes.
A real estate agent is paid a commission based on the selling price of the house and is primarily working for the seller, even if they are not the listing agent. You may want to consider working with a buyer’s agent. As the title implies a buyer’s agent is a real estate agent that primarily represents your interests during the house hunting and bidding process. Working with a Buyer’s Agent, you will also have the opportunity to view homes that are For Sale By Owner (FSBO).
According to the National Association of Exclusive Buyer Agents there are different types of buyer's agents:
Exclusive Buyer Agent (EBA): This agent works for an office that does not take home listings of any kind and represents only home buyers.
Single Agency Buyer Agent (SA): This agent works for an office that takes home listings, represents home buyers and home sellers, but will represent only one client in any real estate transaction.
Buyer Agent (BA): This agent works in a traditional real estate office that takes home listings. The agent will work with a home buyer under contract. If a buyer wishes to purchase a property that is listed by their office, they will declare "dual agency" and represent both the home seller and the home buyer.top of page
When you’re ready to buy a home, it’s important to determine what you are looking for in your new home. Do you want a single-family home? Or is your preference a Condo, Townhome, or Cooperative? How many bedrooms? How many bathrooms? Is a good school district important? Or being close to public transportation? Hardwood floors or a fireplace? Maybe you really want your new house to have a large fenced yard or a pool.
Make a list of the things you absolutely need in your new home, and a list of what you want. Pick a few neighborhoods that meet your housing requirements and discuss your home buying options with your real estate professional. To make your home search as efficient as possible, it’s important that your real estate agent has a good idea of what you want.
What's the difference between a Condo and Co-Op?
Condo: In a condo, each owner has absolute ownership of their own unit, which may be an apartment or townhouse. In addition to a home mortgage, a condo owner pays a monthly maintenance fee to maintain shared areas like the lobby, the pool, or the laundry room. Condo owners’ monthly fees are subject to change and in the event the property incurs a major problem such as a roof that needs repair, the condo board can assess additional fees to cover these type of repairs.
Co-Op: Co-ops are mainly found in major metropolitan areas, such as New York City. Basically, the property is a corporation and each co-op owner is a shareholder. The co-op owner is a partner in the building corporation, not an absolute owner of a specific unit within the building. Monthly maintenance fees are generally higher at co-ops than those of a condo because they include property taxes. An important consideration to being a co-op owner is that the co-op board usually has to approve new owners and may not allow you to rent out your unit if you move out without selling.top of page
You’ve found your real estate professional, decided what kind of home you’re looking for, and gotten pre-approved for your mortgage loan – you’re ready to start house hunting! Your real estate agent will search the Multiple Listing Service (MLS) and make a list of the homes that meet your home search criteria.
It’s not uncommon for home buyers to spend weeks looking at homes, trying to narrow down the neighborhood that is the right fit for them. On average a home buyer will look at 15 homes before deciding on their ideal home. In addition to working with your real estate agent you can look at a lot of houses, condos, townhomes, and cooperatives… right from home on the Internet.
When you find a house you really like, it's a good idea to look at the house multiple times, and at different times of the day, to get a better feel for the neighborhood and hopefully get an opportunity to observe the routine daily sights and sounds of the area.
What is a MLS? (Multiple Listing Service)
A listing of all the homes currently for sale in a given geographical area, generated by Real Estate Brokerages
When you have found a house you like and are ready to buy, you will draft an Offer to Purchase with your real estate agent. (If you have a real estate attorney draft the purchase contract instead, you will still need your agent’s help to gather all the necessary information.) Your offer to buy the home could easily become a legally binding contract if the seller accepts it. So in addition to your offering price, you will need to make sure the offer includes all of the contingencies, concessions, and other details you want it to cover. The document will also specify the date and time after which the offer expires.
Purchase offers are known by different names in different parts of the country, including:• Purchase agreement
• Offer to purchase and contract
• Deposit receipt
• Earnest money agreement
Submitting an Offer to Purchase Your Selected Home
Examples of what should be included in your Offer to Purchase:
• Your Offered Purchase Price
• Earnest Money or The Amount of your good-faith deposit
Earnest Money - Money that is submitted with an offer to purchase, usually 1 percent to 10 percent of the purchase price, which indicates a buyer's seriousness and good faith. The money is deposited into an escrow account and remains in escrow until the time of closing, at which time it becomes part of the down payment. If you or the home fails any of the contingency clauses, this money will be returned to you.• Financing contingencies: Perhaps the most essential contingency clause for most buyers is the financial contingency clause. Your offer will be considered much more viable by the seller with a preapproved mortgage loan. If you haven’t already gotten preapproved for a mortgage loan, it’s in this clause that you state that the offer is conditional upon you getting the type of mortgage loan and terms that you want.
• Closing Date: You will need time to finalize your home loan funding. The average loan processing times are between 21 and 45 days. Your projected Closing date should be coordinated with your mortgage lender.
Home inspection contingencies: Since the home inspection often takes place after an offer is accepted, you will want to state that the entire purchase is contingent upon the home inspection report.
• Items included in the purchase: There may be items or specific features of the house that you would like to see included with you home purchase such as major appliances, lighting fixtures, potted plants, include that list.
• Title contingencies: The offer is contingent upon a Title Search to make sure the property does not have any other legal claims against it and that the seller holds a clear title to it.
• Time Deadline: The amount of time given to the seller to respond to your offer. A typical expiration time frame is one or two days.
• Review Contingency: You can include a clause specifying that the offer is contingent upon review and approval of your real estate attorney or even subject to the approval of a home purchasing partner who has not seen the house in person.
After you have submitted your Offer to Purchase, the home seller will respond in one of three ways:
2. A counter-bid (giving you a number somewhere between your offer and the asking price),
3. A rejection by sticking to their original asking price.top of page
To determine your Offer Price you will be evaluating the asking price with your real estate agent. Ask your agent to provide a CMA report, a Comparative Market Analysis to determine how the house and the asking price compare to the sales of similar type homes, in the same condition, in the same neighborhood, within the last 3 months.
Factors to consider as you determine your offer price:
○ What does the CMA Report (Comparative Market Analysis) tell you?
○ How long has the house been on the market?
○ A seller may refuse your below-asking price offer in hopes of getting the full price if the home has just been listed. But if a prior deal has fallen through, and your financial situation looks strong (for example you have pre-approved mortgage financing) the seller may find your low offer quite attractive.
○ Has the seller already moved into another home and is now carrying two mortgages?
If your research shows that the price is in keeping with the area and you really love the house, be realistic in your purchase offer. Submitting a really low offer may only extend your home price negotiations and potentially affect your chances of getting the house.top of page
It is a very infrequent occurrence that the initial written home purchase offer is accepted. It may not be strictly related to your offer price, it may be about the contingencies, or simply the fact that you wanted the washer and dryer included in the deal. Be prepared for some sort of counter to your offer.
The home seller may modify a number of clauses or counter with a price closer to their asking price. Unless you reach an impasse, this back and forth negotiating may go on for a quite a while, it’s important to remember that until you have a signed contract, other interested buyers can also make an offer on the house.
Each counteroffer is legally a rejection of the prior offer and constitutes a new purchase offer in itself, with its own new time frame for acceptance.
Once an agreement is reached between you and the seller, it’s time to move on to the final steps in your home buying process and bring your home purchase transaction to Closing.top of page
Once negotiations are complete, there are several steps to take before you go to your home closing. Your first responsibility will be to finalize your home loan funding. Your mortgage lender will have the property appraised to ascertain whether the house is really worth the price you've agreed to pay. Additionally within the time frame agreed upon before closing you will need to get the home inspected and insured.
Soon after accepting your home purchase offer, the seller is obligated to make a full disclosure of anything known to be defective on the property. You will have a certain number of days to review this disclosure form, and modify or rescind your offer if you wish. As with everything in the home buying process, your rescission must be in writing.
• Finalize Your Home Loan Funding:
Final loan approval and funding takes place after the property has been appraised, all documentation is in the hands of the lender, and all contingencies have been met. From the acceptance of your offer, loan processing times can range from 21 to 60 days.
What does it mean to FUND?
Fund is a verb used to describe the process of
wiring money from the mortgage lender to an escrow account prior to
closing your home purchase transaction. Funding often occurs a day or
two before closing, but many transactions fund and close on the same
day. It’s important to note, interest is charged from the day of funding
and not from the date of closing.
• Home Inspection:
Before issuing your mortgage loan, your mortgage lender will arrange for an appraisal of your prospective home, but that is not the same thing as a Home Inspection. You should hire your own home inspector to examine the house. You can get referrals for a professional inspector from your real estate agent, lawyer, or friends, or you can contact the American Society of Home Inspectors.
○ Plan to be present during the your home inspection. You will learn a lot about your house in general during the inspection, and if you discover that the house has some problems, maybe a major problem like a leaky roof, you can then ask the seller for repairs.
○ Sellers are generally not required to make repairs, but rather than lose the deal they may agree to fix the problem before you move in or deduct the cost of repair from the final purchase price. In the event the seller won't agree to your requested repairs, you may decide to walk away from the deal all together without penalty, as long as you have that contingency written into the contract.
• Homeowners Insurance:
Lenders require that you have homeowner's insurance in place before they'll approve your loan. So you’ll need to purchase homeowner’s insurance far enough in advance that it is in effect by closing day and you have proof in hand.
○ Bring either your whole policy or the declarations page which shows the time your insurance went into effect, the policy period, and the cost for 12 months, to the home closing.
• Title Insurance: Title insurance is to ensure that your home purchase is a legitimate transaction and that the property doesn’t have any liens or claims of ownership against it. You will need to have a clear title on closing day and two title insurance policies — one to cover the owner and one to cover the lender. The lender’s policy should be for the amount of the mortgage, the owner’s policy should cover your full sales price. Title insurance is a one-time expense and can only be purchased at the time of closing.
A few days before closing you will want to do a final walk-through to make sure any requested repairs were made and that the property is in the condition agreed to in the purchase contract.
• Taking Title to Your New Home:
At Closing you will be asked how you want to take title to your new property. Owner? Joint Tenancy? Tenants-in-common? An unmarried person buying a house alone would be a sole owner. You may want to consider tax and estate issues. To learn the advantages and disadvantages of the different types of ownership you may want to consult an accountant, real estate attorney, or estate planner.
Some examples of the ways to take title:
Sole Owner - Title is taken as a sole owner in the individual’s name.
Joint Tenancy - A couple buying a house together can choose to take title with joint tenancy, giving each the right of survivorship. Meaning if the spouse or partner dies, full ownership goes to the survivor.
Tenants-in-Common - When two or more individuals buy a home together they will take title as tenants-in-common. The individuals are partners who may own unequal shares and can sell their shares of ownership independently
A couple of days before the actual closing date, your lender will provide you with a list of all the charges you can expect to pay at closing. Some common closing costs include: title insurance, appraisal fee, home inspection, partial property taxes, an attorney fee, courier fees, mortgage “points” (a percentage of the loan amount), government recording fee, transfer taxes.Be sure to review all the closing fees before you sign the loan contract.
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The Closing is the final meeting when the title to the property will be transferred to your name, you will get the deed for your home, and you are officially committed to your mortgage. You will need to hand over a certified check for your down payment and closing costs, and be prepared to sign a large amount of documents.
The Closing procedures will vary depending on your location but the closing usually takes place at the Escrow or Title Company’s office or a Real Estate Attorney’s office. Who attends the closing? In some areas both the buyer and seller are there with their respective real estate agents, or it could be just the buyer and real estate agent. In addition there is a Closing agent present who will guide you through the documents to be signed.
Depending on the complexity of your deal, your Closing Documents may include:
• The settlement statement
• The sales contract
- Title insurance
- Homeowners' insurance
- The title or deed to the property
- The down payment and closing costs
• There may be additional documents to sign so be prepared
• If you’re buying a condo, you will also receive at a thick packet of documents from the condo association detailing the condo rules and regulations, covenants, and financial documents. Your purchase can be contingent on your approval of these documents.
Congratulations! You’re a New Home Owner…almost!
Recording the Deed
The deed is the written document used to transfer the title from seller to buyer. After all the documents have been signed and money disbursed, someone from the title company will take your signed deed and documents to the county office to be recorded, if possible, on the same day as the closing. Your home ownership is not official until the deed is recorded at the appropriate county office. The county recorder assigns each document a number and records the time of entry to the minute. A copy is made for the county file. Your real estate transaction is now part of the public record.
Talk with your real estate agent or closing agent to find out whether you’ll get the keys to the house at your closing ceremony or after the deed is recorded.
Enjoy the tax savings and watching your equity grow! For more information about Home Financing opportunities, Home Loans and Rates, submit Showrates’s simple online form and a Mortgage specialist will get in touch with you to discuss your options.
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