Home Buying Guide from Simplylending 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
1. Are You Ready to Buy a Home? How Much Home Can You Afford?
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 Simplylending'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
salary.
Get a better understanding of your debt to income ratio and what you may
be able to afford by using our
Mortgage Rate Calculator
* Determine Your Down Payment Amount
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.
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.
2. Shop for a Mortgage Loan, Before You Start House Hunting
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.
Simplylending'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
Simplylending's quick and easy online form.
3. Finding the Right Real-Estate Professional
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.
4. What are You Looking for in Your New Home?
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.
5. You're Ready to Start House Hunting!
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
6. You Found a Home and are Ready to Submit an Offer!
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:
1.An acceptance,
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.
7. How Do You Determine Your Offer Price?
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.
8. Negotiating and Counteroffers
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.
9. The Steps to Closing Your Home Purchase
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.
Final Walk-Through:
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.
10. Home Closing and Getting the Keys to Your New Home
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
Condominium Documents
*
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 Simplylending's simple online form and a Mortgage
specialist will get in touch with you to discuss your options.