Like so many things in life, when it comes to buying Real Estate, proper
preparation is one of the keys to success. Don't want to find yourself in a
neighborhood you don't like? Don't want to be making mortgage payments on a
house in which you are uncomfortable? Don't want to waste your time falling in
love with houses you can't afford? In a word, prepare! One of your most
important tasks will be determining your needs. It can help to avoid either a
nasty disappointment or the pain of buying more house than you need (or can
afford). Distinguishing needs from wants will go a long way in preventing
expensive mistakes in the house buying process. Establish some basic parameters
and stick to them. When house hunting, it is easy to get swayed by the emotion
of the moment--and end up with more house than will be financially comfortable.
Do your mortgage investigation early. Odds are strong that you will be working
with Real Estate Agents when you buy a house. Before you go on a house search,
familiarize yourself with how Agents work and most importantly, who they
represent. Thousands of buyers have made the huge mistake of assuming that the
Agent with whom they were working represented them in the transaction, when, in
reality, the Agent represented the seller. Determining Needs Want to save a lot
of aggravation and possibly a great deal of money when you buy a house? Spend a
few hours determining precisely what your needs are before you begin your house
search. Examples of NEEDS Examples of WANTS · Enough square footage for
comfortable living · Carpeting color, paint color, exterior color, roof color,
etc. · Enough bedrooms to accommodate your family · Pool or Jacuzzi (unless
for medical reasons) · Adequate number of bathrooms · Wood floors · Eat-in
kitchen · Bay windows · Garage or basement for storage needs · Built-in
entertainment center · Lot size to accommodate children's play area · Brass
lighting fixtures · Adaptation for Handicapped · Skylights · Proximity to a
specific school · A pretty view Gameplan If you haven't already done so,
investigate your housing needs and wants to determine what types of houses you
should be considering. Learn who "The Players" are in a Real Estate
transaction so that you will know who is responsible for what. Get your
financial picture in focus as soon as possible. Get a copy of your Credit Report
to see if there are problems or disrepencies that you need to deal with.
Familiarize yourself with the mortgage process. Get Pre-Qualified from a
Mortgage Lender. Do this first. Your Agent will need your mortgage
qualification, and it will significantly strengthen your offer when you find a
home. At LendingTree, you can submit a quick application, and within 2 business
days get up to 4 offers from lenders so that you can compare terms and rates.
Find an Agent that you trust. It is important to do this before you go rushing
off looking for homes or you may end up with no representation. See the Agent
Representation section for an important discussion regarding "who
represents whom." When you find an acceptable house, write a contract.
Negotiate your best deal. Make a formal loan application. Arrange for home
inspection. Arrange for closing agent or attorney. Make moving plans--for an
innovative and money-saving approach to moving, click here. Secure final loan
approval and commitment from the lending institution. Do a final walk through of
the house. Final closing and settlement. Move to your new home and begin
enjoying it!! "The Players" Real Estate is never bought and sold on
your own The vast majority of home buyers enlist the services of a Real Estate
Agent, a Lender, a Professional Home Inspector, and a Closing Attorney or Escrow
Agent. Knowing what each is responsible for will help your understanding of the
process and eliminate confusion as you proceed. Sellers: Familiarize yourself
with seller motivations and psychology. Real Estate Agents: An Agent may or may
not be your representative. an Agent will arrange to show you houses that are
available through a Multiple Listing Service. Without the use of an Agent, you
will be limited only to those houses that are For Sale By Owner. The Agent will
coordinate the offer, negotiations and the contract of sale. Lenders: A broad
term that refers to the person originating the loan to familiarize yourself with
these lenders, whether they be banks, mortgage companies, or brokers. Home
Inspectors: Responsible for a whole house inspection of a prospective property.
Closing Attorney or Escrow Agents: Handles the details of the closing, when
everything is finalized and the buyer takes possession of the house. Will
coordinate with the lender, title insurance company, Real Estate Agents, buyer
and seller to make certain that everything is in order. Summary: Advantages of
Buying Real Estate On Your Own or With an Agent On Your Own With an Agent You
can try to find a "For Sale by Owner" who is willing to sell at a
reduced price. A much wider choice of properties--every home that is listed with
any Real Estate Agency. You are completely in control of the pace of the
process. If represented by a Buyer's Agent, the availability of a Comparative
Market Analysis to see how the price of the house compares with the current
market. For better or worse, you are your own representative. An Agent has
experience in negotiation. Can offer choices and suggestions in Home Inspectors,
Closing Agents, etc. The Agent can follow up in all of the details related to
the Closing Lenders When you speak of Real Estate Lenders, it can encompass a
lot of territory: Banks, Savings and Loans, Credit Unions, exclusive Mortgage
Companies, Mortgage Brokers and others. Any of them may be a good source of
financing, depending on your personal situation. Banks, Savings and Loans,
Credit Unions: Their primary business is "Full Service" banking and
offer mortgages as part of their product line. This may be your small, local
bank, a large national bank, or your Credit Union. Note: Many Credit Unions do
not offer mortgages. If you have a Credit Union available to you, check to see
what their policy is. Mortgage Companies: Their primary or exclusive business is
the servicing of mortgages. Mortgage companies may be a separate entity, or they
may be a subsidiary of a large bank. Mortgage Brokers: Mortgage Brokers do not
do the actual lending, but act as a middleman between you and the lender. They
can do the loan shopping for you, since they will represent several--or
many--different lenders. Attorneys and Closing Agents One of the most important
"Players" in a Real Estate transaction is the person(s) who will be
bringing everything together at the time of Closing: The Attorney, Closing (or
Escrow) Agent. Although actual procedures will vary from state to state and
province to province, some of the duties that will be assumed by the Attorney or
Closing Agent will be: · Coordination with the buyer, the seller, and the Real
Estate Agents involved in the transaction. · Preparation for transfer of the
title or deed. Legally preparing for taking the house out of the seller's name
and putting it into the buyer's name. · Coordination with the lending
institution. Receiving all paperwork from the lender to be signed by the buyer.
· Review of the Contract of Sale. Determining that contractual obligations are
met by both the buyer and the seller. · Responsible for filing with the proper
government agency (e.g., the county) of all items, such as the deed, that will
become matters of public record. Legally filing the change of ownership from the
seller to the buyer. · Title Search. Arranging to make certain that the title
or deed is "good and marketable." · Receipt, verification, and
delivery of various funds. · Verification and review of the various insurances
associated with the ownership of Real Estate. Mortgages Probably one of the
reasons that buying a home is such an emotional experience is because not only
do you have the actual house buying to deal with, but for most home buyers you
also have the mortgage process to encounter. This can be a smooth and almost
uneventful process, or an unnerving one. A great deal depends on the preparation
of the buyer as well as the selection of an efficient mortgage company. What a
Mortgage Payment Consists of 1) Principal: The repayment of the original amount
borrowed on a monthly basis. 2) Interest: The cost of borrowing the principal
amount, repaid on a monthly basis. 3) Taxes: Real Estate taxes paid to a local
government agency. 4) Insurance: Homeowners insurance on the home. Also any
mortgage insurance, which is paid to protect the mortgage company. The total of
these items is known as the PITI (Principal/Interest/Taxes/Insurance) payment.
Negotiating When it comes to Real Estate matters, the 3 most important aspects
of an effective negotiation are: 1) Information 2) Preparation 3) Realism
Information CMA's--Comparable Market Analyses Once you have found a home that
you are prepared to buy, the first step in your process of negotiation is to
determine the fair value for the home. Your Agent can be of great help here,
since Real Estate Agents have access to the information that you need:
Comparable Market Analyses (CMAs). A CMA will show exactly what properties
similar to the one in which you have an interest have sold for. These analyses
are based on fact, rather than opinion, and that information will always be of
more value to you. Generally, CMAs will list houses in a particular location
that are currently on the market, have sales pending on them, have expired from
the market, and have sold. Be forewarned: it is primarily the SOLD properties
that you need to be concerned with. What houses are on the market for is not
always a good indication of what their value is, those that have pending sales
will only tell you what the listing price is (not what it is going to sell for)
and those that have expired because they haven't sold may indicate that they
didn't move because they were overpriced. Preparation Just having the right
information is not enough. You must prepare yourself in order to use it
effectively. The most important factor in your preparation is your emotional
frame of mind. Buying a house is emotionally charged enough, without adding more
fuel to the fire by letting your emotions override your common sense. It is not
unusual to be excited--in fact, it is normal--but you must keep your excitement
in check or you will lose the value of all the information you have gathered. In
addition to your emotional frame of mind, your financial frame of mind should be
in order. An offer to purchase will carry a lot more weight if you have no
dangling financial problems and you have been pre-qualified for a mortgage.
"You can't be afraid to let it go." You must convince yourself that if
the price is not to your liking (or worse, above your budget), you will be able
to walk away. It is important for you to set a realistic limit and then stick to
it. Overpaying for a house is epidemic among buyers who let their emotions rule
their better judgment. It becomes very easy to regret paying too much for a
house when you make a mortgage payment every month. Unlike a product that you
overpay for once when you buy it, a house reminds you every 30 days that you
made a mistake! Finally, plan your work and work your plan. Organize your
information and have it quickly available. When it comes time to make an offer,
you don't want your "ammunition" scattered on scraps of paper in the
back seat of your car. Realism Don't throw away all of the information gathering
and preparation you have done by making a ridiculous offer on a well priced
home. Nothing will turn a seller off more than a low ball offer on a house that
has been realistically priced. Often, negotiations will stop, rarely to be
revived again. If they are re-opened, the sellers generally will show their
displeasure at the initial low offer by locking at or near the listing price. An
example: Mr. and Mrs. Buyer have been looking at houses for months. Finally,
they find the perfect house, which is an ideal match for their needs and wants.
The house is listed at $155,000. Mr. and Mrs. Buyer have a CMA in hand that
shows average selling prices in the neighborhood to be in the $148,000 to
$153,000 range. Ignoring the information they have, they make an offer of
$120,000. Mr. and Mrs. Seller, annoyed at the low offer, counter offer at full
selling price, $155,000. The Buyers, still convinced that they can
"steal" this house, make a 2nd offer of $125,000. The Sellers, now
very frustrated, do not move from their $155,000 price. Suddenly, there is word
that another offer is forthcoming, this time from Mr. and Mrs. Smith. In fear of
losing the house, Mr. and Mrs. Buyer up their offer to $154,000 (still needing
some concession) and the Sellers accept. Consider, though, that a realistic
first offer in the $150,000 range (remember, the CMA showed $148,000 to
$153,000) may well have been accepted by the Sellers. If this were the case, the
Buyer's paid $4000 more than they had to. The moral: An unrealistic offer on a
house that meets your needs and is priced correctly could end up costing more
than it would with a realistic offer. Offers An offer in a Real Estate purchase
is a good deal different than one in other negotiations in which you many
participate. A Real Estate offer can become a legally binding contract: If you
offer to buy a house at a certain price and with certain terms, and the seller
agrees and notifies you of their acceptance, you have bought a house! Yes, the
closing and escrow details may still need to be finalized, but an offer can turn
into a contract in a matter of hours, so it is important that you understand the
potential consequences of an offer. · Sales price · Any concessions made by
the seller · The amount of buyer's "earnest money" or deposit that
accompanies the offer. · Financing contingencies (subject to you securing an
acceptable mortgage) · Inspection contingencies (subject to an inspection
report that is acceptable to you) · Time and date of settlement and possession
Contracts Once the perfect home has been found, it is time for the house buyer
to take the step that makes so many of us tremble with fear: the sales contract.
To take some of the mystery out of the house sales contract, we will discuss
what the contract involves and the components of most Real Estate sales
contracts. What: A legal description of the property as well as the street
address. How much: The selling price. Mortgage contingency: Subject to obtaining
a mortgage (if applicable) and the specifics of the mortgage--amount, rate and
term. Application to be made in X number of days. Deposit: How much money
accompanies the contract and who will hold it Closing: When and where.
Inclusions and exclusions: What is and is not included in the sale of the
property. Home inspection: Contingency for and to be done in X number of days.
Warranties: Any that are included with the house and description of the
warranty. Condominium: If the property is a condo, other provisions will apply
Well and Septic: If applicable, they must be tested (and pass). Termite and Pest
inspection: Who will pay and if there is infestation or damage, who will repair.
Possession Date: When the buyers take possession of the house--before, at or
after closing. Acceptance: How long the sellers have to respond to the offer
with either acceptance or a counter-offer. Arbitration: Any provisions for
arbitration of disputes. Insurance: Whose insurance covers the property up until
the closing date. Property Disclosures: Notices of any property disclosures
concerning the house. Inspecting After you have found a property that meets your
budget and needs, the next step is to determine whether the physical condition
of the property will be acceptable. All Real Estate is definitely not created
equal--there is a great variance in the way individual homeowners maintain their
properties. In addition, you need to be aware of any hidden defects that could
substantially affect the value of the home. The only way to safely determine the
condition of a property is to take advantage of every opportunity you have to
inspect it. Closing It is the proverbial "signing on the dotted line:"
the process of which will put the title to the house in your name, verify
homeowners' insurance on the property, commit in writing to the terms of the
mortgage, and usually, put the keys to the house in your hands. In general, you
will leave the closing and go to your new home as a homeowner. The weeks and
months of anticipation are all settled in the short amount of time that you
spend at the closing. What items will we need? The following are the most
important items that you will need prior to or at closing and some hints
regarding them: A Closing cost estimate: This should first be given to you by
your Agent at the time of the contract, and then given to you by the Lender, a
Good Faith Estimate, shortly after the application for the loan. This should
give you a reasonably close estimate of funds you will need at the time of
closing. Homeowners' Insurance Policy: This must be secured prior to the date of
closing. Settlement Statement: You should have a copy of the Settlement
Statement before the date of Closing. Generally this will not be available until
one or two days prior to the actual Closing, but it is important to have it
because it gives you the total amount of cash you will need at Closing and also
how those various funds will be dispersed. In addition, it gives you an
opportunity to iron out any discrepancies prior to sitting down at the Closing
table. Your Agent should also have a copy for review. Start asking for the
settlement statement 4 or 5 days before the scheduled closing. This will save
you having to chase it down the night before your closing. Certified Funds: On
the day of Closing you will need certified funds for closing costs and down
payments. This is an important reason for needing a copy of the Settlement
Statement a day or two in advance--so you know the amount of funds needed and so
that any problems can be handled in advance. Insurances One of the primary
activities at the closing or escrow is the verification of all of the insurance
that is needed or desired when buying Real Estate. Title Insurance: Insures that
the title or deed to the home is good and marketable. This is only issued after
a successful title search. Title Insurance would most likely protect you, for
example, if an unknown additional seller (for example an ex-wife or husband)
suddenly surfaced months or years after you took possession of the property.
Homeowner's Insurance: Insures the home against damage or theft. This insurance
will be structured to protect both you, as the owner, and the lender. There can
be a good deal of variation in policies. See the section on saving money on
homeowner's insurance for hints on getting the most insurance for the least
amount of money. Personal Mortgage Insurance (PMI): This insurance, although
paid for by you, protects the lender against a loss should you default. It is
present and required on the majority of loans that have less than a 20%
downpayment. Recent changes in laws affecting PMI will make it easier to get
this insurance removed when the equity in your home reaches 20%. Do not confuse
PMI with mortgage life insurance, which would pay off your mortgage should you
die before it is paid off. Mortgage life insurance can be purchased through your
Insurance Agent, but is not required.