Buying a home is one of the most imortant decisions of your life and it can be the most stressful. Here are some tips to get you started and to give you a better idea of what is involved in buying a home.
Pre-qualify for a Loan
In today’s market, it is imperative that you see a lender (bank, mortgage company, savings and loan, or credit union) to get pre-qualified before making any offer on a home. Being pre-qualified for a loan determines how much house you can afford and allows you to move more swiftly when you find the right house, especially when you aren’t the only interested buyer. Even if you can’t qualify for a loan now, your lender will show you what you need to do to qualify in the future.
If you don’t already have a lender, give me a call and I can recommend several very qualified lenders that I have worked with in the past. Once your lender pre-qualifies you, do not make any large purchases until after the sale closes escrow as this could jeoprodize your loan and result in the loss of a sale.
Shop for Mortgage Rates and Terms
Yes, loans are harder to obtain in today’s market. Interest rates are still great but keep in mind that the interest rate you get depends on your credit score, work history, and debt-to-income ratio. It may also depend on how much money you apply toward a down payment. A 30-year conventional loan usually requires a 20 percent down payment, but there are other loans in which you can put down much less or nothing or finance for less than 30-years.
Your lender will want you to bring in tax returns, salary stubs and other financial data. Keep in mind that the higher your credit score, the lower the interest rate. You may want to check your credit score two or three months before buying to make sure that there isn’t anything on your credit report that may hinder your chances of getting a loan, such as someone else’s bad credit showing up on it. A difference of even half a percentage point on the interest rate can make a huge difference in how much you pay over the life of a loan. For example, the difference in the monthly payment on a $200,000 mortgage at 8% vs. 7.5% is about $69 per month. Over 30 years, that amounts to nearly $25,000. The bottom line however, is how much you can afford monthly.
Features that Help or Hurt Resale Value
Location is the most important feature of a home especially when thinking of future resale. Busy streets, airplane traffic, bad views and poor condition of neighborhoods can detract from a home’s value. In some areas, a swimming pool actually detracts from a home’s value and makes the home harder to sell.
Let’s Go Shopping
Have a general idea of what you are looking for. Chances are that you will not get everything you want, but list your priorities such as needing to be near a specific school, nearby shopping, single or 2-story, acreage or subdivision, large or small back yard, new or fixer, etc. If you are new to the area, take some time to drive around to see what areas are most appealing to you, pick up a community paper and go to a few of the events they list. Talk to people in the area. Walk around and have dinner.
The main things to check for in a home are the foundation and the roof. If the doors aren’t square with the jamb or the floors slope, there might be foundation problems. Roofs with missing, wavy or cupped shingles could mean that the roof has leaked or could leak in the future. Water stains on the ceiling indicate a leaky roof.
Making an Offer
Once you find your dream home and are ready to make an offer, there will be some negotiating involved with regard to price, condition of home, time of closing, inspection repairs, etc. Your goal is to get what you want and to imagine the seller’s reaction to everything you include. “Negotiation” is a give and take process. Because of the huge dollar amounts involved, both you and the seller want to build in contingencies and protections for your investment and limit your risk.
Included in the offer will be the “earnest money” or “good faith deposit” — a minumum of $1,000 down. This is money to “hold” the property and shows the seller that you are serious about buying their home. The earnest money will be deducted from what you have offered on the home at close of escrow. Once the offer is accepted, you will receive property disclosures from the seller. I always recommend you have a whole house inspection as well including a pest and dry rot inspection. This will cost you about $350 and is for your protection. Your offer will be contingent upon your accepting the results of this inspection and may be contingent upon the seller paying a certain amount of money in repairs. If you are buying rural property, you will want to get a well-flow test and septic inspection. The seller is required by law to get a bacteria and coliform test on the well water.
Your offer also will be contingent upon you getting the loan. A pre-qualification is different from being approved for a loan. If for any reason you become ineligible for the loan, you will not be required to complete the transaction.
Close of Escrow
Once all the contingencies have been met, you and the seller are ready to close the deal. This is at least 30 days after signing the initial contract and is done through a title company. We have four title companies in Jackson County and all have competitive rates. The title company is generally chosen by the seller. “Signing” is when you go to the title company and sign all the loan and closing papers. This is when you will be bringing a cashier’s check for the balance of the down payment. I will accompany you and often your lender will be there as well. Once both parties have signed all the papers, it will take a day or two before the title is recorded with the county. This is the “closing” and when the deed goes to the courthouse in your name. ”Closing” is when you officially own the house. “Possession” is when you move in and is a mutually agreed upon day between you and the seller.
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