Home Purchasing Tips
The homebuying process can seem overwhelming and quite complicated to the novice, but if you take things step-by-step, you will soon be holding the keys to your own home! You should contact a Realtor(c) to help you get there. Here are a few suggestions to help you get started!
Ten steps to buying a home
- Where do I begin?
- What are the tax advantages of owning a home?
- What price home can I afford?
- How much downpayment should I make and where do I get a downpayment?
- When do I shop for a loan?
- Now I can start house hunting!
- Do I need a Realtor?
- What should I look for in a home?
- Steps to take for a successful purchase - making an offer and getting it through.
- What to typically expect prior to and at closing.
Step 1: Where do I begin?
We suggest you start by thinking about the reasons you want to move toward buying a home. To have a place of your own? To begin building equity for the future? Or, maybe it's time to move up to a larger home or downsize to a smaller more compact abode.
Now, try to consider the type or style home you would like to buy, where you would like to live, and the size or kind of property that appeals to you. You may want to think about a new home, an older home or possible a fixer-upper! It's always a good idea to make a list of your needs and then a list of your wants. This will be a great help when you begin looking at properties.
Step 2: What are the tax advantages of owning a home?
There are several tax advantages that enter into the picture when one talks about owning a home. Tax savings begin right from the first day of ownership. Some of the actual settlement charges paid at closing are deductible on your Federal and State Tax returns when you file your taxes for that particular tax year. "Points" paid at closing, along with any prepaid interest, and property taxes on the purchased property are deductible. Then, interest paid each year on your loan is deductible until you have the loan paid off and so are the annual property taxes you will pay. Other items may also be deductible, and we suggest you consult with your tax accountant for direction with this when you prepare your taxes annually, but the advantages are great!
Step 3: What price home can I afford?
The simple answer is how much downpayment do I have and how much can I afford to borrow. (Always remember to keep back a some funds for move-in expenses and a reserve for emergencies.) The most frequently used lender's rule is 28 -36% ratio. No more than 28% of your gross monthly income can be used for housing costs (including Principal, Interest, Taxes (property) and Insurance). The 36% maximum would cover the most allowable including P.I.T.I. above and any debts longer than 10 months; i.e. alimony, other outstanding loans, credit card debt, school loans, child support, etc. It is important to set down with a Lender to discuss these issues to find out exactly where you are and what you can pre-qualify for before you start looking for a home.
Step 4: How much downpayment should I make and where do I get a downpayment?
After talking with a lender and getting pre-qualified, you will know exactly how much downpayment you will need to have at closing. There are some advantages to having a larger downpayment: less mortgage to pay-off, smaller monthly mortgage payments and possible lower interest rates. However, there are also advantages to having a smaller downpayment - less cash out of pocket, a larger interest deduction on your annual income taxes. FHA is now requiring just 3.5% down payment.
There are several options for sources for a downpayment: Savings, a tax-free gift from parents, grandparents or someone else you may be close to; cash value in a life insurance policy that may be eligible to use; a loan against a company pension plan; cash in a retirment savings account; a company bonus; an inheritance; or possible business collateral if you own your own business. Again, this is where the expertise of your Lender is so helpful.
Step 5: When do I shop for the loan?
It's a good idea to look for financing prior to looking seriously for a home. A compentent Relator(c) can help you in locating a reputable lender (bank or mortgage company) or two. It is a good idea to talk with more than one lender when you are ready to seriously look at purchasing a home. There are a variety of loan products out there and some larger banks have different products than smaller banks and private mortgage companies can also have different products that may fit your needs better. The lender can do a "pre-qualifying" just to give you a good idea of what price houses you should be looking at, so that you are not wasting your time or the Realtor's(c) time looking at things you cannot afford. Knowing where you stand also puts you in a better bargaining position when you do find that right house to purchase. The prequalification may put you ahead of another buyer should you find yourself in a bidding war for the same property.
Step 6: Now I can start house hunting!
Remember that list of "needs" and the one of "wants" we suggested in Step 1? Well, this is where that really comes in to play! When you meet with your selected Realtor (c), be sure you bring that list with you, both needs and wants. You will share those needs and wants with the Realtor(c) and discover along the way that those needs and wants may change some as you begin the exciting search process. The Realtor(c) will be able to zero in on those homes that are on the market that fit your criteria, whether it be location, price, needs or wants. This will get you headed in the right diection. Remember, you may not find a house with EVERYTHING on your list, but there are some pretty close to perfect out there!
Step 7: Do I need a Realtor(c)?
Real Estate Brokers and Realtors are in business to provide service to you implementing nearly every service connected with your home search and purchase! An experienced, full-time Realtor(c) can possibly save you money in the process of purchasing and closing on the property you finally select. All real estate sales associates are bound by law to deal fairly and ethically with both buyer and seller. You may choose to work with a buyer's agent, whose legal obligation would be to work only for you, the buyer, negotiating sales price, terms and conditions on your behalf. Real estate associates will help you with the loan process, personally conduct the search with you to locate the home that fits your needs and wants, prepare the offer to purchase with you and guide you through that entire purchasing process, help with getting the home inspector and appraisers into the property, assisting you right up to settlement on your new home and beyond should the need arise. The experienced, full-time real estate associate, or Realtor(c) can elevate a lot of heart-burn and confusion for you.
Step 8: What should I look for in a home?
Look for the features that you need first. Then look for the features you want. Is there a particular neighborhood you prefer? Do you need a first floor Master Suite? Do you need a 2 car garage or larger? Do you need lots of storage? Is there a style home your prefer? Do you need to be close to work? Do you prefer new construction? Then: Do you want fenced yard? Or perhaps a pool in your yard? Do you want a basement? Pit or walk-out? Do you want privacy? There are so many things to consider and this is not a decision that should be made without careful consideration.
Step 9: Steps to take for a successful purchase - making an offer and getting it through!
You've found the property that you feel you want to purchase and make it your home! Now it's time to ask your Realtor(c) about the comparatives for this particular property and possibly the current tax assessment valuation. The next step is to create the paper work for making an offer on the property. You determine what you want to pay for the property based on the comparative properties you've seen and what the desireable property is being marketed for. Your Realtor(c) will then take care of presenting the offer. Remember, that your Realtor(c) is a professional and is an invaluable source for helping you through the entire process. Your Realtor(c) will write up the offer and present it either to the other agent (if the home is listed) or to the seller. It may be readily accepted or it may be countered back to you for other terms and/or conditons. Finally, after all have agreed and signed, initialed, dated and approved - the contract is a legal binding agreement between seller and buyer.
Step 10. What to typically expect prior to and at closing
Once the offer is accepted and finalized, your Realtor(c) will assist you with getting the home inspecter (usually within 14 days or less) and anyone else that is necessary to finalize the deal into the house for those inspections, etc. The actual mortgage portion can take 2 weeks to a month to complete, but the closing date was agreed upon in the origial negotiations and spelled out in the contract to purchase. The inspector may or may not find issues that need to be dealt with prior to closing, but these items can be negotiated between buyer and seller once the inspection is completed. The inspection is not a time to create a "repair list", but rather a time to give assurance to the buyer that the property is sound and in good working order. Cosmetic issues are not to be addressed at this time.
Just prior to closing, the lender and the closing attorney (or Title Company) will finalize the "Settlement Statement" or "HUD - 1" for the seller, the buyer and their respective associates to go over. At this time, you will know exactly how much money you will need for finalizing closing.
Please do not hesistate to contact us should you have any questions regarding this process. This is just a brief overview and clearer, more concise information is available from any of our sales associates!
Haymaker/Bean Residential Real Estate (859) 685-3030
We hold the key to your new home!