How-to Guide for Buying Your First Home

I. Are You Ready?

Knowledge obtained by searching the web and the experience and training of a qualified, local REALTOR® are the keys to successful real estate transactions.

Planning is of utmost importance. In doing so, you'll be able to anticipate requests from lenders, lawyers and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the home-buying process.

Do You Know What You Want?
Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not now have? Do you have a purchasing timeframe?
Do You Have The Money?
Homes and financing are closely intertwined. (Financing is the difference between the purchase price and the down payment, commonly referred to as debt or the mortgage.)
Purchasers will need cash for a down payment and cash for closing costs (the final costs associated with closing the loan). Several newly emerging loan programs not only allow the purchase of a home with no money down, but also underwrite closing costs. However, no money down results in higher mortgage payments. Closing costs can sometimes be negotiated with the seller.
Is Your Financial House in Order?
Those great loans with little or nothing down are not available to everyone: You need good credit. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time.

New House Calculator

Use this new house calculator to find mortgage limits.

II. Get a REALTOR®

With all the information available regarding the purchase of a home, why do I need a realtor?

All properties are unique. Contract terms, financing options, inspection requirements, and closing costs differ. No two transactions are alike.
A professional local REALTOR®is familiar with the numerous forms, financing, inspections, marketing, pricing, and negotiating required for your purchase.
Sources available for you to find a REALTOR® include Web sites, recommendations from your neighbors, referrals from non-local REALTORS®, and suggestions from lenders, attorneys, financial planners, and CPAs. The recommendation and experience of past clients can be invaluable. When considering a REALTOR®, consider training, experience, and professional certifications.
The REALTOR® can explain she typically works with clients and will provide complete agency disclosures required by state law. The REALTOR® will provide information on current market conditions, financing issues, and negotiating issues. Your REALTOR® will keep you updated and informed throughout the transaction process.

III. Get Loan Pre-Approval

If you cannot pay cash, you need to obtain a mortgage loan at the lowest cost with the best terms. Pre-approval allows you time to select the mortgage loan that is right for you. If you wait until you find a home, you will likely have only 7-10 days for the financing phase.

Pre-approval means you have met with a loan officer; your credit has been reviewed; and the loan officer has determined that you qualify for a loan of a certain amount. The lender will provide you a pre-approval letter stating your buying power.

Pre-approval is favored by sellers because the offer will not fall through due to financing.

Mortgage Calculator

Mortgage and Loan Calculator

IV. Look at Homes

List your criteria for a home such as price, location, taxes, dimensions, building materials used, number of bedrooms and bathrooms, ameneties such as a pool, and design (i.e., one story). Consider future needs for the next few years.

I lists the homes I sell on this website at www.betharnold.net/mylistings.php. I ascertain my clients' home-buying criteria and set them up to receive emails of homes that meet their criteria. If you would like to vary your criteria a bit to see which homes are then available, I provide that service at the Search All Listings menu item.

Once you have selected a home to view, inform me that you are ready to set up a viewing appointment.

V. Choose a Home

There's no doubt that choosing a home is a big decision and you want to do it right.

A seller has placed a home on the market for which the asking price and other terms have been established. This is an offer. You have 3 choices:

Accept the seller's offer and create a contract.
Reject the sellers offer.
Make a counter-offer by suggesting different terms. The seller my accept, reject, or make a counter-offer to your original counter-offer.

No aspect of the home buying process is more complex, personal or variable than bargaining between buyers and sellers. This is the point where the value of an experienced REALTOR® is clearly evident because she knows the community, has seen numerous homes for sale, knows local values and has spent years negotiating realty transactions.

Is it THE house?
A house is shelter, but a home is far more. It's where you live, relax, entertain friends, raise families, and work. A home is where you spend much of your life, and so choosing a house is an enormous decision.
How do you know if a house is THE one? Probably the best approach is to look at as many homes as possible either through online listings and virtual tours before deciding to see the home in person.
Can you really afford it?
Remember Step 2 - the pre-approval process? Getting pre-approved means you have a very good idea of how much you can borrow, what loan programs will most likely work best in your situation and how much home you can afford.
How reliable is a pre-approval? While pre-approval is not a loan commitment, it's still necessary for lenders to check such items as appraisals and the latest credit reports. Despite fluctuating interest rates, pre-approval nonetheless provides a reasoned, careful analysis of what you can afford. After all, loan officers are routinely paid only when loans are originated. It doesn't make much sense for loan officers to suggest high loan limits that later can't be delivered.

VI. Get Funding

Often the cost of real estate financing is routinely greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs.

What kind of loan?
There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several key factors:
- How much down? Loans with 5 percent down or less are available -- in fact, loans from major lenders with no money down have appeared in recent years.
- If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as the Veterans Administration (VA), the Federal Housing Administration (FHA) or a private mortgage insurer (PMI, or private mortgage insurance, is required by lender to protect against any mortgage defaults). Millions of VA, FHA and PMI loans are generated each year.
- How's your credit? The best rates and terms are only available to those with solid credit. To get the best loans, make a point of paying credit cards, installment payments, rent and mortgage bills in full and on time.
- Are you a first-time buyer? It might seem that "first-time buyer" means someone who has never owned property before, but under most state programs, the term refers to those who have not owned property within the past three years. State-backed first-timer programs often feature smaller downpayments and below-market interest rates. For details, speak with your local REALTOR®.
How do you get a loan?
To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the prequalification procedure, the loan officer will describe the type of paperwork required.
Where do you get a loan?
Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, and credit unions.

VII. Make An Offer

Realty transaction documents include numerous sale conditions and their wording should be carefully reviewed to assure that they reflect the terms you want to offer. Your REALTOR® can explain the general contracting process and her role in this process.

While much attention is spent on offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers -- or additional costs. Terms are extremely important and should be carefully reviewed.

How much?
You sometimes hear that the amount of your offer should be x percent below the seller's asking price or y percent less than you're really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.
How do you make an offer?
The process of making offers varies around the country. In a typical situation, you will complete an offer that the REALTOR® will present to the owner and the owner's representative. The owner, in turn, may accept the offer, reject it or make a counter-offer.
Because counter-offers are common (any change in an offer can be considered a "counter-offer"), it's important for buyers to remain in close contact with their REALTOR® during the negotiation process so that any proposed changes can be quickly reviewed.
How many inspections?
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections.
Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. Such inspections for a single-family home often require two or three hours, and buyers should attend. This is an opportunity to examine the property's mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.

III. Get Insurance

The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.

What kind and how much?
There are various forms of insurance associated with home ownership, including these major types:
- Title insurance: Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes "lenders" policies, which protect buyers up to the mortgage value of the property, and "owners" coverage, which protects owners up to the purchase price. In other words, "owners" coverage protects both the mortgage amount and the value of the down payment.
- Homeowners' insurance: Homeowner's insurance provides fire, theft and liability coverage. Homeowners' policies are required by lenders and often cover a surprising number of items, including in some cases such property as wedding rings, furniture and home office equipment.
- Flood insurance: Generally required in high-risk flood-prone areas, this insurance is issued by the federal government and provides as much as $250,000 in coverage for a single-family home plus $100,000 for contents. Your local REALTOR® can explain which locations require such coverage.
- Home warranties: With new homes, buyers want assurance that if something goes wrong after completion the builder will be there to make repairs. But what if the builder refuses to do the work or goes out of business?
Home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems such as plumbing and wiring for the first two years, and structural defects for up to 10 years.
- Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.
  Insurance policies and warranties have limitations and individual programs have different levels of coverage, deductibles and costs. For details, speak with your local REALTOR®, insurance brokers and home builders.
How do you get insurance?
The time to obtain insurance and warranty coverage is at closing, so speak with your REALTOR® or insurance broker prior to closing. Be sure to ask about limitations, costs, deductibles and "endorsements" (additional forms of coverage that may be available).

IX. Closing

The closing process, which in different parts of the country is also known as "settlement" or "escrow," is increasingly computerized and automated. In many cases, buyers and sellers don't need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.
In practice, closings bring together a variety of parties who are part of the "transaction" process. For example, while the history of property ownership has been checked, it's possible that the records contain errors, unrecorded claims or flaws in the review itself, thus title insurance is necessary. At closing, transfer taxes must be paid and other claims must also be settled (including closing costs, legal fees and adjustments).

What to expect
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.
Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.
What you need to do
One of the best parts of settlement is that buyers and sellers need to do very little. Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.

X. What's Next?

The home is yours. Is there any more to the home buying process? Whether you're a first-time buyer or a repeat buyer, there are several more steps you'll want to take.

Those papers you received at settlement are extremely valuable, so hold on to them! In the short-term they can help establish tax deductions for the year in which the property was purchased. In the future, such papers will be important for tax purposes when the property is sold, and in some cases, for calculating estate taxes.

Also at closing, determine the status of the utilities required by the home, items such as water, sewage, gas, electric and oil service. You want utility bills to be paid in full by owners as of closing and you also want services transferred to your name for billing. Usually such transfers can be done without turning off utilities. Your REALTOR® can provide contact numbers and related information.

About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded. Such records are public notices that show your interest in the property.

Moving in
It is generally understood that sellers will leave homes "broom clean" when moving out. This expression does not mean "vacuumed" or "spotless." Broom clean makes sense because it means the house is ready to be painted and cleaned.
Your home, your money
- For most owners a home is the largest single asset they hold, so it makes sense to protect that asset.
  Many owners make a photo or video record of the home and their possessions for insurance purposes and then keep the records in a safety deposit box. Your insurance provider can recommend what to photograph and how to secure it.
- You want to maintain fire, theft and liability insurance. As the value of your property increases such coverage should also rise. Again, speak with your insurance professional for details.
- Lastly, enjoy your home. Owning real estate involves contracts, loans, and taxes, but ultimately what's most important is that home ownership should be a wonderful experience. Enjoy!

Reference: http://www.move.com/guide/first-time-home-buying.aspx?gate=realtor

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