Buying a home is one of the biggest investments of your life. There’s the financial aspect, of course, but also the huge amount of emotional energy that’s expended when you realize that — in the typical American Dream fashion — you’ve finally arrived. You have made the decision to become a homeowner.
Over the course of the next few weeks or months, you will face reams of paperwork, innumerable decisions, and countless phone calls. What you do and do not know about the home buying process will have a major impact on not only your sanity but also your pocketbook. The more informed you are, the more prepared you’ll be to tackle any obstacles that arise. So, let’s get started.
Before we get around to the things you should do, let’s discuss the most commonmistakes of the first-time home buyer. In a journey as long and complicated as home buying, there are some bumps along the road that are easy to trip over — mistakes second-time home buyers vow they’ll never make again. Things like:
Skipping the Home Inspection. Just don’t do it. If you can’t afford $400 for an inspection, then you can’t afford the house. If you don’t think you need one then your not ready for the responsibility of owning a home. Does the house have vermiculite? Is there a double tap at the service panels main lugs? Is there a lead water supply pipe? Is there a gas leak? Inspectors undergo rigorous training and know what to look for. Bringing in a cousin with construction experience is not a good alternative to a professional inspection because inspecting and contracting are not the same. Skipping home inspections is more common in some markets than others. For example, in Syracuse home inspections are performed on the vast majority of purchases.
Not Having Enough Cash. Leaky roof? Broken dishwasher? Things that your landlord used to cover are all on you now. The money involved in buying and owning a home far exceeds the official amount you are paying for your property. Make sure you have a homeowner emergency fund to cover possible surprise expenses. Expect to spend between 1-3% of the homes value on annual maintenance.
Skipping the Agent. An agent is important. This person can find you the best home for your needs, handle negotiations in a tough market, and guide you through all of the paperwork on to closing. In the era of Redfin and Zillow, it’s easy to think you are better off skipping the agent, but much of an agent’s value begins with the purchase offer.
Forgetting to Compare Lenders. You’d compare prices on a car; you’d check out a new computer with a side-by-side comparison of its pros and cons; you’d visit Google Flights to get the best deal for an airplane ticket. Exercise the same due diligence with potential mortgage providers. After all, even a small difference in interest rates could mean a good chunk of money in the long run.
Not Trusting the Loan Provider. It’s easy to walk into the room and think you’ll have to out-negotiate the person lending you money. But that is not the case. A loan officer is your best friend in the loan approval process. Experienced, reputable officers will look out for your interest and provide many helpful tips along the way.
Not Being Organized. Many first-time homeowners have their vital information all over the place, which can cause delays and frustration on all sides. Scan your documents into a service like Dropbox or Google Drive so that you can easily access and share documents. Simply being organized will save you a lot of blood, sweat, and tears once the process gets started.
And here’s one BIG thing to consider that a lot of first-time house hunters have trouble being honest with themselves about:
How Much House Can I Afford?
It’s certainly an omission that’s easy to empathize with! There might be that perfect house with a perfect yard in a perfect location that’s just a hair outside of your price range… one of those properties where you have a chat and say, “well, you know, we can afford this house if we stop eating out so much,” or “maybe we can just lighten up on our vacations for the next couple of years.” Any reason will do, because hey — this place is perfect!
It’s not that you can’t afford your dream home, but before you dive in head first, understand all of the expenses you’ll have to cover.
The Rule of Thumb says that a monthly mortgage payment should take up no more than a third of your household income. Your income, employment, and credit history all affect interest rates and how much you can borrow and get away with putting down as a down payment. But using the one-third rule is a good starting point for making sure that you don’t overburden yourself financially.
The Down Payment. The down payment is the money that you’ll be putting toward the house at the onset of the purchase. It is commonly 20% of the cost of the home, although there are many other options available. Some put 10% down; others buy the home entirely with cash. But for the typical first-time buyer, the down payment is a considerable chunk of change. So before even considering a home, check the math and make sure you can afford this due-at-signing cost. Understand how it will affect your overall financial picture.
Application Fees. Otherwise known as origination fees or service fees, these are the upfront costs that are required to get the lending process underway. It depends on your lender — sometimes these costs are collected at closing — so check in advance to see when you need to pay.
Good Faith Deposits are pretty common in a competitive market. Putting a deposit on the table at the outset shows a seller that you’re serious about buying their home and ensures to them that you are not wasting their time. This is also called “earnest money,” which is typically required, especially in a hot seller’s market.
Closing Costs are fees we’ll discuss in more detail later. These are all of the extra costs that have accrued during the buying process and can total anywhere from 2% to 6% of the cost of the home.
Necessary Repairs. Unless you’re buying a brand-new property, chances are there are going to be some repairs that will have to take place, not to mention improvements that you might choose to make. These are costs you want to get a handle on beforehand. Many times, purchase agreements fall through after home inspections because the necessary repairs are more extensive than the buyer first estimated. Another reason why hiring a professional inspector is so important.
Once you have a understanding of your big picture spending habits, decide how much you can reasonably allocate toward a monthly mortgage payment. A mortgage includes the principal, interest, tax and insurance payment, and potentially PMI.
The Federal Housing Administration(FHA) formula for determining a mortgage payment, used by many lenders, recommends allocating no more than 31 percent of your monthly income to your housing payment. This changes based on any debt you may have.
Home buyers with no debt can budget as much as 40 percent of monthly income to housing. Remember that your financial situation can change for the better or worse.
Pro Tip: To provide a financial cushion in the event of a job loss, an economic downturn or another unforeseen event it may be wise to play it safe and not exceed 31%
For example, according to the 2010 census, the median annual household income in Onondaga county, the county seat of Syracuse, NY is $54,498. Assuming that was your income, your monthly gross income is $4,542 which would leave you with $1,408, or 31 percent to devote to your monthly mortgage. This assumes your overall debt does not exceed $1,792 a month. This mortgage calculator can help you determine what your monthly mortgage may be.
Before we get too far into the nuts and bolts of interest rates and other details, let’s figure out what kind of home you’re actually looking for. Why are you buying and for how long you plan to stay in the house? Answering this question will help you further refine what you are looking for so that you end up with the perfect fit.
A Starter Home or a Forever Home?
In other words, do you think you’ll keep your new home for more than five years, or less than five years? If your answer is, “I don’t know,” that’s okay — careers can change, families can grow — but many first-time homeowners tend to overestimate the amount of time they’ll spend in home No. 1. There are some things to keep in mind when making the distinction. There are no right or wrong answers, but:
How’s work going? Are you settled into a career you love that offers room for growth? How’s the commute? Do you work for a large company that might relocate you in a few years’ time? If you moved out of town, do you think you might be in a good place to rent the property, or would you need/want to sell it?
What’s your budget? Starter homes are typically more wallet-friendly, which means a lower down payment and a lower monthly mortgage payment. Depending on your budget, you can have your cake and eat it too by investing in a starter. With money left over, you can stash away for a long-term dream home.
What kind of mortgage are you looking for? We’ll talk more about mortgages in a bit, so keep this in mind until then: “fixed rate” mortgages make you pay more interest in the early years while leaving your interest rate alone; “adjustable” mortgages keep the interest minimal but tend to rise over time.
What’s your family situation look like? Do you have kids? Do you want them? Do you have a significant other? Life changes, and the home you’re interested in now might not be a good fit a few years from now.
There’s one more thing to take into account, and it could be the difference between a forever home and starter home. How’s the housing market in your city? Take into account national trends but more so the trends where your house hunting (and between the specific neighborhoods in that city). This can give an idea of what your home might be worth a few years down the line.
Buyer’s Market vs Seller’s Market
It’s all about supply and demand.
If there are more homes for sale in an area than there are people who want to buy, that’s called a buyer’s market. This is good for the buyer, who has a lot of options to choose from and can typically get more flexible concessions from the owner, including, but not limited to, price.
On the flip side, if there are more people who want to buy homes than there are homes available, that’s called a seller’s market. More people are competing for the same houses, so sellers can demand higher prices and are less likely to negotiate for repairs etc.
Cities that have great economies with people moving in all the time tend to be seller’s markets. Sometimes this leads to rapidly increasing home prices. A booming city like San Francisco is a good example. Some cities have stagnant or slow growing economies leading to more homes for sale and fewer people moving to town to buy them. This leads to less fluctuation in home prices; a mid-size city like Syracuse, NY is a good example of this type of real estate market.
If you’re moving cities during a seller’s market and think tracking down a home might be difficult, it might make sense to take your time and rent. People tend to actively house hunt in the warmer months, so looking for a home in the wintertime could work out in your favor as well. If you look in the winter and still can’t find your perfect home right away, don’t be too upset about it. Renting can give you more time to save up for your down payment which can lead to better mortgage terms and an easier financial situation in the long run.
Where do you want to live?
Urban, Suburban and Rural Life
Each type of living has its own pro’s and cons depending on what you like.
What makes a good neighborhood? The answer to that question is going to be different for everyone. But you can quickly narrow your choices by focusing on some key factors:
Where can you afford a home? What is the length of your commute? Is it important that you are near good schools? What are the taxes in the area? Are you prepared for well water or a septic system? Do you want neighbors or land?
If you like a certain area, go back at different times and days to get see what its like. If you are relocating to a new area take a virtual tour around the neighborhood using Google Maps.
Pro Tip: This might be uncomfortable depending on your personalty type but a rich source of information can come from talking to people that live on the street/in the area, a few short conversations with local residents can go a long way and most are more than happy to help. And they might be your new neighbors!
Pro Tip #2: Zillow.com has information on crime and school quality in neighborhoods across the US.
Automated House Hunting
Once you’ve determined where you’d like to live, start browsing websites like Zillow, to see the homes available in that area. Eliminate sections of your chosen town that don’t have the style or size home you want at the price you can afford. Setting up email alerts based on your criteria can help automate some of the work and make sure you are notified quickly about new homes on the market. Most sites like Zillow show how long a given listing has been on the market, if the price has changed, past sales and other useful datancan help determine if a listing is overpriced or has been languishing on the market. From there, figure out which homes you want to see.
Pro Tip: Don’t rely only on Zillow etc., that information is not as current as the MLS (Multiple Listing Service), which is typically the primary source for what homes are on the market and their status. In a highly competitive sellers market Zillow is not reliable as homes can sell before you even hear about them.
Time to Visit
The Value of Open Houses
Visit open houses. A lot of them. Visiting a wide range of open houses will help narrow your preferences. You may develop a preference for split levels or colonials or ranches etc, and other factors that will narrow your focus to find the right house for you.
If there’s a crowd at an open house, you may also gain insight from the questions and comments made by other potential buyers.
The best part.
You don’t need an agent to go to open houses. It’s an opportunity for you to kick the tires. Although, open houses can also be a good way to meet real estate agents with whom you might consider working.
When you have a better sense of what you want, you can hire an agent and start to line up some private showings. A private showing with a real estate agent will allow you to take your time at a place without the pressure or distraction of competing buyers.
Your Financial Situation
On the most basic level, this is an easy one — big picture you know what you can afford, and you know what you’re looking for. You might even have a neighborhood or two narrowed down, and have done some basic budgeting.
But it goes without saying that your financial situation is more than a number on a spreadsheet. There are a few factors that come into play when getting a solid understanding of your overall financial status.
Get Your Credit Score. To find out where you stand, go to annualcreditreport.com which offers one free report annually. You can find out if there are errors in your credit report, which is is not uncommon. Getting your report now will give you time to improve it while you save for your down payment. Mortage lenders use credit scores, also known as FICO scores, to evaluate the likely risk of giving you money. The higher the score, which runs from 300 to 850, the better your chance of getting a good interest rate. The better the interest rate the lower your monthly mortage payment. The best mortgage rates go to borrowers with credit scores in the mid- to high-700s or above, according to the Consumer Financial Protection Bureau.
Pro Tip: If you have a low FICO score you can improve your score by paying down credit card debt, and by fixing mistakes on your report. Be aware that it may take time for these changes to be reflected in your score soget started now.
Your Down Payment. Conventional loans usually require at least 20% of the purchase price as a down payment, while non-conventional loans like FHA can go as low as 3.5%. It’s important to learn about these programs and learns which ones apply to your situations. This is where your loan officer comes in handy. It is also helpful to read up on the subject on reputable sites such as the Federal Trade Commission’s Consumer Information page on home loans. While there are programs available that can decrease the amount you’ll be expected to put down on a home (if you’re a veteran or first-time home buyer, for instance), the majority of home buyers will be expected to put down around 20% percentage of the home’s selling price. Let’s say you’re looking at a home that costs $200,000 (we’ll use this example throughout this guide). On average, your up-front obligation – or down payment- would be $40,000, meaning that you would borrow the remaining $160,000 from a financial institution (a bank or other lender). Keep in mind to leave some cash leftover — an extra 5% of the home’s selling price ($10,000 in this case) ought to be enough to cover all of the fees involved in the home buying process. Although you can sometimes ask the seller to pay for a portion of the closing costs, you should not expect them to cover all of it.
Mortgage Pre-Approval. A pre-approval letter is a written estimate from a lender of how much you will likely be able to borrow. This will help you determine how much you can afford, and help demonstrate that you can secure a home loan when you are ready to make an offer on a house. Pre-approval requires submitting a formal loan application and providing documentation that proves your financial situation. Pre-approvals are also a necessary supplement to a purchase offer when you are operating in a seller’s market. Information a lender will inspect to decide whether or not they can pre-approve you includes:
Your Credit Score and Credit History – The magic number that provides a quick glance of your past responsibility regarding credit is a major factor lenders consider.
Your Employment History and Income – What kind of job you have, how long you have worked there, history of earnings, the type of industry you work in lets lenders know whether or not they can trust that you will be able to pay your bills.
Your Income-to-Debt Ratio – How much money you make compared with how much you owe tells lenders know your preexisting financial burden.
Any Outstanding Financial Liabilities – Alimony payments, child support, lawsuits, liens etc.
Mortgage Pre-Qualification. Not to be confused with Mortgage pre-approval. Pre-qualification is a starting point that can help you better understand your financial situation and its impact on your ability to get a loan. Pre-qualification is based on limited information, such as your income. It’s usually a quick and simple process that usually doesn’t even require meeting with the lender in person, or a review of your credit report. You’ll receive a ball park figure on how much house you can afford.
Pro Tip:Lenders may approve you for the maximum amount they’re willing to lend. Most buyers should think long and hard if that is the amount of money they really want to spend on a home.
How to Find a Real Estate Agent
A real estate agent (aka. licensed Realtor) is a professional you simply shouldn’t go without — especially if this is your first time buying a home. An experienced realtor has been through the process hundreds of times and knows all the tricks of the trade that only experience can teach. They will teach you things that can save you money and headaches down the road, like holding money back from a transaction when you purchase a home with a pool during the winter months. They can also refer you to other trusted professionals (lawyers, lenders, insurance agents, home inspectors etc.) who can help everything go as smoothly as possible.
But, of course, not all real estate agents are created equal. Here are a few quick tips to making sure yours is the best.
Ask around. Friends, family and coworkers: if any of them are homeowners in the area, they probably had a real estate agent. Let them know you’re searching, and if they used a good agent, they’ll be happy to tell you about it.
Go to open houses. This isn’t just a good way to see a home in a neighborhood of interest, but it’s a good watch a real estate agent at work. If they’re outgoing, well-informed, enthusiastic, and helpful, you will be able to see it right away.
Check their track record. How many online reviews do they have and what do they say? Do they have any impending lawsuits? Experience counts. As a buyer, make sure you work with an agent that works primarily with buyers. Most real estate agents specialize in working with either buyers or sellers. A good seller agent may not be a great buyer agent, simply because the skills used to sell a home are not always the same skills that are needed during the buying process.
Now that you’ve got an agent, and you have a solid idea of what you can afford to spend, it’s time think about actually paying for a home. You don’t need to find a mortgage broker just yet, but it’s never a bad idea to get your homework done and compare different lenders to have someone in place so that when you find a home, you already know who your go-to mortgage lender is. If you are trying to buy in a seller’s market, your purchase offer will often not be accepted without a pre-approval anyways. So finding a lender and getting a pre-approval as soon as possible is key in a hot market because nothing feels worse than finding out that your dream home got snatched up by someone else because you couldn’t submit an offer in time. If you are in a slower market, then you can take more time.
But first, let’s get an idea of exactly what a mortgage is, and how it works.
If you’re buying a home and aren’t paying in cash you’re going to need a mortgage — a loan issued by a lender or a bank that lets you buy the home up front, and that is paid back over a period of years.
A mortgage isn’t just a strict re-payment of the money that is borrowed. There are other fees that accumulate over the lifetime of the mortgage as well as interest. The four elements (known as PITI) most monthly mortgage payments have in common:
Principal. This is the amount of money that was originally loaned to the buyer, $160,000 in our previous example. ($200,000 house – $40,000 down payment).
Interest. This is the fee the lender charges you for letting you use their money. The amount of interest is determined by a figure called the interest rate — a percentage that is determined by a variety of factors, including credit score, down payment, loan type, the economy, and more.
Taxes. These are fees established in collaboration by city, county and state tax officials. Additionally, a local assessor will determine the assessed value of the property. When you pay your monthly mortgage payment, a portion of that can be dedicated to taxes. If you choose this option, your lender holds onto this money in an escrow account, and, twice a year, releases the funds to the government on your behalf. You can also choose to pay your property taxes on your own. Learn More
Insurance. There are two main types of insurance. One is standard homeowner’s insurance, and it’s distributed by your lender, to your insurance company, to serve as a safety net for you, should anything happen to your home such as theft or fire etc. The second type of insurance is private mortgage insurance, or PMI. If your down payment is less than 20%, your lender uses this fee to protect itself should your home go into foreclosure because of your inability to pay the remainder owed on the home. Remember — until the home is paid off, it still belongs to the lender! There are lots of other kinds of insurance that might be useful for your particular situation, like flood insurance for properties located in a flood plain. If you want to get in the details, learn more here.
What Kind of Mortgage Should I Get?
There are all sorts of mortgages you can get, and you may already be eligible for special types of mortgage loans depend on your living or lifestyle situation. The most common mortgages are 30-year conventional loans and 15-year conventional loans. There isn’t much of a difference except that the 15-year loan has a lower interest rate and is paid off in half the time. Of course, that means that the 15-year conventional loan will have much higher monthly payments than the 30-year loan. The benefit is that you will be paying less for the home overall due to the lower interest rate and shorter interest accrual period. Deciding between the two is easy: which can you afford? If you can afford to make higher monthly payments, then the 15-year loan structure will benefit you in the long run.
As far as special mortgage loans, if you’re a service member, you may be eligible for a VA loan; or if your income or geography permits it, you might be eligible for an FHA loan or a USDA loan, which can really cut down on the amount of interest you’ll have to pay or the size of the down payment that’s required.
But for the majority of home buyers, the two most common types of loans are called “fixed-rate loans” and “adjustable-rate loans.” These are collectively referred to as “conventional loans.”
At its most basic, a fixed-rate loan carries the same interest rate at the start of the loan as it does at the end of the loan, which means that even as the economy changes over the years, you’ll still pay the same price every month until the loan is paid off. This is a great option for those who intend to hold onto their home until its paid off; the downside is that interest rates for fixed-rate loans are particularly high during the first few years of the loan.
Adjustable-rate loans come in a variety of flavors, but the common trait is that interest rates fluctuate over time according to the economic climate. A common type of adjustable-rate loan is called a “5/1 loan.” It is called this because the interest rate is the same for the first five years of the loan, then changes once a year for the rest of the loan’s lifetime. This is a good option for those who are sure they want to hold onto their home for a shorter amount of time. This type of loan also carries the advantage of having a larger portion of the monthly payments during the early years applied to the principal balance, as opposed to interest.
Those are the basics, but needless to say, there’s a lot more to it than that. Talking to a loan professional is the next step, as these are the individuals who will be able to walk you through some of the more advanced nuances of the loan approval process while providing information on the specific nature of the loans that are available to you.
How to Find a Mortgage Company
A mortgage is going to be one of the biggest expenses your household is going to incur; choosing the lender you’re going to be in a professional relationship with for the next decade or more, therefore, is pretty important. With a few tips, working with someone who’s capable and reasonable is going to be a cinch.
Large or small. Lenders come in various shapes and sizes, and each offers plans that might be better suited to some lifestyles and needs than others. Are you after someone small, local and personable, or would you prefer a lender who has the “oomph” of a large international bank? There are pros and cons to each, so choose wisely.
Get a second opinion. Usually this will come from your real estate agent, who has been working with lenders for years.
Ask around. Talking to friends and family about who they have borrowed from can also be helpful. If they own a home, then they have probably worked with a lender in the past, so maybe they know a great one!
Background research. Don’t be afraid to do your own homework. Check around online to see if anyone on the Internet has worked with this lender before. Are there rave reviews? Horror stories? Take those into account.
Outsource. A mortgage broker isn’t the same thing as a lender. These specialists can serve as intermediaries who can handle all of the hard stuff on your behalf. They might cost a little more on the front end, but over the years, they could save you a bundle by snagging you a better deal.
When is my First Mortgage Payment Due?
Your first mortgage payment is due one month after the last day of the month in which the home purchase closed. For example, if your closing occurs on June 23rd. The closing costs will include the accrued interest until the end of June. The first full mortgage payment, which is for the month of July, is then due in August.
Making a Purchase Offer
Let’s say you’ve found a house. It’s what you’ve always dreamed of and it’s within your price range.
Now comes a part of the process that can be kind of tricky, especially for first time buyers: making an offer. Negotiation can be a little uncomfortable for some of us (ideally, this is where an agent can really help out), but before diving in and hoping for the best, there are a few tips to keep in mind to help a tense process go as smoothly as possible. If you are partnered with a good realtor, this part goes a lot easier since they will do the majority of the work for you.
Figure Out What You’re Buying. And get it in writing — what are the legal limits of your property? What will you own? What are the exact parameters of the lot size? Who, exactly, owns that sycamore; you, or your neighbor? While you’re at it, get a thorough list of everything that’s included — the last thing you want is to assume that the washer, dryer, and refrigerator are included to find out they aren’t. Take your time and leave no stone unturned.
Earnest Money. We talked about this one a while ago, but to recap — this is the money a prospective buyer puts down on a property they’re serious about. In an especially competitive market, it can make the difference between a seller taking you seriously, and putting you in the “maybe” pile. In fact, make that the “no” pile. In a really hot market, earnest money is a given. Your agent can inform you what type of market you are in and if a “good-faith” deposit like this one is necessary or would be valuable. Remember that you usually won’t get this money back if you decide to back out of the deal, so make sure you really are earnest about that property before you write a check. On the other hand, if you do end up purchasing the home, the earnest money will be credited to you towards closing costs, so it’s not money going down the drain either.
Gather Your Paperwork and Do your Research. Knowledge is power, and when it comes to assembling a strong offer, having the most information possible will put you at the top. No surprises for you — with due diligence, you’ll have a comparative market analysis from your agent. You’ll also have an idea of the time the property (and others like it) have spent on the market; might have a good idea of just why the seller wants to sell their home; and if you’ve got your ducks in a row, can get a letter proving the fact that you’re financed (see your lender about this). Another reason to get an experienced agent: the real estate world in any community is pretty small, so there’s a chance they might have some inside information about the house.
The game is set. You make your offer. Now, the seller has a “consideration window,” which is a period of time in which they are permitted to consider the offer you’ve made. It’s possible, in a competitive market, that the seller just ignores the offer altogether — nothing personal; it just means that there are more attractive offers on the table. But if he or she responds, there are three choices they can make. They can:
Accept the offer, at which point, they’ll start putting together an agreement;
Reject the offer outright
Or, make a counter-offer. This is the middle ground, where negotiations come in. You might agree to the seller’s terms, but if you don’t, there could be some wiggle room. Every property is different, but if you get a counter offer, get imaginative with your realtor and see what kind of compromise can be reached.
This process can be slow, and it’s nowhere near as much fun as the hunting process (or heck, even the closing process!). But it’s a crucial step of buying a home.
Now that you’ve made an offer that was accepted and you’re well down the road toward getting your mortgage squared away, it’s time to get back to the more tangible part of the home-buying process — the home itself! But that doesn’t mean that the hard part is over — not by a longshot. Making sure your home is aesthetically pleasing and serves all your needs is one thing, but making sure it’s a worthwhile investment is another. With a home, beauty can sometimes be skin deep. It’s important to look behind the scenes and inspect the health of the home.
How to Find a Home Inspector
With all the expenses involved with buying a home, it’s natural to want to cut corners. Unless your lender specifically requires that a home inspection is a condition of your mortgage approval, you may be tempted to do a DIY inspection or bring in a family friend contractor. That is not a good idea.
If you are buying anything other than a new construction, then do not skip the inspection, even that can be a dicey idea (Human error exists in every industry).
A home is a complex structure filled with countless parts. If just one of those pieces isn’t working, the result could cost you. A home inspector is an individual with the training, skills, and experience necessary to spot these flaws before they turn into your problem.
Here are some essential pieces of advice for finding the idea home inspector for the job.
Get someone qualified. In states that license home inspectors, this is a bit easier. There are a couple of governing bodies, and a solid home inspector will probably be a member of the American Society of Home Inspectors (ASHI) or the National Association of Certified Home Inspectors(NACHI), but not necessarily. Using a contractor friend is really not recommended. Contractors and home inspectors at a glance seem to have much in common but they are pretty different careers. LEARN MORE: Should a contractor do your home inspection?
Run a bias check. If your real estate agent recommends someone, it might be because it’s a professional they trust. Or, it could be a quid pro quo relationship, where the inspector is less thorough in exchange for future work. This is less likely to be an issue in a state like New York where home inspectors are licensed and an inspector would lose their license for this kind of behavior, but only about 30 states license their inspectors. That’s why having a real estate agent who you trust implicitly is a good idea off the bat — but always get the name of their recommendation and then check the inspector’s online reviews in places like Google, Yelp and Zillow.
Know the work involved. The cost of a home inspection is usually based on the age of the home and the square footage of the home, but there may be other factors. A good rule of thumb is to expect to spend between $350-$550 for an experienced inspector.
Be there. You don’t have to be present during a home inspection. But you’ll want to be. A good home inspector will talk you through every part of their inspection, and will do so gladly. If you run into an inspector who insists that you’re not present? It’s likely because they don’t want to be distracted by conversation, but you will also not receive the full service that you deserve.
The Home Inspection (and Radon Test)
A home inspection is a limited, visual, non-invasive examination of the accessible areas of the house was performed. The purpose of which is to observe and report on Material Defects.
Visual, non-invasive means the inspectors observations are limited to areas that are readily visible and accessible. Observations are without disturbing the home.
Material Defect means a specific problem with a system, component or item that may have a significant, adverse impact on the value of the property or may pose an unreasonable safety hazard to people.
There is no such thing as a perfect house and while the inspectors job is to find large problems, most inspectors will also tell you about the small ones.
It’s not the inspectors job to tell you if you should buy the house. The inspectors job is to find the problems and present them to you so that you can decide what you want to do. Any given defect could be a deal breaker for one buyer and no big deal for another.
When an inspection does uncover a material defect you should discuss the findings with your real estate agent as they have the experience on how to best negotiate and proceed. Lets say for example the inspector finds single strand aluminum wire which was used in the mid 60’s and 70’s and is a safety hazard and a costly fix.
A good next step might be to contact an electrician to evaluate further to provide options and costs for repair. A negotiation with the seller may ensue and looking at the big picture, you can A) Ask the seller to credit the cost of repairs toward your purchase price B) Ask the seller to hire an electrician to correct the problem C) Walk away from the house altogether D) Do nothing. The seller is under no obligation to do anything, but if they want to sell their house, they typically will respond accordingly, especially with safety related items.
With any luck, the inspection will not uncover any material defects, leaving you to breathe a sigh of relief. But it will always turn up mid level and maintenance items.
Another service to consider is a radon test. Radon testing is not part of a home inspection, but a service that most home inspectors offer. Radon is a cancer causing gas that comes from uranium in the earth. It varies in concentration depending on where you are, but the only way to know how much radon is in a house it to test for it. The EPA recommends having a radon test performed on every real estate transaction.
If you’re borrowing money to buy a home, chances are, there’s going to be an appraisal involved. Since the bank is going to be lending, they want to make sure they’re putting their money toward a good investment, and that you’re not going to be borrowing more than the house is worth — an appraisal is a lenders way of protecting themselves.
That being said, it’s good for the homeowner, too. An unbiased appraiser will be able to give an accurate idea of a home’s value based on factors like market trends, selling prices for nearby homes, overall valuation, square footage, amenities, condition, and more. In some cases, this can affect the sale price of a home, and with any luck, actually decrease the value (though the opposite can sometimes be true).
One point to keep in mind — in almost all circumstances, the appraiser is chosen by the lender. While there are laws protecting consumers from unscrupulous entities, it always pays to do some background research, not just on the lender, but on the person actually being hired to do the appraisal. That being said, don’t lose too much sleep on it. In terms of the appraisal, the lender is on your side. After all, both you and the lender want you to buy the home, and both you and the lender need to make sure that the home is worth purchasing at the price that is set.
At the end, you and the bank will receive a complete report that comes after a visual assessment has been completed, and after market and trend information has been gathered. Most often, this process can take place without the prospective home buyer being present, but it can’t hurt to check with your lender to see if you can be present (it certainly can’t hurt!).
A quirk of the appraisal process is that the goal is to uncover the market value of the house. Since you have already agreed to a price for the home, you have essentially created the market with your purchase offer, and that offer is often the defacto market value. So, the appraisal often agrees the home is worth exactly what you are paying for it.
How to Find an Insurance Company
Most mortgages are going to require that an insurance policy be purchased. It may not be a priority at the top of your list, but in a lot of cases, the right policy doesn’t just come with a loan (although a lender will likely recommend some choices). It pays to do some homework, and even more so, to be armed with the right information. You’ve done a lot of work making sure you’re getting the best deal on a home and a mortgage, so it’s worth remembering that the insurance is something you’ll be paying for years as well. Best do to some comparison, and it come to the table with some questions.
Does a plan cover appliances, electronics, and a lot of the other big-ticket items in your home?
Does the insurance provider offer any discounts if your home is equipped with a security system, or will rates go up if you’re a smoker?
How much will the deductible affect the price?
Does this agency come with a local affiliate? In other words, if something does happen, will a local agent be there to help sort through all the paperwork during a stressful time?
Will the coverage or rate change if the home goes up or down in value?
Can you get a discounted rate if auto or life insurance is bundled up with the home insurance?
What, exactly, is covered? Get it spelled out in bright neon lights — not just in the fine print. Fire? Theft? Act of God? Falling trees? Meteor strike?
Finally — talk about flooding. This is a complicated, contentious one, especially for coastal regions or homes located in a flood plain, so spend a lot of extra time drilling an insurance agent about flooding.
It is often helpful to talk to the provider of your car insurance to see if they also provide home insurance. First off, if you have had a good experience working with them in the past then you already have some trust established there. Secondly, bundling your car and home insurance can lead to savings that will add up over time.
How to Find a Real Estate Lawyer
Some people hear that they’re going to need a real estate lawyer, and say “Huh? I need a lawyer, too?” The answer is maybe. Especially toward the end of the process as you are moving toward the closing, your lawyer can navigate any complicated legal document and situations. They can also help by smoothing out any ruffled feathers that may spring up during an oftentimes emotional closing process.
However, while having a real estate lawyer on hand is helpful, it is not absolutely necessary. If your real estate agent or broker is also a licensed lawyer (this happens more often than you would think) or if you are buying a new home from a reputable builder, then you are already in good hands. Also, most states require the use of promulgated forms by law. This means that the paperwork you are signing is standardized and has already been reviewed and approved by a board of lawyers. Your realtor should be trained in how to navigate these contracts and fill them out according to your needs, so unless you are engaged in a particularly complicated real estate transaction, a real estate lawyer is not an absolute requirement.
If you do choose to hire a real estate lawyer, here are a few things to keep in mind:
Choose a local lawyer that specializes in real estate law. Someone who knows the particulars of real estate law in your area will be more well-equipped to handle any odd legal nuances that others might miss.
Ask around. Again, check with family, friends and your agent to see if anyone has a recommendation.
How Find a Mover
Whether you’re moving across town or across the country, part of getting into your new home will involve getting your stuff there, too. Finding the right mover can be the difference between a smooth transition and sleeping on the floor for a week, only to find that a few of your boxes went missing.
Always try to book a mover as far as you can in advance — especially during busier seasons. When you’re calling around here are a few questions you might want to ask.
What moving materials are included?
Will they pack, disassemble and reassemble if necessary?
Is the rate by the hour, or by the room?
How long will it take?
Are there any items they can’t or won’t move?
Do they offer insurance in case anything is lost or damaged?
The Final Walk-Through
We’re getting close! In the days (or even hours) leading up to the closing itself, a final walk-through is performed by the buyer. This is the last chance to lay eyes on the place before signing on the dotted line, and while it’s certainly not the time to cut corners and try to finagle a lower price (unless something is grievously wrong), it is a prime opportunity to make sure everything is as you expect it to be when you receive the keys and the deed.
Here are a few things to keep in mind during this pivotal point in the process:
Repairs. If repairs were agreed upon prior to the sale, check to make sure they were completed, and that everything is in working or aesthetic order. Once the house is yours, this will be your responsibility, so best to make sure it was done right, as agreed
Vacant Homes. Some sellers move out of their homes days, weeks, or even months before the home has been sold; a lot of stuff can happen during that time! Insect infestations, plumbing issues, roof leakage, you name it. Time passing can equal possible problems (especially depending on the season), so when you walk through a home that’s been empty for a while, bringing an expert with you might not be such a bad idea (if your agent is top-notch, they might be a great person).
Curb Your Enthusiasm. You’re sooo close to signing the papers, that you might be more tempted to consider furniture layouts than you are to go through the fundamentals. Don’t fall into that trap! You never know what could be lurking, so wait to crack open the Champagne until after you sign. For now, go through the following checklist to make sure your i’s are dotted and t’s are crossed.
Test the light switches
Run the sinks and check the pipes underneath; same with the toilets
Check to see if appliances are functional
Open and close the doors and windows
Give the ceilings and walls a close look for water damage
Test the HVAC
Give a once-over for random debris
What if the home is occupied? Occasionally, a seller might not be moving until after the closing. If this is agreed-upon in advance, then everything should be fine. If this is the case, however, best to utilize the seller as a resource! This person knows every nook and cranny of the home, and may be able to explain or help you through any questions you may have. This is also a great chance to exchange contact info, just in case any straggling pieces of mail come along, or if anyone has any questions.
This is it! You’ve almost made it! If the closing goes well, then you get your keys and can get to living life in your new home!
But before that happens, the closing has to take place. Most go smoothly, but it’s not unheard of for stressful situations to arise. If this happens, don’t worry — keep a cool head, and know that you’ve prepared as best you can.
Truth is, some folks get caught off-guard when it comes to the sheer amount of cost associated with a closing. Often, this is when all of those fees that have been racked up over this whole process are paid, and nobody likes seeing thousands of dollars fly away. But if you’re prepared? It takes the sting out.
The figure changes depending on who’s lending the mortgage, but closing costs tend to land anywhere between 2% and 6% of the total cost of the home. In New York state closing costs are rather high expect to pay at least 5%. So, if you agreed on $200,000 as a purchase price, it’s safe to assume that $4,000 to $12,000 will go toward closing costs. This isn’t deducted from the $200,000, by the way — this is in addition to that total.
The important thing to remember is that these costs serve a vital service, and that it’s money well-spent. Here’s where some of that money is going:
Property fees. This covers the appraisal of the home, which a lot of banks and lenders need before agreeing sign off on the loan.
Loan fees. This is a sizable chunk of the closing costs, and it covers the loan origination fee — the cost for the lender to put all your information together. This total varies, but it typically constitutes about 1% of the actual loan itself.
Mortgage fees. Some lenders will require some insurance to be put down, especially if your down payment comes in under a certain threshold, typically 20%. Check with your lender for specifics.
Insurance and Property Taxes. These are going to be paid in your monthly mortgage payments, but a lot of lenders will require that a portion be paid upfront until normal billing commences.
Title fees. Buying a home only to find out that a clerical error took place and that the home belonged to someone else this whole time would be a nightmare. Title fees ensure that due diligence has been done and that all the paperwork is clear, in your favor.
Grab your keys. Finally. It’s all yours.
Now it’s time to plan a housewarming party and make some memories!