Wilkie’s Steps to Buying a Home
Jessica Wilkie’s Steps to buying a home start at the beginning…
Step One: Find the Right Realtor
Buying a home can be a challenging process. You are about to make the most expensive purchase of your life in an emotionally charged decision making process. An experienced and knowledgeable realtor can ensure a stress-free and seamless transaction.
If you have already picked out the desired neighborhood, you will want to work with someone who knows that area. Check out current listings, and ask friends for recommendations – local realtors are usually well known. Review websites of prospective realtors for recent sales. Your selection of a buyer’s agent will guarantee that your special needs will be represented in all negotiations.
Step Two: Get Loan Pre-Approval
When buying a home, it is customary and worth while to find out if you are eligible for a mortgage. “Pre-approval” means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a pre-approval letter, which shows your borrowing power.
You can visit as many lenders as you like and get several pre-approvals, but keep in mind that each one carries with it a new credit check, which will NOT negatively affect your credit rating. Although not a final loan commitment, the pre-approval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained. Pre-approval letters also give you a better idea of what kind of home you can afford.
Step Three: Find the Right Home
In the process of buying a home, you will want to get the most for your money. Once you’ve established the price range within which you are comfortable, you can begin viewing homes. Obviously location will play a big part, as well as style, lot size, commuting distances, interior dimensions, tax costs, and condo or HOA fees. And once you start looking at places with your Realtor you’ll quickly identify elements that you like and don’t like – such as floor plan, amenities, location, etc. – and you’ll be able to pinpoint your “must haves,” “would likes” and “deal breakers.”
When choosing a home, in effect you are looking at a moving target in a marketplace that is never static. Be ready to consider this: If you can’t get a home at your price with all the features you want, then what features are most important? Since the state of the market is always in flux, it’s important to be ready to move when you see the right place so you don’t miss an opportunity to buy a home that is right for you.
Step Four: Make an Offer
In order to write the most effective offer, you will need to know what’s most important to the seller. For example, a lower offering price may be a good strategy if the seller has already moved and wants to sell quickly. But if there is competition from other interested buyers, a low offer may be a waste of time if it’s easily beat out by someone else. To assist you in the process of buying a home, your realtor can check out the situation on your behalf and advise you on the best strategy.
Price is obviously an important factor. Other factors that the seller will consider are closing date, the amount of seller subsidy requested, your Earnest Money Deposit, the type of financing you’re using, and the contingency deadlines. In any negotiating situation it’s best to get a “win-win” situation – where both sides make concessions but also benefit. In the DC area, your realtor will help you write an offer and present it to the seller and the seller’s realtor.
The seller may then accept the offer, reject it or make a counter-offer (any change in terms can be considered a “counter-offer”). Any proposed changes should be quickly reviewed, so it’s important for buyers to remain in close contact with realtors during the negotiation process.
Step Five: Negotiate a Deal
Upon ratification of a contract (when all parties agree to all the terms), a few things happen. Your realtor will submit the contract to your lender and your selected title company. The lender will begin the process of underwriting your loan. This process includes collecting more information from you and verifying that the property meets all lending requirements. The title company will begin the process of researching land records to verify that any and all liens and judgments are paid off by the time of settlement. As you near the finish line in the process of buying a home, your clock also starts ticking for the contingency deadlines.
Step Six: Clarify Contingencies
A number of contingencies can be built into your offer, and they are there for your protection. The most common ones are:
- - Appraisal Contingency — if the property is appraised at less than the contract price, the buyer has a chance to renegotiate the price.
- - Home Inspection Contingency – The buyer may hire a licensed professional to inspect the property and determine if there are any issues with it. If major or minor problems are discovered, the buyer may negotiate with the seller for repairs or compensation, or may walk away from the contract.
- - Financing Contingency – if the buyer has done due diligence, yet still doesn’t qualify for the loan, the financing contingency protects the buyer from having to go through with the purchase.
Please note that all contingencies are time-sensitive and must take place within the time limits stated in the contract. Your realtor will help track things and keep you on schedule.
Step Seven: Get Insurance
Homeowner’s insurance provides fire, theft and liability coverage. When you are buying a home, a homeowner’s’ policy will be required by your lender and it will often cover a surprising number of items, including in some cases such property as wedding rings, furniture and home office equipment. The time to obtain insurance and warranty coverage is at closing, so speak with a 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).
Step Eight: Make Moving Arrangements
Don’t forget to schedule your moving truck! And if you’re buying a condo, many buildings require that you schedule a time for your move, so be sure and check with the property manager.
Step Nine: Switch Your Utilities
Your realtor will provide you with a list of local utilities service providers. You can call and arrange the switch the week before settlement.
Step Ten: Make a Final Walk-Through
This is your final opportunity in the home buying process to walk through the property to assure ensure that its condition has not materially changed since the sale agreement was signed. 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.
Step Eleven: Attend the Closing or “Settlement”
This is a usually brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held at the title company in an office setting. Often both buyer and seller are at the table, although sometimes they complete their papers separately. At closing you’ll receive a HUD-I, or Settlement Statement, which itemizes all the charges for both the buyer and the seller (also known as your closing costs). Buyers can expect to pay 3-4% of the price of the home in closing cost fees when all is said and done.
At closing, title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. The title company makes sure that the sellers’ mortgage gets paid off and handles the disbursement of funds to pay all other transactional costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.
Step Twelve: Protect Your Assets
As you near the end of the home buying process, remember that 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.
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.
Enjoy your home! Owning real estate involves contracts, loans, and taxes, and you’ve worked hard to get here. So enjoy it!
This information was prepared by Jessica Wilkie, Associate Broker, M Squared Real Estate, LLC.