Start Shopping for a Home
This is what you've been waiting for! For most people, this is the most exciting step to buying a home.
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This is the best time for first time homebuyers. Honestly at PWA you do not need to look any further to find a home. We keep a private inventory of homes and we take pride in being able to show our clients those gems that aren't all over the Internet. We don't post our listing because...well we don't need to. Sellers call us when they want a property moved and buyers inquire with us when they want something thats going to fit.
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First-time homebuyers have a tendency to obsess over the cosmetic features of a home. "The wallpaper is outdated. I don't like these paint colors. The carpet is ugly." You can change all of these things, so you shouldn't pay too much attention to them. You can paint walls, update lighting fixtures, and replace carpet.
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Instead of worrying about the decor, you should be focusing on the features you cannot change. This includes the size of the home, the number of bedrooms and bathrooms, the lot, the view, etc.
Make an Offer
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When you've found a house that meets your needs, you're ready to make an offer. This is one of the most important steps when buying a home. Make a reasonable offer, and the seller will be more likely to accept it. Make an offer that's too low, and you risk insulting the homeowners.
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Your offer should be based on comparable sales. These are similar types of houses that have solid in the same area recently. This is the best way to determine the current market value of a home you're considering. Remember, the seller's asking price might be realistic -- or ridiculous. You won't know until you look at the "comps."
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Of course, you also need to consider features that might add value to the house in question. If it's priced above the comparable sales, you should ask yourself why. Is it just wishful thinking on the seller's part? Or can the premium be justified in some way? Maybe the house has a bigger lot and a better view than the comps. Maybe it has been renovated and upgrade on the inside. You must take these things into account when shaping your offer.
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Get a Home Appraisal
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How much do you plan to put down on the home? Five percent? Ten percent? Twenty? In each of these scenarios, the mortgage lender is making a much larger investment than you are. So they have more at stake. As a result, they'll want to ensure the home is worth the amount you've agreed to pay for it.
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The last thing the lender wants to do is invest $275,000 in a home that's only worth $220,000. If they had to foreclose and repossess the home down the road, they would end up selling it for a huge loss. So the lender will have the home appraised to determine its current market value.
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There's actually not much for you to do during this step, aside from waiting. The lender will select and hire the appraiser. The appraiser will visit the home and evaluate it against comparable sales in the area. Then he/she will tell the lender how much he thinks the house is worth.
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If he/she says it's worth at least the amount you've agreed to pay, then the loan will probably move forward.
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If he/she says it's worth less than the purchase price, the lender might withhold financing.
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Get Home Inspection
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A home inspection is a non-invasive examination of the house that usually takes place after the offer has been accepted. I say it's "non-invasive" because the inspector won't be pulling up carpet or prying off any panels to examine the home. He will examine everything he has access to, and nothing more.
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Most inspections will include the visible portions of the roof, foundation, plumbing, electrical system, and heating / cooling system. If there are any other installed systems (like a garbage disposal or sump pump), the inspector will look at those too.
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The inspection is entirely for your benefit. It gives you a better picture of the home's true condition. A layperson, like you and I, can only tell so much about a house. We have an untrained eye. We can't look at a circuit breaker and spot safety issues. We can't see the not-so-obvious signs of water damage when there's no water present. We can't tell the difference between "cosmetic" and structural cracks. But home inspectors can. They receive special training to identify these types of problems.
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Your purchase agreement should give you a way to back out of the deal, if the home inspector finds a serious problem. This is referred to as a contingency. Your offer should be contingent upon a successful inspection. This allows you to walk away from a problematic house while keeping your earnest money deposit.
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The inspector will present you with a report that details his findings. If he found any problems with the home, he will explain what they are and what it might take to repair them.
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Next, you will have to decide which problems you're comfortable "inheriting," and which ones you want the seller to fix. In a seller's market, the homeowner might not fix anything. In a buyer's market, the homeowner will be more willing to accommodate your repair requests. The rule of thumb is to ask the seller to fix anything that is (A) clearly broken or inoperable, or (B) a safety issue. Most sellers will accept such requests.
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You're almost done! The closing process is the last step to buying a home, and that's what we are going to discuss next.
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Settlement / Closing
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The period of time between the purchase agreement and the final settlement is known as escrow. You've probably heard somebody use this phrase in the past: "We can't spend a lot of money right now, because we're in escrow." When the property is fully transferred from the seller to the buyer, you are said to have "closed escrow."
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The transfer process itself is referred to as closing. It involves a lot of paperwork and the final distribution of funds. The seller gets paid, if applicable. The real estate agents receive their commissions. The lender fees will be paid. And you'll walk away with the keys to your new house.
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Make sure you save up enough money to cover your closing costs. Your lender will give you a written estimate of these costs in advance, at the time you apply for the loan. But you should expect to pay more than the estimated amount. If your lender estimates your closing costs to be $7,000, you should prepare for them to be $8,000 by the time you actually close. It's called an "estimate" for a reason. It's common for homebuyers to pay more than the estimated amount on closing day.
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Between the time the seller accepts your offer and the day you are scheduled to close, the best thing you can do is stay in touch with the mortgage and escrow people. Escrow companies coordinate all of the paperwork for closing, as well as the distribution of funds. It's their job to make sure everything is on track for the big day. You should find out who the escrow agent is, and keep in touch with this person. Make sure they have everything they need from you, as far as documents go.