Buying a home is a big decision. However, home buying is also about understanding how the buying process works and what to expect. We provide an outline of the process and basic terms you’ll need to know below. After reading this, you will be more confident when making your next real estate purchase.
Find a real estate agent
The first step to successfully buying a home is finding a real estate agent. The housing market moves quickly. According to US News, houses in November 2021 only spent 22 days on the market. A real estate agent will help ensure that when the house of your dream pops up it becomes yours! This is why finding a real estate agent is step number one in buying a home.
Getting the right help when making such a big purchase is crucial. A real estate agent will help you understand the aspect in this article more in-depth, but most importantly your agent will help you with the following:
Always on Your Side
When buying a home your realtor has the fiduciary duty to assist you in making informed decisions. This means Your realtor will always have your best interest in mind. They will help you make the best buying decision possible and help you avoid common pitfalls. When putting in an offer your realtor will assist in navigating the many factors that influence home sellers.
Know the Market
A real estate agent knows the market. They can help you find a home that meets your needs and fits your budget. Your realtor will also know trends from across the industry to understand if you should be looking to buy right now or hold off as market conditions change. Real estate agents are also aware of the kind of home you want to buy. Sometimes your agent may become aware of a house becoming available before the public. This home-buying advantage can lead to putting in an offer before anyone else and may even save you money!
Navigating the Process
Agents can help buyers navigate the entire home-buying process. All sorts of issues can arise during the process, from finding financing options to negotiating with sellers and managing paperwork during closing. Your agent can help you navigate these problems relieving your stress and letting you focus on finding your perfect home.
Start to Finish
Your agent will also be there for you from start to finish, walking you through the entire process. In addition, a real estate agent can help you understand the large amounts of paperwork you fill out during the home-buying process. A firm understanding of documents before signing provides peace of mind to many home buyers.
Understand the Home-Buying Market
The housing market is a key part of our economy. Many factors affect the housing market and the price in which you may pay at any given time, including:
Interest rates move up and down depending on how banks feel about lending money to consumers. If banks are nervous about lending money, they think there might be too many defaults on loans (people not paying back their mortgages). Lenders may then raise interest rates so that lenders can get compensated for taking on more risk.
Home prices themselves are affected by multiple factors. The availability of homes plays into this equation. When fewer homes are available for sale, the demand increases, which drives prices higher. If there are too many homes for sale compared to the number of people looking to buy them, then prices will fall.
Economic conditions also play a factor in the pricing of homes. Inflation and federal interest rates play a large part in the economy. Times that the economy is growing at a healthy rate and inflation is low, home prices tend to rise. When inflation is high, home prices tend to fall.
The housing market is large and complex. Due to the complexity of home buying, many seek help from a professional.
Mortgage interest rates are the cost of borrowing money for your home. The rate is expressed as a percent and can vary depending on the market conditions and the lender. You can shop around lenders. Don’t hesitate to see which home lender will give you the best deal. In addition to shopping lenders, consider looking at different types of mortgages.
There are fixed-rate and variable-rate mortgages; each has its benefits and drawbacks. Fixed-rate mortgages maintain a set interest rate for the life of the loan, making it easier for you to budget for your monthly payments. However, if rates go down or up after you’ve locked in your rate, your interest rate will not change. If you choose a variable-rate mortgage, your interest rate will adjust with the market. Your mortgage and interest payment adjust with the market conditions, good or bad.
Mortgage types are options for home buyers and each has different strengths and requirements.
FHA & VA
An FHA (Federal Housing Administration) Mortgage is an insured mortgage through the federal government. These loans require a lower down payment of 3.5%. They normally are associated with easier credit qualifications and low closing costs. These loans may also require PMI (Private Mortgage Insurance) if the down payment is less than 20%.
VA (Veteran Affairs) mortgages are similar to an FHA loan but these are held specifically for veterans, service members, and their surviving spouses. VA loans may even require no down payment or mortgage insurance. If you may qualify for a VA loan make your real estate agent.
A conventional mortgage is uninsured by the government. This means there is a higher risk for the lender. To compensate for this higher risk home buyers must have between 3% and 20% down and a good credit score. If you have a down payment of less than 20% you will be required to have PMI (Private Mortgage Insurance).
Private Mortgage Insurance
If you put a down payment of less than 20% of your home’s value, your lender requires private mortgage insurance. A down payment of 20% will help you avoid paying private mortgage insurance (PMI). This added insurance protects the lender in case you default on your mortgage. Once you have put down or paid off 20%of your mortgage, you can remove the insurance from your loan. Removing private mortgage insurance will decrease your monthly payment. It will also allow you to make more payments toward your principal, which will pay off your loan faster!
A larger down payment helps the bank evaluate your creditworthiness. A larger down payment can lead to a lower interest rate and reduced fees. It also will bring down the monthly payment of your new home. Most importantly, it can decrease the amount you pay in interest over time. Decreasing your interest rate can equate to tens of thousands of dollars or more in savings!
Get pre-qualified and pre-approved for a mortgage loan
The first step in buying a home is getting pre-qualified or pre-approved for a mortgage loan. You’ll need to do this before you start looking at homes. It will help you narrow down what kind of house you can afford.
Many times your real estate agent will have a lender they have a relationship with that they trust and can recommend. Ask your real estate agent which lender they would recommend.
A pre-qualification is when they’ve analyzed basic information about your financial situation. Your lender then determined that you could qualify for a certain amount of money on your house purchase. This does not mean this is the final amount you are eligible for but a rough estimate.
Pre-approval means your lender has run checks on other factors such as credit score, employment history, etc. Once they have analyzed these factors and have found you creditworthy, they’ll provide a pre-approval letter. This letter means they are conditionally ready to lend money for your new home purchase. You can now go out shopping for a house and be confident that you will be able to get a mortgage for the amount of money provided. Once you find your dream home and it costs more than your pre-approval letter, you have options. However, you will need to convince your lender or find another lender that you can qualify for more. If this does not work, you will need a larger down payment to make up the difference between their lending amount.
Finding your dream home
Once you are pre-qualified and have your real estate agent lined up, it’s time to start looking for your dream home! The first thing to do is research what you may want in a home. Are there specific features that are important to you? Do you have kids or plan to have kids in the future? Once these things are determined, then be sure to look at homes that fit those needs. Keep in mind, many times you may compromise on some of your wants. For example, you may want a big backyard and still be within 10 minutes of grocery stores and other retail establishments. Upon searching, the only place you can find in your price range has only half the yard you wanted. Understanding or ranking your wants and needs can help you stay objective throughout the process.
Fixer-Upper or Move-in Ready?
Also, consider whether or not you want an easy-to-maintain property or are willing to put work into repairs. If something needs repair now or soon after moving into the home (such as plumbing), you will be responsible for addressing these issues after closing. Keeping in mind the level of work you are willing to do yourself or pay for is something to keep in mind.
If you’re looking to live in a specific area, then be sure to read up on the local crime rates and other factors that might affect your decision. For example, if you want a quiet neighborhood and are worried about safety, try finding a home with plenty of streetlights or other features that help deter criminals from hanging around!
Once you’ve found a few homes you are interested in, schedule time with your real estate agent or the buyer to view the home. Once you’ve found a home that ticks most or all of your boxes, it’s time to put in a contingent offer.
Make an Offer on Your New Home
Once you’ve found a home you want to buy, it’s time to make an offer on the property. The seller will likely have a list price in mind and may accept or reject your bid based on whether or not they think it meets their expectations.
If they accept your offer, you’re one step closer to owning your dream home!
However, if the seller rejects your offer, they may be willing to negotiate with you on other terms, such as who pays for closing costs. You could also choose to walk away from the deal and keep looking. A real estate agent is perfect for navigating these kinds of real estate deals.
A contingencies clause is an agreement between two parties that their contingencies must be satisfied before the party is obligated to perform their end of the bargain. The clause allows the party to leave the deal if any of the conditions listed aren’t satisfied.
For example, you want to buy a house and put down 20% as your down payment. However, your lender requires no liens against the property (like a tax lien) before approving you for financing. In this case, we have a financing contingency related to your lender. In addition to liens and other title check issues, a lender, seller, or home buyer may add contingencies related to home inspection, appraisal, and more.
When you are negotiating a purchase contract, make sure to include contingencies in the document. The contingency will save you the hassle and money of losing deposits or having legal issues.
Get A Home Inspection
It is always a good idea to have a home inspection before you purchase. A home inspection brings to light issues that can potentially stop closing or cost you money in the future. The price usually isn’t all that high, but it is money well spent because it helps prevent unpleasant surprises down the road.
A home inspection is even if you’re buying a new construction home. Many things can go wrong during construction and not be discovered immediately (or even after moving in). A builder’s inspection can help find fixable issues before you move in, but it may not find everything.
Close On Your New Home Purchase
When closing on your new home, there are closing costs. These are fees associated with drafting documents and processing paperwork needed for purchasing a home. Closing costs vary and can range from 2-5% of your purchase price (or more). The lender provides a cost estimate before closing. Be sure to ask about them! You can also negotiate who pays what percentage of the closing costs. Be sure to speak to your real estate agent to understand the best option for you.
In addition to closing costs, you should get title insurance. If you have a mortgage, title insurance is required. Title insurance is advisable, even if you are paying cash for your new home. Title insurance is a good idea for any real estate transaction and can provide peace of mind for buyers and sellers alike. It protects against potential title issues, such as liens, unpaid taxes, and past owners with a claim to the property. Approximately 20% of all real estate transactions have a deed or another potential issue that title insurance protects against, making it an essential part of the process for many buyers and sellers.
Buying a home is one of the largest investments most will ever make. If you are buying your first home, speak to experts in the field. Century 21 Realty Services is always here to answer your questions. Contact one of our team members at (717) 737-2121