The Buying Process
Buying a home is a significant and exciting decision. This section provides professional real estate advice and helpful home buying tips.
What are the steps to take in purchasing a home Let’s break it down into a few categories:
- Finances – Am I truly ready to buy and are my finances in order
- Shopping for a loan – For most people having a mortgage is necessary. Know the types of loans available and what is required of you for that specific loan
- Shopping for a home - This sounds like the fun part, but are you prepared Do you really know what you want, what you are looking for
- Closing And Moving – You found your perfect home, now what There are plenty of more steps to consider.
Finances ( Back to top )
When purchasing a home there are several things to consider. Finances are of course the biggest piece of the puzzle. Definitely check out the Q/A section from how to apply for a loan to the different types of loans.
- Step One: Should I Rent Or Buy
- Step Two: Create A Home Wish List
- Step Three: How Much Can You Afford Each Month
- Step Four – Down Payment and Closing Costs.
Don’t waste time driving all over town; decide up front what you need in a home. This Home Buyer Wish list will get you started.When completing your home wish list you may want to ask yourself some questions, such as:
- Where will I be in the next 5-7 years
- Will I have children, or will I have more children
- What school system is important for me to be in
- How close to work do I want to live
- How much of a yard do I really need
As you begin to (shop for your home) refer back to your wish list to make sure your home is going to fit your needs now, and within the near future.
Determine the amount of money you can afford to pay each month for your mortgage. Just because a lender is willing to give you more money does not necessarily mean you need to take it! Don’t bite off more than you can chew. You want to enjoy your new home, not be strapped to it. How much house payment should you consider There are all kinds of theories out there, but we like to say that your mortgage payment should not be more than 25% of your take-home pay. Once you’ve determined what 25% of your take home pay is, then calculate your debt-to-income ratio -- your amount of monthly bills compared to your average monthly income. Mortgage lenders look at this ratio when qualifying you for a loan. If your debt is more than 20 percent of your net monthly income, pay down some bills before you begin to look for a home. A mortgage payment covers Principal, Interest, Taxes and Insurance, better known as PITI in the mortgage world. If your down payment is less than 20% you will most likely need to pay for Private Mortgage Insurance, PMI.
There are additional costs to consider when buying a home.
- Down payment: Most lenders would love to have 20% down. However there are programs out there that require as little as 3.5% down.
- Closing Costs: Additional fees paid at the time of closing are things such as: Appraisal fees, Inspection Fees, any HOA fees that are not negotiated in the seller contract. Your REALTOR can help you know the exact closing cost prior to closing. You certainly don’t want to show up to closing and be short on money and have the closing delayed, or worse yet, the deal fall apart and you lose your home.
Shopping For A Loan ( Back to top )
Now that you’ve looked over your finances and have made the decision to move forward to purchase a home let’s discuss the process to take in getting the right loan for you. Start getting your financial documents in order because your Loan Officer is going to need them. Here’s a list of documents most mortgage companies will required:
- Social Security cards of the people purchasing the home
- Home addresses for the last 24 months, and the names and addresses of the landlords and/or mortgage lenders.
- Name and complete address of employers for the last 24 months (for all applicants)
- Last two year’ W-2 Forms for all applicants
- Most recent pay stubs covering one full month and year to date information for all applicants
- Verification of any other income to be used for qualification purposes
- For the self-employed: Current profit and loss statement, current balance sheet, Income Tax Returns for the past two years, both personal and business.
- A list of account numbers, balances, and complete bank addresses for checking and savings accounts
- Copies of your last two months’ checking and saving account statements
- Copies of the most recent investment and retirement account statement (if applicable)
- If any buyer is obligated to pay alimony, child support or separate maintenance, bring a copy of the recorded divorce decree and/or maintenance agreement.
- If any application owns other real estate please provide a list of all income, copies of all leases or rental agreements, names and addresses of all lenders, loan numbers, loan balances, and monthly payment.
A few questions you will want to ask your mortgage professional about the type of loans:
- Mortgage type- What is the type of loan, is it conventional, FHA, VA, etc.
- Interest rate- What is the best interest rate you can be locked into.
- Length of loan- Will it be a 15 year loan, or a 30 year loan
- How points will affect the rate- Can you pay points to lower the rate A point is general 1% of the loan.
- Required down payment- For the type of loan you are getting what amount of money is required to put down
- If you have to pay PMI (private mortgage insurance) – Are you putting enough money down that you can forego having to pay the PMI
- Estimated monthly payment – What will your monthly payment be with all factors being considered, such as PMI, and taxes
- Estimated closing costs (includes appraisal, lender fees, title fees, recording fees, etc.) Make sure you know from your lender all the details of the additional costs.
Shopping For A Home ( Back to top )
Now comes the fun part. By now you should be working with a REALTOR®. Did you know that it doesn’t cost you anything to work with a REALTOR® when buying a home The Real Estate agent is paid by the Seller, not by the buyer. The REALTOR® is your best friend through this process. They will be able to now only help you find the perfect home, but will assist you through the entire process all the way to move in day. The fun part begins after you have been preapproved, and you’ve discussed the different loan options with your mortgage professional. We know that over 90% of people begin their home search online. The CENTURY 21 Scheetz website displays all the homes for sale in the entire Metropolitan Indianapolis Area, as well as showing the details of the homes sold in your area. We know that people use their mobile phone when they are out and about so before you begin driving around looking at houses make sure to download the CENTURY 21® app called CENTURY 21® Real Estate Mobile from the iTunes store. You will have a good time with this app and it will show you all homes for sale.
Go back to your wish list (LINK TO WISH LIST) to help guide you and help you determine what criteria is most important to you in finding a home. Here are a few questions to keep in mind that can help guide you
- Are you looking for a move in ready home or a fixer upper
- Do you want to be close to where you work
- Are school systems important in your choice Even if you don’t have children the school systems will play a part of your future home value and resale of your home.
- What is the crime rate
- What is the community and/or neighborhood like
- What are the HOA fees for a particular neighborhood
Sounds silly right But when you are shopping for a home it can become confusing if you’ve looked at several different houses. The average home buyer looks at about 10 homes before making a choice. By that time they can all begin to sound and look the same to you. Keep a journal detailing each home and why you liked it. You may even want to snap a couple pictures so you can really keep everything clear.
As you walk through the house take note of the roof, how old is it Have there been any major repairs Is there any mold in the house What are the taxes on the house What is the average utility bill There are so many things to look for when purchasing a home that is why it is so important to keep good notes!
There’s nothing wrong with buying a foreclosure, unfortunately it is the market in which we all reside. However, there are a few things you should be aware of if you choose to purchase a Foreclosure or Short Sale Property.
- You definitely want to work a real estate professional experienced with the foreclosure and short sale market
- Short Sale: This process will take a bit longer. This is a “pre-foreclosure”. An offer on the home would have to satisfy the bank for the property is generally being purchased at less than the balance owing on a mortgage.
- Bank Owned Homes: When purchasing a Bank Owned Home you would make an offer on a home in which the bank has already foreclosed upon and which the bank now owns. This process does not typically take as long.
It’s getting close! You’ve found the house you like! You and your REALTOR will discuss the offer and your REALTOR will complete the purchase agreement to send the Selling Agent. The purchase agreement will include items such as:
- Your proposed offer price
- Items to be included in the sale, such as appliances, window treatment, etc.
- Possible contingencies such as a satisfactory home inspection, – if applicable – provisions for disclosures of any defects that would affect the property -
- Seller concessions – will you be requesting the seller pay any closing costs
- A specific amount of for the earnest money/down payment
- A proposed closing date
- And the expiration date as to when your offer expires
Depending upon your offer your REALTOR may receive a counter offer from the Sellers in which you and your realtor will respond accordingly.
Closing And Moving ( Back to top )
You’ve agreed upon the terms of the sale and now you’re ready to continue the process.
A Title company will check the property’s title records, will look for liens, and any overdue assessments or claims on the property that might cause a delay in the closing or cause the closing not to take place at all.
Your lender wants to know that you will be purchasing a home of greater than or equal to market value. The appraiser will evaluate the comparison homes in the area which have sold to determine what the market says your home is worth. If the appraisal comes back equal to or greater than the loan amount you have offered on the home then all is good. If the appraised value of the home comes back and is lower than your purchase offer then typically all is not good. There are several things that can happen when an appraised value of the home is lower than what you have offered to pay.
- The buyer can make up the difference in cash
- The seller can lower the price – this would be the best approach. The next time the seller tries to sell and the appraisal takes place the seller could be facing the same situation.
- Order a second appraisal – Work with your lender on this
- Seller can offer to carry the second mortgage – Work with your Realtor and Lender on this
- Cancel the transaction – Never the favorable approach.
Your REALTOR explained to you the appraisal contingency and the inspection contingency in the purchase agreement. The home is contingent upon no major defects being found where the seller is not willing to correct them.
During the inspection the professional home inspector checks the condition of the home to make sure it is structurally sound and looks for issues that could potentially become costly disasters. A typical inspection covers all major mechanical systems, structural integrity, cosmetic features and other aspects of the house.
Once the inspection is complete a report is sent to your REALTOR. You REALTOR will discuss the report with you to determine what items you will either request the seller to correct, or provide money at closing for you to correct the issues.
Your lender requires proof of a valid homeowner’s insurance policy prior to closing. Your homeowner’s policy should cover the cost of rebuilding your home at today’s prices.
Homeowners insurance should cover casualty or hazard and helps rebuild or repair your home should it be destroyed by:
- Smoke Damage
- Windstorms, Hail, explosions
- Breakage due to theft or accident
It should also cover liability or lawsuits resulting from injuries to people who come on your property. You can decide if you want actual cash value or replacement coverage on personal property.
There is a lot included in your homeowner’s insurance policy. Be sure to shop around for the best value that fits your needs.
If your seller did not offer a home warranty as part of the sale you may either negotiate that as a contingency for the sale, or purchase Home Warranty on your own for your new home. The last thing you want to deal with is moving into your new home and having something break. You home warranty covers many things in the home that are typically large items to replace. Check out the Home Warranty information.
A couple days before closing do a final walkthrough of the property. Check the items you asked the seller to fix and if you requested items to remain in the house ensure they are still there.
It seems like a long process but you are almost ready to move into your new home. Your REALTOR will let you know the closing date, time and location. During the closing time there will be a plethora of paperwork for you to sign. Don’t be afraid to ask questions during this time if you don’t understand any of the paperwork you are signing.
Once the closing takes place you are ready for your big move! Congratulations!!