Key Steps to Buying a House

 

1. Make a decision to rent or buy

There is no doubt that owning a property can make you feel good. You get more space, you don’t have a landlord to report to, and you get the personal enjoyment and pride of ownership, but the real advantages of owning a home are of financial nature.

Tax Deductibility of the interest of your mortgage, Tax Deductibility of Property taxes, and

Appreciation Potential are some of the benefits you get when you own real estate.

 

2. Figure out how much you can afford

•         First, figure out your gross monthly income. Use the average income of a 2 year time period.
•         Next, calculate your monthly debt. This includes all monthly debt obligations like credit cards, installment loans, car loans, personal debts or any other ongoing monthly obligation like alimony or child support. In a revolving debt like a credit card, use the minimum monthly payment for this calculation. If it is installment debt, use the current monthly payment to calculate your debt load. And you don’t have to consider a debt at all if it is scheduled to be paid off in less than ten months.

Typically, your monthly proposed housing expense, including monthly payments for taxes and insurance, should not exceed about 28% of your gross monthly income. If you don’t know what your tax and insurance expense will be, you can estimate that about 15% of your payment will go toward this expense. The remainder can be used for principal and interest repayment. In addition, your proposed monthly housing expense and your total monthly debt service combined cannot exceed about 36% of your gross monthly income. If it does, your application may exceed the lender’s underwriting guidelines and your loan may not be approved.

 

3. Find the right real estate agent.

That’s where we come in. The buyer’s agent represents you, the buyer, not the seller, and has full fiduciary duties, including loyalty to you.

These specific fiduciary duties include:

Loyalty ▪ Confidentiality ▪ Disclosure ▪ Obedience ▪ Reasonable care and diligence ▪ Accounting

 

4. Get pre-approved

A preapproval letter is more reliable than a pre-qualification letter. In the preapproval process, a lender will examine your finances and will make a preliminary statement on the size of the loan for which you’ll qualify.

preapproved lets the seller know that you have gone through an extensive financial evaluation and there should be no unexpected obstacles to buying the home. It makes your offer much more powerful.

To become preapproved you will need to provide a lender with the following:

•         Your employment and income history (including recent pay stubs)
•         Your monthly debts
•         The amount and source of cash available for the down payment and closing costs

Preapproval letters are not binding on the lender, they are subject to an appraisal of the home you want to purchase and are time sensitive. If your financial situation changes, interest rates rise or a pre-determined date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly. You can research lenders yourself and ask them to preapprove you.

 

5. Decide what kind of home you want, find the right neighborhood and begin the home search

Once you’ve determined that you are ready to purchase a home, the most exciting part of the process is searching for just the right property for you.

We will help to provide you with additional information on areas that are attractive to you, as well as schedule times for you to preview any properties that may be of interest.

 

6. Preview the homes

When searching for a home, it’s easy to get overwhelmed with information and to forget what you are looking for. The most important things to consider are: Price, Size and Configuration, Comfort, Style of the property, Features and Resale Potential

 

7. Make an offer

The purchase offer includes items as:

•         Address of the property
•         Sale price
•         Terms: for example, all cash or subject to the buyer obtaining a mortgage for an amount
•         Seller’s promise to provide clear title (ownership)
•         Target date for closing
•         Amount of earnest money deposit accompanying the offer
•         Other requirements such as disclosure of specific environmental hazards, seismic hazards or other locally-specific clauses
•         A provision that the buyer may make a final walk-through inspection of the property just before closing
•         Any contingencies

 

8. Apply for a mortgage

The loan application will require a lot of personal and financial information, including the following:

•         Your residence history for the past two years
•         Your employment history for the past two years
•         All outstanding loans and credit cards
•         Savings, checking or investment accounts
•         Real estate you currently own
•         Personal property you own
•         Tax records

 

9. Have the inspections conducted

A home inspection will provide you with the additional insight of a construction expert. It is best that the property be inspected by a professional home inspector who is: a licensed general contractor, a member of a recognized home inspection trade group and has professional liability insurance.

Your home inspector will provide you with a written report, which will advise you of the physical condition of the property as determined from the inspection of accessible areas. Generally, the cost is approximately $300-$500.

A general inspector will focus on the structure, construction, and mechanical systems of the house, and will make you aware only of repairs that are needed. Generally, an inspector checks (and gives estimated prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, heating and cooling systems, water source and quality, the foundation, doors, windows, ceilings, walls, floors, and roof.

If conditions or defects are disclosed in the home inspection report you can:

•         Negotiate for the seller to fix the problems prior to closing,
•         Receive a credit from the seller for an amount to make the repairs; or
•         Cancel the contract if you and the seller cannot agree on the repairs or their costs.

It’s strongly recommended that you be present for the inspection since generally, you will learn a lot about your property. The inspection also provides a great opportunity to hear an objective opinion on the home you would like to purchase and it is a good time to ask general, maintenance questions of an expert.

 

10. Close the transaction

Sellers Generally Pay:

•         Real estate commission
•         Document transfer tax
•         Notary fees
•         Property tax proration (to date of acquisition)
•         Special delivery/courier fees, if required
•         Document preparation fees
•         Document recording charges
•         Homeowner’s association statement fee and prorata dues
•         Home warranty (according to contract)
•         Work/repairs required (according to contract)
•         Matters of record against the property or seller (loans, tax liens, judgments, etc.) and fees required to clear them (statement fees, reconveyance/trustee fees and prepayment penalties)

 

Buyers Generally Pay:

•         Title insurance policy premiums (lender’s and Buyer’s)
•         Escrow fees
•         Notary fees
•         Property tax proration (from acquisition date)
•         Special delivery/courier fees, if required
•         Document preparation fees
•         Document recording charges
•         Homeowner’s association transfer fee and prorata dues
•         Inspection fees (according to contract)
•         Matters of record against the buyer including tax liens, judgments and fees required to clear them
•         Fire insurance premium for the first year
•         Assumption/change of records fees if the buyer is taking over an existing loan
•         Lender’s new loan charges
•         Interest on new loan from date of funding to 30 days prior to the first payment
•         Other prorations (rents, insurance etc.) if applicable

 

On closing day, you’ll be asked to present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proof of any inspection, warranties, etc. Once you’re sure you understand all the documentation, you’ll sign the mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.

You’ll pay the lender’s agent all closing costs and, in turn, the lender will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the County Recorder’s office. At that point, you officially will be a homeowner.

 

 

11. Move into your new home

At your new address:

•         Check on service of telephone, gas, electricity, water and garbage and switch utilities to new address
•         Have new address recorded on driver’s license and car registration
•         Visit city offices and register for voting
•         Register children in school

 

 

Pro Tip:

Buy your house through Stan Ivkovic. Reach out to me to get started!