Follow these 9 time-proven steps to become a happy, lucky new home owner
As complicated a process of buying a new home may be, with an educated approach, you can pull it off without much stress and on a budget.
You have examined your financials and realized that you can afford a better lifestyle through ownership, securing your future and having a place that is all yours. Yes and Yes! Here is your 9-step manual for achieving that worthy goal. Follow it, do it right and you will be on your way to the Closing table.
Step 1: Start with your credit score
Start by checking your credit. Once-a-year you are entitled to a free credit report. Whether it’s www.freecreditreport.com, www.transunion.com, www.equifax.com or www.annualcreditreport.com, any of these should provide you with your current credit status, free of charge. Credit scores can range from 350 to 850. Your illegibility for a loan and your interest rate will be directly correlated to your credit score. Here are the few factors that will affect your borrowing terms:
• Your current debt-to-income ratio (An important factor) Your payment history (Always taken into an account by any lender)
• Your overall credit history: past loans, mortgages, credit cards usage and re-payment history, defaults and bankruptcies (This will either save you good money or cost you)
• Recent purchases and new debt (Will affect your borrowing power, alter your debt-to-income ratio, potentially resulting in higher interest rate, extra points or may even cause denial of the loan)
• Financial versatility: Student and car loans, credit cards and other debt Can establish a good credit history if paid off on time (Try to catch up or reduce, if behind)
** Your credit score should not be taken lightly, as it will either cost you BIG money in the long term or save you from wasting it. Various credit reporting agencies will score buyers anywhere from 350 to 800. On the lower end of the scale, getting a mortgage can become a challenge, while a higher score is much more likely to get you qualify for it and on better terms. Try to reduce your debt, limit your spending and save up a bit more for the down payment.
Step 2: Know what you can afford
A Bank may pre-qualify you for a purchase of the house of your dreams. Sure, it’s exciting to know you can buy that nice, big house. Perhaps. But, before you make that commitment , factor these in: your new mortgage payments, your credit card/car payments, your reliable income versus your living expenses, vacations and entertainment, emergencies, income tax, Real Estate Taxes, Property insurance, repairs, maintenance, utility bills and, likely needed, a few home improvements. Crunch the numbers, realistically, and see what it will cost you on a monthly basis.
Be conservative about what you can afford and you will enjoy your new home for a long time without extra financial pressures.
Step 3: Select the right Agent
Find the Right Agent. That will make a difference. Someone seasoned, with real, long-term field experience and a thorough knowledge of the business and the market can save you from a major misstep. Your buying choice will be a long-term and a pricey commitment. You must choose wisely, if you want to become a truly happy owner. So, interview many and carefully select the one, whom you feel you can trust with this major move. A really good Agent will guide you through the entire process, give valuable advice on numerous issues, make sure things go faster and smoother and, likely, will save you quite a bit of money at the end. Unbeknownst to you, your final buying decision can often be affected in many ways. Find the RIGHT Agent and you will not regret buying that home.
Step 4: Pre-qualify for a mortgage
Before you start looking at houses, do this one simple thing: Get pre-qualified by your bank or your Credit Union. Banks have different criteria and standards, so you may do yourself a favor by interviewing with loan officers from various banks as well, as talking to a local mortgage company or two. It’s always good to know your options. The terms and fees will vary and, like with most everything else in business, you may find a much better deal if you shop around and negotiate. Things like upfront fees, points, interest rate you will pay (fixed or adjusted), penalties, pre-payment penalties and other conditions can translate either into substantial extra expenses or savings over the life of the mortgage.
The total amount you will get Pre-qualified for will depend on your available down-payment, your income versus your expenses, debt, other financial commitments/obligations and, of course, your credit history. The more money you have available for the Down-payment, the easier it will be to get Pre-qualified/Pre-approved and obtain a better mortgage. Your typical length of the Mortgage will either be 15, 20 or 30 Years. Needless to say, the shorter the life of the Mortgage and the lower the interest rate you are committing to, the less money you will pay by the date when the Mortgage is “satisfied” or, in layman’s terms: fully re-paid. Banks always like it when you have some “skin in the game”. If you can put 20% down, you will, altogether, eliminate a pricey Private Mortgage Insurance, otherwise known as PMI. Seemingly small differences can end up being very helpful in terms of long-term savings.
So, save as much, as you can, reduce your bad debt, fix your credit, limit your trips to the mall for a while and don’t assume any new debt after you got pre-approved. Any new debt will immediately and negatively affect your eligibility and will seriously jeopardize your chances of getting that Mortgage Commitment. And that would be a bad news..
Getting Pre-qualified for a certain size mortgage helps to gain Seller’s confidence in terms of your performance and may even help with negotiations.
** There is no obligation on your part to finance the purchase with the very bank you got your Pre-Qual or Pre-Approval letter from. Once you find your dream home, you can go to any financial institution you choose, in order to finance the purchase.
Step 5: Find the best home you can comfortably afford
Once you have established your price range and settled on desirable locations, start the search of properties which fit your criteria and your budget. An online search, coupled with what your agent suggests is a good start. In most any market, there are many choices available and all are quite unique in its intrinsic or projected value, various conditions and features, including potential for adding value with relatively small efforts. Sometimes you need to think outside the box to recognize a potentially great property, disguised as a mediocre one. Learn the Market, view multiple properties, compare and, importantly, choose the Right Agent. An experienced, sharp Agent will know and address dozens of potential, serious issues, guide you in the right direction and will also negotiate the best deal for you. That one pick of someone with much experience, knowledge of the market, integrity and solid reputation is going to pave your way to the right and happy purchase.
Step 6: Negotiate like a Pro
It’s been said that in life, we negotiate all the time. We negotiate with our families, friends, merchants and even with strangers. Most people believe they know how to negotiate. In reality, negotiation is a learned and true skill. You don’t need to study and practice negotiation for decades to buy your home right, though. All you need is to recognize the fine line between negotiating too hard and being shrewd, but reasonable. Yes, the asking price is the starting point from where you begin negotiating. You start too low and you could muddy the waters and the future progress may stall right away. You offer more than you need to and you end up paying more. The terms of the purchase are always in the mix, too. Some buyers ask for concessions or repairs done prior to the Closing. Some want extras left in the house or expect extended closing time, early possession, credits at Closing and various contingencies. All negotiating.. Before you present your offers and demands, though, think carefully about what is really important. If your offer and terms are reasonable and fair, you are likely to get what you want. If you are driving too hard a bargain, you may end up losing that perfect home. It’s a thin line to walk and the outcome may impact your life in many ways. Craft your offers carefully and deliberately, have a trusted, experienced Agent help you with those and focus on your end goal. See the Big picture and don’t let your emotions get in the way. Follow these suggestions and you will negotiate like a Pro.
Step 7: Test and do inspections
Most purchase offers are subject to property inspections and certain tests. The Property needs pass muster to be sold. While expectations and requirements vary, most buyers rely on a local Home inspector to get through this phase. Your typical Home inspection will take around 2 1/2 hours and will cost you anywhere between $400 and $750. The Radon test may add another $100-$130. Most Home inspectors will carefully examine the house for structural integrity, roof condition, building code compliance, any hidden issues and apparent flaws and will also test the water quality, its pressure level and, if desired, will do the Radon test. A thorough, professional Home inspector will also check out outlets, appliances, fixtures and the utility systems to establish that all are in good working order. Occasionally, other experts’ advice may be useful or necessary. This time-frame could also be used for doing some quick measurements and pre-planning before you get to move-in.
Step 8: Master the moving logistics
This may be the most stressful and intense aspect of purchasing and moving into a new place. If you can prioritize, get organized, make a list and keep it, you can get through this phase without losing your piece of mind. You will be dealing with your bank or a mortgage broker, your attorney, your Agent, your insurance company, utility companies as well, as with movers, packing, etc. Staying on top of everybody involved in this process usually helps with getting things done faster and better. Some home purchases take a couple-three months, while others go faster and smoother. In either case, it’s always more fun to attend that Closing, knowing you are fully prepared, all ready to move and stress-free.
Step 9: Be ready to close
Obviously, it’s a big day. If you, like most buyers, are financing the purchase through a bank or a financial institution, you may want to reach out to the person who is handling your mortgage a couple of days before the Closing date to make sure they have all the paperwork in order. Contact your attorney as well to make sure he or she has all the docs ready for signatures. The last thing you want is to sit at that closing table and wait for an extra hour or two for someone, on the phone, trying to get a missing info or a document. Normally, this is who you will have at the Closing table: the Seller(s), two attorneys, the Loan Officer, the Title company rep and two Real Estate Agents. Make sure you come to the Closing table with all the paperwork in order. BTW, bring your check-book to the event. You will need some extra $ in your checking account to pay your attorney’s fee and the closing costs.
Sitting at that Closing table may feel a bit intense, but the good news is that you are just about to cross the finish line and become the new, rightful owner of the place you want!
P. S. Please keep in mind, that the above guide is, essentially, just a blue-print. Every home-buying process is quite unique and there will be too many moving parts to foresee. So, while these bits of Real Estate wisdom may be useful to you in understanding the fundamentals, whenever uncertain, seek professional advice from the experts in the field. The right ones will help you navigate the waters smoothly and may become instrumental in making your home-buying endeavor a true success.
By Dmitri Belyi. Principal Broker, Upstream Realty.