Buyer's Guide
Buy A Home. Step-By-Step
Getting Started
If you are planning to get a mortgage loan, get a jump start by knowing where to find your last few years of taxes, pay stubs, and credit records showing how much debt you have, and what your current payments are.
Do not pay off your credit cards before you get advice from your lender. A certain percentage balance on a credit account or two might actually help you qualify for a loan. The lender will take a look and tell you which to pay off, and which to leave a partial balance on.
Avoid opening any new lines of credit between now and when you close on your home. If you know that you are going to have to buy a vehicle or make another credit purchase during this time, let them know in advance. Surprises like this can cause your dream home to fall through at the last minute. Don’t buy a new fridge for the new house on credit. Don’t save 15% at the department store by opening a card today. That 15% will just have to wait.
Down Payment: Even if you don’t have a down payment saved up, you can still buy a home. Low down (but slightly higher interest!) mortgages still exist, if there is no other option. Ideally, if you have 3.5% – 5% of your desired sales budget available to use as a down payment for a nice, move-in-ready home, you are in the best situation to move forward. Fixer-upper and renovation projects generally require 20% down. Your lender will confirm down payment amounts once you’ve chosen a loan type together based on your financial situation.
Unless you are buying your new home with cash, you will need a pre-qualification (or pre-approval) letter from a lender to start seeing homes. Since many homes sell within 24 hours of listing, or on weekends when lenders might not even be available, most agents will request that you have your ‘pre-qual’ ready to go.
Not all lenders are created equal.
Here are some characteristics of a great lender:
- They can work with your financial background
- The following circumstances might require a specialty lender: self-employed, bankruptcies, new construction, commercial
- They provide an after hours contact number for weekend questions
- They provide options for submitting/signing paperwork electronically (so you don’t have to take off work)
- They have a reputation for excellent communication
- They are based locally or have a local satellite office (easier for local lenders to get appraisers to the property on time)
TIP: Local real estate agents will be able to provide free referrals to lenders who are awesome to work with – Just ask!
Not all agents are created equal. The right agent can make the process smooth and help you find a treasure of a property.
Check reviews. Ask around for referrals. Work with a brokerage that offers a quality agent guarantee.
Here are some characteristics of a great real estate agent. They…
- Real estate agent has a REALTOR membership and MLS (Multiple Listing Service) membership
- Have an after hours number you can call if a showing comes up
- Are local to the area.
- Have a history of quality closings that is documented by reviews, or personal referrals. If the agent is new, they should be training/partnering with an agent who does have excellent history.
- Search beyond the MLS for properties that are suitable.
- Are experienced with the type of property you are looking for: suburban, condo, vacant land, new construction, lake front, etc
- Are regularly available to show you properties within 24 hours of listing.
- Keep your needs as a priority
- Have excellent communication and keep you in the loop
Do: Choose an agent and stick with them. The longer you stay with a great agent, the more time they will invest into locating off-market leads for you through their network.
Do: Choose wisely. Shake a few hands. Every agent does things a little differently – even within the same brokerage company. Once you sign a representation agreement, it becomes very difficult, if not impossible, to switch agents.
Be comfortable with your agent. You will be working together for the next few months, so find someone who is a good fit.
If you are planning to sell your current home and buy a new one simultaneously, begin getting the home ready, inside and out, for the process of listing, taking photos, and inspections. If you find a home you love, and get an accepted offer, you will need to be ready to photograph, market, and show within just a few days of that accepted offer on your new home. Be prepared for a quick turn-around.
Prefer a more relaxed transition? Talk to your lender about a “bridge loan” and other options that allow you to close on your new home 1st, then sell your home after you’ve had a chance to comfortably move out.
Choosing A Home
You want to see the biggest selection of homes possible, so make sure to give your agent the most flexible parameters possible for the search. Do you need 4 bedrooms – or could you make do with 3 bedrooms if there is a shop? Would a 1 bath house work, if the home was $50,000 cheaper and had a place to install a 2nd bath in the basement? If there was a property out there that was 9.75 acres instead of 10, would you be open to giving it a look? The more flexible you are, the greater your options!
You may have already signed up for an online property search – just to keep on the lookout for new properties. Now it’s time for your agent to set up the pro search. Your agent will also begin checking off-market resources for unlisted properties, and possibly even For Sale By Owner (FSBO) properties, if the MLS isn’t finding the results you need. Agents will typically save FSBO options for last because they can sometimes result in expensive closing costs for buyers, that the sellers may not have factored in when they chose their asking price.
Choose a time of day that generally works for you to see homes each day – right after work, first thing in the morning, on lunch break, etc. Let your agent know your preference so they can try and keep that time slot available for you. That way, when a new home comes on the market, you can quickly schedule an appointment to see it.
When you look at homes, determine if they will work for your family’s needs. You and your agent will also be on the lookout for both ‘warts,’ and bonus upgrades. Your agent will also confirm that the home will work with your selected loan type, and will discuss whether the home is likely to appraise for the asking price.
In a sellers’ market like we see today, be prepared to make a decision on a home within a few hours of the showing. To Offer, or Not To Offer… That is the question. It will take your agent a few hours to prepare the offer, and there may need to be a conversation between the agent and the lender to discuss specific terms. Then, you and the agent will meet again – either in person or electronically – to review the offer, make sure everything looks correct, then to sign. Once all papers are signed, your agent will get the offer over to the sellers’ agent as swiftly as possible.
Then… you wait to hear back…
Inspections
If the sellers do not accept your offer, they may send you a counter-offer that suggests either a different price, or different terms.
Review the new terms with your agent and lender (if applicable), then decide what course of action is right for you: Accept, reject, or counter back.
Continue negotiating until an agreement is reached, or until you decide it’s time to let this one go and try again on a different home.
Once you have an accepted offer, your next step is to begin your inspection of the property. You will have a window of opportunity to inspect the home. If you find any major ‘deal breaker’ issues with the home that the seller is not willing or able to fix, you will be able to withdraw from purchase agreement. Once that window passes, it becomes more difficult to terminate the offer, so make sure to keep your inspections on schedule.
ALWAYS have your new home inspected. No home is perfect- even brand new ones.
Your agent can recommend inspectors who are thorough and efficient. You can also select your own inspector using recommendations from friends or on-line reviews. Just make sure that the inspector is properly licensed for the state you are buying in.
In addition to a general inspection, you may want to also consider additional inspections for the following:
- Radon
- Sewer Line (or septic)
- Well water pressure and quality
- Lead
- Land Survey
Your general inspector may turn up some things that will require further investigation by a specialist inspector. The following add-on inspections are fairly routine.
- Roof Inspection
- Mold
- Foundation
- Plumbing
- Electrical
- Chimney
- Furnace/HVAC
- Siding
Investigate everything that looks questionable. Buying a home is a big investment. You deserve to know exactly what you are buying.
Sometimes, there is a 2nd round of negotiation once the inspections are complete.
If there any “deal breakers” are found during the inspection, your agent will alert the sellers’ agent. Sellers will have the option to 1) reject your request for repairs, 2) offer to repair the items, or 3) offer cash back at closing so that you can repair them yourself once you own the home.
At this stage, it is always the goal to find a solution that works for everyone.
Tip: Sellers who received multiple offers, or who have a back-up offer in place, will be less agreeable to making repairs. So you and your agent may have to think outside of the box to find the perfect solution.
During the inspection period, your agent (in cooperation with a title company) will provide you with a copy of the title commitment – showing that the property title is legitimate and can be sold. You will also receive copies of easements (usually a summary), CCR’s, HOA documents, plats, if applicable. Some properties have survey records that you may have to request, so let your agent know if you are interested in those.
Appraisal Results
Your lender will choose an appraiser and send them to the house to make sure that it is worth the value of the loan.
When the lender gets the results of the appraisal back, for a few homes, there may be some final repairs or price changes that need to be negotiated.
If a low or incomplete appraisal is likely, your agent will let you know before you even write the offer, so there are not usually any surprises here.
Check with your real estate agent to make sure everything is on schedule. If the appraisal is done, and the lender and your agent still feel comfortable with the closing date, it’s time to reserve the moving van. Allow yourself 2 business days extra after the closing date if possible, since there are often last minute things that come up on the lender’s end.
Have a contingency plan. It’s rare, but things happen. For example, if lightning strikes the seller on his way to signing, your closing just got pushed out by months – if it can close at all.
Know ahead of time if you will be able to continue living in your current location, or if you will have to move. If you will need to move no matter what, then have a backup plan, just in case. Your agent will help you find another house, but it can take another 4- 6 weeks to go back through the process. Again, it’s very rare, but it’s always best to be prepared – especially if you are moving with children, handicapped, pets, and/or livestock.
Closing
During the process, there will be a trail of occasional papers to sign from both your lender, and your agent.
Then comes the final “signing” where you sign paperwork from 1) the lender that outlines the terms of the loan and 2) from the title company transferring title.
This final signing is usually done at the title company, and usually takes about an hour. A title agent will talk you through the documents, however, if you would like to preview them in advance, let your agent know, and they will send them over.
Once you’ve signed the papers, there is a behind-the-scenes process that takes about 3/4 of a business day to complete. Finally, title will record, and the property will officially be yours!
Once the property has recorded in your name, your agent will meet with you to hand you the keys
Utilities: Once the home has recorded, you will need to spend a bit of time on the phone transferring the utilities into your name.
Water Rights: If the property is on a well, you will need to call and transfer water rights to you.
Homeowner’s Exemption: If the property is in Idaho, and it is your primary residence, you will also want to go to the county assessor’s office in the next day or two and sign up for a Homeowner’s Exemption on your property taxes.