Many first-time buyers are unfamiliar with the process
when they start looking for a home. We know that the best clients
are those who have done their research before starting the process
of shopping for a home, because it makes the process much smoother
and there are generally very few surprises. Nothing is more critical
for a buyer than being prepared for just about anything. This holds
true whether you are planning to by a small one-bedroom home or a
pricey gated home in a beachfront community. Knowing how the buying
process works is definitely advantageous to you as a buyer.
Here are three important questions to
ask yourself before deciding to buy a home:
FIRST: Are You Financially Prepared?
Lenders make it simple for today’s home buyers to determine
in advance just how much home they can afford to purchase comfortably.
The first step in making this determination is to use a pre-qualification
service through a local lender in order to estimate how much you can
afford in light of your current income and large monthly payments.
This process may be as simple as a calculation that tells you what
amount you can finance based upon a monthly payment equal to 28% of
your net monthly income, or it may factor in your car payments, student
loan payments or other mortgage loan payments. The calculation depends
on the lender, but generally the pre-qualification process does not
involve anyone reviewing your credit report or other details about
your specific situation.
Note that pre-qualification is not a promise to lend.
For that, you will need to select a lender and request pre-approval
of a maximum loan amount. Most lenders use the pre-approval process
to determine the borrower’s creditworthiness and decide whether
to extend financing and, if so, in what amount. Once a buyer is pre-approved
for financing, he or she receives a pre-approval letter from the lender
that states the maximum amount that can be borrowed and the conditions
of the loan.
However, pre-approval is not the only thing you need
to worry about. As anyone who has ever purchased a home will tell
you, you will need to have about five percent of the home’s
purchase price in hand on the day of closing. This money can and will
be used to cover closing costs, such as attorney fees, property taxes,
title insurance, documentation fees, and more. The total closing costs
will vary depending on the home’s location and your lender.
If you have made an agreement with the seller in advance, he or she
may pay your closing costs for you. The down payment is one more thing
that you need to consider in terms of finances. Traditionally, buyers
were expected to make a down payment of about 20% of the home’s
purchase price in order to secure equity and demonstrate security
to the lender. Fortunately, today’s buyers have access to many
programs that provide down-payment assistance and even zero-down mortgages.
Therefore, if you feel that you are unable to put 20% down, research
such programs before determining which loan program you will use to
purchase your home.
Making a down payment is more than just handing the
lender a check for 20% of the home’s selling price. As part
of the mortgage approval process, you will need to clearly document
where the money came from and how you came to have it. A gift is allowable
for down payments, but only if it is from a close relative or another
person with whom you can prove having a very close relationship. You
can use funds from your checking and savings accounts as long as they
have been there for several months prior to lender verification. You
can also liquidate assets such as homes, vehicles and investments
in order to generate the necessary down-payment cash. Some employer-sponsored
retirement accounts will permit you to borrow or cash out funds for
the down payment on a home. In generally, it is not acceptable to
borrow funds in order to make a down payment.
SECOND: What Do You Want?
This open-ended question is a prompt to get potential buyers thinking
about the list of must-haves for their home-buying process. Friends
and family alike will probably prompt you to make lists and to constantly
revise them in the hopes that before too long you will determine what
you can and cannot live without, as well as what you do not want to
have in your next home.
A good example is the kitchen. Do you frequently entertain,
or do you have a large family? If you answered yes, then a modern,
well-equipped and large kitchen will probably be on your list of must-haves.
But you may be willing to update a less-than-perfect kitchen as long
as the size is right. Therefore, the size of the kitchen is what will
be on your list. As you make your list, scrutinize every entry and
be as specific as possible.
THIRD: Where Are You Looking?
Many potential buyers begin searching for their new home on the internet.
Amanda Howard Real Estate has a state of the art IDX listing feed
directly from the MLS on this website. Use our Advance Search, but
only to narrow down the specific type and style of home for which
you are looking.
Once you have a good idea of the type of home that
you want to purchase, contact your Buyer Specialist to see what information
he or she has about the homes in which you are interested. Your Buyer
Specialist may have already shown some of the homes and therefore
be able to provide you with information that will be useful in determining
whether or not a specific home will work for you.
Drive past the homes that you are considering and
make a list of those that interest you. Then make an appointment with
your Buyer Specialist to see as many of those homes as possible, so
that you can get a true sense of how the homes compare to one another
and how they stack up against your list of must-haves.
Conclusion
By asking yourself the three simple questions above, you are well
on your way to a successful home-buying experience. Remember that
your Buyer Specialist is your best ally in the home-buying process,
and never hesitate to ask questions or request assistance in understanding
the process. Every homeowner was once a first-time buyer. You, too,
will get through the process of buying a home unscathed. Learn as
much as possible about the local market, know what you are looking
for, and know exactly how much you want to spend. Once you have made
those major decisions, you can relax and have a great time looking
for the home of your dreams.
