The Ultimate Guide To Purchasing A Home
By DeSoto County, FL Realtor Mike Manwarren
There are many steps to purchasing a home, after reading the ultimate guide to purchasing a home you will be well-informed, confident, and hopefully ready to get started on this exciting journey.
Step 1: Get Your Finances in Order
Your credit report is an important tool that lenders will use to decide whether to give you a loan or not. It is a constantly updated report reflecting how well, or not so well, you are managing your finances. You need to know what your credit score is and what negative marks may be on your credit report before you visit lenders to ask for a mortgage loan to purchase a home. A lower score or negative marks will make it harder to get someone to lend you money. Ideally, you do not want there to be late payments, defaulted lines of credit, or previous marks like collections or bankruptcy. These will destroy your credit and lessen your chances of obtaining a mortgage loan.
Step 2: Understanding the Process of Getting a Loan
Finding the right loan and lender is another important aspect of the process of buying a home that many people fail to give the serious attention it needs. Shopping for the best mortgage rate may seem obvious, but more than half of homebuyers only consider a single lender.
Instead of using a lender recommended by someone you know like most homebuyers do, take the time to compare the mortgage products that are available to you for buying a home. Visit different banks and/or mortgage brokers to determine what types of mortgage products for which they are willing to pre-approve you. Half of one percentage point in your mortgage rate may not seem like a lot, but it can add up to thousands of dollars over the life of your mortgage loan. Going with the first quote you received is not a good idea in almost all cases, so take the time to shop around when buying a home.
At Preferred Real Estate Arcadia, we work with a few well-qualified lenders. If you need a lender referral, we will be happy to connect you with the right person for your specific needs.
Step 3: Get Pre-Approved for a Mortgage
Do you know the cost of the home you can afford? This is a very important part of the puzzle and, unless you have been talking with lenders, you most likely do not have a clear idea of what this entails.
Many new homeowners get confused about the process of getting pre-approved for a mortgage loan and do not understand the difference between being pre-qualified and being pre-approved.
The difference is actually quite major and it is an important distinction that can have a huge impact on what kind of loan you can get for buying a home.
Getting Pre-qualified for a mortgage loan means you are qualified to obtain approval for a home mortgage loan. It does not mean that you are actually approved for a loan. Mortgage loan pre-qualification is based on your Income-to-Debt ratio and your assets, including how much money you have available for a down payment when buying a home. The lender will evaluate your financial information and give you an idea of the loan amount for which you may qualify.
Pre-approval, by contrast, is the next step in the process and requires borrowers to provide to the lender documentation of their income and their assets, which will enable the lender to “verify” your income, assets, creditworthiness, etc.
Once a pre-approval is issued, you know exactly how much money you can borrow for a home loan.
Below is a list of documents that most lenders will request to process your mortgage loan application:
- Personal Information
- Driver’s License
- Social Security Card
- Loan Application
- Past 2 years of Personal Income Taxes (every page)
- W-2’s for the past two years
- Paycheck stubs for the last 30 days
- Retirement and/or Social Security Award Letter for the most recent year
- Personal Bank Statements for the past 2 months (every page)
- Retirement / Investment Account Statements (Brokerage Accounts, 401(k), IRAs, Annuities, etc.) (every page)
- Tax Bill, Homeowners Insurance Policy, Mortgage Statement; for all owned Real Estate
If you are Self-Employed
- Business Tax Returns for past two years (every page)
- Year-to-date Profit/Loss Statement
- Current Balance Sheet
Information about the property
- MLS Printout of Property you are purchasing
- Residential Contract for Purchase with Addendum’s
- Copy of your Earnest/Escrow Deposit receipt
Step 4: Determine Your Wants and Needs
The process of buying a home can be difficult as there are many things that have to be considered, addressed, and figured out before you finally close on a home.
The process of buying a home can go a lot smoother if you understand the real estate market you are buying in and you have a clear picture of your wants and needs. You need to have a list of the things you are looking for in your new home, as well as the things you do not want in your new home before you start looking for your dream home.
You should consider things like the number of bedrooms and bathrooms, the layout and floor plans, the size of the yard, the style of home you want, and other amenities you want like a large bathroom, open kitchen, and a large entertainment area outside. Additionally, you need to think about what you do not want – small bathrooms, old windows, and so forth. Knowing ahead of time will help you narrow down your choices.
At Preferred Real Estate we listen to what you say. We will only show you homes that might fit your needs.
Step 5: Importance of a Real Estate Agent
Real estate agents are specially trained individuals who work with buyers to help facilitate the purchase of real property. Working with a skilled and experienced realtor is one of the most important decisions you can make when buying a home.
For most Americans, a home is the most expensive purchase they’ll make in their lifetime. It’s a serious transaction with significant financial and emotional ramifications for the parties involved, and having proper representation is critical.
So, what’s a Realtor going to do for you … and is it really necessary to hire one?
Obviously having the knowledge and experience of a realtor by your side during this process is important. It can have a huge impact on how quickly and successfully the process of buying a home occurs for you. At Preferred Real Estate Arcadia, we explain the entire process ahead of time, so that you will know what to expect. We are continually educating ourselves, with the most up-to-date information available; so that we can pass that knowledge on to our customers.
Step 6: Start Your Search for a Home
There are many ways you can actually go about searching for a home. When you work with a realtor, he or she will send you listings in your search area that they think may be a good fit for your wants and needs. You can also search the internet yourself and look for homes that are for sale. Recommendations from friends and family members you trust can also be a good way to learn about homes for sale in the area.
As you work on compiling your list of the homes you want to see and are interested in, you will then work with your realtor to schedule walk-throughs and tours of the homes. This gives you the chance to see the home and determine how good of a fit it may be for you and your family. Your realtor can help you throughout the process of buying a home and can also help you get answers to any questions you may have about the properties you visit.
At Preferred Real Estate Arcadia we will share our knowledge with you so that you can make a wise decision. We never steer or pressure you to make any decisions.
Step 7: Checking the Comparable Sales Records
Deciding if a home is the right one for you involves considering things like its size, structure, amenities, locations, and many other factors. However, there are other things that will need to be considered before you make your final decision about buying a home, and one of them is comparable sales records.
Comparable sales are the sales prices of similar homes in the area that have sold in the recent past. These records are used as an example to justify the price that the seller is asking for or to give a potential buyer some leverage to negotiate a lower asking price on the property.
For example, if the home is listed at $250,000 but homes of similar age, size, and style have been selling for only $230,000, this can be used to negotiate a lower final sale price. It is important to note that a seller does not have to lower the asking price and many times sellers will hold out for a higher asking price – something buyers need to know in the process of buying a home.
Step 8: Making Your Offer
Florida has laws and regulations relative to making an offer on a home, handling escrow payments, and handling initial paperwork.
This is where your realtor can help ensure everything goes according to plan with your offer and how you proceed once the seller accepts or rejects your offer for buying a home. Even if your offer to purchase has already been accepted by the seller, if inspections reveal any problems with the property, you may want to renegotiate the home’s purchase price to reflect the cost of any repairs you will need to make.
You could also keep the purchase price the same but attempt to get the seller to pay for the necessary repairs. If the purchase contract states that you are purchasing the property “AS-IS,” you do not have much recourse to ask for repairs or a price reduction, but you should still ask.
Step 9: Home Inspections
In Florida inspections take place after an offer to purchase is received and accepted by the seller.
It is critical to decide which inspections and tests you want to perform when buying a home. These are the inspections and tests that could reveal potential flaws and problems with the home. Many of these problems could severely impact the value of the home or the amount of work needed to repair the property.
Talk with your real estate agent to find out what inspections and types of testing are important. The most common checks are for things like roof damage, termites, water damage, foundation issues, and so forth. If a home is found to have major issues, the buyer can back out of the offer if necessary due to the results of the tests.
Step 10: Home Warranty
A home warranty is a service agreement that protects a home’s systems and appliances from everyday wear and tear or accidental breakdowns due to age or mechanical malfunctions. A buyer’s home warranty is a form of protection that limits out-of-pocket expenses for repairs or replacements.
Homebuyers can purchase a home warranty plan through their realtor and not pay for the service until closing. However, many buyers will ask the seller to pay for the home warranty. This can benefit both parties; sellers might have a better chance of closing a deal if buyers are less concerned about the condition of major appliances and systems, and buyers can purchase the home with peace of mind.
However, whether a seller is motivated to pay for a buyer’s home warranty really depends on the local real estate market.
Step 11: Avoiding and Correcting Last Minute Problems
One of the other important steps in the process of buying a home is being alert for minor last-minute issues that may need to be addressed and taken care of as quickly as possible. As your closing date nears, everyone involved in the deal needs to keep tabs on the progress and be in touch with each other on a more frequent basis.
Staying on top of everything makes it easier to know when something is not right or there is an issue with paperwork, filings, signatures, or something else that can delay the proceedings. Your realtor should be in contact with you regularly as your closing approaches. This will help give you peace of mind and will also ensure that you take care of problems before they can cause major delays or issues. Your realtor should also be talking with the seller’s agent on a regular basis to make sure they are taking care of everything on their end and that they are not experiencing any problems that could delay the sale or cause it to be canceled.
Step 12: Title Search and Title Insurance
Title insurance is crucial for a home buyer because it protects you and the lender from the possibility that your seller does not or previous sellers did not have free and clear title to ownership of the home and real property and, therefore, cannot rightfully transfer full ownership of the property to you.
Even though the likelihood of using your title insurance for coverage is relatively low, the value of what you stand to lose if you proceed without coverage is high. Without title insurance, you could lose the home itself in a worst-case scenario. The value of title insurance lies in the fact that it can serve as a legal safeguard and an extra layer of protection for you and your investment. It protects against the case where someone attempts to take the home from you after you purchase it.
The title search is designed to reveal these title “defects” before you purchase the real property. If title defects are discovered, your title insurance company will do everything allowed by law to cure these defects prior to your closing, and they will issue your title insurance policy to cover you in the event previously uncovered and/or undisclosed defects in fact exist despite the fact that you had a valid, thorough title search performed on the property.
Step 13: Final Walk-through
Final walk-throughs take place as close to closing as possible, typically on closing day or the day before. During the walk-through, a buyer and their realtor will go through the property. They’ll check that there’s no new damage, that all the home’s systems and appliances included in the sale are still working, and that the home is in clean condition.
If the seller has been moved out for a while, they’ll also be on the look for things that could have gone wrong in the time since the property was vacated.
Participating in a final walkthrough as a buyer is vital. Not only are you about to make a huge purchase, but you’re also about to be legally and financially responsible for this property. Forgoing a final walkthrough could mean unwittingly taking on a big financial burden, having to pay for a repair you’d already negotiated with the seller to cover, or worse.
It’s easy to notice that a chandelier is missing – but you can’t discover that the A/C system broke down after the home inspection unless you turn it on.
The final walkthrough is one of the last steps in purchasing a new home and it’s also a time when buyers should carefully study the condition of the property before heading to closing and making everything official.
Check systems one last time
A home inspector may have assessed the property earlier, but the final walkthrough should include a recheck of some major systems in case their status changed sometime after the inspection.
Buyers should run the heating and air conditioning systems, turn lights on and off, and test all the major appliances. They should also flush all the toilets and check for leaks.
Verify that repair work has been done to satisfaction
Buyers should verify that all agreed-upon repairs they negotiated as part of the contract have been completed, using their agreement of sale and inspection reports as a checklist. They should also make sure that any fixtures supposed to be left behind are still there. This can be a common last-minute hang-up in real estate dealings when items that buyers expected to see left behind are not.
Make a list of questions
Buyers should take their time during their final walkthrough and jot down any questions they might want to ask the sellers. Possibly a list of questions about how the home’s systems work or anything else pertaining to the home. Before they sign at closing, buyers have leverage and it’s their last chance to get those questions answered.
Step 14: Signing of the Papers
This final step of the process of buying a home is also one of the most critical steps. During your closing, there will be a lot of papers that will need to be reviewed, explained, discussed, and signed.
It is imperative that you read each page carefully because the fine print can greatly impact not only your finances but your life for years to come. Everything from what is and is not to be included in the sale, what furniture is to be left behind, how payments are to be made, and the final payment amount will all need to be spelled out in the paperwork.
Nothing is official until all involved parties have properly signed the closing papers.
You will want to pay careful attention to every aspect of the closing, including ensuring that the mortgage interest rate is correct, the final sale price is what was agreed upon, and that there is no prepayment penalty on your mortgage loan. Buyer and seller alike should take their time and ensure that everything is correct before signing.
Things You Do Not Want to Do While Waiting For Your Closing
Waiting is never fun or easy but chances are there will be a period of time where you are waiting for the final closing to occur. This may be a matter of a few days or it could be a few weeks depending on the specifics of your situation. During this time, there are a few things you absolutely do not want to do.
These seemingly innocent and normal actions can have a huge impact on your closing and can delay or even cancel some of the proceedings that are going on while you are closing the deal.
So, make sure you are aware of these actions that you should absolutely avoid during the home-buying process:
Do not touch your credit report. You have already pulled your credit report before you started the home-buying process. The banks and lenders already have your information and are using it to determine the final arrangements of your closing.
Do not establish new credit, it can destroy your credit and even negate everything you have done and cause lenders to throw out the credit score upon which they based your pre-approval. Do not close any credit accounts. Even if you have come to the realization that you have credit cards you are not using, do not close those accounts.
Do not increase the credit limits. This is perfectly fine to do – at any time other than when a home closing is pending. Do not buy on credit cards at all. Your closing can be severely delayed or even canceled if it seems you are abusing your credit and making risky or unwise choices with a line of credit that you already have.
Even the simplest of things can have a huge impact on your ability to close on your dream home. Do not take the chance and avoid these common pitfalls while you are waiting for everything to be approved, signed, and finalized. Once the home is yours you can go back to your normal financial routine, but during this time extra care and attention are essential to avoid delays and/or cancellation of your purchase.
The steps outlined here can help serve as a general home-buying guide and offer insight into the home-buying process. You will need to seek help from skilled and experienced professionals and it is important that you ask as many questions as necessary.
Never sign anything you do not understand and do not finalize any agreements until you understand and are comfortable with all terms!
You are making a long-term commitment and spending a lot of time and money on this investment. Naturally, you want to make it the best experience possible.
This guide for the home buying process is a great place to get started. At Preferred Real Estate Arcadia we are able to answer all of your questions and assist you in the process of buying a home.