Buying Guide

Pricing

How Much Does It Cost?

The first consideration in buying a home is comparing your dreams with reality. Basically, how much house can you afford? Determining a ballpark figure for what you can afford is an important first step in finding your new home – it saves you time by ruling out homes that are out of reach, or maybe too modest.

If you have a steady job and a reasonable credit history, there is a good chance that you can find a home lender who will lend you most of the purchase price of your new house. Home loans are also called “mortgages,” which comes from a Latin phrase meaning “pledge unto death.” While lenders don’t take your promise to pay quite that seriously, they do expect to get repaid on time. Remember, lenders take an ownership interest in your house until the loan is paid in full.

Home loans typically are offered in amounts of 80%, 90% and 95% of the price you are paying for the house. You are expected to pay the remaining amount in cash from your own savings. As you might imagine, lower percentage loans are somewhat easier to qualify for.

The reason the lender is willing to lend you up to 95% of the value of your house is that history has shown real estate to be such an excellent investment. Lenders expect that your home will be worth more in the future than it is today – so their investment in your home is considered very safe.

That’s also why the interest rate you can obtain on a home loan is one of the best around. Consider that America’s largest and strongest corporations borrow at what is called the “prime rate,” and that today you can borrow a home loan – fixed at the same rate for many years – at substantially less than the prime rate. Lenders have found that home loans tend to be excellent investments, and you benefit every month when you make your loan payment.

Finally, home loans are available to be repaid over terms of usually 15 or 30 years. The shorter term loan offers a slightly lowered interest rate, so if you can afford the higher monthly payments, you’ll save in interest costs by choosing the 15 year loan. At today’s interest rates, a 15 year loan costs about 27% more than a 30 year loan in terms of your monthly payment. But the amazing thing is that lenders are even willing to offer a fixed rate loan for that time period. It’s better financing than you can get on just about any other investment.

Credit

Importance of Your Credit

Your credit score is the financial foundation for buying a home. Your lender will definitely be checking your credit when deciding on your mortgage loan, so it’s a good idea to check your credit report ahead of time.

Your credit score is based on the information found in your credit reports from the three main credit reporting agencies: Equifax, TransUnion and Experian. We suggest reviewing the information in each report and correcting any errors, to avoid surprises when talking to your mortgage lender

We recommend avoiding services that offer to obtain all your reports for you in exchange for a fee. You want the information directly from the reporting agency, blemishes and all.

It just makes sense to find out about your credit and correct any errors now. Regardless of how many credit problems you have had in the past, there are two good points to remember.

First, negative credit information can be reported in your credit file for only seven years. After that, it drops out and cannot even be considered. The one exception is bankruptcy, which can be reported for 10 years. But after that you start with essentially a clean slate.

Second, lenders are much more concerned about how you have handled your credit recently than with what happened several years ago. Even if you have had a bankruptcy, if you have kept your nose clean and paid your bills on time since then, it is possible you could qualify for a loan after as little as two or three years.

To avoid any surprises, check your credit reports as soon as possible.

Location

Choose the Perfect Location

Location is one of the single biggest factors in a home’s value, both on the open market and to you as a buyer. Fortunately, there are ways to make sure you’re paying the right amount for the right location.

If you like the neighborhood you’re considering, take a look at how it fits into the market. Some of the areas to analyze for you are:

• Quality of schools
• Property values
• Traffic
• Crime rate
• Future construction
• Proximity to schools, employment, hospitals, shops, public transportation, prisons, freeways, airports, beaches, parks, stadiums and cultural activities such as museums, concerts and theaters.

If you’re a first time-buyer with limited financial resources, it’s wise to buy a home that meets your primary needs in the best neighborhood that fits within your price range. Keep your budget, as well as the points above, in mind while searching for the perfect neighborhood.

Making an Offer

To determine your initial offer for the home, we’ll sit down with our notes on the home and neighborhood, including prices of other area homes, and figure out the most you’d be willing to pay for the home as well as the price you expect to pay. Your initial offer will likely be less than you’re willing to pay, but not so low that you insult the seller. There is always room for open negotiation. Homes are intensely personal, and creating bad feelings with the seller will only make it more difficult for everyone.

While much attention is spent on offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers — or additional costs. Terms are extremely important and should be carefully reviewed.

How much?

You sometimes hear that the amount of your offer should be x percent below the seller’s asking price or y percent less than you’re really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.

How do you make an offer?

The process of making offers varies around the country. In a typical situation, you will complete an offer that the realtor will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter-offer.

Because counter-offers are common (any change in an offer can be considered a “counter-offer”), it’s important for buyers to remain in close contact with the realtor during the negotiation process so that any proposed changes can be quickly reviewed.

How many inspections?

A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections.

Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. Such inspections for a single-family home often require two or three hours, and buyers should attend. This is an opportunity to examine the property’s mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.

Making an offer on that potential dream home gets you one step closer to making your dream a reality. This is a critical process, however, because suggesting and selecting the perfect price could make or break the sale.

Closing the Deal

After the final offer is accepted and we have a contract in hand, it takes about a month before closing on the home. Here’s what goes on during that final month:

Get Loan Approval

As soon as you have a contract, we’ll call your lender and let him or her know it’s time to get final approval on your mortgage. If you followed our advice and were pre-approved for your loan, most of the work with your lender is already done.

Get Your Insurance

You must have homeowner’s insurance in hand to close on the home. Call your insurance agent with the information on the home and your lender (who will be a co-beneficiary of the insurance) as well as your closing date. If you don’t have an insurance agent, we can recommend reputable agents who will help you.

Get Your Down Payment

Make sure you have access to the funds you’re using as your down payment. You’ll need to pay this amount at closing.

Get Ready For Closing

You don’t want surprises at closing, so we’ll make sure you’re familiar with any additional costs you’ll need to pay (or add onto your mortgage) at closing. These include points (which you will have already discussed with your lender) and any fees (appraisals, inspections, a credit report) or other charges incurred by your lender. At the closing, we’ll make sure to bring a cashier’s check for the down payment and closing costs, a copy of your homeowner’s insurance policy and any other documentation required by your lender.

Closing on a home can be confusing and stressful, but we’ll be there to walk you through it. If everyone has prepared properly, there will be a flurry of signatures and documents, checks will change hands, and before you know it, you will be holding the deed and keys to your new home.

Choosing and buying a home is one of the most important decisions in your financial life, and it’s important to have a professional on your side to save your time, money and sanity. Contact Sylvia Collins today to get the process started.