Owning a home is a dream for many Americans. Planning and educating yourself can make the purchase process easier.
Buying a home is a big deal. Whether it’s your first time or you feel like a seasoned pro, getting what you want at the best price means keeping your eye on the details from beginning to end.
A lot of the process involves personal decisions, starting with what type of home you want, your preferred location and how much money you have to spend.
Owning a home is a part of the American dream. But, it’s not the right choice for everyone, especially people who aren’t able to stay in the same place for at least a few years. People with credit problems may not qualify for loans.
The U.S. Department of Housing and Urban Development has a few basic tips to guide homebuyers through the process. The first tip is to figure out how much you can afford, which depends on your income, credit rating and current monthly expenses. You also have to factor in down payment costs and the interest rate for mortgage loans.
Your real estate agent will likely advise you to pre-qualify for a mortgage before starting any real house hunting. A word of caution, pre-qualifying is not the same as getting pre-approval for a loan, but pre-qualifying will give you an idea of how much house you can afford.
Some experts recommend looking for a home in the middle of the range. If you look only for homes in the high range of the estimate, you may find in the end that you really can’t qualify for a loan at the maximum amount. Be realistic about how much you can pay each month.
Lenders consider income versus debt and your credit history to determine the amount of your loan. It’s wise to get a copy of your credit report early in the process. If your credit score is low, you might want to work on improving it, including paying down as much debt as possible before making a loan application. If you see mistakes on your report, take steps to correct them. Consult a credit counselor or your banker for more information.
By law, you are entitled to a free look at your credit report each year. The free report will not include your credit score, but it will allow you to see if there are any negative entries – late payments, etc. The three main credit bureaus currently charge under $10 to see your score. Be careful that you don’t unintentionally sign up for a recurring monthly charge. For more information, visit www.consumer.ftc.gov/
There are a number of government programs for people with low incomes, seniors, veterans and those who don’t have enough saved to make a 20 percent down payment. Talk to your real estate agent. First time homebuyers and veterans can get help from Pinellas County’s Housing Finance Authority. Call 464-8210 for more information. Homebuyers are encouraged to take a class to educate themselves on the process. Visit www.pinellascounty.org/
Having a real estate agent experienced in residential property is another important step. Real estate listings are readily available on the Internet, which allows homebuyers to house hunt on their own. To get an idea of what homes are selling for in a particular neighborhood, you can look at the property appraiser’s website, www.pcpao.org, and other online resources, such as Zillow.com, or real estate websites that allow you a free look at MLS listings.
A real estate agent, who is working only for you as the buyer, can show you homes that match your wish list and help you through the bidding process. It’s not necessary to tell your agent the maximum price you’re willing to pay, but knowing a price range can save everyone some time and keep you on the right track.
There are many websites that offer mortgage calculators where you can put in the price of a home, different down payment amounts, mortgage terms (years) and interest rates to get a range of possible monthly payment amounts. But those calculations can be misleading if you don’t factor in the price of property taxes and insurance, which are usually added to the monthly payment.
Don’t forget to calculate closing costs, which should be something your real estate agent can advise you about when you make your offer. Buyers will receive a “good faith estimate” of closing costs from the lender typically within three days after a loan application is submitted. But that estimate may not include all costs.
Closing costs could include the loan origination fee, underwriting fee, appraisal fee, survey fee, credit report fee, interest payment, escrow account money, property taxes, transfer taxes, document preparation fee, recording fees, homeowners insurance, title insurance and other insurance types. They also may include costs of additional inspections requested by the lender. A termite or pest inspection is common in Florida. Closing costs could run $3,000 or more depending on the purchase price.
Be ready to communicate your wants and needs. What size house do you need, number of bedrooms, bathrooms and preferred location. Do you want a single-family home, townhome or condominium, a fixer-upper or something move-in ready? Talk about amenities. Do you want a garage for one car or two? Is a pool or spa on your wish list, a big kitchen, open floor plan, screen porch, master suite with bath or in-law suite? Make sure your agent understands your expectations. And be willing to compromise to get a home you can afford.
If you already own a home and want to time the sale of your existing home with the purchase of a new home, talk to your agent about your needs. Look into the possibility of short-term leases just in case your home sells before you find a new one. If the money from the sell is important to your ability to buy, make sure your agent is aware.
Remember that the buyer may not accept your first offer, so be prepared to negotiate and wait. Try to find out if other offers are being made on the property. If so, make your offer or counteroffer accordingly. It can often take more time to hear back on an offer for foreclosed or short sale property.
Your real estate agent should be able to advise you on market conditions that could be a factor in the bidding process. Are prices on an upswing? Is inventory of available houses in your price range up or down? How long has the home been on the market and how does that compare with the current average length of time for other homes in the neighborhood.
When you make your offer, make sure you include the right for a home inspection. A home inspection will give you information about your home from an unbiased third party. If problems are found, the buyer may be willing to fix them or come down on the purchase price. Sometimes property is listed to be sold as-is, so those sellers are saying upfront, they don’t plan to make repairs, but they might be willing to negotiate on the selling price.
A home inspector can evaluate the physical condition of the home – the structure, construction and mechanical systems – and point out any items that need to be repaired or replaced. Ask the inspector to estimate how long major systems should last before they need maintenance work or replacement. The inspector’s report should include details on the age and condition of the structural elements, including the roof, plumbing, electrical, heating, cooling, insulation, ventilation and interior components.
Before hiring an inspector, HUD recommends asking several questions, starting with what the inspection covers and how much it costs. You should make sure the inspector is qualified to do the job. Ask how long the inspector has been in business, how many inspections they have done and whether or not they have experience in residential inspections. Make sure the inspector is up-to-date on local building codes.
A typical home inspection should take two to three hours and the inspector should allow you to be present. A report should be available within 24 hours.
If nothing is found during the home inspection that stops the sale, begin shopping for homeowner’s insurance. A bigger deductible can save money on monthly premiums, just make sure you can pay the deductible if the worst were to happen. Ask about discounts for safety features in the home. Make sure you purchase enough insurance to replace what is insured. Replacement coverage is more expensive than an actual cash value policy that only pays what the property was worth at the time of the claim. Check to see if you need additional coverage for floods, sinkholes, etc.
Before signing the final papers, take one more walk through the home and make sure any expected repairs have been made and that everything is as it should be. Read all the papers carefully and understand what they say before signing. Don’t be afraid to ask questions. You might want to hire a real estate attorney to look out for your rights. Make sure you find an attorney who is experienced with residential transactions.