Information Every Buyer Should Be Aware
Here are some things to keep in mind when in the market for
a new home. One of the biggest mistakes
that a home buyer can make is to continue to look for that "ideal" house while passing up perfectly good houses
in the process. If this is your first house, chances are it
will not be the last one that you will buy. As you delay your
purchase, home prices will probably continue to rise and quite
possibly, interest rates will too.
Having stated that, you should not rush into the biggest
financial transaction of your life without careful consideration.
For this reason, we have highlighted most of the major items
that you need to consider when looking to buy. With good planning,
you can join the millions of other families who own their
own homes and are taking advantage of the many benefits that
are available to home owners.
Starting with the obvious: LOCATION, LOCATION, LOCATION.
What kinds of things are important to you? Will you be near
stores, schools, parks
, restaurants, theaters, supermarkets?
Do you mind being on a busy street or would you rather be
on a quiet cul-de-sac? Is the house near public transportation?
How far is it to work?
Rate each of the following as: A - must
have, B - high priority, C - medium priority, D - low
___ Guarded Community
___ Style of house - one story, two story,courtyard
___ Type of Roof
___ Size of Yard
___ Number of bedrooms
___ Number of baths
___ Bath in master bedroom
___ Eat-in kitchen
___ Separate dining room
___ Garage (1, 2 or 3 car)
___ Windows in the kitchen
___ Windows in the bathrooms
___ Plenty of sunlight in the other rooms
___ Maintenance free windows, gutters, trim.
___ Lots of closet space (walk-in closets)
___ Adequate storage (attic, crawl space, etc.)
___ Trees on the property and in the neighborhood
___ Children in the neighborhood
___ Type of heating system
___ Dishwasher, garbage disposal
___ Washer & Dryer
___ City water or well water
___ City sewers
___ Fuse Box or Circuit Breakers
___ Landscape Lighting
___ Cable TV
Examining the Home
Note: If any of the following items are unacceptable, it
doesn't necessarily mean that you should not buy the house.
You can negotiate the cost of the repairs and/or negotiate
Remember, there is no such thing as a perfect house. As any
home owner will tell you, something is always in need of fixing
or upgrading. What you want to do is protect yourself from
any unexpected large expenses. You should also arrange for
a home inspection to be made by a professional prior to your purchase.
Do not just rely on your impression upon seeing the home
for the first time. In looking beyond the "curb"
appeal, you may be able to get a great deal on a home that
can be enhanced with just a few improvements. Things like
bushes that aren't trimmed or an unkempt lawn are two examples
of improvements that can be made with a minor investment of
time and money.
The home inspector will point out some of the following items,
but it's a good idea to be aware of them before you make an
offer on a home. (The home inspector is normally contacted
after an offer is made.)
Ask the age of the roof and whether it leaks. An old roof
or one that has can mean an expensive repair in the near future.
A properly ventilated attic or crawl space will extend the
life of a roof.
Check the gutters. Are they pulling away from the house?
Check the foundation. Look for signs of water or wetness in
the basement. Vertical or diagonal cracks in the foundation
are not usually serious, but horizontal cracks can be.
Windows and doors should open and shut easily.
Check the caulk around the windows and doors.
What is the condition of the outside?
How is the driveway?
Is the landscaping in good condition?
What is the floor plan like? Is it suitable for your family?
How about the room sizes? Are they big enough ... or too big?
Check the water pressure by turning on several faucets at
the same time, and flushing the toilet.
Check under the sinks for water leakage.
Check for signs of water on the ceiling and walls (stains
and peeled paint).
Check the number and location of electric outlets.
Ask about insulation in the house.
Are there stains in the tub or sinks?
How old are the appliances and utilities (hot water heater,
furnace, dishwasher, washer, dryer, stove, refrigerator, air-conditioner)?
An air-conditioner will last for about 15 years. A hot water
heater will last about 10 years. These are just estimates.
The life span of any appliance depends on how well it was
made and whether it has received proper maintenance.
Remember, if you like a home that is in need of repair, you
can negotiate the cost of repairs and/or the cost of the home.
Don't just walk away from a potentially good buy.
What are the average monthly utility bills?
How much are the real estate taxes? Has there been an increase
lately or is the area due for a reassessment?
Are there any major repairs needed in the near future?
Can you afford the monthly payments? Check the functions
provided in this software program.
Contact Jill & Herb about
a home warranty program. This will protect you, the buyer,
if any of the major appliances breaks down within a given
period of time.
Contact Jill & Herb for
a "report card" of the local schools.
Steps To Ownership
Here is a summary of the steps that you will take from your
home search to closing. If you are a first-time home buyer,
don't be overwhelmed by the number of items listed or their
complexity. Your real estate agent, attorney, and loan officer
will guide you through this process. Many of the tasks are
handled directly by these three parties. They will instruct
you as to exactly what you must do and will answer any questions
that you might have. Don't forget, they've gone through these
procedures many times before.
NOTE: All dollar figures listed in this section are estimates
only and will vary due to many factors including which region
of the country you live in.
1) Using the loan and pre-qualification functions in the
software, determine the price range of the home that you can
afford. Discuss this with your real estate agent. Ask him
or her to show you houses in this range in the communities
that you would like to live in. Your agent is a good source
for inside information on the benefits of the communities
in his or her area. For the most part, you should count on
spending 2 to 4 weeks looking at homes with your real estate
agent. This will give you enough time to look at plenty of
homes and make your decision. If you take longer than a month,
you risk the chance of loosing a home that you would have
liked to make an offer on, and you'll have to start the process
During this time period, it is also a good idea to get "pre-approved"
for a loan. This is different than a pre-qualification. The
bank or mortgage company actually does a credit check for
a pre-approval. Having a preapproved loan gives you an advantage
when making an offer in step 2. Ask your real estate agent
to recommend a loan officer if you don't already have one.
2) When you find a home that you want to purchase, the next
thing you do is make a bid through your real estate agent.
Your agent will provide you with a standard residential sales
contract. He or she can also recommend a good real estate
attorney. An attorney may or may not be necessary at this
point, (most sales contracts are fairly standard) but will
be required later in the process. However, you may decide
that you want an attorney to review the contract.
The sales contract will most likely contain some contingencies
on riders attached to the contract. Examples of some contingencies
are: your obtaining financing for a specified rate and term,
selling your current home, obtaining a satisfactory (to you)
home inspection. Your real estate agent or attorney may include
This offer to purchase a home will be accompanied by earnest
money of $1,000 or more, depending on the price of the home.
This indicates to the seller that you are making a serious
offer. The earnest money is normally in the form of a check
made out to the broker (not the seller). It is deposited in
an escrow account and will be applied to your down payment.
If the sale is not finalized for a reason beyond your control
(ie. due to one of the contingencies), the earnest money will
be returned to you.
Subsequent offers and counter offers may take place until
all terms are agreed upon by both parties.
3) Have the home inspected by a professional, bonded inspector.
(NOTE: The buyer normally pays for the home inspection - it
will run somewhere in the area of $200 - $500.) The home inspection
usually takes place within 5 days after signing the contract.
If there are any major flaws in the home, they can be dealt
with before you apply for the mortgage. If these issues can
not be dealt with to the satisfaction of the buyer, your contract
should allow you to back out at this time.
4) Apply for a mortgage. NOTE: Check the loan/mortgage and
mortgage prequalification functions provided in the software.
You will probably have to pay a loan application fee of $100
to $300. Some lenders also charge you prepaid points. (One
point refers to 1% of the loan amount. Points are paid to
the lender or mortgage company to cover their cost for the
up front processing of the loan.) You may decide to "lock
in" the rate at this time, or the lender may allow you
to do it at a later point in time. (If you have been pre-approved
for a loan, some of the steps in this process will have already
When you apply for a mortgage, what are some of the items
that are needed? (These may vary depending on the lender.)
- Social Security cards & drivers licenses
- Residence addresses for the past 2 - 5 years
- Your landlord's name and address
- Names and addresses of each employer (past 2 - 5 years)
- Your most recent pay stubs
- Two years signed tax returns & W2's
- Names, addresses, account numbers, and balances of all checking,
savings, credit cards, and installment loans
- Two most recent bank statements on all accounts
- Information on any stocks or bonds you own
- Details of all real estate owned
- Copy of fully executed sales contract, riders, and listing
sheet for your current home (if applicable)
- Divorce decree & child support agreements
- Application fee
5) You will receive a "good faith" estimate of
the closing costs from the lender. This is called a "RESPA
Statement". It includes the costs for: points, appraisal,
title search, title insurance, survey, recording of deeds
and the bank's attorney fees. Some of these items may be included
in the points that they charge.
6) At this time, there are several other items that may need
to be done before the lender gives final approval to the mortgage:
Title Search - This is usually required by the lender. It
should be stated in the sales contract that the seller provide
you with clear
title (one without any liens against it). This may cost you
about $200. Check with your real estate agent for the standard
charges in your
Title Insurance - The lender will also require this for their
own protection. It's an insurance policy that covers any problems
title even though the title company stated it was clear.
Buyer's Title Insurance - This covers you, the buyer, in
the event that the title is not clear. This is usually optional,
Private Mortgage Insurance - Again, this is something that
most lenders require if your down payment is less than 20%
of the purchase price. It
is a protection for the lender in case you default on the
Homeowner's Insurance - This is an insurance policy that
covers the cost of repairing or rebuilding your home in the
event of a natural disaster.
Obviously, this is beneficial to both you and the lender.
This is something that you will shop around for on your own.
You can start with your
auto insurance company. Your realtor may also have some suggestions.
With the exception of the homeowner's insurance, all of the
above costs plus any additional ones such as the appraisal,
survey, recording of deeds and the bank's attorney fees will
be included in the RESPA provided by the lender. The entire
cost to you, the buyer, will usually be in the range of $1,000
to $1,500 excluding points. (The actual amount may be higher
or lower than these limits.) The amount of points that you
will have to pay depends on the lender's policies, the amount
of your down payment, the term and the amount of the mortgage.
This means that you should count on having this much cash
available besides the amount of your down payment and the
amount of points paid to the lender. The down payment is usually
a minimum of 5% to 10% of the selling price.
So, how much will this cost? Let's take an example of a $150,000
home. Suppose your lender allows you to put a 5% down payment
on the house, and your closing costs will be between $1,000
and $1,500, and the amount of points paid is 1.5% (of the
loan). This would come to:
Down payment $7,500
Closing costs $1,000 to $ 1,500
Points (1.5%) $2,138
Total $10,638 to $11,138
7) If your mortgage is approved, the lender will send you
a letter of committment. If the following information is not
provided, you will request an exact accounting of the closing
or settlement costs and the required documents that you will
need to bring to the closing.
8) All of the parties will agree on a closing date. For the
closing, here is a list of some of the items that the three
parties are responsible to bring.
The lender: RESPA, Truth in Lending Disclosure Statement,
the mortgage, the mortgage note, application for any escrow
accounts required for the buyer, and the check for the seller.
The seller: property deed, final utility bills, final tax
bills, any documents required to clear the title, and keys
to the house.
The buyer: cashier's check for the remainder of the down
payment plus the balance due for any other payments (you will
be informed of the amount), any documents required by the
lender, you may need your check book for small dollar amounts,
and you should have your lawyer present.
9) You will select a walkthrough date. This is your opportunity
to inspect the home one last time before closing. It is usually
scheduled a day or two before the closing date.
10) CONGRATULATIONS!!!!! Closing day has arrived. After signing
numerous documents and taking care of final payments, you
will become the proud owners of your own home.