This is typically how your home buying process will flow. There will be hiccups along the way and you will feel anxious and uncertain at times. Buying a house, whether it’s your first home or your seventh, is a huge commitment. It’s also usually one you make relatively quickly. Any rational person will wonder at times if he or she is making a mistake.
That’s not to say you should push forward in the face of clear indications something is wrong or if you just don’t feel good about it. In a nutshell – listen to your gut, but think through your fears and try to decide what you think about the issues as well as how you feel about them.
First step – the loan
Start by talking with a lender. Find out how much you can afford and then step back and think about what you want to pay in order to feel comfortable with the financial commitment. Use that number as your ceiling.
Ask your lender about these things:
- FHA vs Conventional mortgage
- Adjustable-rate vs fixed
- First-time homebuyer programs – there is grant money available for first-time homebuyers. If your lender doesn’t have the info, talk to another. Ask specifically about CHFA and El Paso County bond
- Mortgage insurance
- What will your payments be including taxes and insurance
- What will closing costs be
- What are points and should you pay them for a lower rate?
Second step – Find the house
Pick a Realtor you like, and go house hunting.
This can be a long and difficult process or fun and exciting. Make sure you’re thinking about a home’s functionality and how you will feel about the neighborhood as well as the interior of your new home.
Look at the repairs you will need to make and ask your Realtor to give you cost estimates for repairs when possible so you can use them to weigh the value of the home you’re considering.
Third step – Make an offer
Before you write an offer you will want to have a buyer agency agreement with your Realtor. This enables your Realtor to write the contract on your behalf and contractually obligates the Realtor to work as your advocate and in your best interests throughout the process. A good Realtor will do that all along anyway, but it can be comforting to know that she’s legally obligated to be on your side.
Once you find the house you want – or think you want – have your Realtor write up an offer. It is a contract, and it can be intimidating. Go through it with your Realtor and have her explain things. Then take it home, look through it and ask more questions.
The seller will either accept, reject or counter your offer. If the offer is countered, decide how you feel about the terms. If you are OK with some and not others, it’s perfectly acceptable to counter again.
Once the offer is accepted
You will need to write a check or get a cashiers check (depending on the seller’s request) for the earnest money, which could be anywhere from ½ a percent of the asking price to 10 percent – usually 1 percent or less.
Once the seller accepts your offer, you are “under contract” to buy the house. That means you are contractually obligated to follow through on the terms of the contract or the seller can keep your earnest money and in some cases pursue legal action to force you to follow through on the contract.
Fortunately for buyers, there are several “outs” along the way. If you don’t feel comfortable with the house at any time in the contract period, there is usually a clause in the contract that will apply and allow you to rescind your offer and get your earnest money back.
The two biggest “outs” in a contract to buy and sell real estate are:
- The inspection deadline
- The loan approval deadline
In a typical contract, which takes 30 days to close, the inspection must be performed within a week or so of going under contract. You do not have to hire a professional inspector to object to the condition of the property and cancel the contract. You can inspect the house yourself. However, it is recommended that you hire an inspector who is knowledgeable and who will protect your interests. Inspectors usually cost anywhere from $250 to $450. They should also have errors and omissions insurance so that they can pay for anything they miss during their inspection after you close
After you get the inspection results, you typically have about three days to submit your requests to the sellers. You can request anything that comes up in the inspection from deck repairs and carpet cleaning to a new roof and added insulation. You don’t want to ask for every little thing to be repaired, but you need to address safety issues and pick no more than a few other less pressing issues that genuinely bother you.
Certain brands of plumbing pipe and wiring are known to have issues. You probably won’t get the seller to agree to rewire or re-plumb the home and you will likely have the same or similar issues in other houses you consider.
The seller will usually have another three days to respond and say what he or she will do. If you’re OK with the answer you can go forward with the contract. If you’re not, you can cancel it or negotiate with the seller through your Realtor to get the repairs you want.
After the inspection, you still need to make sure your loan will go through and that the terms will be acceptable. If they’re not, you can cancel the contract and get your earnest money back.
Your lender will order the appraisal. A professional appraiser will determine the market value of the home. If it is less than the contract price, the lender will still only loan on the appraised value. In most cases, the seller will come down to meet the appraised price. You will get to decide if you still want to buy the home at the lower price.
Demands on you
Throughout the process, the lender will be asking for a lot of information and asking questions about things you never think about. It can be overwhelming. But lenders are under a lot of pressure to get everything right and it’s important to get all the relevant information to the lender.
Expenses you might have – out of pocket before closing
- Home inspector – $300-$550
- Plumbing inspection (optional, recommended in older homes with lots of big trees) – $150-$250
- Radon testing (optional, recommended for houses with basements, especially when they’re close to the foothills) – $150-$250
- Meth inspection (optional) – $475
Expenses you might have rolled into closing
- Home warranty – $300 to $500
- Owners title insurance policy (protects you from unknown issues with the property title, like the original owner’s great grandson saying he has rights to the house) – $50
- The appraisal – varies, usually $500-$900
- Broker transaction fee – $300-$500 (I don’t charge this)
- Total closing costs for the loan (including some of the above) – $3,500-$6,000
Asking for seller concessions
You can ask in your offer for the seller to pay your closing costs.Depending on the property or how fast-paced the market is at the time, the seller may or may not agree.
How Realtors are paid
The seller typically agrees to pay a commission to both the buyer’s agent and listing agent. The buyer does not usually have to pay anything at all. Most brokerages charge a transaction fee that could be charged to the buyer. However, that is usually covered by seller concessions as well.
The day before closing, go with your Realtor to look at the house. Make sure all of the inspection objections have been repaired and that everything is still in good shape.
Closing will usually take place at a Title company office. Be prepared to quickly read a lot of paperwork and to sign your name over and over again. At the end of the hour and a half or so, you will get the keys to your new home!
Contact me if you have any questions
There’s so much more that happens between the lines. I will make sure you understand what’s happening as we go.
Amanda Miller Luciano
Synergy Realty Group