Owning a home is more than a smart financial investment; it’s an investment in quality of life – particularly if you have a family or if you’re planning one. You can decorate or renovate however you like, customize your landscape, whatever (mostly) you want! It’s your home. Owning versus renting a home does come with risks and responsibilities that you don’t have to deal with when you rent. Things like a mortgage, property taxes, homeowner’s insurance, home maintenance, and repairs. Even so, financial advisors and homeowners themselves know that there are far more advantages than disadvantages to owning.
For instance, over time you’ll generally lose money by continuing to rent versus owning your own home. Why not build up equity in your own home instead of paying your landlord’s mortgage? Although there are periodic market drops, owning a home has historically been an unequaled financial investment. You gain many ongoing tax benefits, such as deducting the interest on your mortgage and property taxes from your income tax.
Do you qualify to own? Get your financial facts straight. Go to your bank or other lending institution and have them perform a credit check and general financial analysis. Also, keep in mind that you may be eligible for loans insured by the Veterans Administration (VA) or the Federal Housing Administration (FHA).
But before diving in, ask yourself, “Is this the right time for me to buy?” Buying a home usually represents your single biggest investment – and debt. Adequate research, knowing what you want and what you can afford, and the assistance of a professional real estate agent are the keys for the best outcome. The considerations below will help to answer that question. This guide provides a detailed look at the home buying process for first-time homebuyers.
Define your goals, research your options, and develop an action plan:
Giving the green light to future homeownership means educating and preparing yourself as much as possible. Know what your personal reasons are for buying, and determine the kind of home, neighborhood, and features you want. Since buying and financing a home are fundamentally connected, you’ll also need to examine your current financial situation and know what you can realistically afford. Once you’re clear on the above, you’ll be in a better position to research housing and mortgage options, and create an action plan with timelines for moving forward. While it is possible to do this yourself, you may benefit by consulting an experienced real estate professional right from the start. Buying real estate is a complex matter with many factors to consider as no two homes or transactions are alike. The unique opportunities and potential pitfalls are best navigated with an expert on your side. Contact a real estate professional once you’ve decided to buy. A professional agent will guide you through the property search, financing, negotiation and transaction processes. Consider their local market knowledge, experience, and track record when evaluating potential agents.
Get pre-approved for a loan:
This is a huge step…and likely the most frustrating of the entire home buying process. Hang in there! First, it’s important to get pre-approved for a loan before you start viewing homes in earnest. The pre-approval process involves meeting with a lender and authorizing them to examine your current financial situation and credit history. On the basis of this examination, the lender may provide you with a document detailing the amount you can borrow to buy a home. The benefits of pre-approval include knowing what you are eligible to receive and be able to plan accordingly. As a qualified, motivated buyer you’ll be taken more seriously when you make an offer. Lenders can tell you if you qualify for special programs that will help you afford a better home (particularly if you’re a first-time buyer). Financing is available from many sources, and The Gabriel Team will be able to suggest lenders with a history of offering excellent mortgage products and services. There are a host of loan types and programs available through thousands of banks, finance companies, credit unions, and other assorted lenders. Additionally, there are as many sources of information about mortgages. Websites, books, news articles, seminars, mortgage brokers, lenders, and knowledgeable real estate professionals can all help you navigate the labyrinth of financing possibilities. In short, do some homework prior to choosing a lender and applyling for a loan. Along with educating yourself about loan options, ask yourself how much mortgage and down payment you can really afford. Answer yourself with complete honesty and be sensible. Be sure to weigh the risks and opportunity costs. Some lenders will qualify you for the maximum they’re willing to lend which may be more than you can comfortably afford. Be sure to factor all related taxes, insurance, improvements, homeowner fees and all other potential costs into the equation. Make a list of your monthly expenses, and project your financial commitments during the life of the mortgage. This will provide a realistic figure of what you can afford.
Determine the right mortgage option for you. Generally, there are two ways to go: a fixed-rate mortgage with an interest rate that remains the same for the life of the loan, or an adjustable-rate mortgage (ARM) with a rate that adjusts up or down, depending upon economic trends. The advantages of fixed-rate mortgages – particularly if you lock in at a low rate - they protect you against the risk of rising interest rates, and their stability can also make it easier for you to plan and budget. The downside of fixed-rate mortgages: they generally have higher rates than ARMs at any given time, and by locking in you run the risk of being trapped at a relatively high rate if interest rates fall. Another consideration with a fixed-rate mortgage is the term. Shorter-term mortgages, like a 15-year, have lower rates than a 30-year. The shorter term and lower rate mean that you’ll pay less interest over the life of the loan, although your monthly payments will generally be higher. In contrast, the rate of an adjustable-rate mortgage (ARM) is commonly based on the U.S. Treasury index for a one-year Treasury bill, although it may also be geared to other indexes. Generally, lenders add 2-4% to the index rate to get their ARM rate. Initially, the rate is lower than the fixed rate by a quarter point to two points or more. This rate will periodically adjust within set limits or “caps” that are specified by the terms of the loan.
Finally, it must be reiterated that the loan you ultimately qualify for will depend on your credit status. The best rates and terms are only available to those with solid credit so, if possible, pay off your credit cards and make all other bill payments in full and on time.
View homes and find THE ONE:
The secret to a happy home search is in knowing what you really want. That means distinguishing between “must-haves” and “like-to-haves”. “Must-haves” include a price range, area & schools, number of bedrooms & bathrooms, lot size…to name a few. “Like-to-haves” might be fireplace, view, distance to amenities, pool…built in vacuum, etc. You probably get the idea. With today’s mobile apps and online real estate websites, you can view homes, see details, take video tours, and access neighborhood info. Technology can be a great tool in your search process! (Try our property search HERE.) . However, it’s absolutely necessary to view homes in person. While the property details may seem similar online, homes can be very different in terms of layout, design, workmanship and other aspects. Ideally, you should view homes with the help of an experienced real estate professional who may notice things you might miss, provide expert analysis, and act as an impartial sounding board.
Make an offer and negotiate with the seller:
When you’ve found the home you’d like to buy, it’s time to make an offer. Your agent can provide state & local real estate contracts that are generally used for transactions in your area. These contracts enable you to specify a sale price and also allow the inclusion of clauses specifying various terms of purchase, such as the closing and possession dates, your deposit amount, and other conditions. You should carefully review these clauses with your real estate professional to be sure that they accurately express your intended offer. In addition to drawing up the contract, The Gabriel Team will be happy to address all of your questions about the offer process. Once you’ve written the offer, we will present it to the seller and/or the seller’s representative. At that point, the process will vary somewhat depending on the market you’re in. Generally speaking, the seller can accept your offer, reject it, or counter it to initiate the negotiation process. Successive counter-offers, with deadlines for responding and meeting conditions, may be exchanged between you and the seller until a mutual pending agreement is reached or the negotiations breakdown. Negotiations involve many factors specifically relating to different market conditions, homes and sellers, and other variables. It can certainly be a frustrating process at times, but always try to put your self in the ‘other persons’ shoes when negotiating on such a huge investment.
Finally under contract:
Still so much to do. First, we recommend scheduling an inspection of the property you intened to purchase. This typically will be a home inspection completed by a certified property inspector, and in some cases a septic, well, or additonal inspection depending upon the property. Home inspections cover nearly every element in and around a home and other structures on the property. Roofing, full exteriors, structural elements, interiors, plumbing, electrical, heating and air conditioning, and much more. For an avergage size home, the inspection will take about 3 hours. The inspector will then provide you with a detailed report (within 24 hours most likely) outlining the findings, noting ‘big’ items to be aware of. In all likelihood there WILL be defects noted in the report. Every home has them, including new builds. Inspection reports include the condition of every element that was inspected, so they are comprehensive. On average, a home inspection can cost $400-$700, and is a fee you will have to pay direct to the inspector at the time of inspection. (There is a risk of course…this fee is charged regardless if you complete the home purchase.) If there are any defects found in the report that are deemed needing repair, we can negotiate with the seller…either requesting the seller to repair/replace/remedy the items, all or some…or, requesting an ‘allowance’ so that you may have some cash to remedy the items after taking possesion. It is all part of the negotiating. So once again, even after you have negotiated the price…it is possible more discussing with the seller will be needed for inspection items.
Secure your financing:
Immediately after coming to terms on the price…and even before the inspection perhaps, it’s time to return to your chosen lender to finalize mortgage details in order to close the deal. This means finalizing your down payment, interest rate, regular payment schedule and all other financial conditions associated with the closing. If you qualify for the loan you’re seeking, the lender will often have the home you’re buying professionally appraised to ensure that it’s worth the purchase price. Since so much is at stake, remember to bring all of your questions to the table. The loan process will continue nearly up to the day of closing…as the lender will be requesting documents from you off-and-on the entire time. We repeat, hang in there! Its a ‘necessary evil’ of buying a home.
Close the deal:
If you’ve efficiently taken care of everything connected with purchasing your new home, taking ownership should be a positive joy with no surprises. Key steps to the closing, also referred to as the “escrow” or “settlement”, include getting a title search – you will need a historical review of all legal documents relating to ownership of the property – to ensure that there are no claims against the title of the property. The title search will be completed by the chosen Title Company. We will review this information with you directly as it can be a a lot of information to take in. It’s also necessary to purchase Title Insurance for protection in the event of errors in the records or mistakes in the review process. There are fees associated with all of this, and generally is negotiated in the contract upfront. Not always, but mostly…this fee is paid for by the seller.
A day or two prior to closing on the property, you will be given the chance to look at the home one last time to make sure it’s in the same condition as when you signed the sale agreement. Typically called the ‘final walkthru’, your agent should accompany you to the property and do a general inspection.
FINALLY, the closing date is here. Also called the settlement – typically, you’ll meet with your real estate professional and an escrow agent to verify and sign all the paperwork required to complete the transaction. The settlement will include paying your closing costs, legal fees, property adjustments and transfer taxes. At that point, you’ll receive the property title and copies of all documentation pertaining to the purchase. Depending upon the ‘funding’ timeline, you’ll either get the keys to your new home immediately or will need to wait a few hours…it all depends on the bank, and when both parties sign. You will be made aware of the timing prior to sitting down to sign the final documents.
Alan Gabriel (512) 879-7638
Kathie Gabriel (512) 413-5119