So you are thinking about Home Ownership? That is AWESOME!! There are so many reasons why it is in your best interest to be a home owner. The main one being pride in Ownership! People typically take care of and have more pride in things they take ownership of and are responsible to maintain. You can comfortably improve your property because it is yours! You can plant flowers, paint your walls, add decorative improvements all while you are typically saving money on your take return and many times gaining equity over time.
But Before you contact a Realtor you should think about your WHY'S!!!! and you should be prepared to work with a Realtor and better understand their role in your big WHY!
1. Obtain all three credit bureau reports by going to www.annualcreditreport.com . The very first thing that must be done is a review of your credit. Before you look at a home a Realtor will ask you to speak with a lender to obtain a prequalification letter. The lender will obtain a copy of your Mortgage Credit Report and ask you for your income details to determine how much home you are able to purchase. Most lenders require a minimum credit score of 640 to purchase and if you are trying to obtain down payment assistance the credit score requirement will be higher. It is best for you to get a copy of all of your credit reports and pay for the score so that you can begin to take steps if necessary to get your credit score to requirement to purchase. If you do not understand how to increase your score then this is a good time to speak with a lender or an agent to ask them to provide you with some insight or resources for a credit counseling or restoration company that is reputable.
2. Review Your Income and Create A Budget This is very important as a home purchase is a very large financial transaction and typically one of the largest that most people make in their lifetimes. You will want to review your income and take a look at your monthly budget to determine where you are over spending and where you can eliminate unnecessary expenses to help you save toward your home purchase.
3. Save for the cost of Home Purchase which includes Earnest Money, Inspection, Appraisal, Down Payment and Moving Expenses. Once you have completed a review of your budget then you can plan to save for your home purchase. There are many items that you will have to be prepared for if you plan to buy a home. Once you have located a property with your Realtor you must have the earnest money to secure the contract. The earnest money is credited to you at the closing table but you will have to be prepared to place it upfront until you close. Also the earnest money secures the contract to ensure that you meet your contractual obligations so that you can close. Earnest money can typically be any where from a thousand dollars to a percentage of the purchase price of the home. You will also need to have the inspection money available. I recommend that everyone obtain a home inspection within the due diligence period of the contract to ensure there are no major issues with the property and if there are items that need to be addressed you will have the opportunity to ask the seller to make the repairs prior to moving forward with closing the property. The appraisal is also and expense that you pay to the bank for the valuation of the property. Appraisals also typically depend upon the size of the property and type of loan. You will need your down payment that can be 3.5% for a standard FHA loan to 5%-20% down for a conventional loan. It is also determined by the type of loan you obtain and your credit score.
4. Think about all the reasons WHY you want to Own A Home Before contacting a Realtor be sure that you have thought through all your WHY's for wanting to purchase a home. Buying a home can be an emotional process and it is best to be emotionally clear and committed to the process of home ownership. Do you SEE yourself in your own home decorating? Making meals, enjoying the outdoors? Do you see yourself entertaining friends or having room for when family comes to visit? Do you see yourself making life or family size changes? If you have children do you have a desire for them to have their own bedrooms and their own yard to play in or a safe neighborhood and other children to make friends with? Have you thought about all of the reasons WHY you want to be a home owner? If you know your whys then you will be more motivated to follow through on the items required to make your dream or home ownership a reality.
You are asking a TEAM of people to spend their time money and resources to help you obtain your dream of home ownership and if you are not COMMITTED to your side of the transaction then you are honestly wasting everyone else's time.
5. Determine about How much home you think you can afford. You will want to think in terms of the monthly payment that you are comfortable with and look at the homes in the area you would like to live in to see if you are in the ball park of affordability. Everyone has Champagne tastes but not everyone has a Champagne budget. Think about the monthly payment that you can afford and what this translates to in terms of the price range of home that you can afford including Principal Interest Taxes and Homeowner Insurance. Once you have an idea of this Home price range you will be able to then think about the area/location.
6. Decide which area or side of town that I want to live on. Which area you choose will typically depend upon where you work and what you can afford. Most people do not like long commute times to work, however some people do not mind sacrificing the commute time for the type of home they see themselves living in. When you determine your price range and begin to do a cursory online search you may find that the homes in your price range in your desired locations many not be what you like or see yourself moving into. You also may not even like the homes available or the neighborhoods near where you work for a variety of reasons. Before contacting a Realtor it is best to have a general idea of where you want to actually live. If you are unsure then take a drive by different communities or areas you are considering prior to asking an Realtor to show you homes in an unfamiliar area.
7. Think about what home style that I like the most. Do you like New Construction Homes? Homes that no one has lived in before you? Do you like old homes with Charm and Character? Is a large yard/home site important to you? Are you looking for an established neighborhood or a live work play area with good walk scores? Are schools important to you? You are buying the Micro and the Macro in terms of the neighborhood and the home that you chose. Remember that homes that are considered "resale" homes will have wear and tear in terms of cosmetic items and aged mechanical's that may have to be repaired or replaced. Are you thinking of buying a "fixer upper" then remember your bank loan will determine whether you will be able to accomplish this as well. Most lenders have requirements for property condition when it comes to the loans they provide. Are you considering a townhome or a condominium? These are all items to consider in your initial stages of deciding what type of property to purchase and WHY.
8. Understanding the purchase time frame Once you obtain your pre qualification letter from a lender it typically expires within 60-90 days. That means if you do not purchase a home within that time frame then you will have to complete the process again. It is also best to note that all homes that are existing are a 30 to 45 day move in. If the property is new construction and depending upon the stage of construction you go under contract at will determine the closing date which will still be an estimate. Therefore if you are looking to purchase in a year or 2 you are way to premature to ask a Realtor to begin working with you to show you homes. Once you ask a Realtor to show you property then you should be prepared to have your qualification letter, money saved and ready to move within 30-45 days or be prepared to go under contract on a new construction home with a later close date.
9. Learn about offer submission and the market that I am buying in. We all have heard the terms "Buyers Market" and "Sellers Market". These items are somewhat relative in their interpretation. Generally speaking a "buyers market" is one where there is an excess of comparable inventory in the market and buyers may have more ability to negotiate due to the surplus of inventory. In a "Seller's Market" there is typically not enough inventory and a seller and you may see seller receiving multiple offers and not having to do things like contribute toward buyer closing costs and other buyer demands to get their property sold. It is helpful to understand which so called "market" you find yourself in so taht you can better manage expectations. In any market you will always see those properties that are price just right for their location and property condition and those that are over priced due to their particular circumstances. With regard to submitting offers the market simply means "what price a Seller is willing to sell at and what price a Buyer is willing to buy at". Each person has a perspective and value proposition. Therefore a property may have certain characteristics that you may value MORE or LESS than another buyer. I have found it is best to understand what a "low ball offer" is. It is an offer typically 10% or more less than asking price of the property. Lowball offers are sometime insulting to the seller and not considered unless there is a distressed situation and the property has been on market for an extended amount of time, meaning more than 60 days. Just because you want to offer every seller 20k less than list price does not mean they have to entertain your offer or even respond to it and it is not a good strategy if you are serious about going under contract on a property. You should also know that the real estate industry does not use "Zillow" to value property either. Zillow and sites similar to it are real estate marketing websites that are advertising to you so that they can sell you products and services and compete with your local agent from their headquarters in Silicon Valley. Local agents use our local MLS and Tax Records and knowledge of local markets in addition to viewing our inventory to estimate property values. Also the homes will be valued by an appraiser that the bank will send out once you are under contract to make sure that you are not over paying for any property. Have a discussion with your agent regarding offer submission and expectations prior to going out to view property.
10. Making decisions can be tough! So if there is another decision maker or significant party that you need authorization or permission from or who you will need to ultimately consult, be sure to involve them in the process along the way. Many deals are killed because one person has done all the other processes, but the other decision maker is not in agreement with some item and the transaction cannot more forward. This is also important when viewing property. If you need your significant other to have the final say, be sure that you select property and view together so that decisions can be made in a timely fashion. Your Realtor may not be able to accommodate "double showings" of property viewings, because you went out and saw the homes but you want to bring the other decision maker back out to view as well.
I hope this helps get some of the items for consideration established so that you can have a good and positive experience and have to right expectations for those you involve in your Real Estate transaction. Remember, your Realtor, Lender and others are here to help you FACILITATE your desires! They are not mind readers and do not determine nor control the real estate market nor interest rates and other items but they are your support team ready to help walk you through the process and answer any questions you have and help you every step of the way to owning your home!!