Purchasing a home is a major milestone that tops many
people's lifetime to-do lists.
When you start thinking about buying your first house, it
might be easy to let your emotions run the show. After a little while you’re
stalking homes for sale on a real estate browsing app, taking different routes
home so you can do drive-bys, and browsing lender and real estate web sites.
It’s very easy to land in a house you can’t afford, and that
mistake can affect your ability to build wealth in the long run.
It is critical to understand some of the
critical steps of the home-buying process.
Many professionals will give you a step by step plan to purchasing
your new home.
Most are tailored to the writer’s profession as to where they
first direct your attention. While this is not a major issue, you can find
yourself misdirected or led down a path that is difficult to get yourself back
out of.
I am of course a real estate agent, however I spent more than 20 years
as a lender, and many years as a financial advisor and business owner. Purchasing
my first home at 20, I have stepped in and out of the real estate market over
many years. e
While there are no perfect
methods or stepped processes I believe there are a number of key things that
need to be considered and completed.
In which order you do these may depend on
where you already are in your process.
For example if you are already out as a
renter you might skip the section on budgeting as you may already be paying
more than what your mortgage will be. If you are living at home you may seek
the advice of a family member. It is important to note when relying on other
people’s opinions their experiences may be a reflection of timeline of when they
purchased, and if they had a good or bad experience.
As discussed this guide outlines some of the critical steps in the home buying
process.
It is important to note that there are so many resources now available
to you. Selecting the right professionals and companies to help you achieve
your dream could make the difference.
Buying a house takes time, even that perfectly cute one on the corner with the
fenced in yard is not worth jumping into before you are ready.
What is more important than the house you buy, is how you
buy that house.
Step 1
FINDING A REAL ESTATE AGENT
The very first step in your process should be to select a
real estate agent. As a buyer the use of a professional real estate agent in most
cases is free. Some might charge you an administration fee and filing fees on
closing, but if you shop around you will find one that does not have these
fees. The industry is highly regulated, and it makes perfect sense to use the
free services of someone with inside specific knowledge and access to specific
industry tools
I place this as your first critical step because a “GOOD” real estate professional
will provide free instruction and highlight future pitfalls. They will have a
strong network of related professionals (including Lenders, Insurers, Inspectors) to
make your pathway to home ownership simple and painless. And all of this advice
and instruction is FREE.
I actually will pay YOU on successful closing of your home purchase so there is an added incentive, information and assistance is free and you will get an incentive if you are successful in purchasing WOW.
So how do you select a Real estate agent?
Talk to friends and family members whose opinion you value. Your friends and family will have a network of people that they have used successfully and unsuccessfully be sure to clarify why they recommend or don’t.
Take a look at the agent’s bio on their web page, review testimonials and make sure they have the level of experience you are looking for.
Schedule an informal meeting, I recommend doing this in a public place like a coffee shop or similar. Conduct this meeting like an interview.
Your objective here is to ensure that you have a personality match, you are also looking for professional, honest and informed responses to your questions.
Your agent should be someone you feel comfortable meeting with and working with.
Don’t rely solely on the recommendation of family or friend, what worked for them may not work for you.
Ask about their fees and contract terms. (It is important to note that in South Dakota, you are required to enter into a buyer’s agreement with your agent after you have looked at more than one home. Many will have you sign immediately which is also fine).
My preference would be a contract that allows you to shake hands and walk away if they do not deliver a service that is mutually acceptable. ( Rushmore Real Estate agreements are structured this way. Other might tie you in without the ability to move to another agent until the term expires. Be aware.
You have selected your real estate professional, you are now
on your way to home ownership.
The next step is to determine how you are going to purchase your dream home.
Your Real estate professional will normally have a network of professional
lenders in the area and will likely provide you with a list. I am always
cautious when they direct you to just one lender, and I always recommend you do your own due diligence on any referrals. You have the power here do not be forced to use a lender by anyone.
Step 2
SELECTING A LENDER/ MORTGAGE PROVIDER
It's time to start shopping for a mortgage lender with a
reputation for good customer service and timely closings.
You should ask a lot of questions, like how long the process will take and what the qualifying
guidelines are, so choose a lender that answers them all satisfactorily.
Next, decide which mortgage makes the most sense for you.
There are plenty of different options to consider and in South Dakota there are
various programs enabling buyers, to
enter the home ownership market with minimal or no deposit
Your lender will review all the available programs with you, most lenders have
access to similar or the same programs.
Now to get pre-qualified for your new home purchase.
In a quick conversation with you about your income, assets
and down payment, a lender can prequalify you to buy a house. This will enable
you to create a road map to commence your search and determine what price
range, and style of home you can purchase.
Getting preapproved takes a little more work the lender will
need to verify your financial information—like your credit report, W2s and bank
statements and then commits to giving you a mortgage for a specified interest
rate, subject to no future changes prior to purchase.
It is a good idea to consider doing this now because it can prove to a
seller that you are a qualified buyer, and once an offer is made, the bank will
just have to appraise the home not the property and your finances.
But a word to the wise: A bank may approve you for a larger
loan than you have determined you can afford. So don't be seduced by their
findings.
Which brings me to the next step in the buying process budgeting.
Step 3
BUDGETTING
Signing up for a mortgage is likely the biggest financial commitment you will
make in your life it can be stressful.
Thinking about being able to afford a mortgage might keep
you up at night, this step is all about easing those fears by simulating the
experience of being a homeowner, prior to your purchase.
If you are already paying rent you may have already
established your capacity to meet the burden of a home mortgage and maintaining
a household. If not I recommend you consider something along the lines of the
following.
Start by totaling up all of the monthly costs associated
with a home purchase, including your projected mortgage payment, tax and insurance
estimates, any fees and home maintenance costs. And don't worry if you don't
have concrete numbers yet the key point is to see if you can afford a ballpark
amount.
If the sum of the expenses equals more than what you're
paying for housing now, then subtract your rent or associated costs from the
total. The difference is what you should consider transferring to your savings
account for a few months to simulate what you would be paying as a home owner
to cover your monthly costs.
If you can manage this, then you can probably handle the
typical expenses of being a homeowner. But if you can't or you're making
unpleasant tradeoffs, you should consider readjusting your home price until all
of these costs are feasible on your current income.
You have now decided that you can afford to be a home owner.
You have already enlisted the help of a reliable real estate professional, and
you have commenced the pre-approval process with your lender. You have a basic
idea of how much you can now comfortably afford and you have no doubt been
reviewing various property search engines to see what style of home meets your
requirements.
Now comes the fun part but before we start, you need to consider a couple of
simple things.
Your first home purchase is rarely your forever home. In fact the national average as stated by the National Association of Realtors for buyers 36 and younger is 10 years. however in South Dakota this is closer to 7 years.
You don’t always get everything you want in a pre-loved home, you might need to decide if it is a must have or would like.
Step 4
HOUSE HUNTING
You have now been preapproved for a mortgage, you’re ready
for the fun part: finding your perfect home.
Your finances should be set, so you know
exactly what you can afford. And with a real estate professional to guide you
through the process, you have a winning combo for buying a home with
confidence.
Time to do a little homework.
Before you fully dive into the home search process, you
should create a must have list of home features.
If you’re buying a home with your spouse/ partner, make
separate lists and compare. Once you have reached clarity on the features you
both want, share them with your real estate professional and use that criteria
as the foundation of your home search.
Your real estate professional will be able to help you set
realistic expectations and target your search to areas you can afford. Most
real estate professionals are able to establish a regular automated search
update for you through their Web page or other marketing tools which are
directly linked to the local Multiple Listing Service (MLS). This can also be driven by you by using the Rushmore Real Estate Groups Web page and search links.
It is worthwhile also looking at other search portals,
Zillow, Trulia, Realtor.com, that said it is important to note that these
search engines are often inaccurate and show homes for sale that have long been
sold or withdrawn. You should always seek clarification from your real estate representative.
Work closely with your real estate professional so you don’t
miss out on any opportunities, good homes sell quickly.
Making a good investment?
When you’re looking for the perfect home, it may be hard to imagine
that you will ever sell it. But just remember, even if you think it’s your
forever home, you should shop with resale value in mind. Here are some home buying
tips to help you make a smart investment.
Don’t compromise on location or floorplan. Those are two things you can’t change about the home you buy. No amount of curb appeal can make up for a truly terrible floorplan. And buying a great house in a not-so-great neighborhood is a bad plan.
If you don’t love the location or layout, chances are potential buyers years from now won’t either.
Look past the surface. Don’t let the pink 70’s bathroom keep you from an otherwise great home. Other buyers may not be able to look past those easy-to-fix details like décor and paint color, which could score you a deal.
Pay attention to home values in that area. Are they rising or declining? You can tell a lot about home values in a neighborhood by what’s happening in the community.
Research the school districts. Even if you don’t have kids, school districts can be an important factor when you sell.
The average home buyer looks for around 12 weeks before
finding the right house, according to the National Association of Realtors.
Don’t worry it if it takes you a while to find your perfect home patience is
your best friend.
So you have found the right home, it’s time to get serious
that means submitting an offer and signing a contract agreement with the
sellers.
STEP 5
MAKING AN OFFER
Your real estate professional will work with you to submit a
good offer. If you end up in a bidding war with other buyers, keep a cool head.
You should have already thought about your maximum offer be careful not to
allow emotions to sway you, work within your budget.
Things like being
preapproved with your lender and having a flexible closing date can help make
your offer stronger.
Your purchase agreement will include details of the real
estate transaction like:
Buyer and seller information
Property address
Purchase price
Lender information and loan program.
Earnest money deposit
Items to be left with the home (like appliances)
Contingencies like the home inspection, appraisal and final
mortgage approval
Closing date
Sometimes agreeing on terms is quick and painless, but it
can also be one of the hardest parts of the process.
If your negotiations get difficult, remind yourself that
both parties want the same thing. The sellers want to sell their home, and you
want to buy it.
Sometimes it pays to compromise on little details if that will
move the process forward.
Your real estate professional can give you advice
about when to give in and when to hold firm, but remember you are in control.
You are now officially under contract on your new home. Being under contract
also means you are done with the most time consuming stages of the home buying
process. Congratulations.
Now that you are under contract, what should you expect?
Your now need to work through the contingencies in the contract.
Contingencies are simply conditions that must be met in
order for the home purchase to take place. They provide a safety net for you to
back out of a sale without losing your deposit if something goes wrong.
Don’t let your emotions lead the charge. You should never
skip these contingencies, because they offer important protection for your home
purchase.
Step 6
CONTINGENCIES AND INSPECTIONS
You have found the perfect home, and your offer has been accepted.
Your real
estate professional has forwarded the completed and accepted offer to your
lender so they may complete their final due diligence.
Your offer will detail what the contingencies
are, these should already have been explained by your real estate processional
and your lender, many of these contingencies need to be completed within agreed
times. Failing to meet those times may void your agreement.
They also provide a safety net for you to back out of the sale should
any of the tests be unacceptable.
Home Inspection
As a buyer, you have the right to a professional home
inspection at your cost before you purchase the house, and you would be crazy
not to do it. This is one of the most
important precautions you can take before purchasing a home because it keeps
you from being blindsided by structural issues or expensive repairs. If the
inspection reveals major problems with the home, you can negotiate with the
seller to fix the problem, reduce the price, or cancel the contract.
You can also consider getting other professional evaluations, like a plumbing
inspection or radon test, depending on the advice of your real estate professional
and the age and condition of the home you are purchasing.
Appraisal
Your lender will require an appraisal evaluating the value
of the property. An appraisal protects you from paying more than the homes true
value. If the appraisal comes in lower than your offer price, your real estate professional
can provide the best guidance for what to do next.
Insurability
Your lender will require the name of the agency providing you with home
insurance.
Basic insurance typically covers fire, theft, storm damage
and liability should someone get injured on your property and sue you. But you
can also add on for other things like expensive jewelry, furniture and home
office equipment, as well as choose to get additional flood insurance if your
home is in a flood-prone region. You may be forced to take flood insurance in
some areas.
To find a provider, you can shop around online, from agency
to agency, or use an independent agent, who can provide several quotes to
review at once. It varies based on your area and, of course, the value of your
home.
Final Mortgage Approval
If you did get a mortgage, you’ll have a final step before
you can close on your home: getting final approval.
Your lender will dig
through the details of your finances to finalize your mortgage.
Whatever you
do, don’t open a credit card, take on more debt, or change jobs once you’re
under contract, changes in your financial situation can jeopardize your loan
process. This is extremely important and has stopped many home purchases on the final day.
Step 7
CLOSING
You did it. All of the planning, house-hunting and waiting
is over. The final part in the home buying process is closing on your new home.
Before the big day, you are entitled to a walk-through to
confirm that nothing has changed since the inspection. Your real estate
professional will schedule this normally a few hours prior to the closing time.
Before you get the keys for your new home and officially
call it your own, you have one more step ahead of you paperwork. Get your
signing fingers ready there are a lot of
forms.
You should receive a copy of your closing documents to
review ahead of time so there are no surprises on the closing day.
This will detail all the items you will be required to pay
for including but not limited to;
Closing costs
Prorated property tax
Homeowner’s association fees (if this applies to your neighborhood)
Homeowner’s insurance
If there are any confusing terms or conditions as you work
through the paperwork, don’t be shy about asking questions. This is one of the
biggest purchases you will ever make, and you should know exactly what you’re
signing up for.
In most cases the closing is completed at the title company’s offices, and
attended by you, the processor, the lender representative and the real estate
professional.
Be sure to bring your photo identifications and have pre-arranged transfers of
any closing fees or money orders.
Once you’ve signed all the paperwork, it’s time to breathe a
sigh of relief. You are officially a homeowner.
Congratulations you made it you are a home owner.
A good
real estate professional will be available to you to answer any questions going
forward, and hopefully will maintain a connection with you for many years to come.
There is a lot of information here.
If you’re feeling overwhelmed, don’t worry.
You don’t have to do all of this on your own. We are here to assist you at Rushmore Real Estate Group
you can be confident that you are working with a real estate professional who
is an expert in your local market.
We only endorse trustworthy real estate professionals who
are well-respected in their communities.
Don’t make your biggest investment without the guidance of a
professional. Buying a house can be stressful.
A Rushmore Real Estate Group real estate professional will walk you through the
home buying process to help you make a smart investment that fits your needs
and your budget.
Gregg "Aussie" Stilton
RUSHMORE REAL ESTATE GROUP LIMITED
Contact: 605 939 5649