Use this guide along with your real estate profession to make decisions as you enter into and proceed through the real estate buying process.
Step 1: Deciding to purchase
Answering Those Tough Questions Pays Off
Evaluate your life and finances
Owning a home is like any major commitment. You need to be mentally and financially ready for it. What stage of life are you in? Are you financially stable? Do you move around a lot? See Pros and Cons of Home Ownership
Are you renting and paying someone else's mortgage? If so read this before continuing.
Before you even look at homes, take a good look at your situation and crunch the numbers to see if this is the right time for you to buy. Just because it's a buyer's market doesn't mean you should buy now. These steps will help you figure out whether you're ready to own a home. Smart buyers do their research.
You will need to create checklist. The first list you should create is a home wish list. Write down everything you want and need in a home. Consider your family, career, and interests. Then come up with the type of house that fits your lifestyle. Here is a list of questions to get you started:
1. Where will you be in 5-10 years?
2. Do you have kids or plan to have them?
3. Does your job require you to move around a lot?
4. Do you have time to maintain a home and yard?
5. Do you want to live near work?
6. Do you want to live near shops, restaurants and nightlife?
7. How much living space do you need?
8. Do You want a new home or a resale?
9. Would a Detached single family home, townhouse, Condo or loft best meet your needs?
Study your list. Refer to it when you tour houses, or you may decide to hold off on buying. For example, because of the costs of buying a home, it doesn't make financial sense to buy if you expect to move within five years. Find out how to create your vision of home.
Other lists you should keep are Home Tour Checklist, Home Purchase Checklist (see if your real estate professional will supply this one), a Mortgage Checklist and a Closing Checklist.
As a home buyer you have rights as well as the home seller's have rights. So know your rights. Learn all you can from your real estate professional. Ask questions if you're not sure where you stand in a certain situation. There are no stupid questions when it comes to spending the amount of money your about to. It is your responsibility to insure you know and understand everything that is happening throughout the home purchase process. Your real estate professional will provide you with tons of information but if you don't read it, you will only have yourself to blame.
With your list in hand and the knowledge you have obtained through producing it you are ready to make a decision. Will you purchase real estate in the next six months? Will it be in the next year? Or will you wait until other situations in your life have changed?
Remember you have until you are in a legally binding contract to change your mind. Yes you will have spent some money preparing to purchase but you will not lose nowhere near as much as you will by signing a contract and then backing out.
Will you be downsizing into a smaller home or moving up to a larger home? If so you will need to decide if you should sell first or buy first. If you are downsizing you will need to decide which items you own that will or will not be making the trip to the new home. If you are moving up you will need to decide what new items you will need to fill the new house. The answers to these questions and more will play an important roll in deciding what type of property you will be looking for.
Are you ready for homeownership?
Step 2: Choosing a Real Estate Professional
As a buyer, consider hiring an exclusive buyer's agent who will protect your interests and help find homes that match your criteria. A good real estate agent can access market information not immediately available to the public, such as the current selling prices of comparable homes in the area (referred to as "comps") and homes that have just hit the MLS. Read about the pros and cons of hiring a buyer's agent.
Buyers don't pay any money out of pocket for an agent. Rather, agent commissions are wrapped into the purchase price, about five to seven percent. As a result, sellers usually factor in agent commissions when they price their homes. The buyer's agent and the seller's agent split the total commission.
What to look for in a real estate professional:
A buyer's agent should:
· Understand your needs;
· Be familiar with the neighborhoods you like;
· Have experience with homes in your price range;
· Be well-connected (with selling agents, mortgage specialists, appraisers, home inspectors, insurance agents, etc.).
Find out these things when interviewing agents:
· Number of years in real estate;
· Familiarity with your target neighborhoods;
· Number of home sales last year;
· Average selling price of homes sold last year;
· Number of buyers working with;
· Number of sellers working with.
10 Questions to ask before buying a Philadelphia home.
If you decide to go it alone, hire a real estate attorney to review the sales contract for peace of mind.
To find a real estate professional ask family and friends for referrals or find an agent through the National Association of Realtors®. If you know of someone who recently purchased or even sold a home ask them who they had handle the transaction for them. But remember interview all potential candidates as the person who worked well for your family member or friend may not be the perfect fit for you.
What about Uncle Henry, he is in real estate? You may feel obligated to work with a family member or friend. Please give them the curtsey of honoring an interview to insure that they will provide you with the same services as any other professional. I have seen buyers select a family member or friend because their fees where cheaper or they would not charge them anything and after the transaction is complete, after all the stress and after they settled on a property that they didn't really care for, now they are no longer speaking to one another.
Find more tips on shopping for an agent.
One of the benefits of hiring a real estate professional to represent you in the purchase of a Philadelphia home is that in most cases they will be paid by the seller. So why not use their services to insure a smooth and stress free transaction. Read more on the benefits of a buyer's agent.
Step 3: Getting Educated
Agency Is the relationship of trust between sellers and buyers and their agents. The agency is formed through a written contract. Follow this link to learn more on agency.
The commission is the money paid to real estate professionals, mortgage professionals and other professionals involved in the transaction. I most cases the real estate professionals are paid a commission by the sellers. As for the mortgage and other professionals, commissions are paid by the individual who hired them. For example; the buyer will pay the mortgage professionals commission if the contract of sale does not state otherwise.
A Comparative market analysis (CMA) is used by real estate professionals to determine the value of a property. This is not an appraisal. The CMA is a collection of information from homes that have recently sold, expired or have been taken off the market.
Real estate professionals use the CMA along with a home evaluation to determine at what price a seller should list their home or what a buyer should offer as a purchase price. To avoid the hassle of back and forth negotiations, keep your price as close to what the CMA reveals.
Making an offer is the first major step in purchasing real estate. Insure you know what an offer is, how it will be structured, and what happens once it is ready. Writing an offer can be very mind boggling if you are not prepared when the time comes.
Contracts are used in almost all business transactions. In real estate it is required by law to have a signed and legal contract to transfer real property from one party to another. Understanding what goes into the contract and how it will take you through the transaction, is very important. If one step in the contract is missed it could cost one party and all a lot of money.
Do your research. The only way that you will avoid the many pit-falls that come with buying real estate is to know what you are doing. Understanding the home buying and selling process is the first step in a successful real estate transaction. Your real estate professional is the expert but just remember they do this every day of every year and they may overlook educating you on an area of the process that comes natural to them. When I purchased my first Property, I wish I had known what I know now. Yes now I am a real estate professional. But how do you think I got to where I am now? You got it through research and asking questions.
Step 4: Financial Status
Get your finances in order. In today's real estate and mortgage market you need to insure that your financial status is in order. This is a subject that is very different for each person involved. Your credit score is only one part of the decision as to you receiving a mortgage. What are your regular monthly expenses? Can you cut them back? What is your income? How long have you been receiving this income? Do you have credit cards? The mortgage companies that you contact to research for a mortgage, will ask you these questions and many more. Be prepared, in a normal life we are trained not to discuss how much we make or how we spend it, but when it comes to getting a mortgage, you must!
To determine how much house you can afford the mortgage company will take into account all the information you provide to them and tell you what you are able to spend on a Philadelphia home. The amount that you will be able to pay for a home will be in part based on how much you can pay each month. Example; if you are told that you can afford $1,500.00 a month mortgage payment, your first thought would be that you qualify to purchase a five hundred thousand dollar home($1,500.00 times 30 years equals $540,00.00). But in fact you only qualify for a home about two hundred and fifty thousand. Remember there is interest, taxes and insurance figured into that monthly payment.
Before you start searching homes get pre-qualified. A pre-qualification letter will be needed when you write an offer on the home of your dreams. By getting pre-qualified now, you will save time once you have chosen the home you want to purchase. A pre-qualification is nothing more then you telling a lender over the phone what your income is and what your expences are and them telling you in writing how much house you can afford. But more and more sellers today are requiring that you provide a pre-approval letter. The reason, the pre-approval letter is only given by the lender once all your income and expences have been documented.
Learn the different types of mortgages so that you will have a better understanding of the options available to you when the time comes to apply for the mortgage that will help you purchase that Philadelphia home.
The down payment will also be a larger determining factor when it comes time to plan your finances. Naturally the more you put down the more favorable the terms will be.
When talking to the different lenders have then prepare an estimate on what your closing costs will be. This is one item your real estate professional is not prepared to provide for you as each mortgage company charges different fees for different situations.
Once you have decided to purchase a home DO NOT spend any money you don't need to. Do not buy a car, do not open a new credit account and do not move money around. By doing any or all of these could cost you the opportunity to purchase a home.
When there are issues that will keep you from getting the conventional mortgage such as no down payment or less then perfect credit the lease purchase option may be a great way to get you into a home.
For more information on mortgages Click Here
Step 5: Search for a Philadelphia Home What not to do while house hunting
It is very important that you know which neighborhood you wish to live in. There are twelve different types of neighborhood, know which type you are interested in. Take the time to research the area. Choosing a neighborhood you should take into consideration where you work, schools if you have children, what your lifestyle is and how close you want to be to shopping, restaurants and public transportation. Once you have chosen a neighborhood or two, check it out at different times of the day and night. Real estate professional by law are not allowed to discuss the makeup of the neighborhood. This is something you will have to do on your own.
Learn everything you can about your target market. What are the homes selling for? Are there HOA fees? Is the community struggling financially? What businesses are there and how well are they doing? The answer to all these questions will help you determine what the value of your home will do after you move in. If the community is failing your property value will drop. If the community is prospering your property value will rise.
Now you're ready to view all five hundred homes in the neighborhood you have chosen. But wait do you really want to spend two years out shopping homes every weekend? Of course you don't! Allow you real estate professional the chance to do their job. If you have communicated effectively they will be able to select ten to fifteen of those homes for you to view. Don't get caught up in the thrill of seeing how other people live, because if you do you will never purchase a home. Now you may think that statement is silly, but I have seen buyers that spend too much time paying attention the how the sellers live and never see the homes. Trust me your real estate professional will pick this up right away. They do not want to waste their time no more than you do. Finding that perfect investment is what you hired your real estate professional for.
Shopping homes by going to Open Houses could take a long time. I have seen buyers create a list of all the advertised open houses and plan their route for the weekend. Searching for a home this way will cause you to loose interest if you do not find the home your looking for in several weekend.
Should you look at a fixer-upper? There are many reasons why you should as well as why you should not. Learn more about fixer-uppers before you purchase one. A fixer-upper if handled properly could be a great investment. If you don't know what you're doing or have some kind of back ground in construction or know someone that does, it could be the nightmare of all nightmares. Not to mention what it will do when you apply for a mortgage. Just be prepared and know what you're getting into.
There are good deals to be had in short sale, bank owned, foreclosure and HUD homes. But as with the fixer-upper you don't always know what you getting yourself into. With these homes there may be title issues that you will not know about until after you have purchased the home or even not until you go to sell the home one day. You're real estate professional will be able to guide you further through this process. Not all short sale, bank owned, foreclosure and HUD homes are a risk. Just ask lots of questions if you do.
Is new construction right for you? Do you want a home that no one has ever lived in? This is a home that everyone dreams about. I know I do! But having sold new construction home for several home builders, it is a much more stressful transaction. Decisions have to be made on time. Financing has to be obtained prior to building and you will be making some type of payment even though you're not living there yet. Once you can get through the construction stage oh what a joy it will be.
Not only the famous get to live in million dollar homes. There are many people today that can afford these large lavash homes. Before you consider purchasing this expensive home consider more then just the mortgage.
So now it's time to choose the home of your dreams or at least the one that is best for you. Use this web-site and the knowledge of your real estate professional to make sure you pick the right home.
Step 6: Writing the Offer
There are many decisions that have to be made when you're ready to write an offer (see sample). This is where your real estate professional will provide you with lots of information. Most of which will be what is going into the offer. You need to determine at this point what you want. This is not to say you will get everything you want but it does not hurt to ask. Your real estate professional will help you make an offer for a home.
Will you be writing an As-Is Offer? Will it be a Low-Ball Offer? And finely will it be an Offer They Can't Refuse? Remember an offer is more then just price. You need a real estate professional who can craft a winning purchase offer.
Will you be asking for the appliances, drapes, maybe a special picture you saw hanging in the home or even a hot tub that you saw in the back yard. Just because the MLS says that an item does not go with the home you should ask for it if you really want it. Maybe the seller has decided they don't want to take it after all or their new home will ready have one. Learn more about What Stays and What Goes.
There are times when you need to insure that you will not be forced to purchase a home that you cannot afford or that does not meet building codes. By entering Contingencies into your offer for things like mortgage approval and home inspection results you provide yourself with an opt out clause. These contingencies will not help you if you get cold feet and just want out of the contract once accepted. But will be there to help you if the home will be a major bourdon on you and your family. If you include too many contingencies though the sellers will not take your offer seriously and most likely reject it.
Buyers in the real estate market are just like buyers in any market they all want something for free when they are purchasing. And just like sellers in any market the sellers in the real estate market want the most money they can get for their product. If you fit into this category like most you will want to submit a low-ball-offer. Most sellers will not entertain a low-ball-offer. When the seller listed their home they saw the same information in their CMA as you have in yours. Unless they have decided to list their home much higher then what the market will allow you will insult the seller and return the seller will not budge on anything. So if you're serious about purchasing a home show the seller the same respect you would expect if you were selling. Don't get me wrong I am not telling you to get the best possible price you can, I just saying don't be ridiculous.
What price should you offer? No one can answer this question for you, but your real estate professional will provide you with all the information, CMA, market conditions and other information, you need to make a well informed decision. The only time you want to offer a price over the list price is if there are other buyers submitting an offer for the property.
Your financial status must also be entered into the offer. That is one of the reasons it is important to get the pre-approval letter prior to looking at homes. There are not many sellers that will take their home off the market for an offer that does not have an approval letter as part of the offer. Your approval letter informs the seller if you are financially able to purchase their home.
Once the offer is in writing and all buyers have signed the offer your real estate professional only has twenty four hours to present the offer to the seller or the seller's real estate professional. Now it is time to sit and wait. How you structured your offer will determine how long you will wait.
At this point only three things can happen. The sellers will either accept your offer as is (not likely), counter your offer with any changes they would like to have (price, terms or anything else) or reject your offer. If they accept your offer and sign it you have a legal and binding contract. If they counter your offer, you will then start to negotiate any changes that are to be made that all parties can agree upon. The negotiations will continue until an agreement is reached or one party decides to stop the negotiations and withdraw the offer. Yes once a counter offer has been made either party can withdraw the offer.
Once an agreement is made and all buyers and sellers have signed the offer that same document now becomes the contract.
Step 7: The contract
TIME IS OF THE ESSENCE will be on the first page of the contract. This is the most important statement in the contract and it means that if the contract states that am item is to be complete by a certain date and time, than it needs to be complete by that date and time. I have seen buyers and sellers lose thousands of dollars because they did not take the contract seriously. See sample contract.
The contract will state who is responsible for all aspects of the contract. If you do not complete any item of which you are responsible for the seller can and in most cases will proclaim the contract null and void. This means that any good faith deposit money you submitted with your offer will the sellers to keep if so stated in the contract. As so with you if the sellers do not hold to their responsibilities of the contract you will have the right to declare the contract null and void. At which time you will receive your good faith deposit and any other money awarded to you as pre the contract.
Insure that read the contract fully and that you understand every aspect of its contents.
Step 8: After the offer becomes a contract
Now you are under pressure to get everything going. You need to get your home inspection, Environmental inspection and pest inspection completed if you made them part of the contract. If they are not part of the contract the sellers do not have to grant your inspectors permission to enter the property. You will need to apply for your mortgage and insure the mortgage company performs their appraisal. The title company that will conduct the closing will need to be selected and only the buyer has the right to select the title company except in new construction or where agreed upon in the contract. You will need to purchase hazard insurance which will be required before your mortgage will be approved.
Any other items in the contract that you are required to complete must be completed on or before the date specified in the contract or prior to closing.
If the property you are purchasing is in a community that has a Homeowner Association (HOA) you will receive a copy to the HOA documents and be given seven days from the date of receipt to review them and determine if the community is right for you.
Step 9: Inspections
It is highly recommended that you have a home inspection on any home you plan to purchase. A home inspection will find any defects or safety issues that could cost you lots of money after you have taken ownership of the property. As with your real estate professional you will want to select a home inspector for their knowledge, time of service and reputation. Ask your real estate professional for recommendations as they work with home inspectors all the time. Once the home inspection is complete, the inspector will provide you with a complete report of their findings even if they find nothing wrong. Have your real estate professional assist you in reading the report, as there may be many issues you will not understand.
In most cases the home inspector will look for signs of Environmental issues as they inspect the home. The home inspector knows what to look for but is not an expert on mold, radon and other environmental problems. If there are environmental issue discovered you will need to hire an expert in that field.
Most mortgage companies will require a termite inspection, which will have to be completed by a certified pest control company. Your home inspector will see any damage caused by pests and add it to their report. You will need to hire the pest control company to whether evaluate the situation.
You will receive an inspection report for any inspection you have completed on the property. These reports can be very difficult to read at times so insure you fully understand what the report says, so that you can make a well informed decision as to the action you wish to take.
Note: If you do not have a contingence for these inspections in the contract, you will not have any right to ask for repairs or even back out of the contract.
Step 10: Insurance
Insurance is required when you mortgage any real property. At the least you will be required to have homeowners (hazard) insurance and title insurance. Not only will these insurances will protect you they will also protect your mortgage company.
Homeowners (Hazard) Insurance will provide you with funds, based on the policy, if you, a family member or anyone entering the property is be injured while on the property or will cover repairs, based on the policy, should you receive damage to the property. Learn what your policy will cover and keep up to date on any changes to your policy as insurance companies do make changes from time to time. Again if you have a mortgage on the property you will be required to have active homeowners insurance.
Flood Insurance may be required if the home you are purchasing is near a body of water that could cause water damage to the property. Flood insurance is not a part of your homeowners insurance. So ask your real estate professional if the property is in an area marked as a flood zone. And ask your mortgage company if they require flood insurance in the area where the property is located.
Title Insurance will be ordered and supplied by the title company you choose to handle the closing. If you choose to use an attorney to close the transaction, the attorney will take care of the title insurance. Title insurance is a onetime fee that is paid at the time of closing. If after you have gone to settlement and now you are the proud owner and it is discovered that there is an outstanding lien on the property you will be held responsible for the lien. This is where the title insurance protects your interest. If in the event a lien should appear were a company or individual has completed work on the property prior to the sale of the property the title insurance will cover the entire cost of the lien to include any legal fees attached. The title company is not responsible for any liens for work or services hired by you such as repairs, the home inspection or termite inspection prior to settlement.
Private Mortgage Insurance is only to protect the mortgage company if you should default on the mortgage. Private mortgage insurance is discussed in detail in the finance section of this web-site.
Step 11: Warranties
A Homeowner Warranty will protect you against in home mechanical failure for the length of the warranty. When you purchase a resale property with all mechanical systems in place they sometimes tend to break down. The homeowner warranty will cover the repairs or replacement for only a small fee of fifty to seventy five dollars.
Just like a used car, the mechanical systems in your new home are used to being used in a certain way by the sellers. When you move in you will use the systems differently than the sellers and believe it or not they will rebel and start to break down. This happens more with older systems than it does with newer systems. A Homeowners warranty can save you hundreds even thousands of dollars during a time when you will most likely be a little sort on cash. Example; if the forced air heater should break down on the coldest day of winter, and you have to replace it, the replacement cost could be one, two or even three thousand dollars. But if you have a homeowners warranty the cost to you will be about seventy five dollars (based on the policy chosen).
The homeowner warranty can be purchased by the seller, the buyer or anyone else. I know some real estate professionals that give them as closing gifts to their clients. Learn more on homeowner warranties.
Step 12: Get a Loan
In the contract you will have state by which date you will have applied for a mortgage. It is very important that you pay close attention to the process. Mortgage companies tend to drag their feet a little and this could cost you time and money in the end. Learn all you can about the mortgage market before writing an offer so that you're not left making ill informed decisions once you're under contract. To learn more about mortgages talk with your real estate professional, mortgage broker and see the Finance section in this web-site.
Step 13: Closing
Closing the deal is the most exciting part of the entire transaction. The closing will start with a final walkthrough of the property. This is your last chance to inspect the property before it becomes yours. The final walkthrough is not the time to be planning how you want to decorate or deciding if your furniture will fit, it is your chance to insure that the property is in the same condition or better then when you toured it for the first time. You will want to check any repairs that were requested from the home inspection, you will want to insure that the mechanicals are in working order and verify that the property is broom swept and free of all personal items. You will also want to insure that any negotiated items (appliances, fixtures, personal items and so on) are there. Once you sign the documents the property is yours and you have no recourse.
Title Search The title company or attorney you chose to handle the closing will gather all the necessary information needed to close the transaction. This information includes but is not limited to any information needed from you the buyer or the seller that is not listed in the contract, information and documentation from the seller and your mortgage companies, the seller's title and deed and any liens against the property. The title company or attorney will research the entire history of the property which you will receive a copy of in the form of a deed.
There are many reasons for closing delays. To avoid any possible delays insure that you provide any documentation required by the mortgage company, settlement company and your real estate professional in a timely manner. Make sure that your real estate professional is paying close attenetion and communitating with the selling agent to insure the sellers are providing all the necessary information required. Closing delays can cost everyone involved a lot of money.
Closing Documents are all the documents you will sign at the time of closing. These documents include but are not limited to all federal, state and local tax documents, all title transfer documents, Title Report and all mortgage documents. A HUD-1 Document will explain how all monies will be dispersed. The HUD-1 is required by law to be used in ever real estate transaction. Read the HUD-1 carefully as most of the money detailed on the document is coming from you in the form of closing costs or your mortgage. The HUD-1 explains who gets paid and how they are to be paid. The HUD-1 is prepared by the Title Company or attorney.
Once all the documents have been signed by you and the sellers the closing officer will ask you for your certified check in the amount of the closing costs. You will receive notice at least twenty four hours prior to closing as to what your closing costs will be. It must be in the form of a certified check as the money must be available at the time of closing. There are no exceptions to this law.
Ask your real estate professional what you will be required to produce to prove you are who you say you are.
The Keys are now handed to you and you are now the proud owner of the property you picked. From this point on the sellers are free and clear to spend their money as they see fit and are no longer liable for anything dealing with your property.
CONGRADULATIONS
It's time to move
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