For many the home buying process is a daunting one, mostly because let’s face it you don’t do it every year. To be blunt moving is a pain, and no one wants to endure that on a regular basis. It’s emotional to the point where sometimes you feel like you’re on a roller coaster. Especially if the market isn’t cooperating with you. It can have a large impact on your family from a social and educational standpoint. Finally, you’ll only purchase a handful of homes or less in a lifetime. So just to get this out of the way, it’s kind of a big deal. One that fortunately you can prepare for and set yourself up for success. So let’s begin.
Step 1: Affordability
You probably thought I was going to suggest starting off with open houses. Let’s face it that’s the fun part, right? Ok…I’ll give you permission to start by going to some open houses on a Sunday afternoon. But on Monday morning, call a lender you can trust. Do not just “find one” online. Ask friends, ask co-workers, most importantly ask your agent. But get a good solid referral or two for a local lender to guide you through the financial piece of this process. The best thing you can do here to save yourself time and frustration is to determine the following two things.
1) What kind of purchase price CAN you afford and
2) What kind of purchase price are you COMFORTABLE affording.
Those two will likely be different numbers. Let’s face it hopefully you land in something that looks a lot more like Option 2. The biggest benefit in being prepared isn’t so that you can run out and buy whatever it is you see next. It’s to have confidence. You know what you can and want to do and this allows you to look at areas and homes with a different mindset. This takes some of that daunting emotional piece out of it because with excitement of seeing a property that pushes all your buttons can come angst of “can I actually do this”. Do this and you skip the angst of that part and are confident knowing that you are prepared and understand the financial meaning behind any decision you make. Final step in this that you’ll need when you start looking in earnest is a pre-approval letter. Having this in hand before you see the home you want vs. after allows you to make an offer as soon as you find the home. There is nothing worse than walking into you’re dream home on a Saturday unprepared and losing it to a buyer that is very prepared. Don’t be that person.
Step 2: Determine Wants and Needs.
Some people just wing this part and go by feel. Others develop a spreadsheet with 100 rows of their items ranked by importance or assigned a point system and each home gets graded. To each their own but we feel that at least having a few very key criteria in place and using those as a filter will save a great deal of time and takes some of the emotion out of it keeping you on target for finding a home that will suit your long-term needs. Cities or proximity to work, School Districts or for some even certain subdivisions are used to define geographic areas of interest. Next using price, size or number of bedrooms, and depending on the area perhaps when the home was built are useful to screen out properties that wouldn’t be close to what you’re looking for. The goal of this exercise isn’t to find your next home. It’s to find a group of homes that your next home would be found in. So, don’t go too specific here or you may miss out on a home that would have been interesting. Clearly, you can now go to one of several websites out there to do research as you see fit. The next step involves getting a professional agents assistance. The reason this is important is that they can assist in providing context on resale and feasibility in finding something like what you’ve drawn up on paper. They can help predict supply going forward for the areas you’ve identified based on your criteria and what kind of properties have been recently available and how many. This allows you to make any fine-tuning adjustments before getting closer to your moving deadline.
Step 3: Hiring an agent
Another step in the home buying process for most buyers involves finding an experienced Realtor that you can trust. This isn’t as fun as looking for houses and unlike the home you purchase you won’t have to live with them for 5-7 years. I’ve had countless sellers come to us still complaining about the agent that worked with them when they purchased the home they are wanting to sell. That they felt “sold” and that things either weren’t handled or disclosed properly. Or they just didn’t have someone that would shoot straight with him. It probably sounds self-serving coming from an agent suggesting that this is an important step. But that professional will have an impact on how the home buying process plays out as well as potentially where you wind up living. I figure if people are complaining 7 years later about their agent they haven’t spoken to in 6 years and 11 months, then it’s probably more important than at least some people would otherwise believe. Spending a little effort and energy during this step will pay huge dividends. Having an experienced professional that will listen to you and work to achieve your objectives is crucial. Hopefully this professional will be comfortable in sharing their experience even if it’s not something you want to hear. Even if it’s not something they “want to say” for that matter. For the record, it’s difficult to say, “Not only should you not purchase this home, you shouldn’t be buying any home right now, you should rent”. It’s rare, but sometimes, especially if a person’s position or location of their employment is a little uncertain then it’s time to wait. Selling is expensive and moving is a pain. Doing that 24 months after buying is a no fun experience. An agent you choose needs to be willing to do just that, advocate for you even if it’s not in their direct interest, because that’s what they’ve signed up for in working with you. That’s the definition of fiduciary and you’ll be wanting one of those as your partner in all this.
SO how do you make sure this step ends in a good result for you. This is what I would do.
First, before meeting or hiring any agent check out their on-line reputation. Read reviews on them. Zillow, Facebook, and Google are great places third party sites to find out what other buyers have said and experienced.
Next, meet them for coffee either as a stand-alone meeting OR as part of a very, very short home tour. (2-3 homes max) Get to know them, ask questions you have about the process and share your objectives and goals. If this is your first time buying a home have them walk you through the entire process. Do they listen and provide feedback on your plans? Ask them to discuss the market dynamics and what you should be prepared for as far as supply and demand for what you’re looking for.
Here are several things you should expect from your agent.
Representing you with ANY home on the market, whether listed by another broker, a new home, for sale by owner, in foreclosure, or a custom home.
Provide an unbiased feedback of any property of interest identifying strengths and weaknesses.
Helping you find financing. • Discuss strategies to build an offer that fits your objectives.
Negotiate price and terms on your behalf . • Keep your best interests and needs foremost during the transaction.
Research any information you need or tell you how to obtain it. (Information could include: property data, zoning/assessing, community statistics, etc.)
Maintain confidentiality of your price intentions and personal motives.
Finally, expect to be entering into a written agreement.
Any professional will require this after the first meeting or couple of showings. This will spell out how they are compensated (by the seller’s agent is what’s typical) and also will define where your looking and for how long. You probably won’t sign something like this at the first meeting but certainly after looking at a couple of homes you’ll have a good read on whether the agent you’ve met with is the right fit for you.
Step 4: Private Home Tours
When you find your dream home you should present a competitive offer immediately. Homes tend to move quickly - especially homes that are priced right and are in great condition! By even waiting a day before you submit an offer, you could miss your chance to buy your favorite home. Even if the home has been on the market for a while, you still should not wait on submitting an offer. You never know what another buyer may be thinking!
Sellers typically price their home a little above what they are willing to accept but sometimes the right price to offer is full-price. If the home you want to purchase has one or more other offers, you don’t want to lose your home over just a small difference in price. Having your agent discover terms that are important to the buyer (not related to price) will also assist in structuring your offer.
Sometimes buyers want to offer a low price on a home to see what a seller will do. (5-10% below what it is listed for) In general, this approach backfires unless the home is truly overpriced. A seller who feels insulted by your offer believes you are not a serious buyer and will respond accordingly. Of course, the price you offer all depends on what the market analysis says and what you are comfortable paying given the condition of the home and the demand for the property.
Step 5: Inspection
Soon after the contract is finalized, inspections are scheduled to determine the type and extent of repairs that your home requires. You have the right to have any property (including new homes) you are thinking of purchasing inspected by a professional inspector of your choice. You should always exercise your option to have the physical condition of the property and its inclusions inspected. Many of the more severe and expensive problems - such as mechanical, electrical, structural, and plumbing - are not noticeable to the untrained eye. If repairs are needed, we will negotiate these on your behalf. The contract specifies an option period (usually 7-10 days) to allow for this as well as any other due diligence that is of concern to you. If you and the seller cannot agree on the repairs or you discover information that isn’t expected, or you just change your mind, you may back out of the contract if you are still within your option period. The only money you would lose at this point is the “option fee” (usually $50-$300). Assuming you are satisfied with the repair negotiations, you proceed on to finalizing your financing and closing. Here are more details about inspections those that perform them.
Are inspectors licensed?
Yes. The increase in buyers requesting property inspections has caused a rapid increase in the number of people entering the inspection field. The State of Texas requires inspectors to be licensed.
What does an inspection entail?
A qualified inspector will follow the Texas Real Estate Commission’s (TREC) required property inspection report. The inspection process consists of a physical inspection of the home, followed by a written report detailing the findings. Inspectors report on the general condition of the home’s electrical, heating and air systems, interior plumbing, roof, visible insulation, walls, ceilings, floors, windows, doors, foundation, and visible structure. The inspection is not designed to criticize every minor problem or defect in the home. No home is perfect. It is intended to report on major damage or serious problems that require repair for the well-being of the home and that might require significant expense. In Texas, a special concern is the foundation. The inspectors will provide a general overview of the foundation and if they feel a home may have foundation problems, they will suggest a full review by a Licensed Structural Engineer.
Should I attend the inspection?
The primary purpose of the inspection is to educate and enable you to make an informed purchasing decision. The inspector should allow and even encourage you to attend the home inspection. A good home inspector knows how the home’s many systems and components work together and how to minimize the damaging effects of sun, water, and the passage of time. Attending the inspection provides an important opportunity for you to learn firsthand how your prospective new home works, in addition to possible repair costs and maintenance routines. This is valuable information which could increase the life span - and perhaps the future selling price - of the home.
Do inspectors keep up with the current building standards?
A competent home inspector is familiar with the latest construction materials, home building techniques, and professional equipment. Consumers should research whether prospective home inspectors actively monitor the changes in construction and real estate to keep their business practices current and professional. Licensed Texas inspectors are required to renew their licenses yearly, which includes completing continuing education courses.
How much does an inspection cost and how long will it take?
The time necessary to properly inspect a home, as well as the fee charged by an inspector, varies according to the size and age of the home and the individual inspection company. However, you can expect that it will take an average of two to three hours to completely inspect a typical three-bedroom home, with an average cost of $400 to $500 (including the Wood Destroying Insect Report). Pools, Septic Systems, etc will add to the time and expense but are well worth it given that unknown repairs can be costly.
What questions should I ask the inspector?
Does the inspector carry errors and omissions (E&O) and liability insurance?
What licenses and certifications does the inspector have?
What experience does the inspector have, and how long has he or she been inspecting?
What is the inspector’s policy on the client being present at the inspection?
Does the inspector do inspections full time?
What does the inspection cover? hat does it exclude?
What scientific instruments does the inspector use in evaluating a home?
What is the fee?
Where do you find an inspector?
Getting a referral from a recent home buyer, your lender, or your agent is typically your best bet. Remember that you may use any inspector you choose. When we provide a list of inspectors it is someone that has either inspected homes we’ve personally purchased OR someone that impressed us with their level of detail on one of our listings. You can also find a list of inspectors on The Texas Association of Real Estate Inspectors’ website at www.tarei.com.
6. Title Work and Finalizing the Mortgage
Much of the work and documentation collection process is done at when your getting pre-approved for a loan at Step 1. At this stage your lender will order an appraisal, make sure estimates provided in Step 1 are still accurate and relevant, obtain all necessary disclosures back from you and continue processing your loan. Towards the end there can be verifications and checks that are required to ensure that their compliance guidelines are met. Towards the end the underwriter will issue an approval with conditions or a final loan approval. Conditions are often minor updates or providing clarification on any last-minute details.
Once all conditions are cleared, final loan approval is granted and the closing department begins preparing the paperwork. This would be the deed of trust and note, along with many other financial disclosures and documents that you will sign at the closing table.
While this is going on, you have a Title process that is taking place at the same time.
A Title Insurance Policy is a guarantee by a title company that a thorough investigation of the title to the property has been conducted and that you have been notified of any outstanding claims to the property. The title company reports any defects in the title in the form of a Title Commitment so that these matters can be corrected. It is important that you know of all claims on the property and have them resolved and declared away prior to you taking title to the property. The Title Commitment will carefully detail what items of encumbrance are not covered by the policy. You can then either get these items resolved or bow out of the transaction. Title insurance covers matters that occurred before the policy’s effective date but were discovered later. Your policy will detail what is covered, what is not covered, and the effective date. This is referred to as an Owners Title Policy. Every transaction should have one of these, even if the real-estate was a gift to you free and clear.
Title insurance is issued by the title company when they are certain the property is free from all liens, encumbrances, interests, etc., and the insurance guarantees and such. This allows the title to legally transfer to the buyer to be used as security for the lender’s funds. This is the reason Title Insurance is required by the lender. Your lender has an interest in knowing that you and the lender are the only parties with claims to the property. Not to get too technical here but there are usually two title policies involved in a transaction. The second one is called the lender or mortgagee policy. It only protects the lender’s interest. This policy is only on financed transactions and the fee for it is greatly reduced. A buyer will typically pay for this while the owners title policy (much more expensive) is usually covered by the seller.
The title company thoroughly searches the public records to uncover any unpaid taxes, mortgages, judgments against previous owners, easements, and other court actions or recorded documents which can affect title to the real estate. The insurance also provides protection against any defect in the public record such as forgery, similar names, error in the records, etc., and protects against any undiscovered or unrecorded claims that may arise in the future.
When Title Insurance is issued, the title insurance company accepts the responsibility for all claims on the property prior to your purchase (if they do not find the claim or call it to your attention prior to your purchase of the property). That responsibility includes defending your title in court if necessary (at their expense) or bearing the cost of settling the claim (if it proves valid) to protest your title and keep you in possession of your property.
Unlike other forms of insurance, the premium is a onetime expense and is in force as long as you or your heirs own the property.
Why is Title Insurance so important?
To understand why a title search is so important you must understand the nature of real estate. Real estate has always been considered man’s most valuable possession. It is such a basic form of wealth that many special laws have been enacted to protect ownership of land and the buildings which stand on the land.
The owner who is selling the property has extremely strong rights, as do his family and heirs. Also, there may be others who have “rights” in the property you are going to buy. These may be governmental bodies, contractors, or any other individuals who have unpaid claims against the property or unscrupulous owners who may have an undisclosed second mortgage on the home prior to closing.
Anyone who has such a claim in the property you are buying is, in a sense, a part-owner. The property may be sold to you without the party’s knowledge. Without a title check conducted by the title company you would be unaware of such claims at the time you buy. All such claims remain attached to the real estate you are purchasing and not to the previous owners. The title company will notify you of all liens, encumbrances, and interest in the property so that these can be resolved by the current owners prior to the sale. Proof of a “good” title, a title free of any liens, encumbrances or interests, is important - otherwise, you are liable for the claims.
Title companies also order the appropriate HOA documents and survey if one cannot be re-used from a prior transaction. Typically, you will receive this during the time between contract and closing and can review them and make any objections. If there is something unexpected in the HOA documents or the survey has issues that were a surprise, you can terminate the contract or work towards a resolution. That being said, timelines are important here and the details are in the paperwork. Make sure you comply with those deadlines along the way and review documentation provided in a timely manner.
Before closing you’ll select a home warranty (aka Residential Service Contract) that will provide some protection against many ordinary flaws and breakdowns for at least the first year of ownership. The warranty is a negotiable item in a contract, but the seller typically pays for one year of coverage. A typical Home Warranty costs about $500 per year or $750 if you have a pool. Each company will have different costs and deductibles, as well as add on options for items you want covered. There are several different home warranty programs available to you. As with any warranty program or insurance policy, exclusions do apply but a home warranty will give you peace of mind knowing that if major covered components in your home failed, much of the expense would be on the shoulders of the warranty company.
The final step is to close on your home. Before closing, often right before or the night before, it’s a good idea to perform a walk-through to make sure repairs are complete and the home is as you expect. At closing you will receive a settlement statement listing all the fees associated with buying the home and the amount of money you need to bring to closing. As soon as we receive this statement from the title company and review it for accuracy, we will contact you with the amount of funds required to close. (Typically, this is received a few days before closing.) You will need to get a cashier’s check made out to the title company for the amount owed. When you come to closing bring a cashier's check, personal checkbook, and photo ID's for everyone who will be signing the paperwork. Closing typically takes around 45 minutes and will be separate from the seller's closing. After you and the seller have signed all the paperwork, the lender will review the documents and your loan will fund. (Depending on your lender, this process could take anywhere from 30 minutes to all day!) Once your loan has funded, you will receive the keys and the home is officially yours.