An Overview of Home Buying

Many people dream of home ownership but it mandates homework, legwork and considerable effort to ensure that the process goes as smoothly as possible.

The current state of the housing market has also created many opportunities for people to buy a house for much less than it would have cost a few years ago.  In addition to a typical purchase, there are “short-sales”, foreclosure auctions, and bank owned properties, all offering different levels of savings and risks.  Which one is right for you will depend on many factors, something that a Legacy Buyer’s Agent is trained to help you determine.

Here's an overview of the typical process that can turn your dream of owning a home into a reality.

Step 1: Select a Buyer’s Agent

The seller will have a real estate agent working for them, a “Seller’s Agent”, so you will need someone looking out for your best interests as well.  A Buyer’s Agent is legally bound to protect your interests, however, since Buyer’s Agents are compensated by receiving a portion of the Selling Agent’s commission, this service is free to the buyer!

At Legacy, your Buyer’s Agent will:

a) Help you determine how much house you can afford;
b) Research and arrange walkthroughs for properties that meet the criteria you have specified;
c) Alert you to potential hazards in a property;
d) Prepare all of the legal documents;
e) Ensure the seller is fulfilling their obligations; and
f) Aid in the negotiation of the purchase price.

Step 2: Define Your Ideal Home

Before you embark on your search for the perfect house, it is important that you make a realistic "shopping list" in an attempt to narrow your choices of properties. Hunting for a home can be a time consuming process, especially if you have not determined in advance the parameters of your search.

Many home buyers make the mistake of misinterpreting a WANT as a NEED. As a result, they often dismiss homes that perfectly fit their needs in search for one that has their wants. This is not to say that you cannot have what you desire in your home--just that you must be able to differentiate between what you truly need and what you would like to have. Your budget must be the determining factor here, not a "wish list." Note, also, that in the examples below, many WANTS can be changed in a particular home (if the house doesn't have that feature now, you can change it later).

Examples of NEEDS
Enough square footage for comfortable living
Enough bedrooms to accommodate your family
Adequate number of bathrooms
Eat-in kitchen
Garage or basement for storage needs
Lot size to accommodate children's play area
Adaptation for Handicapped
Proximity to a specific school
All living areas on single floor for health reasons

Examples of WANTS
Carpeting color, paint color, exterior color, roof color, etc.
Pool or Jacuzzi (unless for medical reasons)
Wood floors
Bay windows
Built-in entertainment center
Brass lighting fixtures
Skylights
A pretty view
Specific brand/types of appliances

Step 3: Determine Financial Boundaries

There are two steps that need to be taken here.  First, you need to determine how much house you can afford.  That is, what are realistic monthly payments on financing combined with annual taxes, insurance, and maintenance costs?  Once we have determined how much you can afford, the second step is to get pre-qualified for any necessary financing, a process which your Buyer's Agent can also assist you with.

One of the many advantages of using Legacy Home and Loan Center is that we have mortgage consultants in-house who can provide you with multiple financing options to pick from.  Whether you pick from one of our dozens of lenders, or bring in your own financing, once you have been pre-qualified for a loan you can search for a home confidant that when you find that perfect place, you will not have to worry about losing it because you cannot get financing.

IMPORTANT!  As the government continues to roll out new initiatives to help consumers finance the purchase of a house, our Mortgage Consultants are continuously evaluating new programs as well as changes to old ones.  With frequent changes to loan programs and rates, we are recommending home buyers take the extra step of going through pre-approval (different from pre-qualification) with lenders to lock in your financing while you search for a home.  For more information please speak with your Agent.

Step 4: Research Target Homes

Homes that are put up for sale are listed on the MLS (Multiple Listing Service).  There are many internet sites that will display some of this information, but there is no public MLS that displays all of the houses for sale (by owner, auction, or bank sale).  Fortunately a Buyer’s Agent has access to listings of all properties along with notes from the Seller’s Agent that are not displayed on the public websites.

Your Legacy Buyer’s Agent will search these listings for homes that meet the criteria you identified in the Wants and Needs step, and then make arrangements for you to see the homes in person.

When viewing homes, here are some tips to remember:

• Write notes when previewing a home so you will be able to discuss the details later with your real estate agent.
• Ask questions about the home and discuss any objections or concerns you may have.
• Ask about the community - schools, shopping and transportation.
• Ask specific questions about the construction of the home; electrical, plumbing, heating, cooling systems, etc.

Step 5: Submitting an Offer

One of the most common misconceptions among home buyers occurs when it comes time to make an "offer" or a "bid" on a home. Many believe that even though they have tendered an offer to the sellers, that their options are still open. To some degree, this is correct. If the seller rejects the offer, counteroffers it, or simply does not respond, options are still open. You, as the buyer, can accept the counteroffer, make another offer, or simply move on.

If, however, the seller accepts the offer (and you are notified of its acceptance) then a legally binding contract has been struck. In the majority of cases and localities, there is not even the need for additional paperwork--the signed offer becomes the contract. Your options are now more like "do we want to paint the master bedroom before or after we move in?" Once the offer has been accepted, the "lets think it over just a little bit more" phase has passed. This is why it is crucially important to make sure that all of your bases are covered and all of your intentions made clear in the offer--it can become a binding contract in the blink of an eye and a stroke of the seller's pen.

Some of the items that need to be addressed in an offer are:

• The proposed selling price (your offer).
• Any concessions you desire the seller to make.
• Any financing contingencies (for example, subject to you being able to obtain a satisfactory mortgage. You can go as far as to state maximum interest rates, specific terms, etc.)
• Any home inspection contingencies (for example, subject to an acceptable whole house inspection report).
• A clear definition of precisely what is to be included in the sale. Don't simply assume that items such as porch swings, fireplace doors and refrigerators are included. Doing so usually causes some unpleasant surprises on moving day. If there is any question, be specific!
• The amount of earnest money (your deposit) that is being tendered with the offer.

Step 6: Negotiating a Deal

After submitting an offer, the seller has the right to accept or reject your offer.  If it is rejected, the seller may give you a counteroffer, usually at a different price.  Then you have the right to accept or reject the seller’s offer.  Before you negotiate a sales price, it's important to determine if you or the seller has the stronger position. Knowing this will help you plan your negotiation.

The seller may have the stronger position if:

1. The local real estate market is strong and homes are selling quickly.
2. They aren't in a rush to move.
3. Similar houses have sold for close to or above their asking price.

The buyer may have the stronger position if:

1. The local real estate market is weak.
2. The seller needs to move quickly.
3. The house has been on the market for a long time.

When negotiating, more information is better. Look at your notes from when you looked at the house. If there's anything in need of repair or replacement, you may include these costs in the negotiation. If you want certain appliances or fixtures to stay, be sure to include them in the negotiation. You may also want to make your offer contingent upon your obtaining financing or the house passing a professional home inspection, especially if it is an older home.

There are several steps to negotiating:

Asking price.
This is the price the sellers have originally listed. In a buyer's market, you may be able to successfully offer below the asking price. However, in a seller's market you may want to be prepared to offer more. Before making an offer in a seller's market, know how much above asking price you are willing, and able, to bid in case the seller gets multiple offers.

Initial purchase offer.
This is your first offer. It may include contingencies (such as a requirement that the home pass a professional inspection or that you receive adequate financing from your lender.)

Acceptance of offer or counter-offer.
The seller can accept your offer or make a counter-offer of a new price or additional contingencies.

If you've made a home inspection part of the contingencies and something serious is found during the inspection, you may want to submit a new counter-offer and discuss the situation with your lender. The process may go back and forth several times before you and the seller reach an offer that is acceptable to you both. Remember that in some instances, your lender may not approve your mortgage if the home has serious deficiencies that could affect its value.

Step 7: Loan Approval

Once an offer has been made and accepted by the other party, a contract has been made and the house enters escrow.  During this period, the buyer will finalize any financing that is necessary to complete the purchase.  In addition, a Title Search and Appraisal will be conducted as part of the Lender’s requirements for financing.

For an overview of the Loan Approval process, please see our Financing section.

Step 8: Home Inspections

There are numerous types of inspections. An inspection is meant to evaluate, at minimum, the structural and mechanical condition of a property. It is not the same as an Appraisal which evaluates the market value of a property. Persons involved in real estate transactions need unbiased information about the physical condition of the property they plan to buy or sell and your contract should include a contingency that you obtain a satisfactory inspection report. Your agent will talk to you about the types of inspections available.

To find a qualified Inspector, you can

1. Get referrals from satisfied customers
2. Visit the local consumer affairs office
3. Check the Yellow Pages under "Building Inspection Services"
4. Or simply ask your Buyer’s Agent for a referral.

If you are obtaining an inspector on your own, be sure to ask if she/he is a member of the American Society of Home Inspectors (ASHI). The ASHI has established standards of practice which include the specific services, limitations and exclusions that can be expected from private home inspectors.

Every inspection should include, but not be limited to, an evaluation of at least the following:

1. Foundations
2. Plumbing and electrical systems
3. Doors
4. Ceiling, walls and floors
5. Roof
6. Hazardous materials concerns
7. Heating and air conditioning systems
8. Common areas (in condominiums)
9. Insulation
10. Ventilation

Step 9: Closing and Settlement

After the searching for a home is done, the negotiations have been completed, the house has been inspected, and the mortgage has been applied for and committed to, the focus suddenly turns to the Closing, or Settlement. An understanding of the elements of and players in the closing, as well as a concise preparation for it, will eliminate many nervous hours as the day approaches.

What is involved?
It is the proverbial "signing on the dotted line:" the process of which will put the title to the house in your name, verify homeowners' insurance on the property, commit in writing to the terms of the mortgage, and usually, put the keys to the house in your hands. In general, you will leave the closing and go to your new home as a homeowner. The weeks and months of anticipation are all settled in the short amount of time that you spend at the closing.

In some areas, the buyers and sellers (as well as their Real Estate Agents) will all attend the closing. In other areas, only the buyers will be present. The closing will take place at the office of an Attorney, a Title Company, or an Escrow Company.  In general, though, the closing will be attended by all of the buyers involved and their Buyer’s Agent, as well as the Closing Agent, who has reviewed all of the components of the house sale and who is the one who will say "sign here" more times than you have ever heard in your life.

What forms are involved?
Although there may be additional documents involved, the primary items which are dealt with at the Closing are:

 The Settlement Statement
 The Contract
 The Loan Papers
 Title Insurance
 Homeowners' Insurance
 The Title or Deed
 The Down Payment and Closing Costs

The Closing is your final opportunity to make certain that everything related to the purchase of your home is correct. It is important, therefore, that you do adequate preparation prior to the day of Closing. Although your Agent will most likely review all of the items needed with you, it is a good idea to have the right information in case you need to handle it on your own.

What items will we need?
The following are the most important items that you will need prior to or at closing and some hints regarding them:

A Closing cost estimate: This should first be given to you by your Buyer’s Agent at the time of the contract, and then given to you by the Lender, a Good Faith Estimate, shortly after the application for the loan. This should give you a reasonably close estimate of funds you will need at the time of closing.

Homeowners' Insurance Policy: This must be secured prior to the date of closing.

Settlement Statement: You should have a copy of the Settlement Statement before the date of Closing. Generally this will not be available until one or two days prior to the actual Closing, but it is important to have it because it gives you the total amount of cash you will need at Closing and also how those various funds will be dispersed. In addition, it gives you an opportunity to iron out any discrepancies prior to sitting down at the Closing table. Your Buyer’s Agent will also have a copy for review.

Certified Funds: On the day of Closing you will need certified funds for closing costs and down payments. This is an important reason for needing a copy of the Settlement Statement a day or two in advance--so you know the amount of funds needed and so that any problems can be handled in advance.

By making adequate preparations in advance, you will be far less likely to have nasty surprises when everyone (especially you!) is ready for closing.  There is only one more thing to do: Move to your new home and begin enjoying it--you deserve it!

Answers to Frequently Asked Questions

What is the difference between "pre-qualified" and "pre-approved"?
If you are "pre-qualified" you have determined, with a loan officer, what price you can afford based on the down payment, your debts and the amount the mortgage company will approve for your mortgage. Being "pre-qualified" is only a determination of your probable credit. If you are "pre-approved", your credit, employment and funds have been approved by the lender.

What are closing costs?
Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, they are usually about 4-6% of the total sales price of a property. Some of the closing costs you might encounter are: application fees, appraisal fee, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners' association fees, loan fees, mortgage insurance, origination fees, tax registration and title insurance premium.

What is a point?
One point is equal to 1% of the new loan amount. Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest that would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors. By charging "points", the lender can bring the real estate loan up to those other investments.

What is earnest money?
When you make an offer, you will need to put up an earnest money deposit as a sign of good faith that you are seriously interested in buying a home. That deposit becomes a part of the purchase price and is held in a trust account until there is full acceptance of the offer. Typically, an earnest money is 3-5% of the offer amount.

What is title insurance?
Title insurance protects the named insured against loss because of defects, liens, encumbrances, adverse claims or other matters not shown or disclosed to the new owner that attach before date of policy.

Is VA or FHA financing unfair to sellers?
FHA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. The result is a larger market for sellers, who also benefit by receiving all cash for their equity.