12 Steps To A Home Loan Purchase
Whatever the reason you are thinking about buying a house, there are 12 steps to a home loan purchase. If you do them in the right order, you will save yourself time, frustration, and money. For example, if you start shopping for homes on the Internet without knowing how much you can spend, you will not only waste time looking at the wrong homes, but you may ultimately be disappointed at what you can actually afford.
FIND OUT HOW MUCH YOU CAN SPEND
The first thing you need to do is figure out what kind of home you want to buy and how much you can afford to pay in monthly installments.
Keep in mind that the results of your calculations will only be an estimate. Until you have chosen a home and the type of loan you want, and communicated with a lender, you can only use the calculated amount to help you determine a price range of homes you want to preview. Find out more using our mortgage calculators.
GET PRE-APPROVED FOR A LOAN
Either go to a mortgage broker or a direct lender and find out for certain the size of mortgage for which you can qualify. The pre-approval letter the lender issues you will help you be taken more seriously by agents and sellers because they will recognize you as someone who is prepared to buy. If you want a larger mortgage or better rate, investigate the government sites such as HUD.
HIRE AN AGENT, PARTICULARLY A BUYER'S AGENT
Using an agent can help you in numerous ways, especially because you are already paying for those services in the purchase price of the home. Both the seller's agent and the buyer's agent are paid out of the transaction proceeds that are included in the marketing price of the home. If you don't take advantage of an agent, you are paying for services you aren't getting. If you are planning to buy a home available through foreclosure or a for-sale-by-owner (FSBO), you can still use the services of an agent. Agents will negotiate with you on their fees and the amount of service you will receive for those fees, and you can arrange for them to be paid out of the transaction, not out of your pocket.
Start by narrowing the field. If you are interested in a certain neighborhood in your town, find out who the experts are in that area of town. They will be better informed and more attuned to the "grapevine," and are better positioned to network with other agents in the same area. Contrary to popular belief only 20 percent of homes are actually sold through newspaper ads. The other 80 percent are sold through networking among agents. If you are relocating to a new city, ask agents in your own town to refer you to agents in your new area. They will be happy to do so, because if you buy a home from their referral, they will receive a referral fee, so they are motivated to make certain you find the right agent to assist you in buying a home.
SIGN A BUYER'S AGREEMENT
Again, if you find an agent you like, go all the way and sign a buyer's representation agreement. This agreement means that you will have one agent representing you as a buyer. The agreement empowers the agent to not only search out the latest Multiple Listing Service list, but to seek alternative means of finding you a home, including searching foreclosures and homes for sale by owner. With a signed agreement, the agent becomes a fiduciary and must act, by law, in your best interests.
BE AWARE OF YOUR LIKES AND DISLIKES
As you shop for homes, keep in mind what you like and don't like and pass along your feelings to the agent. You should feel comfortable looking at numerous homes, but neither you nor your agent is interested in wasting time on homes that aren't appropriate. Like any relationship, your home will not be perfect. If you are finding that most of your criteria is met, it shouldn't be long before you find the right home. Think in terms of possibilities as well as what you see is what you get. Perhaps a home isn't move-in perfect, but with a little work it could be the home for you. Don't let cosmetic or minor remodeling problems discourage you. Many remodeling jobs add tremendous value to a home. If you remodel a kitchen, for example, you may receive as much as a 128 percent return on your investment. Talk with your agent, friends, relatives, and contractors and find out what it will cost to remodel the home the way you want it.
WRITE A CONTRACT
When you find the home you want, you will write a contract, either through your agent or your attorney, or on your own. Your offer should spell out what you are willing to pay for and what you are not, when you want to close, and when you want to take possession of the home. Your contract should be contingent upon getting an inspection and evaluating the results. If the inspection reveals a big problem, you and the seller can renegotiate the purchase price if you are still interested in buying.
GET THE LOAN UNDERWAY
As soon as the seller agrees to the contract, you must start following through on your loan. Take the contract to the lender and let it start the loan process in earnest. If you have been preapproved, much of the legwork has already been done and your loan will process more quickly.
THE HOME WILL BE APPRAISED
The lender will arrange to have the home appraised, which may affect whether the loan is granted. But the likelihood of a home selling for more than a lender is willing to lend is slim. The real estate industry not only keeps up with how quickly homes sell, but how much they sell for in an area. Most lenders will have a ceiling on the amount of square feet per home they will lend in a certain neighborhood. If a home is overpriced, it will quickly be obvious. You can then go back to the seller and renegotiate.
THE HOME IS INSPECTED
In many markets, you will have the home inspection after the contract is signed, rather than before. This is a better protection for the buyer. The inspection can reveal some nasty shocks, though. Your inspector may find a major problem with the furnace or the foundation. These are problems that must be fixed or the home cannot be conveyed. The seller then has to arrange to pay for the repairs, or have the repairs paid for out of the contract proceeds via a mechanic's lien. Before you can truly set the closing date, the repairs have to be made and approved by the buyer.
NEGOTIATIONS CONTINUE AS YOU GET READY TO MOVE
As you find a mover, pack your things, and arrange days off a work around the closing date, you will find that things can still change. It is the most intense, nerve-wracking time of the transaction -- waiting for the other shoe to drop. You think you may have addressed all the issues and closing will proceed without any other hitches, but negotiations still continue as you reevaluate the inspection report, or find out the chandelier you thought was included is actually excluded from the contract. As you revisit the home to show your relatives, your hopes raise, even through your doubts that the home will ever be yours increase.
CLOSING -- BE PREPARED FOR ANYTHING TO HAPPEN
Until closing, and even during closing, anything can happen. You find out that your closing costs are higher than you thought they would be because some additional service fees have been added by the lender. A glitch could come out in your credit report that delays the sale; a problem the owner was supposed to fix wasn't repaired in time; the homeowner can decide that she or he doesn't want to pay for the home warranty after all; the appraisal may come in the day before closing and be short of the asking price of the home. If so, the buyer, seller, and their agents have to figure out how to make up the shortfall. Do they lower the price of the home? Do the agents pay for the difference out of their commissions? How will last-minute problems be handled? The negotiating table is an emotionally explosive place. That is why closings are generally held in private rooms with the buyers and sellers separated.
YOU GET THE KEYS
It's all over. The home is yours. Congratulations.