Property Buying Tips

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Property Buying Tips

Now that you've decided to investigate home ownership, the bestway to approach your purchaseis as an educated Property Buyer. It is very important to educateyourself on the process and requirements before you begin looking fora home.

For example, many people believe that renting is cheaper than buying,or that you need an exorbitant down payment to buy a house. The realityis that the costs of renting may almost be the same as that of a downpayment for a house.

Last Updated - 16th October 2005

Preparing Yourself for the Buy

Your Real Estate Professional
Choosing to buy a home is one of the most important decisions ofyour life and should not be taken lightly. That's why it is in yourbest interest to associate yourself with a good real estate agent whohas experience, who works in the area where you would like to live,and with whom you feel comfortable.

Your Savings
It is important to develop a financial plan so that you not only savemoney for the down payment, but for other costs that will come alonglater like the credit check, the mortgage application and the closing.

Your Credit
Having an established credit history is an important step in a smoothhome buying process. Build a good credit history by trying to diversifyhow you pay for things and don't pay for everything in cash. Pay yourbills on time, limit your debt, reduce the amount of credit cards youhave and use them responsibly. It is also important to review your creditreport - a record of past and current debt that states when, how andif you paid. Make sure that the information contained in your creditreport is accurate. You will have the opportunity to correct any errors.

Your credit history is one document that gives the mortgage lenderconfidence in you. The better your credit history, the better your creditscore; and the better your credit score, the higher the trust levelof the lender, which may translate into more mortgage options for you.

The best approach in buying a home is to gain an understanding of howa home is financed, the process of obtaining financial assistance towardyour home ownership dream and the costs that you should be preparedfor. There are crucial elements to be aware of: (1) Mortgage Pre-approval,(2) the Down Payment, (3) Mortgage Options and (4) Closing Costs.

Mortgage Pre-approval

A pre-approval is a simple calculation that tells you the amount you'llbe able to finance through a loan and what your monthly payment willbe. A pre-approval also provides the "seller" some comfortthat you have the financial means to purchase their home.

Once you know the amount of money the bank will lend you, you willneed to determine how much cash you should save for the down payment.This will help define the types of homes that are within your budget.Bear in mind that your monthly costs not only consist of mortgage payments,but will also include at a minimum real estate taxes, homeowner's insuranceand utilities.

Securing mortgage financing is an important step in the real estatepurchase process. There are lots of options to explore to find the fitthat's right for you.

The Down Payment
A down payment is generally the money you pay up front toward your newhome. Typically, the more cash you pay as a down payment, the less youwill have to pay each month on the mortgage, and the lower the interestcosts will be over the life of the mortgage. Many people make a downpayment of 5, 10 or 20% of the sales price of the home, but the rightpercentage for you depends on many factors. There also are certain loansavailable for down payments of under 5%. One thing that is certain isthat saving the money for the down payment can be a challenge. Thisis why there are so many mortgage options available.

The Mortgage
The types of home financing options available to you toward the attainmentof your new home are varied, depending on your personal financial situationand unique needs. As a general overview, here are some typical financingexamples:

Adjustable Rate Mortgage: in general terms, this is a typeof mortgage in which the interest rate is tied to a certain economicindex and may adjust at certain times. Overall, your monthly paymentmay go up or down at intervals specified in the disclosure associatedwith this type of mortgage, depending on the current interest rate.

Fixed Rate Mortgage: in general terms, this is a type ofmortgage in which the interest rate does not change during the entireterm of the loan. This means that the monthly payments for principaland interest are also fixed for the life of the loan.

Conventional mortgages: generally, mortgages that are notpart of a government-housing program and are not insured by the government.

Jumbo mortgages: generally, mortgages that typically exceed$322,700 and are not insured by the government. These loans usuallycommand higher interest rates.

Closing and other additional costs
Closing is when ownership of your new home is officially transferredfrom the seller to you. Sometimes sellers will pay closing costs. Ifnot, you need to be prepared to pay this additional cost, which canrange to be an additional two to five percent of the home purchase price.These costs can vary from place to place.

Some other cost that you can gather more information on, as well asgeneral estimates, to prepare your personal finances, typically include:

Good faith deposit: This deposit shows the sellers that youare really interested in buying their home and that you are willingto make them an offer. This deposit can vary between 1 and 10% ofsales price depending on the market and can be applied to the downpayment.

Mortgage application and credit report fees.

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The Search
Narrowing your home search down with knowledge about how much you canafford to spend is only one factor to consider, having an idea of whatspecific features you want versus need in your new home, can also helpyour Real Estate Professional in guiding you through the process toa successful and happy outcome. With this information in hand, yourReal Estate Professional can give you information on houses for saleand will take you to see those that interest you.

It's always good to ask yourself the following questions:

What features are most important to me? Number of bedrooms? Numberof bathrooms?

Does it have special features like a garden, a fireplace, a yardor a garage?

Do I want a newly constructed house or a house that has been livedin before?

Is it most important that the house be near a specific school, myjob, or public transportation?

What is the school district like?

Are there kids in the neighborhood who are the same age as my own?

Does this house need a lot of repairs?

The Offer
When you find your perfect home you will need to make the seller anoffer in writing. Your offer is often the first step toward negotiatinga sales contract with the seller and is much more complicated than simplydetermining a price. Because of the large amount of money involved,both the buyer and the seller should protect their investments and limittheir risk. Therefore, when you make an offer, typically you not onlyspecify the price you are willing to pay, but also the details of thepurchase such as:

How you intend to finance the home

Amount of the down payment

Who pays the closing costs

What inspections will be performed

Whether personal property is included in the purchase

Terms of cancellation

Any repairs you want done

Date you will take physical ownership and possession of the property

How to settle disputes should they occur

Contingencies:
Contingencies generally allow you to anticipate potential problems sothat if something goes wrong, you can cancel the contract without penalty.If you cancel a contract without having agreed upon conditions and contingencies,you could find yourself forfeiting your good faith deposit and the moneyyou spent to inspect the property, as well as other damages. For thisand other reasons, it is highly recommended that you retain an attorney.Your attorney will advise you as to what you should include in youroffer to protect yourself.

Before making an offer, thoroughly evaluate the property (includingbut not limited to the following):

Property Conditions

Your Real Estate Professional can tell you how the propertycompares with the rest of the neighborhood.

Home Improvements

Take note of what the previous owners have done to the houseto determine if these improvements warrant the asking price and/orwere done correctly.

Market Conditions

If the market is "hot" it is often considered a "seller'smarket". This may give the buyer less room to negotiate his/herideal price because there may be other people willing to pay morefor the home.

If the market is "slow" then it is considered a "buyer'smarket". In times like these, houses often sit for longerperiods of time without receiving acceptable offers, so when reasonableoffers do come in, sellers may be more willing to negotiate.

Seller Motivation

If an individual needs to sell quickly due to their personalsituation, they may be more willing to negotiate.

Once you have submitted your offer, you must await the response ofthe seller. The seller could accept, reject or ponder your offer. Often,the seller will counter your offer with higher amount. This begins theprocess of price negotiation that may continue until both parties eitheragree on a price or decide to go their separate ways.

The Good Faith Deposit
Along with your offer you must provide the amount of your "goodfaith" deposit that is designed to, among other things, demonstrateto the seller the seriousness of your offer. This is one of the additionalcosts mentioned earlier. This money is only deposited once the offerhas been negotiated and accepted by both parties.

The Inspection - When there isa serious interest in a property and an offer has been made, an inspectionis often ordered. The seller should have the property available forinspection by a professional.

In a typical inspection, experts examine the existing conditions ofthe property. Inspections may be required by law, but the elements ofan inspection may vary according to region and state and/or your agreement.

The most common type of inspection is the General Home Inspection.A home inspector can provide you with a complete service, which maycover many areas of the home - from the basement to the attic, as wellas the exterior of the home, walls, chimneys, and fixed appliances suchas refrigerators and stoves.
Other specific elements that can be included in an inspection are thefollowing (this is not a complete list):

Termite inspection

Plumbing

Water Quality

Lead

Radon

Septic Tank

Asbestos

Electricity

Indispensable Insurance
Before a mortgage company will approve your lending arrangement andallow you to close on your new home, they will typically ask you toshow proof of title, title insurance, and homeowner's insurance. Yourmortgage representative can help explain the details, and your realestate attorney can provide counsel on title issues and title insurance.

The Final Visit
Before the closing takes place and the property is transferred, visityour future house with your family. The "walk-through" providesa valuable opportunity to ensure that the house has been left in theexpected condition.

You should take this moment to make sure that all the items the owneragreed to leave behind are still there, such as kitchen appliances,and even furniture and accessories, depending on the details of thefinal sales contract. Discuss any problem with your attorney. In somecases, you "as the buyer" can ask for a discount or creditat the closing to cover any missing item or last-minute damage to theproperty.

The Closing
Ask your attorney to go over the elements of the "closing"so that you can be fully prepared. The closing process varies accordingto the area of the country (and can even vary within the same state).

Generally, the seller is required to provide clean title to the propertyat closing. Your mortgage lender representative and your real estateattorney/legal counsel can best guide you through this process, makingsure that all documents are provided and steps followed

Disclaimer: The Property Buying Tips / Informationpresented and opinions expressed herein are those of the authors anddo not necessarily represent the views of TipsAndTreats.com and/orits partners.

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