AN OVERVIEW OF THE HOME BUYING PROCESS
THE BENEFITS OF HOME OWNERSHIP
Millions of Americans every year begin that life-long adventure of home ownership. Generations of people can look back on their life and define each chapter of their life by the home where their family lived. It’s so true with my own family! As the old saying goes, “home is where the heart is.” The benefits of home ownership are many: stability, financial security, equity for the future, tax advantages, etc.
Looking back, the best financial investment I ever made was home ownership. This guide is intended to be a resource to help orient you to the home buying process. Treat it like a resource! But always feel free to contact our office or our Baker Realty Group professional agent for more specific guidance.
Now, happy house hunting!
David Baker, MBA
AN OVERVIEW OF THE HOME BUYING PROCESS
Phase 1: Searching
Phase 2: Inspections and Repairs
Phase 3: Financing & Closing
FIND AN EXPERIENCED BUYER’S AGENT
The first step toward a smooth and low-stress buying experience is to find an experience buyer’s agent to guide you through the real estate buying process. It is important to understand that in Ohio every licensed real estate agent is representing someone. An agent with a sign in the front yard is the listing agent; they represent the seller.
Since 1996, you can have a dedicated buyer’s agent in your corner, looking out for your interests and guiding you through the process. And the good news is that you typically do not have to pay the buyer agent’s commission. Listing broker normally split their fee with the buyer’s broker. Not a bad deal! Before you get too far into the process, enlist the help of an experienced buyer’s agent. They work for you!
GET MORTGAGE FINANCING
Getting a loan is not as easy as it used to be! Before you start looking at homes, you need to contact a reputable mortgage lender and get pre-approved.
Every lender has a slightly different pre-approval process. The most common steps are for you to complete an online loan application, providing your social security number for a credit check. The lender will also request income and monthly debt figures.
The pre-approval process serves two important purposes:
- A pre-approval clarifies your buying power and helps you settle into a comfortable price range.
- A pre-approval letter gives you an edge over competing buyers if you land on a hot listing with multiple offers. It happens more often than you would think!
Once you have a pre-approval letter, it’s time to start looking at homes!
SEARCHING FOR THAT DREAM HOME
Now it’s time to begin your search! And your buyer’s agent can be a huge help with the process. Sit down with your agent for a consultation. They will help you clarify geographic areas, price ranges, home styles and other issues you may not have considered. Your agent can also set up a custom search to help cut through the thousands of other listings available on the housing market. You can also search the variety of housing sites in the internet.
Look in your price range and add $5,000 above that. In this market, many sellers are willing to negotiate – you might get a great deal! When considering different neighborhoods, use open houses on Sunday afternoons to get the feel for the amenities that each area offers. After you’ve collected a list of homes you would like to see, send them to your real estate agent. They will schedule showings so you can tour each home. Create a Short List. If a home is not a serious contender, don’t force it in your mind. Forget about it! Start a short list of only serious contenders. You must be able to see yourself moving into any of these homes on your short list.
Once you’ve seen your top ten homes and built a short list of 2-3 homes, consider second showings. You want to see a house at least twice before making an offer.
MAKE AN OFFER
Time to take action! Pick out your favorite from your list and ask your agent to help you put together a purchase offer.
Your purchase offer will contain such terms as price, seller concessions, closing date, warranties, earnest money, inspection period, financing period, etc. You real estate professional will give you guidance on protecting your interests in the contract.
Offering Price. Depending on the market, it is typically NOT a good idea to make an initial offer less than 90% of the list price unless the home is over-priced. In the Columbus market, homes typically sell for 95% of list price. Remember that you are buying their pride and joy. Low-ball offers have come back to haunt some buyers. If you are an investor, disregard these guidelines!
NEGOTIATE THE CONTRACT
Once you have made an offer on a property you like, the seller has three options. They can accept your offer, reject your offer or counter your offer. Most sellers will counter your offer with new terms and conditions acceptable to them. Then you have the same options. A typical contract has anywhere from three to five counter offers before both parties reach agreement.
Be prepared to flex some terms of the contract to accommodate needs of the seller, just as they are adjusting their expectations to accommodate your positions. It almost always works out!
WE ARE IN-CONTRACT! NOW WHAT?
Yeah! Those magic words are now for you – “in contract”. Now what? Don’t celebrate too much. You have a long way to go before you can move in to your new home!
When you find yourself in contract to purchase a home, there are a number of action items:
- Provide any earnest money specified in the contract to your agent.
- Order home inspections.
- Make loan application.
- Contact your insurance agent.
Let’s flesh out each of these steps and explain the process.
ORDER HOME INSPECTIONS
There are a number of home inspections you need to consider during the inspection period described in the contract.
Here are a few you should consider:
- General Home Inspection. Prices range from $250 – $350. Inspection qualifications range from weekend warrior to professional structural engineer. It is recommended you engage a professional engineer for older homes that may have structural issues. This inspection will take about 2-3 hours. You should be there for this one. I call this inspection pre-marital counseling for your house. The inspector will evaluate and test all major systems of the home, including roof, attic, exterior, heating and cooling, electrical, plumbing, and mold. Well worth the money!
- Wood-Boring Insect Inspection. You don’t need attend this inspection. This inspection will look for any evidence of termites, carpenter ants, carpenter bees and other insects that may be using your new home as a fast food restaurant.
- Environmental Concerns. Other inspections you can order will look into various environmental concerns. Most common issue tested for is the presence of radon gas. Radon gas has been linked to lung cancer and is easily tested. Other hazards that can be tested for include lead based paint and mold.
You will get a report back from each inspector. Sit down with your agent and come up with a list of repairs to request. Any repairs are negotiable with the seller. They may agree to all your requests. They may so no to all your requests. They may offer you a credit at closing in lieu of actual repairs. Make a list of non-negotiable repairs, but also see how much the sellers will do!
Your agent will collect copies of paid invoices before closing as proof the agreed upon repairs have been made. You can also have your inspector verify the work has been done.
THE LOAN APPROVAL PROCESS
You will need to meet with your lender immediately after reaching agreement with the sellers. The loan approval process can take up to 4 weeks, so it’s important to get started. Your lender will request a long list of documents to verify your income, credit score, cash reserves and debts. Bear with the process as the lender evaluates your credit worthiness. Loan approval involves the assessment of both you as a borrower and the property being financed. You will be evaluated as a potential borrower based on your credit score, debt-to-income ratios, and financial strength.
The property will be evaluated by a licensed appraiser. The appraisal process verifies that the property in question is sufficient collateral for the loan you are requesting. The bank is investing in that house and need to confirm that the value is consistent with the contract price.
Be responsive to any lender requests for additional documentation as this will only expedite the process. Once all the documents have been collected and the appraisal is complete, an underwriter will review the application and approve the loan. Then the loan documents are sent to the title company for closing.
CLOSING THE DEAL
A title company will coordinate the closing. The bank will wire the funds for your loan to their office. The title company prepares all closing documents like the note, mortgage and deed. Most closings are round table closings attended by the buyers, sellers, real estate agents and title company representative. You will receive a HUD-1 Settlement Statement prior to closing to see all figures and how much you need to bring to closing to cover down payment and closing costs. The day before closing, you should call the utility companies that service the property and open your accounts as the new owners. The sellers can provide the list of companies.
Be sure to bring the following items to closing with you:
- Photo identification, such as Ohio Driver’s License.
- Cashier’s check for your down payment and closing costs.
- Personal checkbook. Numbers can change at closing on occasion. Better to be prepared.
Your buyer’s agent will help you know when and where closing will take place, and remind you about what to bring.
The seller will give you the keys and garage door openers at closing. That will be the final step! You will also coordinate possession. Often the sellers will be entitled to a few days of possession after closing.
Congratulations! You now own your home! Get settled in and enjoy the blessing of home ownership. And if you have enjoyed the process due to the expertise of your real estate professional, pass their name around to your friends and family who are buying or selling in the near future. It’s the highest compliment you can pay them!
Many of our home-buying clients have said great things about the following vendors.
|The State Bank and Trust Company
|614-486-9174 office614-260-5537 mobile614-643-2855 fax
|First Place Bank
|Anderson Home Inspections
|Henry Pope, PE
|Polaris Inspection Services
|Kustom Home Inspection