As a real estate agent, I find a lot of clients are seeking information to help explain and simplify the home buying process. So today, I thought I’d offer some insight on how the experience typically flows from start to closing, including some tips to help make things go as smoothly as possible.
1. Decide on a realistic amount to spend.
Years ago, (I won’t mention exactly how many years) 😉 a wise college math teacher of mine recommended spending no more than 2.5x your annual salary on a home. It’s a rule of thumb my husband and I have stuck to throughout the years, and it’s kept us from overextending ourselves financially.
Dave Ramsey also has some conservative recommendations and a great tool to help you determine how much house you can afford. Check that out here. And, of course, speaking with a loan officer at your favorite lending institution will also provide good insight on how much mortgage you qualify for and what loan terms are available to you.
Determining a ceiling price you’re willing to pay for a home will help you avoid disappointment by getting your heart set on something you can’t finance. It will also put you in the best position to close without complications.
2. Find the home that fits your family best.
When deciding what homes you want to look at, first determine your non-negotiables and communicate those to your real estate agent.
For example, what are the minimum number of bedrooms and bathrooms you will accept? What area/school district do you want to live in? Is a garage or carport a must? Do you require a large yard or a certain amount of acreage? Are you willing to do some work to fix up the place, or do you want a modernized, turnkey home? If you are willing to do some work, are you comfortable with only cosmetic updates, or do you have the construction savvy to tackle more extensive renovations?
Separating your needs from your wants will help you and your real estate agent clarify and narrow the search to only the best contenders.
3. Present an offer to the seller with earnest money down.
After you settle on the exact place you want to buy, this is the time to really lean on your real estate agent for help. He/she should be able to work with you to determine a fair price to offer for the property. This number should be based on quality research, which may include a comparable market analysis of sales of similar properties in the area; a comprehensive look at the property and the seller’s property disclosure information to determine what aspects are working for and against the property; the number of days the property has been on the market; and other showings/interest in the property by potential buyers.
Once you (the buyer) decide what you want to offer for the home – and the specific terms of that offer – your agent will draw up a Standard Agreement for the Sale of Real Estate. Your agent should make recommendations as to what might strengthen/weaken the offer you’re submitting. You will need to look over and initial/sign many pages of documents. This is also the time to establish what inspections you’d like done on the property. Any inspections you choose to have done will be at your (the buyer’s) expense.
You will likely want to provide an earnest money deposit at this point as well, which your agent will deliver to the broker to be held in an escrow – or trust – account until closing. In our local area, $500 or $1,000 of earnest money is a common amount, but this number is determined by you (the buyer) and can affect the strength of your offer. The purpose of this money is to let the seller know that you are serious, or earnest, about your intentions to purchase the home. After all, the seller is going to take the property off the market so you can purchase it. If the sale is completed, you (the buyer) will receive this money back at closing, in the form of a credit toward the purchase price.
4. Agree on a price and put the property under contract.
When a price is agreed on by both buyer and seller and reflected in a sales agreement signed by all parties, the property goes “under contract,” which means the seller’s agent takes it off the market and all parties involved begin moving toward a successful closing, typically within 30-60 days.
5. Secure mortgage financing and have any necessary inspections scheduled.
If you need to borrow money to purchase your new home, now is the time to obtain a mortgage financing commitment from a qualified lender. Schedule an appointment and ask what options are available. You should always seek the best rate and terms, but bear in mind that when you apply for a loan, typically credit approval is required, which may slightly negatively affect your credit score. So shop around, but do so cautiously.
Once you settle on a financing product, your loan officer will explain what will be needed to secure the loan. This often involves certain mandatory inspections (wood-destroying insect inspection, for example) and an appraisal to determine fair market value.
Your lender and/or real estate agent can help schedule and ensure all necessary inspections are completed on the property prior to closing.
6. Review inspection results and determine any necessary courses of action.
Each inspection done on the property should result in a report made available to you (the buyer), the seller and their respective agents. This is vital information to review, as significant issues that arise may require remediation by the seller; may affect the availability of mortgage funding for you (the buyer); may affect the agreed-upon sales price; or may even cause the deal to fall apart altogether.
7. Find an attorney to represent you in the buying/closing process.
A real estate attorney and/or title closing company should help you in the title search process and help provide peace of mind and a legal safeguard so that, when you buy a property, you can feel comfortable that no one else will place claims against the property down the road. A title search will be performed to make sure there are no clouds on the title (third-party claims to a property that could call into question or invalidate your ownership of it). If there are, these problems will need to be resolved before the property becomes yours. A title search and title insurance policy on the property will be important – and often required – elements needed before you can close on the house.
8. Do a final walk through of the property.
Prior to closing, you should walk through the property one last time. This is something your realtor can set up for you. You’ll want to make sure no damage has occurred, and that nothing included in the sale has been removed. If the seller was supposed to make repairs, this is the time to ensure they were completed properly. I recommend scheduling a final walk through several days prior to closing so that, if there are discrepancies, there’s a window of opportunity to correct them.
9. Sign the Papers
Obviously, one of the most critical steps to closing is signing the paperwork. No kidding, there will likely be at least 100 pages. Although you may feel pressured by the people present who are waiting for you to sign, read these documents carefully and make sure you’re comfortable with the details. Be sure to ask any questions; don’t be intimidated. The professionals in the room are equipped to answer questions for you and certainly aren’t expecting you to be an expert in real estate transactions.
In particular, make sure the interest rate is correct and that there is no prepayment penalty for paying off your mortgage early. Compare your closing costs to the good faith estimate you were given at the beginning of the process.
10. Get the keys and move into your new home!
It may seem like the closing process is a lot of work, but perhaps the toughest part is the waiting. Most of the time, you’ll just be sitting on your hands, waiting for someone else involved in the transaction to accomplish their responsibilities. Try to find something enjoyable to distract you while you wait. Or better yet, get all your belongings and affairs in order, so you’re well prepared to make the big move! 🙂
Note: If you are thinking about buying or selling a home, a good realtor can be a huge help! If you live in the Huntingdon County area, Pa., I would be thrilled to help you. I’m with Schrack Realty at 615 Washington Street, Huntingdon, Pa. You can reach me by leaving a comment on this post, filling out the contact form on this website, or calling the office at 814-643-6000. Just ask for Susan. Happy house hunting!
Disclosure: Any tips, information or advice contained in this post is the result of my own research and opinions. Please consult an attorney for legal guidance concerning your specific home sale or purchase.