Your path to owning a new home

Whether you are thinking of buying your first house or making a change from your current house, everyone can learn from reading through this helpful guide to making one of the largest monetary purchases you will probably ever make.  At first glance you may think this is a bit lengthy, but with this amount of money going out of your pocket it is worth a little extra reading in order to maximize the success of:

“Your path to owning a new home“

When you think of making a major purchase, say for a new car or even a new appliance, you wouldn’t just spend all that money without first doing some research, correct?  House buying is the same way.  Before you set out to purchase your new home, educate yourself with the information to make the purchase a financial success.  Here we will outline the path to making your purchase beneficial for you both in the near and long term.  Before you begin, reference our Home Buying Worksheet which we created for you to use as you travel down this path to owning your new home:

1. Consult a real estate professional:  I obviously recommend calling our firm, Elmore Realty Services, and speaking to Kim Walker.  However, whoever you choose for your real estate professional, should be willing to assist you from day 1 all the way through to the day you move into your new home.  Regardless of how long the gap is between these two points, a good real estate agent, like Kim Walker, will be there to assist along the entire path!  They should not just be there to show you a few homes and sign a few papers…they need to be more of a consultant which provides incredible value to your process.  Chance are you are not buying a home every day, however, the real estate professional is working with people who are buying homes every day, therefore their knowledge and assistance to you should be amazing.  We want you to walk in to your new home say, “Thank you, we couldn’t have done this without you!” to your real estate agent.
2. Determine your “buying keys”:  Sorry, we are still a few steps away from actually starting to look for houses.  We now need to determine your buying keys, the items which make everything in the process a success.  These keys are (1) Budget, (2) Size, (3) Features, (4) Location, and the one most people don’t think about as much as they should (5) Financial Success.  Everyone has a wish list of things they want from their home and typically they fit into one of the first four key areas A, B, C, or D.  Often you determine the best balance of these first four in choosing to make your purchase.  However, the last key area (5) Financial Success is as equally, if not more, important as the others.  To determine your buying keys we need to discuss each key individually before we can work them together:
   1. Budget:  This is what most folks see as the most important key.  You need to determine how much house you can afford and be comfortable paying for each and every month for the entire duration of your stay in your new home.  I didn’t say the duration of your mortgage, because honestly, not everyone is looking to stay in the home for that long, but we will get to that when we get to (E)…for now let’s stay focused on Budget.  Budget is actually comprised of a few pieces:
      • Credit Score:  You first need to determine your credit report and score to see how strong a buyer you are.  There are three major credit reporting agencies:  Equifax, Experian, and Transunion.  Your credit report and subsequent credit score is a major factor in whether you will qualify for a mortgage and for the interest rate you will be given.  If you are new to the credit report and score arena, you might want to read more at:  https://www.fdic.gov/consumers/consumer/ccc/reporting.html  This site gives detailed information and also instructions on how to obtain a free copy of your credit report from all three agencies.  Each agency also offers details on helping you understand, use, correct, and properly build your credit in order to improve your buying power.
      • Pre-Approval:  Now that you know your credit strength, you are ready to consult a mortgage professional.  Depending on your credit strength you may have lots of options.  We will discuss “shopping around” in section (E), but for now, let’s just focus on the pre-approval.  In order to begin your home search, you need to obtain a pre-approval letter.  This is obtained by consulting with a mortgage professional, typically completing a preliminary application in which you provide detailed information relating to your personal information, employment history, income, debt, and other similar information.  A strong pre-approval will not be instant, but rather will involve a process in which your mortgage professional will verify the details of all of the components that make up your ability to qualify for a mortgage.  This is worth the paperwork, discussions, and waiting involved.  The last thing you want to do is get 3/4th of the way through a purchase only to find that underwriting is rejecting your loan because of something that should have been known up front in the pre-qualification process.
      • Comfort Level:  Just because the bank says you can afford a certain mortgage amount, you may disagree based upon the factors of your lifestyle.  We will discuss a lot of these factors in section (E), however, in determining your budget, you will want to keep in mind how you spend your money.  If you enjoy travel, shopping, or frequently eating out, that will impact how much money you actually have to spend on a mortgage on a monthly basis.  In determining your comfort level, we recommend reviewing the last 12 to 6 months of spending.  If you haven’t been tracking spending that closely,  start today.  For the next 30 to 60 days, keep track of every purchase.  The coffee you buy a few times a week on the way to work, gas for your car, groceries, dining out….even that new scarf you found on sale…it all counts!  Now do a simple calculation which shows how much you make minus how much you spend on everything except housing (take out anything spent on rent or your existing mortgage) and determine how much money you really have left over to pay your new mortgage.  How much are you really comfortable paying so that you can keep up with your mortgage and your lifestyle both at the same time.
   2. Size:  This is the part that is a little more fun.  We now get to talk about the house of your dreams, that one that you have been envisioning in your head for weeks, months, maybe even years!  How big is it?  How much space do you need or want?  How large is the lot/yard?  How many bedrooms, bathrooms, garage spaces, etc…  Use our worksheet and write down the major components that impact the size of the lot and home that you are looking to purchase.  Categorize your choices into the must have, nice to have, and for the future columns.  For instance, you might need acreage because you own horses so depending on the number of horses and the town’s bylaws concerning land requirements per horse you may be required to have 2 acres but a nice to have might be 10 acres.  You might need 3 bedrooms but an extra would be nice to have.
   3. Features:  This includes all the aspects both inside and outside the home that you either need, want, or project you might need in the future.  You might need a yard for your dog or children or a private master bathroom might be a nice to have.  You might need to have the house handicap accessible either now or in the future.  Record all these items and categorize their importance as either a must have, nice to have, or for the future.
   4. Location:  The location of the home is the one thing that cannot change.  You might have the option to improve the kitchen, build on an addition, or finish off the basement with a family room, but the location of the house cannot be changed (usually).  Make notes on aspects of a houses location which are the most important to you:  the town, school district, neighborhood, distance from work or other important items such as family or friends, etc.  Think about what is a must have now versus what is a nice to have or for the future in terms of location.  For instance, you may have a child in high school so keeping them in the same school district is important now, but it might not be a requirement in a couple of years.  This is helpful information to know for both yourself and your real estate agent.
   5. Financial Success:  Within this area are the items often overlooked by buyers, but they are key to your future financial success.  It could be split into two areas:  the personal and the business aspects:
      • Personal aspects:  This includes what you anticipate will happen or want to plan for just in case they happen within the major areas of your life and lifestyle.  This is where you  think about the today, tomorrow, and long term.  Do you anticipate any changes in the size of your family:  how many people are going to be living in the house now versus in the near future, short future, or long future?  Do you anticipate any changes in your work or income source:  are you thinking of retiring within the near future?  Do you anticipate any increase or decrease in your spending such as needing to purchase a new car or paying off a student loan?  Would you like to travel more or have you been wanting to take up a new hobby which would require some monetary investment?  Think about your life, lifestyle, and other aspects which could impact your buying keys which you listed above in 1-4.
      • Business aspects:  These are the items which are more related to your financial investment into the home both immediate and long term.  These may vary from bank to bank, loan type to loan type.  Some banks may have better rates, but higher points required to be paid at closing to get that rate.  A fixed rate loan will have the same interest rate for the life of the loan, where a variable rate may be fixed for 5 years and then switch to a variable rate which will change annually beginning the 6th year based on changes in the banking industry status.  For someone looking to purchase their retirement home, remain in the home for the remainder of their years, and planning for full retirement from their current occupation in 4, the type of loan product they choose may be different than someone looking to purchase their first home right out of college.  There are other aspects in the business category as well such as the estimated closing costs, requirements for taking a first time home buyer or similar course, or other items which require how much it will cost you to purchase the home on top of the price of the home itself.  There are also lenders who require buyer’s to use an attorney who is approved by the bank.  If you have your own family attorney which you have trusted for years who is not on this list, you may be required to switch to one of the bank’s approved attorneys.  You might also be concerned with whether or not the lender is going to sell your loan and what impacts that may have on you and the service you will be getting relative to your loan in the future.  Other factors may include rules/programs which the bank has in the event a buyer becomes disabled, laid off, or has some other unforeseen financial impact.  The other important reason for this section is that each bank is different and the answers to these area of questions may be different, therefore this is where you want to interview your banks so that you find the bank, program, and situation which is best for you both now and in the future.  The better your credit report and score, the more leverage you will have in this area of comparison shopping!
3. Let the shopping begin:  Now that you have organized yourself in terms of the finances, must haves, and wish lists, it is now time to start shopping.  You can now work with your real estate agent to find the best matches for your buying keys.  As with a lot of decisions, you don’t always find exactly everything perfect in every key area.  This is where you work with your agent on prioritizing or finding a solution for the key areas which are being compromised.  It is here that lots of folks wonder, do I really need a real estate agent?  Can’t I just go online, go to open houses, and find my own house?  If I just call the agent on the sign out front, won’t I get a better deal?  We are here to clear up this area and let you know that if you have chosen a good real estate agent, you will need them and be happy that you have them working for you.  Your real estate agent will take all the information on your buying worksheet and use their tools, knowledge, networking, and expertise to save you both time and money.  Chances are you have not seen the interior of many of the homes on the market for sale, however, chances are, your real estate agent has, or if they haven’t one of their close colleagues has.  Armed with your worksheet and your personal interaction and feedback to other homes, your real estate agent can save you a lot of time in finding the perfect house.  Use their expertise to your advantage.  Keep in mind the things that can change versus those that cannot (ie: color of the bathroom versus the size of the yard).  With Elmore Realty Services, we also offer remodeling and new construction services so, like the shows on television such as Rehab Addict, Fixer Upper and Property Brother, we are your “Property Sisters” – or more accurately, “Property Friends”, since we aren’t actually sisters…but you get the point – we offer the same services they do on those shows and we are ready to go to work for you – just without any camera crews.  Check our Featured Listings page to get a sneak peak at what projects we are working on now as well as active listings in your wish list location!  Good luck with the search
4. Making the offer:  You have found THE ONE!  This is where your real estate agent really shines.  Chances are you have not made an offer on a home nearly as many times as your real estate agent has been involved in presenting an offer either for a buyer or to a seller.  Therefore, let their expertise be your guide.  Your real estate agent will know the market:  what has recently sold and what is actively for sale which is comparable to the home you have chosen.  This will be key to effectively making the first offer as well as in terms of negotiations if your initial offer is not immediately accepted.  Your real estate agent will also know what is important to include for terms in your offer both in terms of legalities in your area and in terms of items you want or need included.  You may need the seller to provide cash back at closing to cover some of your closing costs or you may want to have the seller include the washer and dryer in the sale of the home.  Your agent will know the best strategies for accomplishing your personalized goals.  Be sure that all the details you want included within the sale, the terms, the contingencies, etc…they all need to be in writing.  And, don’t be discouraged if your initial offer is not immediately accepted, that is why they invented counter offers.
5. Making your way to the closing:  Your offer has been accepted, now what?  You now need to work with your real estate agent, attorney, and mortgage professional as well as possibly a few others, to make your way to the closing.  From finding the house to getting the keys typically involved a few steps.  These steps can vary slightly depending on the type of property (private sale, short sale, or foreclosure) as well as standard practices in your area.  Again your real estate agent is key to making these steps successful and ensuring they are done in the proper order for your personal situation.  There is one thing every real estate agent will tell you, “No two transactions are ever exactly alike”.  Here are the main areas you will most likely encounter:
   • Purchase & Sales Agreement:  Depending on the area you live in, you may go right from negotiating into a purchase and sales agreement.  In our area, we have offers first, then the attorney gets involved to put a more formal Purchase & Sales Agreement into place.  You will want to consult your attorney and ensure that all the aspects of the sale which you are expecting are actually in writing.  If you are expecting appliances to be included in the sale, then the Purchase & Sales Agreement should make note of this.  If purchasing your home is dependent upon the seller contributing a certain amount towards your closing costs, then the Purchase & Sales Agreement should state this.  Typically if it is not part of the Purchase & Sales Agreement or attached Addendum, then it is not part of the transaction.
   • Home Inspections:  Depending on the transaction, a buyer may be required to perform any and all inspections of the home prior to submitting an offer or signing a Purchase and Sales Agreement.  Inspections on a home can vary depending on the property and your location.  In our area home inspections are commonly performed in the following area, however, other inspection are also possible if the buyer so desires.  Typically all testing is at the cost of the buyer (in our area the exception to this is the smoke/CO2):
     • Structural and mechanical inspections – this is where a licensed home inspector thoroughly investigates the home for any defects in the structure or mechanics of the home.  Often they will provide a written report with photographs of any concern areas which you can then use for any further negotiations if needed.  In some circumstances a professional for the type of mechanical system can be called in to ensure that everything is truly in proper operating condition, but often this is not necessary as the general home inspector can assess and provide his professional opinion.
     • Insect inspection – often a structural and mechanical home inspector also holds the necessary licenses to perform insect inspections.  Depending on your area, insects of certain types may be a problem so it is good to arm yourself with the proper types of inspections to safeguard yourself.  More often than not, insect infestations are very inconspicuous to the naked eye, however, to a trained professional, could expose an internally detrimental situation.  It is important to ensure that your inspector is licensed and is extremely knowledgeable of  your area.  We have personally had inspectors claim a house had termite infestation, when it was actually a case of an old building which had used lumber containing powder post beetles of which those beetles had been exterminated and eradicated decades prior.  Often certain types of loans will require an insect inspection with written proof of a clean inspection submitted to the lender required before closing.
     • Water testing – water tests can be performed for determining whether water from a private well contains any bacteria or concerning minerals, etc.  If you find a property which requires a water treatment system in order to ensure the best drinking water or prevent staining of laundry and fixtures (such as in homes where the water has a high iron content – typically no health risk, but who wants orange underwear when they are suppose to be white or a high sulfur level, no one wants to drink water that smells like rotten eggs), then keep in mind that water filters, conditioners, and treatment systems vary depending on what result you are looking for and what concern you are trying to address.  Some systems cover multiple items, others just address one.  A sediment filter only addresses excess sediment and prevents it from getting into the home, where another treatment system may be devised to eliminate order and reduce the amount of iron.  In addition, ongoing maintenance as well as the time and cost of such maintenance also varies.  Someone purchasing a vacation home may be better off to choose a different type of system than someone who is going to be living in the home every day.  It is important to consult with professionals with longstanding reputations and impeccable knowledge so as to be sure the system being invested in is right for you.
     • Sewage disposal system / Title V inspections – homes with private sewage disposal/septic systems often require inspection.  In our area, lenders require that a Title V Certificate be submitted to the lender prior to closing in order to ensure that the system is working according to the current laws and requirements.  Since replacement of a system could, in some cases, run upwards of $20,000 to replace as well as involve engineers, board of health, and even conservation, this is an important feature of a house to consider.  There are also different types of systems which require much different ongoing maintenance of which the maintenance could vary in cost from several hundred dollars per year to several hundred dollars per month.  Again, another reason to be working with a real estate agent and the proper professionals who know your area and can provide you with the best guidance.
     • Radon testing – Radon is a naturally occurring gas found in the earth.  In some areas it is common for the levels of this gas to be of high concentration and therefore require a system for ensuring levels within a home remain below dangerous levels.  Often home inspectors can perform the test collecting and send the collecting kit off to a lab for analysis and reading.  In our area radon tests are not typically required by lenders and therefore this testing is often up to the buyer to determine if they would like to have the testing performed.
     • Smoke/CO2 Certificate inspection – typically in our area, lenders require that a certificate be provided to the bank prior to closing which certifies that the local fire department has inspected the home and has determined that the proper smoke and CO2 detectors are installed and working properly in a home.  These certificates are usually good for 30 days and are typically at the cost of the seller unless otherwise noted.  Short sale and foreclosure properties typically require the buyer to pay for this inspection.
   • Formal mortgage application – most lenders require additional paperwork and documentation once you have selected your home and have a signed Purchase and Sales Agreement.  This is to ensure that at the time of purchase, the data they have to use in their final mortgage approval is up to date and accurate.  There is typically a few for the application which often includes the cost of a home appraisal.  It is imperative that you are responsive to the lenders requests for documentation and provide any required documents promptly.  Any delay in providing requested information could lead to missing contract deadlines and to major delayed in your home ownership.
   • Appraisal – As mentioned above, most lenders contract for a licensed appraiser to perform an appraisal of the home your are purchasing to ensure that they are not lending your more than the property is worth.  The appraiser will compare your chosen property to other similar properties in the surrounding area which have sold typically within the past 6-12 months depending on your selling market.  They make adjustments based upon the comparison of your home to others that have sold and provide the bank (and you, as you are allowed a copy of this report) with a formal appraisal report showing their opinion of value.  This is typically paid for by the buyer and is typically included within the mortgage application fees
   • Mortgage commitment – Once all the inspection reports, appraisal reports, and your documentation packages are collected and reviewed by what is often the underwriting department within your lender, a decision is made by the lender to formally approve you for your new mortgage.  This is where the congratulations begin!  At this point the attorneys will coordinate with the lender, prepare the final closing documents, and schedule the actual closing.
   • Final walk through – Your real estate agent will schedule a walk through the day before or the day of the closing.  The purpose of this is to ensure that the property is in the same condition as you last saw it, that everything that is to be removed is actually removed, and all items that are to remain are in fact still in place.  It is typical to conduct this just before going to the attorney to sign the final papers in order to minimize the time gap between the last time you see it and the time you own it.
6. Closing day!  This is the day that the home actually becomes yours.  Typically your attorney has coordinated with your lender for the proper distribution of funds, checks have been cut, and the documents are all ready for final signatures.  Both buyer and seller sign the necessary stacks of documents and then the attorneys record the necessary documents such as the mortgage, deed, and often homestead with the proper registry of deeds.  Checks are disbursed accordingly.  It is when the deed is officially recorded at the registry of deeds that the house is yours!  Time to collect your keys!!

Keep in mind that this is just a guideline.  Every situation, purchase, property, lender, etc… is different.  The laws, lenders, rules, standards, common and best practices are different for different areas.  The information in this guide is not complete and is only opinion and common practices that we typically encounter in our area.  Your personal real estate agent, attorney, and lender will provide the guidance necessary to ensure your transaction is a complete success.

One thing is true:  Every transaction is unique and Elmore Realty Services is willing to help you through every step.