Home Buying Guide
Buying a home is a key facet of the American dream. While this is a common transaction, it is also an involved one, and has a number of important steps. Understanding each step of the home-buying process can help you feel confident as you conduct this process, and can help assure that you are making smart decisions about the property you are purchasing and the financing you are seeking.
The Parties Involved in a Home Purchase
Every home purchase usually involves a buyer, a seller, a buyer’s real estate agent, a listing real estate agent, a mortgage broker or bank loan originator, and a closing attorney. Occasionally, home sales are conducted with just a listing real estate agent, and in rarer cases, a home could be bought and sold without real estate agents at all. Similarly, some home sales are done without financing – for cash – and these cases do not need a mortgage broker or bank contact.
Here are the responsibilities of each party during a home sale:
- Buyer – This is the person, people, or entity (such as a trust or business) that is purchasing the property.
- Seller – This is the person, people, or entity that is selling the property.
- Buyer’s Real Estate Agent – This person assists the buyer with their home search, helps coordinate showings, researches answers to the buyer’s questions and negotiates the buyer’s offer on their behalf. A buyer’s agent usually earns ½ of the sale commission, which ranges between 3 and 5% of the final price of the home.
- Listing Real Estate Agent – This person lists the property for the seller and advocates for their interests, including negotiating offers. A listing agent usually earns ½ of the sale commission. Listing agents are also called seller’s agents.
- Mortgage Broker or Bank Loan Originator – Most buyers need financing, and this is the person who assists the buyer in obtaining a mortgage, including all security and credit verifications and necessary paperwork.
- Closing Attorney – This is the person who is present at the closing and assures that all paperwork is in order and that proper signing and authorization procedures are followed. This person can also answer any legal questions that arise during the closing. Some closings will have two attorneys – one for the buyer and one for the seller, to make sure that all interests are fairly represented.
First-Time Home Buyer Tips
Buying a home can be an involved and sometimes intimidating process, especially if you are a first-time buyer. First time buyers can benefit greatly from taking the time to educate themselves about the process. Many banks and real estate offices offer free first-time home buyer seminars.
Being a first-time buyer can mean certain advantages that repeat buyers do not get. There are often mortgage rate deals or special closing costs credits that are offered by the government to encourage first time real estate buying. It is important to share with your realtor and your broker your first-time buyer status, and ask if there are any special programs that might help you get a better deal on your mortgage.
First-time buyers should try to steer clear of for-sale-by-owner transactions, or at least ensure that they are fully assisted by their own realtor, mortgage broker, and if needed, real estate attorney. They should ask a lot of questions and be thorough in the review of all documents.
There are various options for someone seeking a mortgage. Mortgage products are variable or fixed. Fixed options offer the buyer a fixed rate for a set term – usually 15 or 30 years. This is the lower risk option as the buyer knows exactly how much they will pay in interest. If the rates go down over time, the buyer can choose to refinance the mortgage and obtain a better rate. Variable rates change as the financial market rates change. This option can save you money, but it involves the risk of getting stuck with a high rate if that is how the markets are behaving. Variable rates usually start with a fixed period, like five years, and then is dictated by the current market rate.
Mortgages always require a down payment. It is recommended that a 20% down payment is provided, and mortgage loans that have a lower down payment than 20% often involve the buyer having to pay Private Mortgage Insurance (PMI). The amount PMI a buyer has to pay is dependent upon the value of the mortgage.
It takes anywhere between thirty and sixty days to obtain a mortgage and close on a property. There are a number of steps in the mortgage process, such as verification of documents, credit check, locking in of the loan rate, inspection, as well as others. Bank require that a property inspection and appraisal take place to ensure that the cost financed is reasonable given the real estate market, and to check for serious issues with the home.
Step-by-Step Guide to Buying a Home
Here are some steps you can expect to take in your home purchasing journey:
- Step 1Select the area where you want to purchase a home.
- Step 2Decide on the criteria for your home: is it a single family? Condo? Do you need a large lot? Are you looking for a gated community? How many bedrooms and bathrooms do you need? Do you want to buy a home that is recently renovated, or are you open to making improvements after you buy? Asking yourself these questions can help you hone in on the type of properties to explore, and which ones to avoid.
- Step 3Hire a buyer’s agent. It is helpful to hire one that works in the area you are searching as that will ensure they bring valuable knowledge and insight. You do not have to pay anything up front to a buyer’s agent – they get paid a percentage of the final price upon closing. Some buyer’s agents will ask you to sign an agreement promising that you will work with them exclusively.
- Step 4Obtain a pre-approval from a bank, credit union or mortgage broker. This is usually done by providing some high-level financial information to the lender, such as a pay stub and a credit check. It is ideal if your credit is good, but lower credit scores can still get financing in some instances – they just pay a higher interest rate.
- Step 5Attend showings. Your buyer’s agent will schedule these, and assist you with asking any questions you have afterwards, as well as with submitting an offer.
- Step 6Make an offer. Your buyer’s agent should advise you about how much to offer, considering whether the house is priced well, how long it has been on the market, the situation the seller is in or how competitive the home buying market in the are may be.
- Step 7Offer is accepted by the buyer. This is often a bit of back and forth negotiating between the buyer and seller, with the help of their agents. An offer is signed and a small deposit (usually $1000) is made by the buyer.
- Step 8Follow your lender’s process to secure financing. This includes providing the necessary documents, scheduling and paying for the inspection and the appraisal, signing the Purchase and Sales Agreement and scheduling the closing to sign all the remaining paperwork.
- Step 9Attend the home inspection. A house inspector will walk you through any issues they spot at the property, and provide a report, which you can use to negotiate with the seller. A seller may give you a credit to make the necessary repairs, or choose to make them prior to the closing.
- Step 10Attend the closing and sign all remaining paperwork.
- Step 11Move in!
Buying a home is one of the most important things a person can do. A home not only provides shelter, it also serves as an important investment. Take your time to navigate the home buying process at a pace that feels comfortable, and don’t be afraid to ask questions.