- Get Pre-Qualified by a Mortgage Company, Bank or Credit Union–This is a no obligation process which will determine how much you can borrow and what your out of pocket costs (down payment + other closing costs) will be to close. A good mortgage loan officer will walk you through the various loan products that are mostly designed around how much of a down payment you plan to make. These range from no down payment loans such as USDA mortgages to 20+percent down. Mortgage Brokers usually offer the widest range of products. Banks and Credit Unions are have more limited offerings. Don’t worry about the best rate at this point. You can shop around later once you understand the kind of loan you want and the price range you’ll be shopping in. Be sure to ask for a pre-qualification letter as this will be key in negotiating a purchase in Step 5. It’s important to established a timeline at this point. When do you want to move in your new home? It usually takes 4-6 weeks for loan approval from the time you make an offer till closing. This does not allow for the time you spend shopping and the Seller’s potentially asking for some post-closing possession. I’d suggest working 90 days out.
- Find a Good Real Estate Agent–One working for you, NOT the seller. Lots of buyers assume they can get a better deal working directly with the list agent(the agent who’s name is on the yard sign or ad). The list agent is paid by the Seller and is obliged contractually to represent the Seller’s best interests, NOT yours. Ask friends or check reviews online to find an agent Zillow Reviews. A good agent will do the heavy lifting for you. Searching for suitable properties, scheduling appointments, navigating through the paperwork, providing market research and expertise, a resource for other service providers and negotiating. Plus, their service costs you nothing as they are paid via a co-op commission from the list agent. They get paid when the job is done at closing. Many think that you’ll get a better deal without an agent, According to recent article in US News and World Report , “That’s a completely false premise, If the house is listed with a real estate agent, the total sales commission is built into the price. If the buyers don’t have an agent, the seller’s agent will receive the entire commission.” It’s best to find one agent to work for you versus calling many. The agent will be more responsive and committed to your needs if you are loyal to them.
- Start Shopping— You’ll know what price range you want to target from Step 1. Now establish other criteria. What locations, styles, features, amenities are important. My suggestion is to cast a broad net initially until you’re sure exactly what you want. It’s not unusual for your criteria to change as you may see properties that are appealing that you originally might have dismissed. For example you might say you only want rural settings with 2 acres or more, but didn’t consider that a house situated just so on a 1/2 acre lot may provide all the privacy you seek and is more convenient to town. Your agent can set up automated searches using a MLS based search platform that will show you all the properties that meet your criteria and will also notify you when new properties hit the market. Client Connect is a great platform available in Bloomington. You might also search on your own using Zillow or Realtor.com. The MLS platform is usually most accurate and up to date. When you find homes you like, send them to your agent to check on availability and schedule showings. Lots of homes that show up on Zillow already have accepted offers on them.
- Evaluating Properties–As you look at homes, not only are you checking out floor plans, features, amenities, etc., you also need to look at major mechanical systems of the home. While there will be an opportunity for a full inspection once you have made an offer on a property, it’s important to know what kind condition the house is in before you make an offer as this will affect how much you will offer for the home. Visual evaluation of the expensive systems, particularly the roof, heating and air conditioning, foundation and electrical is important at this point. You may summarily dismiss troubled homes at this juncture. This is another area where a good agent is invaluable. They’ve likely looked at thousands of homes and know a bad roof at a glance.
- Making An Offer–Once you’ve found a home that meets your criteria, it’s time to make an offer. The goal here is to pay a fair price for the home. If you want to try to steal it, plan on a lot of disappointment, as most seller’s know what their home is worth and unless it’s distressed or severely over priced, you’re wasting everybody’s time. Start by doing some due diligence; Look up the property up on GIS. This usually shows what current owner paid for the house and also the assessed value of the property. Neither of these are perfect indicators of value, but are good guides. Review the Seller’s Disclosures. These will alert you to any “known defects” with the home. Ask your agent to run some comparable sales of recently sold homes with similar square footage and other key amenities. This should give you a good idea of what the home’s value is. In most cases, the Seller and/or their agent also did a market analysis in determining the list price. Most seller’s tend to overvalue their home thinking it’s in some way special or unique and want to add a premium to the price, and as it turns out, in 2015, homes in Monroe County sold for only about 95% of list price. More often than not, and if the house is in average condition, this is a realistic target to set for final purchase price. So to end up at 95%, you want to offer a bit below that to open the negotiation. Not too much less or you risk getting the seller’s dander up and they either don’t respond or budge very little on a counter offer. On average, there are 3 or 4 counter offers before a deal is struck. Your pre-qualification letter will be submitted along with your offer validating your creditworthiness and making your proposal nearly as good as cash to the seller.
- Inspection–Your offer to purchase will have as a contingency, the right to inspect the property and if the inspection reveals any material or significant defects that the seller is unwilling to correct, you may cancel the transaction. More often than not, a secondary round of negotiations will open up here. There are quite a few good inspection companies that will check out not only the major systems, but every other little thing your new house. Doors, windows, electrical switches, outlets, appliances, ad infinitum. These may or may not be items you request repairs from the Seller on, but as a homeowner, it’s very useful information for getting to know your new home and developing maintenance/repair plans. Inspection prices range from $250-$500, but are totally worth it as typical seller concessions for repairs on a older home will easily add up into thousands of dollars.
- Pre-Closing & Closing–You’ll usually have 5 days from acceptance of your Purchase Agreement to make a loan application and this would be a good time to shop for rates. This is also the time to shop for homeowners insurance. While you might save a fraction of a point with an online mortgage company like Quicken or Lendingtree, be careful with an online lenders. These companies tend to be slow processing loans and if you run into any problems with your application or appraisal, you and your real estate agent will not have the leverage that your agent might have with a local lender that he/she does 4 or 5 loans a month with. Usually local brick and mortar shops are competitive anyway. The Title Company, usually chosen by the Seller and the lender are required to show you final costs and funds necessary to close 3 days before closing. Remember that all funds will have to be wired prior to closing and should be done at least 24 hours in advance. Be sure to review these with your agent, as they will help explain some very esoteric fees for title insurance, closing fees, etc. Last step before closing is to get utilities transferred and do a final walk-through inspection. The closing itself is an anti-climatic ritual of signing a mountain of documents which when completed, you will receive a key to your new house and free pens and mints from the title company. Felicitaciones! Enjoy!
This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.