Check Your Credit Score
The first step to buying a house is to check your credit score and review your finances. All mortgage lenders will look at your credit score and financial history before agreeing to provide you with a loan. Get a jump on that by checking it first. You can get a free credit score at various places on the web and are entitled to do this once a year.
The higher the score the better. You should probably have a 620 or better, but a lender will let you know the exact score you need for a specific loan.
Your credit and financial history will dictate the type of loan you can get, and the interest rate.
Save For A Down Payment and Closing Costs
Some loans such as VA or USDA do not require a down payment. Others, like an FHA require 3.5% down, and a conventional loan requires 5% down. There are some exceptions, but this is a general rule. Make sure you have funds saved for a down payment. The larger the down payment, the lower the monthly payment. Plus, a larger down payment can reduce or eliminate private mortgage insurance (PMI).
Closing costs vary but are generally 3 to 6% of the loan amount. Your lender can give you a Loan Estimate or a worksheet which itemizes the costs. Who pays the closing costs is negotiable and is unique to each and every home and the circumstances around it. Your REALTOR® will advise you on this.
Choose A Lender
Choosing the right lender is a critical step to having a smooth transaction and saving money. If you are already working with a REALTOR® ask them for references. They have a network of tried and true lenders. You can also ask friends who recently purchased a home if they have a recommendation. Avoid the urge to go online and find a lender that way. Wait for a recommendation first!
Get Pre-qualified or Pre-approved For A Loan
Once you have determined who you are going to get a loan from, contact them and get formally prequalified or preapproved. This is a process where the lender checks your credit, income, and the debt-to-income ratio to make sure they meet guidelines. Make sure that they provide you with a loan estimate or LE. Get a written prequalification letter so that you can provide that to your REALTOR®. This letter improves your bargaining position when you make an offer and shows a seller that you are serious and can get a loan.
Find the Right REALTOR®
Some buyers decide that they don’t want to work with a real estate agent, but that is often a huge mistake. A REALTOR® can represent you as a buyer’s agent throughout the home buying process to ensure that you find the right home, ask important questions, make an appropriate offer, have the power to negotiate, and receive the necessary disclosures.
REALTORS® can take the stress out of the experience by providing buyers with knowledge of the market and skills in the negotiation process.
Furthermore, an agent’s expertise and skill are generally provided without charge. That’s right! You don’t pay your REALTOR® for these services except under rare conditions which you would always know in advance and don’t have to agree to.
The best way to find a good agent is by asking questions and doing research. Think twice before using a good friend or family member to be your agent. It’s usually not a good idea.
Again, you can ask friends or co-workers who recently bought a home if they have any recommendations. You can research REALTOR.COM or ZILLOW online and see what other buyers have to say about agents. Once you narrow down the field to a few agents, do a phone interview or better yet, meet them at their office and ask questions.
Here’s what to ask:
How many years have you sold real estate?
How many customers/clients are you currently working with?
How well do you know the market?
How many homes did you sell in the last 12 months?
Why should I hire you instead of another agent?
REALTORS® play a big role in a successful and stress-free home buying experience. Choose a good one!
Determine Your Needs/Wants in a Home
You may or may not find the “perfect” home depending on market conditions. That’s why it’s important to identify your needs, or must have priorities, and then your wants. Sit down with your REALTOR® and go through the following criteria to help find your home:
Location. Which neighborhoods would you prefer to live in? Or general areas? Are certain school important?
Lot size. Big yard or small? Fenced or not?
Size. What is your minimum square footage?
Bedrooms and bathrooms. How many do you need of each?
Age and condition. Are you willing to do work on the home?
Garage or carport?
Any other factors important to you such as floor plan, style or design, etc.
Your REALTOR® will send you listings after you’ve discussed your needs, but most buyers also research on their own. By conducting your own search, you’ll be able to get a sense of what’s available on the market. Most consumers search using REALTOR.COM, Zillow, or Trulia. Remember that when you identify homes you like, you should share them with your REALTOR®, and not contact the listing agent. Your agent is your trusted partner and you should rely on them. Bear in mind that the listing agent WORKS FOR THE SELLER! Your Real Estate Agent Works for YOU!
Shop for Homes!
This is the fun part! You’ve done your homework, are qualified to get a loan, and are ready to shop. Your REALTOR® should have a game plan and will line up homes you want to see in geographical order from their office. In most cases your agent will drive, and you can relax and get to know each better and communicate important information to them about your dream home. You’ll see lots of houses, so take good notes on the MLS sheets that your agent gives you on each home. Ask lots of questions and listen to what they have to tell you. REALTORS® are professional agents and know much more about homes and neighborhoods than the average buyer. Shop within your price range and do not have unrealistic expectations that you can offer considerably less on a home than it’s listed for. It’s a bad strategy.
Make an Offer
After seeing lots of homes you will narrow it down to one or several. If several, revisit them. You’ll be amazed what seems different than the first time you saw it.
Once you identify the home you want, your REALTOR® should complete a comparative market analysis (CMA) to determine what a fair price would be based on recent sales of similar homes in the area.
Rely heavily on your agent to recommend an offer price, who pays closing costs, closing date, amount of earnest money, and any other contingencies or special stipulations that might be required to best serve you. Also remember that your relationship is a partnership, and that your agent provides recommendations. You are still in charge and can offer what you think is appropriate. Just remember to respect your agent. They are experienced and don’t come to conclusions on a whim.
Your agent will write your offer on real estate specific forms and should go over it completely. Don’t allow an agent to just write it up and ask you to sign. Cover it thoroughly and ask questions. You should always make informed decisions.
Your offer will be transmitted to the Listing Agent. Your agent ONLY communicates with the other agent, never the Seller. He or she will present your offer and explain that you are qualified to purchase and try to “sell” the offer to the other agent. Your agent works in your best interests and will do everything possible to get this accepted first time.
Sometimes though the Seller will make a counteroffer. Your agent will communicate that to you, and you decide whether to accept it or counter their offer. Ideally, this won’t happen for long and you will get a signed, accepted contract. Then the house will be “Under Contract” Wahooo!
Once your offer is accepted, things start happening quickly and are often on a clock.
- You write an earnest money check which will be deposited in a trust fund. This shows your good faith to purchase and also reminds you that you have money on the line and to perform according to the contract.
- Get a home inspection. Your REALTOR® will provide you with a list of qualified home inspectors and help you schedule this. They will also help you decide what to ask the seller to repair and document this.
- Get a termite inspection (AKA Wood Destroying Organism Report). Again, rely on your agent for help.
- Stay in touch with your lender. They will require certain documents such as proof of employment and tax returns to fully approve your loan. Provide them timely when asked for.
- Get an appraisal. The lender will order it, but you often have to pay for it in advance. Cost varies depending on loan type but expect around $450 or so.
- Set up a homeowner’s insurance policy to be effective on the date of closing. Provide this info to your lender.
Close on Your New Home
At least 72 hours before closing your lender will send you a Closing Disclosure (CD). You must acknowledge or sign it when received or it could delay the closing. This is a Federal Law. When you get it, go ahead and sign it and immediately share it with your agent. Signing doesn’t mean you agree to the numbers or data. It just means your received it. Your lender/agent will discuss it with you to make sure it’s spot-on at closing. The CD will show you if you need money to close or are getting money back. There are specific rules on what form of funds the closing attorney will take, so make sure you discuss this with your lender. You may need a cashier’s check or may have to wire funds. Figure this out BEFORE CLOSING!
Walk through the property with your agent a day or two before closing and make sure that the house is still the same, hasn’t incurred any damaged from moving, and doesn’t have missing fixtures or appliances. Also make sure that any repairs you requested have been completed.
The closing in Georgia usually takes place in an attorney’s office. The attorney will oversee the process and explain all the forms that require your signature. Once documents have been signed, the attorney will ensure that all funds, including closing fees, earnest money, and escrow establishment fees, are paid and properly disbursed. The title will pass from the seller to you, and you will receive keys to your new home! Congratulations!!
These steps are an abbreviated version of actually takes place during the home buying process. There are a lot more steps and nuances not discussed here. Partner up with a Mercer Hughes Real Estate Group REALTOR® to get the representation you deserve!