We want you to understand the buying process.
The dream of homeownership continues to become a reality for more and more people in the United States today. Although mortgage rates are expected to rise in the near term, they remain at historically low levels.
In 1976, mortgage interest rates were over 9%, and today's rates in the 4% range means more and more people are able to qualify for home loans.
The purchase of a home is often regarded as a hedge against inflation, and a way of saving for retirement. Statistically, homeownership is a strong foundation for building wealth over time.
Although there are no guarantees, residential property values generally increase rather that decrease. That means the home you buy today for $300,000, could well appreciate in value over the course of your ownership.
If you are considering the purchase of a home, whether a previously owned home or a newly constructed home, it is important that your decision to purchase be based on sound advice from your Realtor®, your mortgage lender, and your financial planner.
The interview process to find a REALTOR® is very important, almost as important as your decision to purchase a home. To begin, there is a very big difference between a real estate licensee and a REALTOR®, but you should be aware of that difference. When a real estate licensee joins their local, state and national REALTOR® Associations, they voluntarily agree to follow a strict Code of Ethics. The Code of Ethics of the National Association of REALTORS® is a living, breathing document, and is revised as needed to comply with changes in the real estate profession. Ask your REALTOR® for a copy of their Code of Ethics, and relax knowing that REALTORS® put your wants and needs above their own in every real estate transaction.
The relationship you form with your REALTOR® should be one that survives the home buying process. This means you should feel comfortable in contacting your REALTOR® whenever you have ANY question about the home buying process, past, present or future.
Before you begin interviewing REALTORS®, it is important that you understand the various Brokerage Services in Real Estate Transactions. There are several basic relationships that can be made in representation, but here we are speaking about basic Buyer Representation.
If the Broker represents the Buyer, the Broker then becomes the Buyer's agent, by entering into an agreement to represent the Buyer, usually through a written Buyer Representation Agreement. A Buyer's agent can assist the owner (a Seller), but does not represent the owner, and must place the interests of the Buyer first. The Seller should not tell a Buyer's Agent anything the owner would not want the Buyer to know because a Buyer's Agent must disclose to the buyer any material information known to the agent.
There are also circumstances wherein the Broker may have representation agreements both parties in the transaction. In Texas, this relationship is called an Intermediary Relationship, and the Broker must obtain the written consent of each party to the transaction to act as an Intermediary. A broker who acts as an intermediary in a transaction must treat all parties honestly and fairly, and comply with the Texas Real Estate License Act.
Just as in the case that an agent is representing a Seller, in an intermediary Relationship, the Broker may not disclose that the owner will accept a price less than the asking price unless authorized in writing to do so by the Seller, nor may the Broker disclose that the Buyer will pay a price greater than the price submitted in a written offer unless authorized in writing to do so by the Buyer. In any case, when acting as an Intermediary, the Broker may not disclose any confidential information unless the information materially relates to the condition of the property. If you choose to have a Broker represent you, you should enter into a written agreement with the Broker that clearly establishes the Broker's obligations and your obligations.
The agreement should state how and by whom the Broker will be paid. Your payment of a fee to a Broker does not necessarily establish that the Broker represents you. If you have any questions regarding the duties and responsibilities of the Broker, you should resolve those questions before proceeding.
Remember, the Broker you choose is working for you, and the most important thing your Broker can do for you at this time, is to listen to your wants and needs, and introduce you to homes that meet all your particular criteria.
Some Buyers’ think the mortgage process is the most painful and frustrating part of the entire transaction. The fact is it can be unless you are prepared in the beginning. The mortgage process is designed to convince a lender that you have the means to comply with the terms and conditions set out in the mortgage to repay the debt.
The areas of consideration in this process include your credit history, your work history and your income history. Mortgage lenders generally base their decisions on a debt to income ratio. The ratio is simple to figure: Take your total monthly debt (credit card payments, installment loans, car payments, child support, etc.) and divide that by your total income. A simple example is this: If you earn $1,000 per month and debt of $300 per month, your debt to income ratio is 30%; 300 divided by 1000.
Different lenders use different qualifying ratios, so it is best to choose a lender and begin the process. It is important in this economy that you be (at the very minimum) pre-qualified for a mortgage loan before you begin your home search. Shortly after that time, you should complete the process and become pre-approved for your mortgage loan. This pre-approval could well mean the difference between your purchase offer being accepted or rejected when presented to a Seller with multiple offers.
Here are items you should have with you when you apply for a mortgage loan:
- Two years or residence history,
- Two years of employment history,
- Social Security Number,
- VA Certificate of Eligibility (if applicable),
- Two years of Tax Returns or P&L if self-employed,
- Your most recent three months bank statements,
- Monthly debt information,
- Last years W2 form,
- Credit card numbers,
- Divorce decree information,
- Current pay stubs,
- Drivers license.
There are pros and cons to each of the choices you have in purchasing a home. You can purchase a home that is available on the resale market, or you can purchase a newly constructed home. If you decide to purchase a home that is "to be built" or one that is currently being built "on spec", here are some things to take into consideration. The purchase of an existing home, or a resale home, affords the buyer of many benefits not found in a newly constructed home. Generally, the home includes all window coverings, and the landscaping around the home has had a chance to mature. Also, if you walk through the neighborhood of a resale home, you will be able to tell if there are children present, or if there are other indicators in the neighborhood that will fit your needs and lifestyles.
Sometimes the purchase of a home to be constructed, or a home that is currently under construction, may feel a bit "abstract" to the homebuyer. In many cases, there is nothing you can really look at, and nothing you can actually touch. If you have a good understanding of blueprints or architectural plans, this might work very well for you. Also, a new home might require the Buyer to go the expense of purchasing a variety of items already found in an existing home; window coverings, landscaping, garage door openers, and certain appliances are just a few things that come to mind. By defining your wants and needs early in the home buying process, you will be able to determine the benefits to you in either a pre-existing home or a home of new construction.
This is the fun part of your home search. It is important that you have chosen to work with a Broker that you are comfortable with, because you will spend a great deal of time with that person. You and your Broker will develop a partnership in this process, and communication should be honest and open between the two of you. During this process, you will also fine-tune the responsibilities of each person in the process.
During your home search, the Broker will begin to understand more and more about what you like and don't like in a home. In the beginning, you might see homes that do not fit your needs at all, but as the days go by, your Broker will be able to qualify the homes before presenting the listings to you. Also during this process, your Broker will discuss the next steps in the process, contract items, inspections, and the path to closing the transaction.
Once you have found the home of your dreams, and you will most likely know it when you see it, the next step is to make a formal offer for the property. Contrary to what you may think, all offers MUST be in writing. You and your Broker will work together to gather the information necessary so you can make an informed decision about the price you offer for the home. The information you will use may include recent sales of comparable properties in the neighborhood, size of the home, and quality of the amenities in the home and the location of the home. The contract offer will detail the duties and requirements of all parties to the transaction.
Prior to actually making an offer on a property, it would be beneficial for you to take a look at a blank contract, so you can familiarize yourself with the document. The contract offer is a legal and binding document, and once all parties have accepted all the terms and conditions of the contract, there will be no changes made to the document. You should familiarize yourself with the Option Fees and the Option Periods, which are available through the contract negotiations. You should be confident that you understand all provisions in the contract, and ask as many questions as necessary of your Broker. Remember, there are no stupid questions!
Once the Seller has accepted your contract offer, you will begin your period of "due diligence". A typical contract will include an Option Period, a negotiated period of time during which the Buyer will complete necessary inspections of the property and other due diligence items. We always recommend that you obtain a general home inspection as well as surveys and inspections in specialized areas beyond the scope of the general home inspection, if applicable.
Home inspectors provide a unique customer service in identifying existing problems, should there be any, and assisting in promoting and facilitating communication with the home seller. The job of the home inspector is to point out features of the home that are in need of repair or that do not meet building codes.
There are many home inspection companies to choose from, and your Broker will provide you with a list of qualified inspectors for your use. After the inspections, the Buyer should have all the information necessary to determine whether he or she has made a good and sound business decision. During this Option Period, the Buyer may, for any reason or no reason at all, terminate the contract, and forfeit the negotiated Option Fee.
The Option Fee and the Earnest Money are two different things, and one should not be confused with the other. The generally accepted legal definition of Earnest Money is a sum of money, which a contracting party delivers to the other at the time of contract, and is presumed to be forfeited in the event of default. It is usually used to reduce the purchase price by the amount of the Earnest Money, and therefore acts as part of the down payment.
General areas that home inspectors look are...
Structural: Many home inspection organizations have set standards on certain areas of the home that the home inspector looks at to determine the integrity of the essential internal and external structural components. Home inspectors are not structural engineers but can identify visual defects requiring immediate repairs.
Electrical: Do all the outlets work? Does the house use fuses or is there a breaker box? Are there any visual signs of fraying on the wiring?
Plumbing: Are there any leaks or annoying drips? Are all the mechanical systems and fixtures working properly?
Built-in Appliances: Are they functioning properly?
Safety Hazards: Home inspectors are not environmental specialists, but they can identify many safety hazards or dangerous conditions.
Miscellaneous: Other items may or may not be included in a standard home inspection. Some of these may be: Septic systems, roofs, drainage problems, wood decks, patios or other exterior structures. Be sure and verify which, if any, of these items are included in your home inspection.
NORMALLY NOT INCLUDED: Termite, geological of land subsidence surveys and environmental or pollution inspections, which should be completed separately for your own protection.
The closing of the transaction is when all the little pieces of the puzzle come together, and there are two pieces to this part of the closing: Closing and Funding. Closing is when the Buyers’ and Sellers’ sign all the documents required by all the parties in the transaction. Funding is when all parties in the transaction have been paid. Generally speaking, funding is required before the Buyers’ will be given possession (the keys) of the property.
Also, by this time, you will have made arrangements for your property insurance, utilities, telephone service, and all the little creature comforts that make a house a home. Generally, all the efforts to make the closing a smooth and pleasant experience for you have been taken care of by your Broker, and you have had little or no knowledge of the hundreds of details that were involved. At the closing, ownership of the property is transferred from the Seller to the Buyer. The funds you will bring to closing MUST be certified, preferably on the form of a cashier's check. Wire transfers or electronic transfers of funds are very common today as well, but you should use extreme caution and make sure you ONLY transfer funds to an authorized entity. The relationship you have formed with your Broker will not end here. You should feel comfortable in calling your Broker at any time, with any question. It is our hope that you have enjoyed the home buying process, and that you will recommend us to your friends and family for years to come.