A Step by Step on Buying a Home
Buying a home is a big decision.
The financial and emotional stakes are high, but the rewards can make it all worth it. This material can help you prepare to start your home-buying journey.
The Benefits of Home Ownership
Plain and simple, owning a home can improve your quality of life, provide stability and give you a sense of control you just can’t get from renting. You have a place to live when you rent, but buying is something much deeper – and better.
Home ownership is part of the American Dream, and the pride of owning your own home is surely one of the intangible benefits you’ll receive when you make this big commitment. In addition, home ownership provides several other advantages, including:
- Tax breaks. When you own a home, you can take several deductions on your income tax. These deductions vary depending on your situation, but often you can write off all or part of the mortgage interest, real estate taxes paid, costs associated when you buy the home (such as interest points paid), and possibly other costs. If you work from your home, you can also write off a portion of other home costs such as utilities. It’s best to check with your accountant for a clear understanding of what you can and cannot deduct on your taxes, especially for home offices.
- Equity. When you purchase a home, you usually accrue monetary value in the home. At the start, most of your payments go toward interest, but some go toward the actual principal (the home). The longer you live in the home, the more equity or value you accrue. While not true in all cases, many times home values increase. That means when you sell your home, you often make a profit from the equity you have built up. You can also borrow against the equity in your home with a home equity loan. You might, for instance, use your home equity loan to remodel your kitchen.
- Privacy. Depending on the home type, you may have more privacy in a home. You can’t pick your neighbors, but at least you don’t share a wall or ceiling and floor with them. Of course this isn’t true if you rent a single family home (where you may have a yard and/or fencing) or purchase a condo (where you might share walls, ceilings and floors).
- Personal style expression. With a rental, you are often limited with what types of changes you can make. If you own your home, you can express your style inside and out. Want to paint your house pink? Go ahead. Add a basketball hoop to your garage? No problem. Because you own the home, you don’t need permission from anyone — unless you live in an area where the home association sets certain rules for changes to the home. For instance, your home association may not approve of pink as an outside color choice. In one Indianapolis suburb, for example, you aren’t allowed to hang clothes outside to dry! When you purchase your home, you will be made aware of any restrictions on modifications you can make to it.
- Remodeling. In addition to making cosmetic changes to your home, you may also make construction changes. For instance, if you love your neighborhood, but have a teeny-tiny kitchen, you may opt to remodel and expand the kitchen rather than purchase another home. Like cosmetic changes, any remodeling may be subject to approval by your neighborhood association.
Like Dorothy said in “The Wizard of Oz,” there’s no place like home! Of course, it’s not all roses and lollipops; you’ll find some drawbacks to homeownership. Let’s take a look at what you can expect on the “con” side of owning your home.
Buying a home is a serious financial commitment. With a rental, you can leave when the lease is up, or even break the lease and move out early. With a home, you can’t decide one day you just don’t want to pay for it and move to Alaska to live off the land. You must continue to make payments or sell the house. Also, not all homes increase in value, so if you planned on using your home as a financial investment, consider the risks. In addition to financial commitments, you also have home maintenance to consider. Your landlord isn’t going to come over and mow the lawn or fix the leaky roof. You are responsible for the upkeep of your property.
If the pros outweigh the cons for you, find your next dream home by contacting Robyn Burdett, your professional real estate broker
You’ve done your research, and you are ready to purchase a home. Should you take action on your own or use an agent?
As a buyer, you don’t gain anything by not using an agent, because the seller pays the agent a commission. A percentage of the commission, usually half, goes to the listing agent (the agent who put the house on the market on the seller’s behalf), and the remaining commission goes to the buyer’s agent (the agent that represents you, the buyer). Typical commissions range from 5 to 7 percent.
In the past, agents always worked for the seller. The bigger the sales amount, the higher the commission. Now that’s not usually the case. Instead, you sign a contract specifying a buyer’s agency or representation. If you aren’t sure about the type of agent, ask!
Robyn Burdett can represent you in many ways as a Buyer Agent, including the following:
- Robyn can help you determine how much you can afford when purchasing a home. She can recommend lenders and work with lenders on your behalf to prequalify you for a loan.
- Robyn have access to the Multiple Listing Service (MLS) that lists homes for sale. While you can also find houses on your own by attending open houses, reading your paper’s real estate section, and searching online, Robyn is the best point of access for all homes and can arrange showings for houses of interest.
- Robyn can help you narrow your search by going through a home with you and noting what you like and dislike. She is also a source of information about the home itself: how long it’s been on the market, the neighborhood and school system, the home’s best features and so on. Rather than being flooded with properties of all type, your Robyn can help you find a match for your specific needs and wants.
- Robyn can also answer questions about the current market, interest rates and other home buying issues. She can also refer you to other specialists whom you will need, including a home inspector or a lender.
- Robyn will negotiate on your behalf when you make an offer on a house. She can help you determine exactly what you offer, not only in price but also in other factors, such as appliances, seller’s help on closing costs and other negotiation issues). She will write up the offer and present it to the seller’s agent.
- Robyn will lead you through the process, ensuring all necessary steps are completed, such as securing a loan, getting an inspection, completing a title search, and so on.
Contact Robyn , Your Professional Real Estate Broker, to start the buying process today.
Deciding Where to Live
Use the RE/MAX mobile app for your smartphone and remax.com to find and share appealing listings with Robyn as you hone in on the types of neighborhoods and homes you’re interested in.
In many cases, it’s better to buy the smallest house on the most desirable block than the biggest house on the least desirable one. Buy location over house.
If you’re unfamiliar with the area where you’re moving, Robyn is an invaluable resource. She can offer insider knowledge on neighborhoods, schools, access to recreation and shopping districts, and the many other details on local neighborhoods and subdivisions.
It’s important to have a clear picture on the features that matter most to you in a home or location. Creating a list of “must haves” and flexible “nice-to-haves” from the start will make things a lot easier for you.
Factors to consider:
1. Size of home – square footage, number of bathrooms, rooms, etc.
2. Home features – updated fixtures/appliances, property size, garage, storage, etc.
3. Location – proximity to schools, open space, entertainment, work, etc.
4. Neighborhood – older or newer homes? Families, retirees or singles?
5. Room to grow – planning to have more children?
6. Condition – move-in ready or a less expensive home in need of improvements?
Robyn Burdett can offer advice on the countless items you should consider according to your lifestyle, budget and particulars.
Anatomy of a Home Purchase
For most people, finding the right home begins with a house-hunting strategy combining personal preferences, guidance from others (including Robyn) and a mix of neighborhood exploring and online search. For some, the search takes a while; others find what they want right away. In either case, Robyn can be a huge resource of insight and guidance, working through issues or complications that arise along the way.
Here’s a general outline of what to expect during a home purchase, from the buyer’s perspective.
Buyers make a purchase offer.
This is it! You’ve found the home of your dreams, looked over disclosure documents, reviewed comparable sales data, talked it over with Robyn Burdett and submitted an offer. The sellers may accept your first offer, but more often will return a counteroffer. In fact, additional negotiations are common, and Robynt will help you through this generally stressful stage.
The sellers accept.
Once everyone is happy with the terms, the parties have reached what is known as mutual acceptance and enter into a purchase and sale agreement.
Buyers put up earnest money.
To solidify your intent to buy, you’ll place a deposit, or earnest money, on the property. The amount varies, but is generally at least 1 percent of the purchase price. You’ll write the check to the escrow company, not the seller. Note: This money counts toward your down payment later.
The earnest money deposit goes into an escrow account, where all funds will be held until closing, when they are then distributed to the right people (lender, mortgage broker, title insurer, real estate agents, etc.).
Buyers apply for a mortgage.
This step is streamlined if you’ve already been preapproved for a loan (which is a smart thing to do). If not, you’ll begin the loan application process now.
The lender inspects title history and orders a property appraisal.
The lender needs key information about the property before granting a loan. This is when potential problems can come to light. For example, the appraisal could show a lower value than the purchase price, or the lender could have trouble finding comparable homes. Also, the title search could turn up liens or other problems.
A home inspection takes place.
You’ll hire an inspector – generally, Robyn will suggest one, or provide several options – to check the home and point out minor and major problems that should be fixed before closing. At this point, you still have the option of backing out of the deal. Through Robyn, you’ll submit a list of requested work, and the sellers have the option to complete the tasks, do some of them but not others, or reject the request. The sides will negotiate until reaching an agreement.
If the house passes inspection, appraisal and title search, and everything is good to go, then all contingencies can be removed, paving the way to a closing.
Closing time arrives.
Once contingencies are removed and financing is set, all parties sign a seemingly endless stack of documents, and the transaction closes.
When the final signatures are in place, it’s time to put down the pens, shake hands, exchange smiles and start packing for the move!
How Much House Can You Afford?
When you are shopping for a home, it makes sense to know your price range. Nailing down your budget early will make the overall process more focused and less stressful.
What to know how much you can afford?
To start, you need to total all of your income. Next, separately total all of your debt obligations: car payment, credit card balance, and so on. You can then use this information to get a rough estimate or a formal preapproval.
Getting a ballpark figure
Roughly, you can afford two to two-and-a-half times your gross income (your income before any debts or taxes have been deducted). So if you earn $70,000 a year, you can afford a house in the $140,000 to $175,000 for your home. But that doesn’t really paint an accurate picture. Consider someone who earns $70,000, has paid off her car, and doesn’t owe any balance on her credit cards to someone who makes the same amount, but has a car lease of $300 a month, a large credit card debt and a student loan to pay off. You can see that one person is a bigger credit risk than the other. That’s where your expenses come in.
Lenders like to look at the complete picture, and they use ratios of what you earn, what you can pay on a house, and what you owe. The most common debt to income ratios is 28/36. These ratios are based on monthly amounts. Like the ballpark estimate, you can figure your maximum monthly housing payment by totaling your monthly gross income and multiplying it by .28:
Gross monthly income X .28 (lender front-end ratio) = Maximum monthly house payment
The other figure in the debt to income ratio takes into account your expenses and is calculated like this:
Gross monthly income X .36 (overall debt or backend ratio) = Maximum monthly debt – Your current monthly debts = Amount left for monthly house payment
You might go a step further to ensure you are looking at houses in a range you can afford. The first step is to be preapproved for a loan. Sellers prefer preapproved buyers because they know that the buyer will not have problems securing a loan for the home. To get preapproved, you formally apply for a loan and provide documentation to the lender such as tax forms, monthly pay stubs, a credit check, and other certifiable information on your earnings and debt. The lender then provides you with a formal commitment for a specific date range (the next 60 days, for instance).
Checking your credit score
As part of the loan process, you will need to get a credit check. This lists all the debt you owe as well as credit available to you. If you have always paid your bills on time, you shouldn’t have much to worry about. If you are routinely late or owe huge amounts on your credit cards, you may have a problem. It’s best to know beforehand what your credit check will reveal. You can then clean up any problems — pay off credit debt or clear up any misunderstandings or mistakes on your report — before the lender looks at the credit check.
You can get free credit checks from any of several credit check services such as Experian,TransUnion, or Equifax. You can also use these sites to get information about how your credit rating affects your available credit.