The Homebuying Process
Buying a home is one of the most exciting things that you will ever do, but the process can be confusing, and at times, may seem overwhelming. With so many choices and so much at stake, it is essential that you are well-prepared for the big decisions you will have to make.
Determine Your Budget
Let’s face it, you need to save money if you want to buy a home. It also helps to have good credit. How much money do you need? Well, that depends. With an FHA loan, you can put as little as 3.5% down, while conventional loans usually require a 5% down payment, along with money for closing costs. To avoid paying private mortgage insurance, known as PMI, you need to put at least 20% down. One way to determine your budget is to look at how much you are comfortable paying monthly and then use that amount to figure out what you can afford. A mortgage calculator can also be helpful, so can a mortgage lender.
Where do You Want to Live?
Next, you need to decide where you want to live. Asking yourself what matters most will help you determine the best locations to explore. Are you looking for a top school district, a short commute, or your own private oasis on an acre or more of land? Do you want an old house on a tree-lined street in a community where you can walk to shops and restaurants, or are you looking for newer construction in a sprawling suburban neighborhood close to upscale shopping centers? Knowing what you want will help determine where to start your search.
Understanding Market Conditions
Over the past several years, the real estate market has been very challenging for buyers. Inventory has been low, which is another way of saying that there haven’t been enough houses coming on the market to meet the demand. Buyers have found themselves in bidding wars with multiple offers on the most desirable properties, leading to homes selling well above the asking price. While the market may be starting to shift, buyers still need to prepare themselves for a competitive market where they must act quickly and decisively.
Negotiating the Terms
If there are no other offers, you may be able to negotiate a lower price, along with other beneficial terms. If there are multiple offers, you will have less bargaining power. Once an agreement has been signed and the escrow money has been collected, home inspections are scheduled. The inspector will produce a detailed report identifying potential problems, which may lead to a second round over negotiations over what you would like the seller to fix. While you may have a long list of wants, please keep in mind that the seller is only obligated to fix health or safety issues, anything else is a bonus.
Finalizing Your Purchase
Closing day is the culmination of a long and hopefully exciting process. It’s where you will sign all the documents that will make you a new homeowner, and where you will collect the keys to your new home. It’s heartwarming and is my favorite part of the process!
Time to Get Pre-Approved
Before you start investing time in the process, you need a pre-approval letter. The first step is to fill out an online application where the lender will verify your credit and employment history, along with your assets and debt to income ratio. If everything looks good, you will be cleared for a specific loan amount.
Looking at houses online is a great way to get started, but photos don’t tell the whole story. To get the real picture, you must see properties in person. What’s not shown may be just as telling as what is, for example a home might be on a busy street or the house next to it may be in disrepair, or it could smell like wet dog. Those are all important factors that you can’t tell from the photographs.
Formulating an Offer
When you make an offer in Pennsylvania, the offer is in writing, and it includes the purchase price, the settlement date, the amount of money to be held in escrow, and information about how you plan to pay for the property. Other conditions, referred to as contingencies, include things like home inspections, zoning restrictions, property boundaries, and an appraisal contingency. You will also have an opportunity to review the seller’s disclosure, citing any known problems, before putting in an offer. The stronger the offer, the more likely it is to be accepted.
If you are getting a mortgage, the lender will assign an appraiser to do an appraisal. The appraiser will look at comparable sales in the area to determine the value of the home. As long as the appraised price is at or above the purchase price, you are golden. If the appraisal comes in low, you may have to renegotiate.