Buying a House? What You Need to Know

Buying a home can be one of the most taxing yet rewarding experiences.  If you are educated on the process and look at the decision with an analytical mind you will be just fine.  First you need to know the steps in buying a home.  If you do a Google search you will probably find a hundred articles on how the process works but I wanted to simplify the steps and outline how it works in New Jersey.  The process and who is involved in the process vary form state to state so its important to look locally for advice.

Watch my video on What You Should Know Before Buying a Home

Step 1: How Much Can you Afford to Spend Each Month?

Before you even go to the Multiple Listing Service (MLS) to look at homes you need to figure out how much you can afford.  This should be done in 2 steps.  First you should call a mortgage broker (an intermediary who helps you secure a mortgage) or a bank to get pre qualified for a loan.  All this really is is an institution saying you are most likely able to secure a mortgage for a certain amount.  It is by no means a guarantee.  Secondly you should do a household budget to see how much you can pay each month.  This should include things like: car payments, insurance (life, car, health, etc.), loans (student, credit card, etc.), food, travel, gas,entertainment, and other household expenses.  There are a number of places online where you can get a detailed list to help you budget.

Step 2:How Much Can You Pay for a Home?

I make this an extra step because there are other factors that you need add in past the basic mortgage amount.  What about taxes? Home Owner Association Fees? General Maintenance? Home Owners Insurance? Mortgage Insurance?  If you don’t factor these things in you will be in for a rude awakening later on.

Another big part of the equation is your down payment.  This will make a huge difference in your monthly payment and in how much house you can get.  there are myriads of options in getting a mortgage from FHA,VA, conventional, and adjustable rate that make a difference in your bottom line.  You need to figure out how much of your savings can go into the down payment, how much is for repairs, and how much should just stay in savings.  This could depend on the house but should be sorted out before moving forward.

So after looking at your monthly expenses, mortgage amount, taxes, HOAs, PMI, maintenance, and down payment you should be ready to start looking…wait one minute!

Step 3: What Do You Want in a Home?

The National Association of Realtors did a study on what buyers are looking for.  Watch my video about the results.

I am sure you have some sort of vision of what your dream home looks like, right?  Well for many of us we can’t quite afford that dream home on the perfect street and the picket fence.  What we need to do is figure out what is important and make a list.

• What towns/communities do you like?
• What style of home? colonial, ranch, split level, tudor, victorian, condo, co-op…
• How many bedrooms?
• How many bathrooms?
• Eat in kitchen?
• Backyard?
• Garage

This list could include a million other things but you get the idea.  Make a list of what you think is important and make another list of things you would like but don’t need.

Now you should be ready to get on the computer or get out and see some properties!

Step 4: Get Out There and Start Looking!

FOr this stepI highly reccomend working with a local Realtor to assist you in finding the right place.  they are educated on the process and know the area.  They will be invaluable in the process.  The internet has revolutionized the way we look for homes because you can learn so much from your computer.  You can easily make lists of homes you like and don’t like, saving on travel time seeing homes that don’t fit your needs/wants.  Don’t be fooled by pictures and descriptions!  Agents hire good photographers (most of the time!) and usually do a good job of showing the home in the best light.  Nothing beats going and seeing the property so be prepared to get out there and look.

Step 5: The Offer…Negotiation Time

So you have done your budget, gotten pre approved, seen a bunch of homes, and now you found THE ONE.  What do we do now?  Now you need to figure out how much that home is really worth in today’s market and how much you are willing and able to pay for it.  This where an agent will come in very handy because he knows the market and can help with the research.  Take a look at similar homes that have sold in the last few months and how much they sold for.  Discuss with your agent how your home compares and where it fits in.  Once you have a number in mind you will put together a contract that will lay out how much you are offering, how much you are putting down, what kind of mortagage you will secure, closing date, and other pertinent information.

Once the offer is presented to the listing agent it should be presented to the owner within 24 hours.  The owner can accept, reject, or counter offer.  You could go back and forth with the owner numerous times before settling on an agreeable price so be patient.  Once you agree you will both sign a contract with the terms set forth.

Step 6: Attorney Review

Now we need to get the lawyers involved to make an enforceable contract.  Since no lawyer was involved in the negotiation or preparing of the contract each side of the transaction will hire a lawyer to represent them from here on out.  During attorney review, typically 3 business days, both sides will have the opportunity to make adjustments to the contract until a final rider is signed making the contract enforceable.  Once this is done we call the property under contract.  We are getting closer!

Step 7: Inspection

View My Video on What to Expect From Your Home Inspection

Now that we have an enforceable contract we want to inspect the home for issues that need to be addressed.  The buyer will hire a licensed inspector who will spend a few hours (depending on the size and condition) looking at all facets of the home.  Items that deserve attention are roof, siding, plumbing, electrical, heating/cooling system, possible insect infestation, and general condition of the home.  The inspector will give you a detailed list of the home’s condition.  He will also make recommendation as to what you should replace or repair.  After looking over the report with your agent and attorney you may want to ask for items to be fixed or for a credit at closing so you can fix it.  The seller has the right to agree or not so this may turn into a negotiating session to sort it out.

Step 8: The Mortgage

I am not going to bore you with the mortgage process but there are a few things you need to know.  Obviously you have been pre approved by a lender but now is the time to apply for the mortgage.  this could actually be Step 7a as you don’t need to wait for the inspection to get this process started.  There will be a formal application for the loan and numerous papers to sign.  the lender will ask for information on other loans, bank statements,and other pertinent info to get a sense of your overall financial health.  The lender will also order an appraisal of the home.  they want to be sure you are paying fair market value so they have a secure loan.  If yo paid too much in the lender’s eyes you may not be able to get a mortgage.  I tell my clients once we get to the offer stage to stop all major purchases and be weary about moving money around.  You need to be careful to protect your credit score and overall financial health so you don’t hit any roadblocks.

Step 9:  The Closing…We Made it!

The closing is the culmination of the process with the signing over of the deed to the property.  All of your mortgage documents are signed as well as info for title, insurance, taxes, and closing costs.  You will be paying a number of fees as well as closing costs, attorney fees, and the final down payment amount.  The joke about getting a hand crap at closing is unfortunately true!  But it is all worth it in the end.  Right before the closing your agent will take you to the house and do a final walk through to make sure the house is in the condition you expected.  Do all of the lights work?  Does the AC work?  You will do a final examination to make sure everything looks right.  Once that is done, its time to head over to your attorney’s office.

Once the final paperwork is done you get the good part…the keys to your own home!

The process may seem daunting but I assure you with the proper legwork and advice it will go by quickly and uneventfully.  Good luck!