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Smart-Alec's© Buying a House Advice |
So you want to buy a house? Whether it the first time or the fifth time, buying a home is stressful and draining. But it also is fulfilling and rewarding especially if you know how the deal is done. Let's assume that we are beginners in the home buying market.
What is a Mortgage?
A mortgage is a loan granted to buy a piece of property. This is usually secured through a loan company or bank. You obtain the loan through normal application procedures. Your credit will be checked, inspections will have to be performed on the property. Once these things are accomplished, the seller and the buyer go to a closing to sign the appropriate transfer of ownership papers. This is usually done through a mortgage broker, and the deal is sealed at a title company.
However before you get to the table there are a few considerations.
First, "What kind of residence do I desire to buy?" This is really the most important question to ask because you don't want to over buy or under buy your biggest investment. You don't want to buy too much house or too little. You might be able to afford a six-bedroom house, but you might not need a six-bedroom house. If you are a single person do you need all that space? Would a condominium be a better buy?
How about if you are married? So now you have two. But what if you are going to have children? While that's an event which hasn't occurred, or might not occur, how will you plan for that? Therefore you can see that there are important considerations.
Step One - Getting Your Credit in Order
Getting your credit ready for inspection by a prospective loan institution is key to getting the financing for your home. Unless you are independently wealthy you are going to need their help. There are several major credit companies which can provide you with a report. Usually there is a 2$ fee for the report unless you have been recently turned down for credit (ugh). But you need to get a copy of the report regardless because it will tell you where you stand on a credit worthy basis. When you get the report it will contain usually a page with a bunch of numbers on it you have never seen before along with a page of explanation of the codes listed. See more about how to understand your report here.
Once you have obtained a copy of your report and have deciphered it you next want to fix any discrepancies that appear. If you get them fixed first, then you won't have to do it later when the mortgage company requests a clarification. And they will. This is where you can really get ahead of the game. A little known fact can help you out here. You are allowed by the Fair Credit Reporting Act to attach a statement to your credit report. This can be up to 100 words and explains all the discrepancies on your report. It doesn't excuse them, but explains them. Believe it or not if you have a couple of late payments on a credit card it can hurt you in obtaining the loan or cost you more in the end at the closing. An explanation that you were perhaps out of work, or just got behind might save the loan and the additional points you will have to buy.
Then go on to the bigger things of your report such as bad debts, and delinquencies. Contact those creditors, you know, the ones you have been avoiding, and make arrangements to either get current or pay them off. Make sure the transaction is in writing, the mortgage company will be asking for it.
Step Two - The Real Estate Agent
Now its time to find the home of your dreams. A Real Estate Agent is the person to see. You will find that there are as many agents as there are people who need them. So you can shop around and find one you like. This really important. You are going to spend a lot of money on a house, get a good agent. There are several good reputable agents around, organizations like Century 21 are very well established and nationwide. There are many more as well. The point is get someone trustworthy.
Once you obtain an agent they will ask you what type of residence you are looking for and how much you want to spend. From there the agent will be begin to show you different properties according to what you have specified. Get ready to do a lot of looking,, and don't necessary jump at the first one you see. If this is your first purchase you might be excited and anxious and in a hurry, but take your time.
You may be shown a new or older dwelling, but whatever the case you want to thoroughly check out the dwelling. Here are some of the things you might want to ask the seller.
1. The age of the furnace/air conditioning system.
2. The last time the roof was redone (in the case of older dwellings).
3. The age of appliances, and if they will be remaining in the residence (some people intend to take them with them!).
4. What are the neighbors like? Are there any problems in the neighborhood that they are aware of, ie; crimes, etc?
5. What is the cost of maintenance if it is provided. What does the maintenance cover? For instance if you are buying a townhouse or connected dwelling chances are there is a monthly maintenance fee charged by the property manager. What it usually covers is lawn maintenance, water, sewer, use of common facilities, etc. This will vary so be sure that once you ask it of one seller you apply it across the board. Remember this will not be rolled into your mortgage payment, it will usually be a separate payment you will have to pay. It also may have a different due date.
These questions are very important! Especially those about the furnace/air conditioner and roof. If the house is 20 years old and still has the original furnace or air conditioner you should have it inspected thoroughly. Air conditioner are made to last anywhere from 10 to 20 years, furnaces usually have about the same. So it is imperative that you check these items carefully.
Once you have decided on a property the agent will prepare a contract of sale, which is a legal binder. You will be asked to put down a certain amount of money on the property, this is usually called "faith money". But it goes towards your final closing cost. You can put as little as $500 or more. You should go for the lower amount so that in case the deal doesn't go through you don't have a large amount of money tied up. You will get a refund (depending on the reason for cancellation), but it may take a while, so lay down the smallest amount you can.
Once the contract of sale is signed a date of closing is chosen. This is usually 90 days from the date of the contract, however in the case of a Veterans Administration Loan the time may be as low as 45 days. Don't fret this is plenty of time. Now the real work begins.
Property Inspections
This brings us to the subject of inspections. Most real estate agents will have an inspector that they will be glad to turn you on to. But be advised this is their favorite inspector, that is, one they use on a retainer. I would advise you get one of your own. Face it, the real estate agent may be the nicest, most sincere person you know, but they ARE trying to make a sale. That to me makes it a little suspect that they would use their own inspector.
You can find a list of them in your local Yellow Pages. What they will do for a fee is inspect the appliances, the electrical integrity of the house. They will also inspect the roof, air conditioners, as well as structural items. If they are really squared away they will even bring along a termite inspector to look to for termites.
After all the inspections are done you will be given a report to deliver to the seller and a fair amount of time will be set up for the seller to fix the problems found. Here is where it can get really testy. For instance the seller might not agree with your inspector's work. That's fine, let them hire their own yet remember you as the buyer are in control. If the seller doesn't agree or refuses to fix the problems found, you have a legal reason to break the contract and forego the sale.
Now if you really want the house you might want to talk the smaller deficiencies over with the owner. For instance, for miscellaneous repairs you might allow the seller to write you a check for it at the closing. Make sure that this happens. Promises to fix things after the closing (under the table) usually fall through. Drive a hard bargain. It is not being pushy to require that things work or other financial arraignments be made.
I wouldn't advise this for the high dollar repairs such as the roof, but it might save time.
This inspection is very important. It will uncover items you couldn't have known of previously and alert you to possible problems in the future. The inspector should be licensed in a few disciplines such as plumbing and electrical as well as building code inspection.
Step Three
Assuming that the deficiencies of the inspection are fixed or an agreement is made to take care of them by a check at the closing, the final inspections can be scheduled. After these are completed and you are satisfied that the property is acceptable you are now ready for the closing. This is the final signing of the sale documents. It is usually held at the title company, and all the financial aspects of sale are finalized. If you have to come up with any money down, this where you present it. This will be usually in the form of a certified check or cashiers check. The whole procedure takes about 30 minutes to an hour and it doesn't always go smooth. But hey, you've made it this far. When you are finished you will own a new home! Congratulations!
Copyright 2000, Hubbynet. Material presented here is for information purposes only. Real estate laws change state to state. As with any financial decision contact your attorney or a financial adviser. Hubbynet is not responsible for misprints although we have done all things possible to make sure the information is accurate and as current as possible.