February 4, 2022
What Are the Steps to Buying a Home? Part 3
The previous two articles covered:
- Understanding Your Housing Needs & Wants
- Start by Checking Your Credit Score
- Knowing What You Can Afford?
- Understanding the True Cost of Homeownership?
- Creating & Sticking to Your Budget
- Maintaining a Stable Job History
- Saving for a Down Payment
- Start Shopping & Understanding Different Types of Mortgages
- Getting Preapproved for a Mortgage
- How do I find the best real estate agent?
- Real Estate Agent’s History
- How do I find the best mortgage lender?
- What are my housing priorities?
- How long does it take to find a home to make an offer on?
- Do you want a newer home or one that needs some updating?
- How do you tell if a home is priced right?
- Making an Offer in a Seller’s Market
- Making an Offer in a Buyer’s Market
- How do I make an intelligent offer on a home?
What Is a Home Inspection and Do I Need One?
After you've chosen a home to buy and placed an offer, it's a good idea to get a home inspection. The buyer hires (and pays the fee for) an independent inspector to go into the home and review its condition. The home inspector checks:
- Foundation — looks for large cracks, settling, or poor drainage
- Plumbing — makes sure everything is working, and there are no leaks
- Electrical — ensures there are no shorts and the electrical system is working
- Roof — looks for leaks, damaged, worn tiles, and broken vents
- Windows — will check for broken or cracked windows and make sure all work
- Doors — make sure all exterior doors are secure with proper locks
- Appliances — checks the stove, dishwasher, refrigerator, etc. to make sure they work
- Heating and air conditioning — check to make sure it cools and heats
- Swimming pools — is pool safe and free of leaks
- Insects/Rodents — note any infestation. Often a termite inspection is required
- Trees — note any trees impeding on the property or structures
Don't be surprised if an inspection turns up multiple pages of suggested fixes. In such a case, you can potentially renegotiate with the seller to have some or all of the major problems fixed or the price reduced.
This also provides you an opportunity to back out of the deal if the inspection and subsequent negotiations fail to meet your requests.
The main items a seller will consider fixing are those things that will prevent the lender from approving the loan. These include a leaking roof, extensive dry rot, or pest infestation.
In most cases, it’s unrealistic to expect the seller to repair everything. Consider the home inspection, a list of items you’ll want to fix once you move in.
What Is the Best Mortgage Loan for Me?
Working closely with your credit union, bank, or mortgage broker, you can choose the right loan for your financial needs.
Today their many options, from VA loans that require no down payment and offer attractive interest rates to FHA loans that only require 3.5% down.
There are conventional home loan programs for as little as 3% down, although many borrowers put down a larger down payment. For more expensive properties that exceed conforming loan lending limits you’ll need a Jumbo loan. This high-ticket mortgage comes with stricter credit guidelines and larger down payment requirements.
What Is a Home Appraisal, and Do I Need One?
A home appraisal is used by lenders to ensure the proper value of the home when they make a loan. For example, a lender would not provide a $200,000 loan on a home appraised for only $150,000.
It's important to have an appraisal to understand the value of the home you wish to buy and whether you can get a mortgage for that specific home value. An appraisal protects both the buyer and the lender from overpaying for a property.
When obtaining an appraisal, the fee is usually paid for by the buyer (unless otherwise negotiated). According to HomeAdvisor.com, an appraisal for a typical single-family home averages $347. However, appraisals for jumbo loans can cost more.
Appraisers have many tools in their arsenal to determine the value of the home for sale. But they typically use similar recently sold homes within that area to determine value.
The appraisal step can also be an opportunity to renegotiate the price of the home should the appraisal come in significantly lower than the agreed-upon selling price.
The reason for this is that it may be difficult for the seller to sell the home if a buyer can’t obtain a loan for a home that is priced above the appraised value.
How Much Paperwork Is Involved in the Homebuying Process?
Preparing to purchase a home can require a lot of paperwork. Besides having your credit pulled, you’ll need to supply:
- Bank Statements
- Current Paystubs
- Tax Returns
Once you’re under contract, there are title searches to ensure the title is clear, you’ll find out the property tax rate, and more. You’ll also need to get homeowners insurance for the property.
During the mortgage application and underwriting phase (mortgage approval process), you may be asked for additional supporting documents such as gift letters if using gift money, or divorce decrees.
During closing, expect to spend about an hour reviewing and signing documents.
What Do I Need to Know About Insurance and Utilities?
As a buyer, you must obtain insurance before closing. Homeowners' insurance generally covers broad areas and issues. But depending on the property location, protections like flood and earthquake insurance may be required.
Be sure to understand the unique needs of your area. Is your new home in an earthquake or flood zone, or a region that is prone to hurricane damage? If so, the premium for your insurance could increase substantially.
Insurance may be rolled into your mortgage payment, or it may be a separate bill you pay each month. In either case, it will be included in your loan estimate so that you can easily understand your total monthly costs.
Utilities such as garbage, water, and electricity should be ready to be turned on the day of your closing to make sure there is no lapse in coverage and that you are ready to move in once you obtain your keys.
What's Involved in Closing on a Home?
Typically, a day or two before closing, you'll have an opportunity to do a final walkthrough of the home. That way, you can ensure any required upgrades or changes have been made and that there is no damage since you agreed to purchase the home.
At closing, all borrowers will need proof of identification. If any additional funds are needed to close, your loan officer and title company would have given you wire instructions a day or so before.
Most of the time, buyers and sellers attend closing at different times. Sellers typically are first so that once that step has been completed, the buyer can gain access to the home and move right in.
As a buyer, you’ll have many papers to sign, including mortgage papers, settlement documents that list all of the financial transactions and deeds. If everything goes smoothly, you'll walk out of the closing with the keys to your new home.
Moving Day Has Arrived!
Now that you have the keys to your new house, it’s time to move in. Try and get the beds set up first, because at the end of the day — that will be your last stop! Congratulations on your new home, and may you create wonderful memories for years to come.
To learn more about PenFed loans or what loan is right for you: