Boise Home Buying Guide - Step by step guide to purchasing real estate
The following is a step by step buyer’s guide to purchasing real estate. Whether you are new to real estate or a seasoned veteran, the purpose of this blog is to help guide you through your next real estate transaction and make sure you aren’t missing anything along the way.
I work with a lot of people that are interested in buying homes throughout the Treasure Valley and I’ve noticed that I encounter similar questions in almost every transaction. To those of us that have purchased homes in the past or are in the real estate industry, they might seem like basic questions but to someone who has never gone through the process of buying a home, it can be rather intimidating. This guide is meant to help educate future real estate buyers and ease that intimidation.
The steps and tips that I am offering are just one of many different ways to go about buying a home.
Before we get started, let me dispel a few of the current home buying myths out there.
Q: I have no credit therefore I cannot qualify to purchase a home.
A: Contrary to popular belief, you don’t necessarily need a credit score to qualify to purchase a new home. Many lenders offer different methods of qualifying you through other trade lines such as the payment history of your rent and utilities.
Q: I don’t have the 20% required to put down on the home.
A: There are different loan programs that require different down payments. These down payments can range from as little as no money down to as much as 5% required for an owner occupied home. The 20% down “rule of thumb” is typically to avoid paying private mortgage insurance. The take away on this one isn’t to know what private mortgage insurance means, it’s to know that you don’t necessarily need to have money down to purchase a home.
Q: Renting is cheaper than owning, so I rent.
A: With interest rates at all time lows, we’ve found many cases in which a monthly mortgage payment is actually cheaper then a monthly rental payment.
Ok! Now that I’ve got most of the myths and excuses out of the way, its time for the buyer’s guide! For this guide, I’m going to assume that you are already familiar with the general area that you would like to purchase a home in (you know what state or maybe even what city you would like to purchase your home in.).
1. Locate a Realtor
The first thing you are going to want to do is locate a real estate expert in the area that you would like to live in. If you are looking to purchase a home in the Treasure Valley, I know a realtor that can help you out ;)!
The best way to choose this real estate expert is to either ask a friend or family member that may already know a realtor that would work great for you or, since you are already online anyways, pick a few area expert real estate agents to interview. Yes, I do recommend that you interview your real estate agents to see who is going to be the best fit with both your personality and your expectations. If you expect the realtor to show you homes any day and any time of the week, than you better make that clear up front to make sure the realtor wants to work with you as well. There are many Realtors who have part time jobs and other obligations outside of real estate so you will want to make sure you find that out before you decide to commit to any particular real estate agent. If you only have Thursday’s and Friday’s to look at homes and they happen to work at another job on those days, it’s obviously not going to be a good fit for either of you.
Also keep in mind that real estate is an ever changing entity. It is difficult for any real estate professional to keep up with all of the changes in the industry, let alone a part time real estate agent. If you have the choice to work with a part time realtor and a full time realtor and all other things are equal, choose the full time realtor.
Once you have completed your interview process, commit to that real estate agent. They may ask you to sign a buyer’s representation agreement. This is a normal agreement between buyer’s and their real estate agents. The key things on this document will typically be a representation time frame, representation type and the real estate agent’s compensation. The representation time frame may vary from realtor to realtor and depending on the transaction type. If you are building a home and it is going to take up to 6 months, your realtor will likely make that representation time frame cover the entire build process. The representation type can vary as well and the realtor will give you a document that explains them. As far as compensation goes, typically, the real estate agent is compensated by the seller in the transaction which means the Realtor will get paid by the seller when you close on the home.
2. Get Qualified
Getting qualified is just a fancy term meaning approved for a loan to purchase a home. Now that you have a real estate expert working for you, it’s time to get qualified with a lender. Assuming you don’t have enough money to purchase the home with cash, you are going to need to get a loan for the amount of the home that you would like to purchase.
The key to getting the best loan is to shop, shop and shop! I always recommend to my clients to shop at least 3 lenders before making a final decision on which one to use. I can’t tell you how many times I have saved people literally thousands of dollars just by having them get a second or third opinion. There are so many different loan programs out there and so many different lenders with different experience and backgrounds in this industry that you owe it to yourself to make sure you are getting the best deal.
Just like all Realtors are not created equal, the same is true for all lenders. This is exactly why I recommend you find a realtor before you find a lender. The realtor should have a few lending experts that they can refer you to. I work with Guild Mortgage, click here
if you would like to apply for a loan with them or get a second opinion. In addition to your Realtor’s referrals, talk with your bank or credit union to see what kind of loan they can offer you. I also strongly recommend that you choose a lender that is local. There are many advantages to using a lender that is local to the area such as knowing the specific loan programs that apply to certain geographic areas and grant programs that may be area specific. A lender that is out of state likely won’t be privy to this information which could end up costing you money.
The keys to look for on your new loan are interest rate, loan program (FHA, VA, RD, Conventional, IHA etc.), the term of the loan (how many years, typically 30), monthly payment, and closing costs. Any one of the above items can vary from lender to lender. A good lender will tell you the pros and cons of your particular situation for each loan program and they can often pin point the best loan program for you in a few minutes. These programs and interest rates will vary depending on your credit score. For some credit tips, click here
The best way to shop your loan is to get a good faith estimate, or GFE, from each lender that you speak with. This is a universal document that will show you the different items that I spoke about earlier (rate, term, program, payment, closing costs etc.). You don’t necessarily have to have your credit pulled to get a GFE if you know what your credit score is. Keep in mind that if you don’t have the lender pull your credit and your score happens to be different then what you thought it was, the terms of the loan could change. Feel free to ask for your realtor’s opinion as they may have some good advice for you. I recommend the same thing for shopping lenders as I do for interviewing your Realtors, personality and work ethic are sometimes as important as interest rates and closing costs.
Monthly payment seems to be the most important thing to my clients. Find out where your mortgage payment fits into your budget and stick with it. Don’t over extend yourself.
Closing costs mystify some people as well. These are costs associated with obtaining the loan, transferring the title from the seller into your name and pro-rated costs that are associated with the home such as taxes and home owners association dues. A good ball park number for closing costs is about 3% of the purchase price of the home. These are buyer’s costs and typically paid for by the buyer. It is not uncommon for the buyer to ask the seller to pay for these costs in order to help the deal get accepted. If you would rather not pay out of pocket for your closing costs, ask the seller to pay them rather than reducing the purchase price of the home.
3. Choosing a Home
Not all homes are created equal. Ask your realtor about short sales
, used homes and new construction
Once you have determined which type of home is the best fit for you, make sure your realtor is only putting options in front of you that you are comfortable with. If you know that you don’t have the time or the stomach for ashort sale
, than tell your realtor you would prefer not to mess with short sales.
By this time, you have given your realtor the criteria that you would like to see in your new home. Congratulations as this is the best part of the process! Finding your new home can be the most or the least enjoyable part of the process. It’s very easy to get overwhelmed going from house to house until they all look the same and start to blend together. I recommend that you try your best to narrow it down to three homes. Be extremely picky before going out to look; only keeping homes on your tour list with the most criteria matched. Try to keep your tour to a maximum of 5 homes. After 5 homes you pretty much forget everything about the previous homes.
4. Making an Offer
So you’ve found the home of your dreams, now what?
At this point you will make an offer on the home. Your realtor will put together the paper work asking you a few questions concerning the home and what you would like to offer. When you place your offer on the property, you are going to need to provide some form of earnest money. Earnest money, defined by dictionary.com
, is money given by a buyer to a seller to bind a contract. It’s basically your “skin in the game” to help set the seller’s mind at ease that you are serious about purchasing the home. It can range anywhere from as little as $250 to as much as 5-10% of the purchase price. Don’t let this scare you away, one of the main duties of your Realtor is to protect your best interests including your earnest money and there are even a few contract items that can help protect your earnest money as well.
Homes are definitely on sale. If they ended up in your search criteria, it’s likely that they are already a good deal. Obviously consult with the real estate professional that you are working with to validate my experiences. Because homes are already priced so aggressively and on sale in today’s market, don’t expect to get earth shattering below full price offers accepted by sellers. They have typically already taken the price reduction before you even make the offer. With that said, consult with your Realtor on what a fair offer is knowing that ultimately you, the buyer, set the price of the initial offer.
A couple of things to note before submitting your offer. Obviously, what price would you like to offer? Do you want the seller to pay for your closing costs, which helps minimize your out of pocket expenses? How soon would you like to close (get the keys and move in) on the home? How much time do you want to give the seller to respond to your offer (bank owned homes and short sales are going to require more time then new CBH Homes or private party transactions)? What items would you like specifically included in the sale (refrigerator, stove, microwave, jungle gym etc.)?
Would you like to have an inspection done on the property? I, and many other Realtors, recommend you have a third party inspection performed on the property. This will run you anywhere from $200-$400 out of pocket depending on the inspector and the size of the home but it has, in many cases, proved to be invaluable. The inspection will help ensure that every thing in the home is working and installed properly to meet local building codes as well as safety standards.
Now that you have submitted an offer with earnest money, the seller has three options. They can either accept your offer with all terms and conditions, counter offer back to you altering terms and conditions or reject your offer all together.
If they accept your offer, you can perform your third party inspection and move forward.
If they submit a counter offer back to you, you can review the terms and either accept the counter offer, counter offer back to them or reject the counter offer and move on. It’s not unusual to see anywhere from 3-7 counter offers on a home to get a meeting of the minds. Sometimes it’s difficult not to get too emotionally involved in the process, but try your best not to. Figure out what you are willing to pay before you make an offer and stick to it.
If they reject your counter offer, you get your earnest money back and you can pursue other options or attempt to place another offer on the same home.
5. After Acceptance
You have found a home that you love and you have received an accepted offer from the seller, now what?
Now you are going to have your inspector perform the inspection on the property. He will be scouring the crawl space, attic, roof and all over the home making sure everything is functioning properly as well as documenting potential life span of appliances and the structure of the home.
Let’s assume that your inspector found something wrong with the property. At this point, it is up to you and your realtor to determine the severity of the issue(s). You can submit what is called an inspection contingency to the seller. This makes the purchase contingent upon the seller addressing and correcting the issue(s) to your satisfaction.
You could potentially change your offer price based on the findings of the inspection report. Keep in mind, with new construction, like CBH Homes, it is common practice that the builder/seller corrects the items to meet building code and/or the buyer’s satisfaction without actually reducing the purchase price as compensation. With used homes being re-sold, it is hit and miss. Sometimes it won’t be in the budget for them to come out of pocket to fix the items. Sometimes they will just sell the home to you for less if you fix the issue(s) yourself after you close. In some situations, the lender won’t allow you to close on the property until the items are fixed. Every situation is different so be sure to consult with your Realtor for advice on how to proceed.
6. Taking Possession
It’s now time to close on the home and take possession. Your realtor and lender will work out a time with the title company that you can sign your closing documents. At this meeting you will go over the final numbers of the transaction which are located on the closing statement. The closing statement itemizes all buyer and seller paid fee’s for the transaction.
One thing that you need to know before you close on your new CBH Home is that you don’t receive your keys immediately after you sign your documents. This holds true for any non-cash real estate transaction. A couple of things need to happen before you can receive your keys. The lender you are working with needs to fund the loan and the title company needs to record the transfer of title with the county. Depending on what time of day you close, you may need to wait until the next day before you can actually get your keys. This is something I recommend you speak with your realtor and lender about prior to scheduling your closing. Some lenders need a day to fund the loan which means if you want to get your keys on Friday to move in over the weekend, you need to sign your documents on Thursday to do so. If it is important for you to get your keys the same day you sign your closing documents, ask your lender when you are interviewing them if they offer same day funding.
After you figure out when you are going to sign on the property you will want to start the transfer of utilities from the sellers name into your name. The title company should have a utility legend for the area that you are purchasing in that will give you all of the name and phone numbers of the appropriate companies.
That wraps up the step by step guide to buying a home. There are many different scenarios that I was unable to mention in this guide as I would still be writing if I brought them all to light. Just remember that your Realtor is here to work for you and there is no such thing as a stupid question. The more informed you are as a buyer, the smoother the transaction will be.
Have questions? Please comment or e-mail me at firstname.lastname@example.org
I hope this guide helps to educate you on the real estate process. Please subscribe to see further blogs on similar topics or to let me know what topic you would like to hear about.
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