The Overall Process
Before you get started on your home buying quest, it is a good idea to know the overall process. Ask me as many questions as possible. The questions below are a good place to start.
· How should I prepare for buying a home and what might be the best first step for me?
· What would you advise me in terms of location, neighborhoods, and schools, etc?
· What are some of the best features I should be looking for in a home?
· Once I find a home I like, how do I determine an appropriate amount to offer?
· How can I make my offer stand out against competing offers?
· Once my offer is accepted, how do I proceed in terms of choosing an attorney, inspections, and mortgage financing?
· What do I need to be aware of in proceeding to a closing?
Buying a home is an enjoyable pursuit, but it’s not always easy. There are many details you need to remember and some deadlines to meet. The best way to get around these issues is for us to work as a team. I will work hard to make sure you are fully represented in your purchase and will keep track of all those details and deadlines for inspections, financing, and paperwork involved. As your agent, here are some of the many ways I can help you successfully find and purchase a new home:
THE FIRST STEP IN BUYING
The first consideration in buying a house is not necessarily the house itself. In fact, once you make the decision to buy a home, take the time to prepare before you go on your home search. Start by determining your buying power -- that is, total your financial reserves and calculate your borrowing capacity. So, get your financial house in order first! I can't stress this enough -- determining what your budget will comfortably allow will save you an enormous amount of time, aggravation and heartache.
Once you have an idea, perhaps in consultation with a mortgage officer, of where you are financially, you need to get pre-approved for a mortgage. This will not only give you a clear idea of how much a lender will approve for you, it will make your buying process a great deal easier and save a lot of time later. A pre-approval letter will likely need to accompany any offer on a property you might make. There’s another reason for the pre-approval too. As we’re probably going to try to bid down the asking price of a house, your position is strengthened by your pre-approval letter. And, if you are going to require Private Mortgage Insurance (PMI) (less than 20 percent down) -- the pre-approval letter accompanying your offer will show the seller that you qualify for financing. A seller is more likely to accept an offer when he or she knows you will not have a problem getting a loan.
* A pre-qualification is a letter from a lender stating that you may qualify for a certain loan amount, based on income and a rough idea of expenses. A pre-qualification is not a guarantee that you will be able to obtain financing, it is solely an estimation of what you can afford.
* A pre-approval means you have already submitted a loan application and most of the necessary paperwork to obtain a mortgage. The loan has already been approved, subject to finding a property that meets your loan’s parameters.
Being pre-qualified, and more so pre-approved, gives you a distinct advantage when making an offer on a property. Most sellers are more likely to accept your offer when they know you will not have a problem getting a loan.
KNOWING WHAT YOU CAN AFFORD
Knowing your purchasing power is probably one of the most important factors in buying. Waiting until your offer has been accepted before you meet with a lender is a bad idea and can possibly keep you from getting the home you want. Before we begin actively looking at houses, you should be pre-approved, at the very least, pre-qualified, for a mortgage. This will give you an idea what financing is available and how much you'll be able to borrow given your credit rating, assets, and income.
There are many things about mortgage financing you should be aware of. There are different kinds of mortgages, such as fixed and adjustable rates; 15-year and 30-year mortgages; and conventional, FHA, and VA. As an example, a 30-year conventional mortgage will give you a lower monthly rate, which might be attractive, but will cost you much more than a 15-year mortgage over time. If you are planning to own your new purchase for a minimum of a few years before moving on an adjustable rate loan with an initial lower interest rate may benefit you. Lenders have different offers, so look around and compare.
As mentioned above, pre-approval means you have already submitted a loan application and most of the necessary paperwork to obtain a mortgage. Your credit has been checked, and your mortgage is already approved. All we'll need to do then is find your new home.
Being pre-approved makes the process much easier on you. Once you find a home, you'll want to concentrate on planning your move, not worrying about whether or not your loan will be approved.
I work with several excellent lenders who would be more than willing to speak with you and discuss your options. If you are interested in getting pre-qualified or, better, pre-approved, the names, addresses, and numbers of the lenders I work with are in Section 5. (See more on “Pre-approval and Financing” in Section 5 Getting Your Mortgage)
THE DOWN PAYMENT AND PRIVATE MORTGAGE INSURANCE (PMI)
The amount of a down payment varies widely depending on factors like the kind of mortgage and your credit standing. In some circumstances, a relatively low payment is needed, FHA for example, but it's more typical to pay 5 to 20 percent of the purchase price as a down payment.
If you borrow more than 80 percent of the purchase price from a private lender, the lender will likely require you to pay for mortgage insurance (known as private mortgage insurance or PMI). You need to consider this cost when you decide how much you can afford to pay per month for your new home. The federal Homeowner's Protection Act (HPA) requires a lender to cancel this insurance when the principal balance of the loan reaches 78 percent of the purchase price. You can ask to have the insurance cancelled when the principal balance reaches 80 percent of the price.
FINDING THE RIGHT HOME
Once you know how much you can spend, the next step is to decide where you want to live. There are many factors to consider, depending on whether you're moving for a job transfer, retirement, or to change your lifestyle. You might want to consider commute times, school quality, recreation facilities, public transportation, and similar things. We will be viewing the homes in your chosen area that most clearly fit your needs.
This is the time you will find it valuable to have chosen a good agent, and I trust I fit that bill. I have many resources to assist you in this search. My company has the most properties for sale in our area and in addition I am an active participant in the Multiple Listing Service (MLS). I will be showing you all properties that fit your needs regardless of who is the listing agency. Furthermore, the property that might be best for you may not be actively advertised in the market but available through my extensive networking.
SEARCHING FOR THE RIGHT HOME
When working with me as your agent, the process of finding a home is far less stressful than dealing with a listing, or seller’s, agent. In fact, regarding the latter, you have to sign special paperwork that you acknowledge you are not being represented. Besides, when you buy from a listing agent, he or she gets the whole amount (the “buyer” half) of the real estate commission without providing you with representation. With me as your buyer’s agent you have the option of seeing any property on the market, even for-sale-by-owners, bank owned property, and sometimes properties that aren't even for sale. With me you no longer have to worry about heavy-handed sales pitches or agents that never return your phone calls or emails. I have a reputation of being very helpful and will do a great deal of work on your behalf. I receive many referrals from people who trust me. I match a strong knowledge of sales with a proven reputation.
After we've determined what your needs are and how much you can afford, we will start weeding through the available properties to find the perfect home for you. By screening the available homes before setting appointments to view them, we will actually save time by making sure they fit your criteria.
SELECTING YOUR DREAM HOME
Your job is to make the final selection of the right property for you. I can assist you in the selection process by providing objective information about each property and the neighborhoods in which they are located. I have access to a variety of information such as assessing data, prior sales, and other sales in the neighborhood, as well as local community information on utilities, zoning, and schools.
Some basic considerations in your decision are location. Do you like the access to schools and shopping? Do you have to drive far to work? Or do you like to trade the distance for relative privacy? Is this a neighborhood in which you and your family would like to live? Is the house designed well and the layout one with which your family will be happy? Do you prefer the openness of a contemporary or the more formal design of a traditional home? Will the home be large enough? Does it have enough bedrooms and baths?
Furthermore, will a given home have resale value when you are ready to sell? In our modern world few of us stay in our homes for extended periods. Eventually you may need to sell the home you are now considering buying. Will the home you wish to buy appeal to others? Which of the ones you like will have the greatest resale? I can help you answer those questions.
Once you know what you want in a home, we’ll find all the homes on the market that fit your needs. We’ll set up appointments and view the homes. You may want to take notes on each property to compare them after seeing everything.
A final note: maintain your perspective -- and your cool! You may find an acceptable house on the first day -- or the tenth. The important thing is to get the home that is best for you, and it might take some time.
After we've found several properties you're interested in seeing, we can coordinate times, either by e-mail or phone, to visit them. I'll walk with you through the property and may point out potential problems or benefits of each home, but my main task is to listen to you and how you feel about various features. We will review the property taxes, assessments, utility charges, etc. I will also help you find information about the neighborhoods that you are looking in, such as medical or recreational facilities, shopping, public transportation, higher education and cultural activities. We will discuss traffic patterns in the area, as well as any other outside positive and negative influences on the property. All this will aid you in deciding whether a particular home is right for you. (See more on “Finding, Searching, Selecting, and Showings” in Section 2 What to Look for in a Home)
MAKING AN OFFER
When you find the right house, you make an offer. This offer is always in writing on a simple one-page document where you state a specific price you will pay, a date on which you would like to take ownership, how much time you need for getting the financing commitment and getting inspections done, as well as what contingencies you reserve, such as your satisfaction with the inspection, and, possibility, your ability to sell your current home. I will walk you step by step through the offer and help you fill it out, always keeping your best interests in mind.
Accompanying this offer will be an initial "earnest money" deposit (usually $500-$1,000) to bind the offer. A second deposit of an amount between 5 and 10 percent of the purchase price will come later, typically at the signing of the more formal Purchase & Sale Agreement. The offer will also list contingencies (items upon which the sale is dependent) such as mortgage financing required, termite inspection, and building inspection, among others. The offer is then presented to the seller. If accepted, it will be returned to you with the signature of the seller and your deposit will be placed in an escrow account where it stays until closing. Of course, all deposits go toward your down payment and are included as part of the purchase price.
Bu law I will present the offer without delay. From there I will update you with any response from the seller. Sometimes offers are accepted immediately, sometimes they are flat out refused, and other times a seller will counter the offer. Whatever the case, I will be negotiating to get the best price and terms for you, and will make sure you always understand what is going on. I will also be working with your attorney to be sure all the paperwork to follow is in order and your interests are protected.
AN OFFERING PRICE
To help you determine an offering price, we can match the property on which you would like to make an offer with other properties that are similar in size, style, and condition that are currently on the market or have recently sold, to determine a reasonable offer. I often suggest that you make an offer for an amount that the seller probably won’t accept but not so low that he or she will be offended and won’t respond with a reasonable counter.
So how do we determine what the best price to offer is and how do we get the house for the lowest price possible? The price varies for each property based upon condition of the house in comparison with other homes on the market, as well as the seller's motivation, i.e. a seller who is moving due to a job relocation or divorce will be more likely to accept a lower price than one who just figures they will move if they can get a good price for the house.
THE SELLER’S RESPONSE AND NEGOTIATING THE PURCHASE
The seller has several options. He or she can accept your offer, reject it, or make a counteroffer with a different price, different contingencies, or different times. For example, a seller might not want to have the sale contingent on you selling your current home or might want you to complete inspections in 10 days instead of two weeks.
Let’s hope the seller accepts your offer. If not, we can negotiate with the seller until we reach an agreement that suits everyone’s needs. Although there is no requirement for a seller to make a counteroffer, usually a seller will counter with a price and terms that are more acceptable to them. Do note that if your offer is decidedly too low they may not respond at all.
Certainly, more than just price is involved in the negotiation: the date by which you will obtain loan approval, appliances that go or don’t go with the property, and closing date are often considered carefully by the seller. Let’s assume they counter your offer, which you in turn counter back, finally coming to an agreement. Counteroffers can go back and forth till the parties have reached an agreement. If either party accepts a counteroffer in writing, then both parties are bound by the terms of that counteroffer.
(See more on “Offers and Negotiating” in Section 3 Making an Offer.)
FINALLY, AN ACCEPTED OFFER
Inspect the Property
Now that you have an accepted offer, there are several actions you must make simultaneously. The first is to arrange for a building inspection. You want to make sure there aren’t any problems with the property that you weren’t aware of. The inspection is to be done within the time frame (usually 10-12 days) as outlined in the offer. Try to have the inspection as soon as possible to allow for further negotiations to take place should you find items or problems you wish to negotiate with the seller. Make sure that any request for repairs, or credit for same, be made, in writing, prior to the end of the inspection period. Note that these inspection negotiations can and often do continue beyond the inspection period. Of course, if the house needs repairs you didn't consider when you calculated the purchase price, you can renegotiate the agreement or call off the sale, and have your deposit returned to you. You will want to remember, however, that when a property is put up for sale, the condition of the property and any repairs that need to be done are usually taken into consideration when determining the asking price.
Note that another task to be done during the inspection period is a radon-in-air test. This test is often done by your inspector. A water test for organic quality is to be done if the home you are purchasing has a private water system, and may in fact be required by your mortgage lender. Mold, if present, may need to be tested. Additionally, if a private water system, a radon-in-water test should be done. Other tests such as lead paint may also be done during this inspection period. A termite and wood-boring insect inspection must also be done, but this may be done later as this potential issue is a separate paragraph from the inspection clause in the offer. I can assist you in finding qualified professionals to do most of these investigations and provide you with written reports. Note that in our area by custom the seller is normally responsible for Title 5 septic inspection as well as for having the fire department certify the smoke and carbon monoxide detector installation.
The inspection gives you a time to visit the property again with a professional home inspector and have any other inspections that need to be done. What a home inspector will do is walk through the property with you, point out things we might have missed on first viewing, and give you tips on maintaining the property once you own it. As noted above when something is wrong with the property and must be fixed, we will negotiate with the seller on your behalf to make sure the problem is taken care of. (See more on “Inspections” in Section 4 All about Inspections.)
Note that if the seller is going to make the repairs, make sure arrangements are made for the repairs to be finished before closing. If they aren't, reserve the power to cancel the deal or extend the closing date so that the repairs can be done. It will be a lot harder for you to enforce an agreement for repairs after the deal closes. A common alternative is that you will be given credit at closing or dollars off the purchase price for the repairs.
Choose Your Lawyer
Once you have an accepted offer, the second action you must take at the same time is to hire a lawyer. In our area we do not have title companies that in other states do the work of transferring property ownership. Here, lawyers do that work for you. In fact, as buyer, it is your lawyer who oversees the documents (such as the Purchase & Sale Agreement, which is similar to your one-page offer but more detailed), orders a title search to be sure no liens are placed on the property (critical for turning up unforeseen ownership problems), accounts for the money (gov’t require paperwork and such), and receives the mortgage papers from the bank for you to sign. In fact, the first task he or she will do is to negotiate a draft Purchase & Sale Agreement (P&S) with the seller’s lawyer for your review. Note that we agents do not prepare the P&S as is done in some other areas. At the signing of the P&S, which could come in 2 or 3 weeks, typically after the inspection negotiations but not always, you will make an additional deposit which like your initial deposit will be held in escrow and applied to your down payment.
Note that the periods of signing the P&S and completing the inspection may be similar but are not dependent one upon the other; both are done independently.
Apply for the Mortgage
Upon acceptance of the offer, the third task is to make formal application for a mortgage. Note that you do not wait for the results of the Home Inspection and/or signing the P&S Agreement. It often takes weeks to get an actual mortgage commitment; therefore, the process must start immediately. It is not hard; the mortgage officers you will be dealing with are efficient. Note this process should be fairly smooth as at this stage of the process you may already have a prequalification or preapproval from that same lender.
WHAT THE SELLER DOES
The seller has some obligations once he or she has accepted your offer. Like you, the seller must bring a lawyer on board right away as it is this lawyer who by custom will send a draft of the P&S to your attorney. And, of course, the seller’s lawyer arranges for the title to the property to be turned over to you. As already mentioned, the seller is responsible to have the local fire department assure that the smoke and carbon monoxide detectors are working and properly placed in the house.
Perhaps the biggest task for the seller is his or her responsibility to have the private septic system inspected. This is called a Title 5 inspection and must be performed by a qualified inspector. Massachusetts requires that the septic systems be in compliance with state sanitary codes when a property is transferred. If the system requires repair or replacement, the cost is usually the seller's responsibility. However, if the cost of any repair exceeds a particular, agreed-upon, amount, you may be contributing. Note most properties have the Title 5 done prior to coming to market.
WHAT ARE WE AGENTS DOING?
The seller's agent, and I as your buyer's agent, will make sure all parties (buyers, sellers, bankers, and lawyers) do what they need to do in a timely manner. We make sure our respective party has access to information he or she needs. We arrange for the various inspectors and the bank's appraiser to examine the house. We make sure that all documents that lead up to the closing, such as Seller’s Description and Lead Paint, are signed.
Note that all properties we list are required to be on MLS within 24 hours. And once a property goes on MLS, it stays on MLS – only the status changes (for sale, contingent sale, fully under deposit, sold, etc.). The property you have made an offer on will therefore continue to appear in one of these categories. Typically, the listing agent may keep the property in a “contingent” or “back-up” status until the inspection and financing contingencies are met. In theory, the house could still be shown and a back-up offer submitted, but this offer cannot take precedence over your accepted offer. To your advantage, agents and their clients only infrequently look at a house that is in this “contingent” status. In short, nobody’s going to get interested in the home on which you have an accepted deal unless for one reason or another you pull out of the sale and the house goes “Back-on-Market,” (BOM).
To summarize, we agents stay in touch with our respective parties and untangle any questions that might arise, lending our assistance right up to the closing day.
WHAT IS THE LENDER DOING?
The mortgage lender is following through on your loan application. They assure themselves that both you and the house are good risks. They begin an approval process that usually takes three (with pre-approval) to five weeks. They verify your paperwork and send an appraiser to confirm that the house is worth what you and the sellers have agreed upon. A key point here is that the lender must issue you a letter of commitment prior to the financing deadline noted on your offer. You, in turn, must make sure that your attorney and I each get a copy of this commitment letter so we can assure the seller’s agent and attorney we have met that obligation. The next step is for the lawyers to schedule a closing within the timeframe called for in the agreements.
THE FINAL WALK-THROUGH
A final walk-through is an opportunity for you to walk through the property and make sure everything is the way you agreed in the P&S agreement. Any work that was to be done before the closing should be completed at this point, and if the property is to be delivered vacant, any tenants should have moved out. The property should be “broom clean” and we are always hopeful of same. If there is a problem and things are not as agreed, then arrangements can usually be made to remedy the situation. This final walk-through is usually done right before or perhaps the day before the closing.
SPECIAL NOTE: Several days prior to closing you need to call the electric company serving the community in which you are buying and give them the information they require to set up an account. Your attorney and I cannot do this for you. Contacting the company allows them to transfer the electric meter to your name without discontinuing service. Other utility costs such as fuel (oil or gas) or water and sewer will be adjusted as of the day of closing.
FINALLY, THE CLOSING
Finally the closing date arrives. The closing is the last step in the buying process. This is the day you sit down and sign all the documents necessary to transfer ownership of the property to you. Most of this paperwork involves mainly your mortgage and bank note, plus a pile of documents to protect the bank's investment, including pages stating that you will keep the property in good repair, make sure it is always insured, pay your mortgage on time, etc.
Make sure that you've resolved all questions about how repairs, if needed, will be made, when you get occupancy of the house, and any title questions are answered before the closing. You may have title insurance, but it is only as reliable for protection as the exceptions contained within; this title insurance may leave you in hot water if it excludes risks, such as rights of prior owners and/or mechanics liens, which show up after the deal is done.
In our area your lawyer handles this process. And the closing itself is usually at his or her office. Note that you will need to bring to the closing any remaining amounts of money in certified funds. Your lawyer will tell you the amount necessary. You will also need to obtain an insurance binder and bring it to the closing.
I will be joining you at your closing. The seller and/or his or her lawyer are typically not present as they have already agreed on the proper accounting. You will be signing all the necessary papers including the mortgage documents, the latter having been sent by your bank to your lawyer for signing. After the closing, your lawyer will go to the Registry of Deeds, do a final title check to see that no last-minute liens have been placed on the property, receive from the seller’s attorney the signed deed in exchange for the agreed-upon funds, and record this deed. This accomplished, you own the property and can take immediate possession -- congratulations! (See more on “Closing” in Section 6 Choosing Your Attorney.)
A summary of the buying process
This is a basic overview of what happens when you buy a house. Please note that this process is often different in other states, just as it is different in the Pioneer Valley from other areas of Massachusetts. In fact, it isn't intimidating if you know what's going on. Here are some general guidelines:
The first thing you should do when thinking of buying a home is get pre-qualified, or better, pre-approved, with a lender. This way you'll know exactly how much house you can afford.
Next, you should sit down and determine exactly what you are looking for in a home. Write down the number of bedrooms and baths you need, and any other details you can think of (garage, yard size, proximity to schools, public transportation, etc.)
Once you know what you want in a home, I can help you find all the homes on the market that fit your needs. We'll set up appointments and view the homes. You may want to take notes on each property to compare them after seeing everything.
As soon as we find the right house for you, I can help you write up an offer and I'll present it to the seller or his or her representative. Hopefully, your offer will be accepted right away. If not, you can negotiate with the seller until you reach an agreement that suits everyone's needs.
After the offer is accepted, to make sure there aren't any major problems with the property that are unknown to you, you will order a home inspection.
The next step in the process is the Purchase and Sale Agreement. This is a document very similar to the original, one-page short-form Agreement to Purchase, but much more detailed. You'll want to give your lender a copy of this document as quickly as possible so they can have an appraisal done and verify the rest of the paperwork for your mortgage.
Once your lender has all the information and documentation they need to close the loan, they will give you a commitment on your mortgage. As soon as this is done, your attorney will schedule a closing.
At the closing, you will sign papers including mortgage documents, receive the deed from the seller, and you will then be given the keys to your new home.