Starting from scratch to buy a home?
If you think you have to save up for a down payment to buy a house like your parents or grandparents did, think again! The money you are currently paying in rent could be used to buy a home and build equity.
In years past, home buyers had to have a 20% or higher down payment to purchase a home. Today with a good credit score, a steady source of income and two years of tax records for a self-employed person, you may already qualify for home ownership. The steps listed below can help you understand the process of buying a home and help you be better prepared when you are ready to begin the journey.
Step 1: Get Pre-Approved from a lender.
This process should be the first step before beginning to look for a home and is one of the most important steps yet many buyers overlook. During this process, the buyer provides proof of income to a lender and the lender provides a letter to the buyers showing how much (based on income) the buyer can afford to borrow. It is important to shop around and talk with different lenders to see what options they offer in their loans. Some lenders may accept little if any down payment while others may eliminate private mortgage insurance for first-time home owners. Some lenders will provide loans for mobile homes while others may not. Still others may provide loans for buyers with special occupations such as physicians in areas that are in need of medical personnel.
Also critically important is the time to obtain a loan from a lender. Avoid using lenders that say it will take longer than 60 days to process the loan. Most lenders should be able to provide a loan within 30-60 days. In addition, as interest rates are starting to creep up, make sure you can lock in the interest rate that the lender quotes you. If there are delays, you don’t want to be surprised during closing that your interest rate is going to cost you more than you planned.
Finally, just because one lender says “no” in offering you a loan, another may say “yes”! Check with multiple lenders to find the right loan for your situation.
Step 2: Determine Out-of-Pocket Fees.
Once you have determined how much you can borrow,it is important to understand that closing costs and fees must be considered as well. These are out-of-pocket expenses that will need to be paid at the time of buying the home. These costs include the attorney fee, recording fees, home inspection fees, and lender fees. You will need to have anywhere from $2,500 to $6,000 to present at closing. If you don’t have the cash to close, the lender may or may not include a portion of the closing costs with the loan. Sometimes the seller of the home may offer to pay a portion of the closing costs as part of the negotiation process. At any rate, you will need to determine before looking for homes how you will cover the closing costs.
Step 3: Find a good realtor.
As a new buyer (especially first-time home owners), you want to have someone experienced with buyers to assist you in finding a good home. Look for realtors online and pay attention to their rating by previous clients. Many realtor websites have a Google rating with prior or current client comments. Also, ask friends, family, or colleagues who may provide you with references that they have used in the past. It is important to find a realtor who has your best interests at heart and can guide you through the search process. A good realtor is friendly, trustworthy, and goes above and beyond with customer service. For example, a good realtor may point out that the value of a two bathroom home provides better resale value than a one bathroom home to a young couple who may resale the home in the future. A good realtor will also explain the buying and selling process of a home in North Carolina.
Step 4: Understand how real estate firms work.
The realtor will explain to the buyer the process of buying a home using a brochure called, “Working with Real Estate Agents”. Once the realtor explains the brochure, the buyer signs the brochure stating that the realtor went over the information. The brochure is not a contract with the firm, but a consumer-protection pamphlet for the buyer.
For assisting buyers or sellers in the purchase or sale of the home, the real estate firm receives a commission which is paid for by the seller of the home. In North Carolina, each real estate firm assigns its own commission percentage of the sales price. Some firms may require a retainer fee as well while others may not.
Step 5: Sign a buyer’s agency agreement and view homes.
Prior to making an offer to purchase your dream home, in North Carolina, you must have a written buyer’s agency agreement with a real estate firm. This is a contract between the buyer and the real estate firm which details the services the firm will provide the buyer. Once this form is signed, the buyers may offer to purchase a home. During this process, the realtor may show the buyers homes that are in the buyer’s price range or desired area. Realtors show homes during the day, evenings, or weekends based on their client needs and they request a showing of a home through the Multiple Listing Service (MLS) in their region. Homes that are vacant are usually quickly approved by the listing broker while homes that are occupied may take 24-48 hours notice to view the home. While looking at homes, it is important to ask questions. A good realtor will provide you with information about the home and if they don’t know the answer to a question will find out for you.
Step 6: Negotiations and Contracts.
When you find your dream home and are ready to make an offer, your realtor can lead you through the process to complete the offer to purchase form and send to the seller’s agent. The seller may accept the offer, sign, and then you have a contract. Sometimes, the seller will not accept the offer, but provide a counteroffer. Your realtor can advise you about accepting the counteroffer or rejecting the counteroffer and providing another counteroffer. Negotiation through the offer and counteroffer process can be time consuming and stressful but your agent should be experienced and helpful throughout this process. Don’t let the stress wear you down to make a decision you will later regret. It is very important to rely on your agent during this time.
Step 7: Due Diligence Period.
Once an offer has been made and accepted, you should carefully inspect the home during the due diligence period. The due diligence period is a period of time (usually 30-45 days) to investigate the home and property to determine whether to proceed with the sale of the home. Private companies provide home inspections to determine the soundness of the home. Home inspectors review electrical systems, foundations, roofing, cracks in walls, plumbing, heating and cooling, pests, lead paint (if an older home built before 1978), septic, water quality, and radon. Radon is of concern in the mountains of Western North Carolina and is typically higher here than in other locations in the US. More extensive inspections can be done for people with sensitivity to allergens, mold, and other environmental toxins but those inspections are not common. If you determine from the inspections multiple areas of concern, you can either back out during the due diligence period without penalty or negotiate for repairs with an amendment to the contract. Both the buyer and seller must sign the amendment; otherwise, both parties may continue to negotiate until either there is a resolution or the contract is terminated.
In addition, the lender will send an appraiser to the home for an appraisal of the home value for the loan during the due diligence period. Once the paperwork for the loan is completed, it will be sent off for underwriting which takes between 1-3 weeks depending on the lender. It is important that the loan process be completed during the due diligence process to ensure you will have the ability to purchase the home. If the loan doesn’t go through for some reason, you can terminate the contract during the due diligence period without penalty.
Finally, during the due diligence period, your attorney will prepare the title search and other paperwork for closing. It is very important that after you have a contract to purchase a home that you contact your attorney in person and give explicit details of your money wiring or handling instructions. DO NOT provide any wiring or banking information through email or by phone unless you make the phone call to your attorney’s office or you have agreed in advance how you will communicate. Wiring fraud is on the rise and buyers need to be aware of protecting themselves.
Step 8. Closing. Congratulations!
You have made it through the due diligence period and are on your way to having a new home! There is usually a week to ten days after the due diligence period prior to closing. The attorney will set up a date for you to come to his office to review and sign paperwork. You will need to bring a check or monies for closing costs which the attorney’s office will let you know the exact amount prior to closing. The bank, attorney, and real estate agents will review your closing disclosure statement for accuracy prior to the closing date. Your real estate agent will usually be at closing to assist you with questions and cheer you on!
We at Blue Ridge Premier Realty and Rental look forward to helping you navigate through the process of finding or selling your next home. We have experienced brokers who can assist you with your real estate needs and provide you with exceptional customer service in Western North Carolina!