With interest rates still at an all-time low, many first-time homebuyers are looking to make the leap into home ownership. Choosing a home is the easy part of the process – you’ll also need to deal with contract offers, inspection, securing a mortgage and insurance, and the closing, all of which can be stressful and confusing.
Your real estate agent should guide you in determining your offer, whether it is below, at or above asking price. If the house has multiple offers, you may need to offer at or above the asking price to ensure your offer will be accepted. The seller may counter-offer, which can set up a lot of back and forth before you come to an agreement or decide to walk away.
In the offer, you will need to specify what will be included in the purchase: appliances, window treatments, any updates, portion of the closing costs, etc. I thought it was odd that our agent asked for window treatments, considering we’d probably change the curtains anyway, but he pointed out that it also includes the rods and blinds, which could be at least $50 per window to replace. Incidentally, those curtains are still hanging a year after we moved into the house.
The home that we purchased was a short sale, so there wasn’t a lot of room for negotiations, as the seller’s bank had pretty strict requirements on what was acceptable. Our closing date was moved a few times and finally settled two months before our apartment lease was up. We called our apartment management staff and asked if we could get out of the lease one month early — it never hurts to ask — and they agreed. That gave us one month in which we had both places (but no mortgage payment starting yet), so we could take our time in moving and cleaning.
Once our offer was accepted, we had 10 days to have an inspection completed and to secure financing. We chose to have the inspection before applying for the mortgage, so we wouldn’t lose out on our mortgage application fee if the inspection wasn’t satisfactory and we decided to pull our offer. For more information about why an inspection is necessary and how to choose an inspector, read MSN’s article, Lessons from Home Inspectors.
Plan to attend the inspection, ask a lot of questions and take a lot of notes. It should last between two and four hours and you’ll learn a ton about the property by talking to the inspector rather than just reading the report. Our inspector was able to tell us the approximate price of needed repairs, which helped us make the decision to go ahead and purchase the house. Since we did buy a short sale, we weren’t able to ask the seller to make repairs in the final agreement, and had to foot the bill for any repairs. In most traditional home sales, if the inspection turns up problems, you can ask the owner to make repairs or lower your offer to cover the needed repairs.
Mortgage and insurance
Shopping for a mortgage is one of the most important aspects of the home-buying process. Compare numbers from a variety of financial institutions including national and local banks and credit unions, if possible. We found that the easiest way to compare was to create a spreadsheet listing all of the important numbers from the good-faith estimates we received (points, interest rate, closing costs, monthly payment, private mortgage insurance, total cost for the life of the loan). Make sure to compare fees, as some quotes will list them individually while others will roll them into a loan-preparation fee. Make sure to ask for the total amount of cash you’ll need to close the loan. You’ll want to discuss the different options for a mortgage with a mortgage specialist to determine if you should pay points (paying a percentage of your mortgage amount up front to receive a lower interest rate), PMI (private mortgage insurance, often required if you don’t have a large enough down-payment), or whether any home-buying programs are appropriate for your situation.
You’ll need to show proof of homeowners’ insurance during the underwriting phase. You’ll probably want to combine your auto and homeowners insurance to get the best deal, so it’s important to compare the cost of adding the auto insurance, too. Our top three homeowner’s insurance quotes were very similar, but when we added the insurance for our cars, the difference was significant. Again, we used a spreadsheet to keep track of the quotes.
After our loan application was accepted, but before it was sent to underwriting, the mortgage company asked us for more information including updated banking statements, proof of employment and tax documents. The bank will do an appraisal to make sure the loan isn’t for more money than the home is worth. The underwriting process only took a few days and was approved after we faxed even more requested documents, including our homeowners’ insurance policy.
A few days before closing, we received a copy of our Settlement Statement (also known as the HUD-1 form), which showed exactly how much money we needed to bring to closing and the breakdown of all of the costs. It was a little overwhelming and hard to understand, but the agent explained it line by line at closing. Our closing costs were lower than we were told in our estimate, so after double checking with our mortgage agent, we went to our bank to get a certified check for that amount.
Our real estate agent scheduled a walk-through of the house before closing to make sure all the stipulations in our contract were met and that no damage had been done since we first viewed the property. It was exciting to see the house empty for the first time, just waiting for us. We went to closing at the title agent’s office, where everything was reviewed and we signed our names about 100 times before we were given the keys.
If you’ve ever purchased a house, what was the most confusing or stressful part about the process?
If you are just beginning your home search, read How to buy your first house at Living on the Cheap.