Whether you’re a first-time homebuyer or have been through the process more than once, buying a home can at times be a stressful endeavor. Thankfully there are plenty of resources to help a buyer feel confident in making such a big financial decision. The American Land and Title Association suggests following these steps when planning your next home purchase:
1. Determine your budget – without a well-planned budget, it can be easy to mistakenly shop for what might be out of your price range. To avoid that, it is important to calculate how much you can realistically afford and factor in additional costs that are necessary when buying a home. As each homebuyer’s situation is unique, there isn’t one tried and true formula. You’ll want to work with your Realtor and lender to determine a budget that works specifically for you. Keep in mind that a down payment of less than 20% usually requires private mortgage insurance. It is also important to not forget to include closing costs in your budget. Closing costs include several things such as the title search, title insurance, and other legal fees. These costs tend to amount to around 2-5% of the home’s value. It is important to pay attention to the entire financial picture to establish what can be afforded and factor in your day-to-day expenses. The popular rule of thumb to follow is, your mortgage should not exceed 28% of your take home pay each month, before taxes.
2. Select your lender – Once you have a budget to work with, you’ll want to select your lender and provide them with financial information, so you have a price range to work with and see how much money you have to shop with! Getting pre-approved for your mortgage rate and amount saves time in getting your offer accepted by the seller
3. Find your home – Now for the “fun” part! Shopping for your home can be exhilarating and a bit overwhelming. Use a trusted real estate agent to help you weigh your options and find a home that best suits your individual needs. You should research different Realtors, online or through referrals, to find the right agent for your needs. Not only does a real estate agent most likely have access to homes that may not be listed online, but they can also share comparison homes in the neighborhood that you are looking to buy in. A comparison will give you a better idea of the market value and going price for similar homes in that area. Even when using a real estate agent, you can still look into homes that pique your interest in your spare time. Ask your Realtor for upcoming open houses, or utilize online apps and resources such as Zillow, Redfin or Trulia that are free to use.
4. Secure your offer – Once you’ve identified the right home at the right price, your real estate agent will help you in making an offer. When submitting an offer there are a few things to keep in mind. Timing is very important. Although you don’t want to lose a home by taking too long, you also don’t want to end up making a hasty decision or feel rushed. Communicate with your real estate agent about what you need in order to feel confident about the decision. Also, keep in mind that submitting an offer is just the first step. It may take some back and forth with the seller to strike a deal that both sides are comfortable with. Once the offer is accepted and you sign a contract, you’ll need to get a home inspection to identify any structural issues with the home before you purchase.
5. Select your closing agent and title insurance company - Depending on where you’re buying, the closing agent may be an attorney, settlement agent, title agency, title agent or escrow company. Regardless of their job title, they are a trusted third-party that helps ensure your transaction goes smoothly. In some cases, your closing agent can also act as a title professional. If they aren’t, however, you will want to find a title insurance company to use as well. Your title agent will perform a search to examine the public record for information related to the title of your potential home. This search provides information on any issues relating to the current owner and title before the property changes hands. This process typically takes 30-90 days. Keep in mind, the buyer has the right to choose his or her own title insurance provider. Don’t be afraid to research different companies and ask important questions like how long they have been in business.
6. Get a title insurance owner’s policy – Title insurance is one of the most important parts of the closing process as it provides legal protection against any future claims or issues related to your home’s title. Owner’s title insurance protects your property rights, whereas a lender’s title insurance only protects your bank's financial investment. Owner’s title insurance is a low, one-time fee at closing, but very necessary for giving you as the buyer peace of mind. If you have an owner’s policy and a title defect arises, then the title insurance company will work to resolve it. The owner’s policy will also pass to the heirs of the estate without the coverage changing. Reach out to us at Investment Title with any questions you have on owner’s title insurance as well as enhanced policy options.
7. Home inspection – The home inspection is a mandatory and vital part of the home buying process. It is something the buyer must invest in and the seller must pass in order to sell their home. Picking the right home inspector is important to ensuring that the home you are buying is something you will be satisfied with. Be sure to get references from your real estate agent and compare costs between companies that are bonded and insured. Research what the inspection includes and verify that you can accompany the inspector while he or she walks through the home. Keep in mind that the purpose of the home inspection is to identify major structural, mechanical or safety defects. Trust your Realtor to guide you through the process and negotiate for your best interests without threatening the sale.
8. Review closing documents – By law, you must be provided a five-page Closing Disclosure, three business days prior to closing. This contains the actual terms and costs of your transaction. Your closing agent will work with you in explaining the content of the documents before you sign.
9. Sign closing documents and transfer funds – At this point in time, all the behind the scenes work has been completed. There are a few things, however, that could delay your closing. If the basic loan product changes, if the annual percent rate (APR) increases by more than 1/8% for fixed-rate loans or 1/4% for adjustable loans, or if a pre-payment penalty is added, then your closing could be delayed.
10. Buy with confidence – Once you’ve signed all closing documents, you are transferred the keys to your new home and the sale has officially been made. You are now a homeowner! After the closing, the settlement or escrow agent will transfer the funds to the appropriate parties. The closing agent then records the documents in the county records.
11. Receive your owner's title insurance policy – as you unpack boxes and get settled into your new home, be sure to check the mail for your owner’s title insurance policy and store in a safe place. This is your written record that your property is protected.
There is a lot that goes into buying a home but following these 10 steps will give you the knowledge needed to better understand the process. With the right real estate agent, closing agent and owner’s title insurance, you can rest easy and buy your home with confidence!