THE BUYING PROCESS
Basically, you’re going to look at several houses, make a few offers, and buy just one home.
1st Step - Get a Loan
Mortgage payments usually include property taxes and insurance. A rough rule of thumb to estimate your payment on a house is to take 1% of the sales price. For example, a $150,000 house will be about $1500 per month, including taxes and insurance.
The initial loan application (Pre-Qualification), usually only takes a few minutes, and it helps determine what is your price limit. After your initial loan application, you’ll need to give your lender some financial documents. The basic documents a lender will need are:
Tax returns for the previous two years
Bank statements for the last two months
Pay stubs for the last 30 days
Last statement of your IRA or 401K
Driver’s license & Social Security card copies
Copies of divorce decree (if applicable)
Make sure you provide any additional information needed by your lender as soon as possible. Not doing so could jeopardize your loan and purchase.
DON’T DO ANYTHING! Don’t make large deposits or purchases now. Even if you have great credit, additional debt or unusual deposits can negatively affect your loan. Ask before making either a large deposit or purchase.
2nd Step – Look For a House
It normally takes about one month to find a home. It is impossible for a house to have everything you want, so prioritize. The basic criteria you should use:
1) Price Limit
2) Number of Bedrooms
3) Number of Bathrooms
4) Area of Town (North, South, Central, etc.)
Some additional criteria you can add; year built, square footage, 1 or 2 stories, number of parking/garage spaces, fireplace, pool, brick/stone exterior. Houses are not sold a la carte. Every time you add to your criteria, the fewer houses you will have to choose from.
3rd Step – Making an Offer
Just offering less than asking price won’t guarantee a good deal. Bob finds a house that’s $150,000. Wanting to get a good deal, Bob offers $145,000. If the seller accepts the offer, is Bob getting a good deal? If the house is worth $135,000, then no, but if it is worth $150,000, then yes. An offer should be based on the market value of the property. In the central Texas market, sellers will usually negotiate 1% to 3% off the list price, however, this is not always the case.
An offer is considered accepted when all buyers & sellers have signed and initialed the contract. This is called an executed contract, and the seller must sell the property to you even if they get a better offer afterwards. Now you must write an earnest money check. Earnest money shows the seller that you are serious about buying the property. It is normally around 1% of the contract price, but can be as little as $500. A title company will hold the earnest money check.
The Option Period is a window of time (typically 5 to 10 days) that allows you to cancel the contract and not loose your earnest money. Although you pay for this Option Period, usually between $50 to $100, this is applied against the purchase price. During the option period is when you want to have the property inspected and get insurance quotes. Usually you will get a lower rate if you use the same company for both your car and house insurance. Here’s a list for your convenience:
Allstate/Nelson Robinson 835-5600 nrobinson@allstate.com
Farmers Insurance/ Leslie Moeller 343-2071 (Bilingual: Spanish)
Nationwide/Roxanne Goodmar 252-1107 (Bilingual: Spanish)
American National/George Gutierrez 341-7078 (Bilingual: Spanish)
Insurance NetworkTX/Julie 800-258-8302 julies@INTonline.com
4th Step – The Inspection
You’ll want to inspect the property you are buying. Your contract will probably include an Option Period. The Option Period is intended for you to inspect the property and make sure you are satisfied with the property’s condition.
The inspection is meant to give you a more complete picture of the property’s condition, but it is not a warranty. A licensed real estate inspector will check for problem signs and give you a report for your review. It should also include a Wood Destroying Insect Report.
As a general rule, newer properties will be in better condition than older properties. Since building codes change over time, older properties are usually “grandfathered” and property code updates are usually not required to buy or sell.
After reviewing the inspection, you have three choices:
1) Buy the property as is.
2) Cancel the contract and find a different property.
3) Ask the seller to pay for repairs needed.
Mechanically speaking, usually the most important parts of a property are:
A) Foundation
B) Central Air and Central Heating (CACH)
C) Roof
A seller will normally do repairs that would keep the house from being sold to another buyer, for example; foundation, termites, roof. Sometimes the seller is unwilling or unable to do repairs and a decision has to be made as to whether to buy the property or not. Although all “used” properties are sold “as-is”, banks that are selling foreclosed properties will do NO repairs and usually reflect in the sales price.
5th Step – Now What?
GET INSURANCE: If you don’t have it, get it! You can’t buy the house without it. Most companies will give you a discount if they cover both your house and cars.
GET A RESIDENTIAL SERVICE PLAN: Even though you had the house inspected, a residential service plan can be a life saver. It is common to have the seller pay for a one year coverage, so if your major appliances breakdown (air conditioner, furnace, stove, dishwasher, hot water heater), the residential service plan company will come out, charge you a service fee and fix it. Here are some companies that offer this service. If you don’t choose one, the title company will do so for you.
First American, 800 444-9030, www.firstam.com/warranty
American Home Shield, 800 735-4663, www.ahswarrranty.com
Best Home Warranty, 800 443-5599, www.bhwc.com
Old Republic Home Protection, 800 445-6999, www.orhp.com
Home Warranty of America, 888 492-7359, www.hwahomewarranty.com
UTILITIES: Schedule the utilities to be turned on in your name for the day of the closing. Make sure you have contacted the electric, water, trash, gas, phone, cable, etc.
CLOSING DAY: The closing is the day that you sign all of the documents that make the house actually yours and it is done at the title company. A closing will usually last about 1 hour. Bring two forms of identification, preferably a driver’s license with a second form of identification. If your loan requires that you bring money to the closing, and it’s over $1500, please bring a cashier’s check made out to the title company. If it is under $1500, most title companies will accept a personal check, but you will want to ask the title company.
Congratulations, you are a home owner!
