Tuesday, September 30, 2014

A Guide to Buying Your First Home. Part II


When you find a home
Once you have found a home, there are two options. If you have a mortgage prequalification letter you can move directly into making an offer. If you do not have this letter, it’s time to secure a lender and financing. If you do not have a lender of choice, now it’s a good time to shop around, but you will have to do so in a more expedient fashion.

Either way, before you place a bid on a home, make sure you’ll be able to afford it. To place

a bid it’s good to consult your agent first. If a home has been on the market for a while, or the neighborhood is expecting some major construction overhaul, you may be able to talk down the price from what the seller is asking. And if properties in the area are going fast as smoke, your agent will know and may suggest upping your bid from the listing price to try to make sure you get it. You can also put conditions on your bid. I know someone who recently fell in love with a lake home in Washington sate and she loved the custom-made furniture on the outside deck. She asked for it on the offer, and she got it!

After you make your offer, one of three things can happen:

  • Your offer is accepted (yay!),
  • Your offer is denied, with a reason, or
  • You enter a bidding war.
A bidding war means that someone else has placed a better offer than you. You may choose to let them have the property, or to outbid them.

Either way, once you have an accepted offer, you must make a good faith deposit (a sign that you mean business) that goes into escrow; this escrow is the time period between the offer to buy a home and the actual signing of the contract of purchase that makes the home yours. It takes about 30 days if nothing goes wrong. Note: this is not the down payment.



The time between offer and signing: the escrow period
This is the uphill race to the final purchase of the home. During this time many things need to take place:

An appraisal. The lender needs to make sure that the home is worth what the seller is asking for it. That way they know they are not overextending themselves on your mortgage.

Meanwhile you will be securing all the paperwork for your loan. They will ask you for specific documents, employment records, bank statements, bank histories, proof of your down payment, etcetera. It is a lot of paperwork but it is manageable nonetheless. Soon after you present the completed mortgage loan application, you will receive from the lender a Good Faith Estimate.

You will also need a home inspection. This is done for your benefit, to make sure that you

are buying a home in good condition for living and that has no unsuspected damage.

In the background there will be other processes happening that may or may not need your intervention: the title search that the lender performs, the obtaining home insurance for your new home –you will be required to do this-, and possibly talks about private mortgage insurance or obtaining a piggyback loan if you lack the down payment amount.

Finally, you will be on the final stretch to the end of it all, the closing day. The day before this important date, you will receive from the lender an important piece of paper, the Closing Sheet. On it you will get to view all your expenses related to the purchase of the property and the process of your loan, as well as the expenses that the seller is incurring. That way if there are any issues, you can bring them up before you sit at the table for closing.



On your closing day you sign the contract of purchase and any loan papers. It takes a while to sign it all and usually this process takes place at a settlement agency in front of a notary, accountants, and maybe even a lawyer. You get to sign and/or initial a whole lot of papers.

Closing day usually means that you get the keys to your home that day; in some cases there may be clauses set into the sale contract, that specify that the sale is for a later date because the seller needs to vacate. If that’s the case you will have to wait a bit longer. 


And now you have a home… is that the end of the road?
Definitely not. Now you will need to start a savings account for house maintenance. There are costs that when you rented you never had to cover, such as plumbers, electricians, broken appliances. If you own a house, leaks, water heater repairs or replacements will all be your responsibility, and you need to have an emergency fund just for home expenses.

And you should, to keep some of that emergency fund intact, perform regular maintenance on your home. It is the place you live and you want it in as best condition as possible, not only for safety reasons but to save you money in the long run. You will save on repairs and keep the value of the property up for if you ever have to sell.

Speaking of that: do not plan on using the equity on your home as a retirement fund. You

never know when you might need to sell it, and if you have a family, then that will not work if you later plan on passing the house to a child, not to mention that if you are a couple, the house would likely not pay for a home for both of you. Continue to work on your retirement plans.

Do not engage in home remodeling projects right away. While you may not be content with your kitchen, or the hallway closet, you are there for the long run. Not only do you have plenty of time to do it, you have just entered a very large financial commitment and you need time to adjust to your new budget and finances before taking on new expenses. Plus, it gives you time to plan the most cost effective projects that are to your liking.

And finally… enjoy your first home!

No comments :