CONGRATULATIONS! You have decided to buy a new home. This page will help you take this big financial step by describing the home buying, home financing, and settlement process.

You probably started the home buying process in one of two ways: you saw a home you were interested in buying or you consulted a lender to figure out how much money you could borrow before you found a home (sometimes called pre-qualifying or pre-approval). The next step is to sign an agreement of sale with the seller, followed by applying for a loan to purchase your new home. The final step is called "settlement" or "closing", where the legal title to the property is transferred to you.

At each of these steps you often have the opportunity to negotiate the terms, conditions and costs to your advantage. This page will highlight such opportunities. You will also need to shop carefully to get the best value for your money. There is no standard home buying process used in all localities. Your actual experience may vary from those described here. This page takes you through the general steps to buying a home, to eliminate, as much as possible, the mysteries of the settlement process.

Buying and Financing A Home

Sometimes, the real estate agent will offer to help you obtain a mortgage loan. He may also recommend that you deal with a particular lender, title company, attorney or settlement/closing agent. You are not required to follow the real estate agent’s recommendation. You should compare the costs and services offered by other providers with those recommended by the real estate agent.

Selecting an Attorney

Before you sign an agreement of sale, you might consider asking an attorney to look it over and tell you if it protects your interests. If you have already signed your agreement of sale, you might still consider having an attorney review it. An attorney can also help you prepare for the settlement. In some areas attorneys act as settlement/closing agents or as escrow agents to handle the settlement. An attorney who does this will not solely represent your interests, since, as settlement/closing agent, he or she may also be representing the seller, the lender and others as well.

When choosing an attorney, you should shop around and ask what services will be performed and for what fee. Find out if the attorney is experienced in representing home buyers.

You may wish to ask the attorney questions such as:

What is the charge for negotiating the agreement of sale, reviewing documents and giving advice concerning those documents, for being present at the settlement, or for reviewing instructions to the escrow agent or company?

Will the attorney represent anyone other than you in the transaction?

Will the attorney be paid by anyone other than you in the transaction?

Please note, in many areas of the country attorneys are not normally involved in the home sale. For example, escrow agents or escrow companies in western states handle the paperwork to transfer title without any attorney involvement.

Terms of the Agreement of Sale

Here are some important points to consider before you sign an agreement of sale. The real estate agent probably will give you a preprinted form of agreement of sale. You may make changes or additions to the form agreement, but the seller must agree to every change you make. You should also agree with the seller on when you will move in and what appliances and personal property will be sold with the home. 

Sales Price. For most home purchasers, the sales price is the most important term. Recognize that other non-monetary terms of the agreement are also important.

Title. "Title" refers to the legal ownership of your new home. The seller should provide title, free and clear of all claims by others against your new home. Claims by others against your new home are sometimes known as "liens" or "encumbrances."

Mortgage Clause. The agreement of sale should provide that your deposit will be refunded if the sale has to be canceled because you are unable to get a mortgage loan. For example, your agreement of sale could allow the purchase to be canceled if you cannot obtain mortgage financing at prevailing interest rates.

Pests. Your lender may require a certificate from a qualified inspector stating that the home is free from termites and other pests and pest damage. You may want to reserve the right to cancel the agreement or seek immediate treatment and repairs by the seller if pest damage is found.

Home Inspection. It is a good idea to have the home inspected. An inspection should determine the condition of the plumbing, heating, cooling and electrical systems. The structure should also be examined to assure it is sound and to determine the condition of the roof, siding, windows and doors. The lot should be graded away from the house so that water does not drain toward the house and into the basement.

Most buyers prefer to pay for these inspections so that the inspector is working for them, not the seller. You may wish to include in your agreement of sale the right to cancel, if you are not satisfied with the inspection results. In that case, you may want to re-negotiate for a lower sale price or require the seller to make repairs.

Lead-Based Paint Hazards in Housing Built Before 1978. If you buy a home built before 1978, you have certain rights concerning lead-based paint and lead poisoning hazards. The seller or sales agent must give you the EPA pamphlet "Protect Your Family From Lead in Your Home" or other EPA-approved lead hazard information. The seller or sales agent must tell you what the seller actually knows about the home's lead-based paint or lead-based paint hazards and give you any relevant records or reports.

You may have as long as ten days to do an inspection or risk assessment for lead-based paint or lead-based paint hazards. However, to have the right to cancel the sale based on the results of an inspection or risk assessment, you will need to negotiate this condition with the seller.

Finally, the seller must attach a disclosure forms the agreement of sale which will include a Property Disclosure form, a Lead Warning Statement (if the property is built before 1978), a Radon disclosure form (new in 2008 in some states) and in many cases a Mold Disclosure as well. The buyers, the sellers, and the sales agents will sign an acknowledgment that any of these applicable notification requirements have been satisfied.

Other Environmental Concerns. Your city or state may have laws requiring buyers or sellers to test for environmental hazards such as leaking underground oil tanks, the presence of radon or asbestos, lead water pipes, and other such hazards, and to take the steps to clean-up any such hazards. You may negotiate who will pay for the costs of any required testing and/or clean-up.

Sharing of Expenses. You need to agree with the seller about how expenses related to the property such as taxes, water and sewer charges, condominium fees, and utility bills, are to be divided on the date of settlement. Unless you agree otherwise, you should only be responsible for the portion of these expenses owed after the date of sale.

Settlement Agent/Escrow Agent. Depending on local practices, you may have an option to select the settlement agent or escrow agent or company. For states where an escrow agent or company will handle the settlement, the buyer, seller and lender will provide instructions.

Pull a credit report on yourself and make sure the information is accurate. If you find any errors take steps to correct them immediately.

Get pre-approved at a lending institution of your choosing or I can recommend a few highly qualified lenders that I currently work with. The pre-approval is crucial, letting me know exactly how much home you can afford. Also, having the pre-approval makes any offers I present for you that much stronger, giving you a strong advantage. And most sellers require it now anyway.

Browse through property listings on Wonderful-Homes.com. This will give you a good feel for the types of homes that are on the market and what they cost.

Start saving money - you'll need to have cash on hand for a down payment and closing costs. Save what you can so you are better prepared for most anything.

Don't incur any additional debt. Pay down your credit cards - and don't apply for any new ones. Don't make any major purchases on credit - buy the furniture or car later.

Avoiding Financial Stress

By asking the right questions, and knowing exactly what your needs are, you can find the right loan for your needs. There are certain approaches that you can take while mortgage shopping that can cost or save you money.

It is still true that the better qualifications you have, the lower your interest rate will be. However, there are mortgages available for almost everyone; it's the interest rates or the down payments that vary.

Before speaking with a lender, know what monthly dollar amount you feel comfortable committing to. Then when you discuss mortgage pre-approval with your lender, it is easier for you to determine the monthly amount and what value of home the monthly amount translates into. Do not put yourself in the position where you will be paying more each month than you intended simply because the "dream" house requires it.

Do your research on the types of mortgages available to you and find the one that best suits your needs. There are a number of considerations to be made in terms of finding the best mortgage for each individual:

What type of market are you in?

Are the interest rates falling or rising?

Do you want a fixed mortgage rate, where you will always know what your payment is going to be?

What are your long-term goals? Do you intend to resell the property? Do you only need the mortgage for a short time?

Importance of Inspection

As a buyer, you are entitled to know exactly what you are getting. Don't take for granted what you see and what the seller or the listing agent tells you. A professional home inspection is something you MUST do, whether you are buying an existing home or a new one. An inspection is an opportunity to have an expert look closely at the property you are considering purchasing and getting both an oral and written opinion as to its condition.

Beforehand, make sure the report will be done by a professional organization, such as a local trade organization or a national trade organization such as ASHI (American Society of Home Inspection). Not only should you never skip an inspection, but also you should go along with the inspector during inspection. This gives you a chance to ask questions about the property and get answers that are not biased. In addition, the oral comments are typically more revealing and detailed than what you will find on the written report. Once the inspection is complete, review the inspection report carefully.

You have to demand an inspection when you present your offer. It must be written in as a contingency; if you do not approve the inspection report, then you don't buy. Most real estate contracts automatically provide an inspection contingency.

Hot, Normal, and Cold Markets

Hot Market

This is an extremely competitive market, one that is advantageous to the seller. Sometimes, homes will sell as soon as they are listed or even before homes are listed. Typically, during a hot market, multiple offers will be made on each home and more often than not, homes will sell for more than their asking price. It is even more crucial to be prepared and to be ready as a buyer when the market is hot. It can be easy to get caught up in the bid for a home, but if you are prepared (pre-approved, solid in price range, realistic about your needs), it is easier to remain focused on your housing needs and price range.

Normal Market

In a normal market, there is fairly a large number of homes available and an average number of buyers. This market does not necessarily favor the buyer or the seller. A seller may not have as many offers on their home, but he or she may not be desperate to sell either. Again, it is the buyer's responsibility to be prepared. During a normal market, the chances to negotiate are higher than in a hot market. As a buyer, you can expect to make offers at lower than the asking price and negotiate a price at least somewhat less than what the sellers are asking.

Cold Market

In a cold market, houses may be listed for more than a year and the prices of houses listed may drop considerably. This market is advantageous to the buyer. As a buyer, you have the time to make an offer that works to your best interest. It is not uncommon to low-ball and to find that sellers are accommodating to meet your needs. Keep in mind that even though this market is a great time for buyers, you do not want to lose your dream home by being unrealistic. Your goal is to get the your dream home at the best possible price.

Build a Plan of Action and Get Ready

Buying a home will probably rank as one of the biggest personal investments one can make. Being organized and in control will contribute significantly to getting the best home deal possible with the least amount of stress. Is important to anticipate the steps required to successfully achieve your housing goal and to build a plan of action that gets you there.

Before you can build a plan of action, take the time to lay the groundwork for your decision-making process.

First, ask yourself how much can you afford to pay for a home. If you're not sure on the price range, find a lender and get pre-approved. Pre-approval will let you know how much you can afford so that you can look for homes in your price range. Getting pre-approved helps you to alleviate some of the anxieties that come with home buying. You know exactly what you qualify for and at what rate, you know how large your monthly mortgage payments will be, and you know how much you will have for a down payment. Once you are pre-approved, you avoid the frustration of finding homes that you think are perfect, but are not in your price range.

Second, ask yourself where you want to live and what is the best location for you and/or your family. Things to consider include: convenience for all family members, proximity to work or school, crime rate of the neighborhood, local transportation, types of homes in the neighborhood, for example condos, townhomes, co-ops, newly constructed homes etc.

Finding the Right Seller

The best seller is one who is highly motivated. A highly motivated seller is more likely to sell for less than his or her house is worth. And it matters that you find out why; learning the reason why can help you get the price you want and help the seller get what they want: a timely sale.

When given the opportunity to meet with sellers, ask them why they are selling. The reasons could be anything from job change to a new location to financial problems. If you can solve their problem, whether it is cash related or time related, do so. For example, if the sellers are highly motivated because they need to move quickly, give them a fast sale - and a lower price. If you can make an offer, even a low one, that gives them cash in a short time, they are more likely to accept.

There are also some sellers that you should avoid. Not every seller is as genuinely motivated as they make themselves to be. Some possible hints:

they stall on having the home appraised or inspected, are unable to clear up liens against their property, does not own 100% of their property, they push back the move-out date, do not have a replacement property or back up plan, etc.
It is impossible to find the perfect seller. But it is possible to find out which sellers are legitimate, and which ones aren't.

Getting a Lender and Getting Pre-Approved

It used to be that buyers could go house shopping and when they have found their dream home, then they go to get pre-approved. However, in today's market, that has proven to be one of the least effective methods in landing the dream home.

Most lenders can pre-qualify you for a mortgage over the phone. Based on general questions about your income, debt, assets, and credit history, lenders can estimate how much mortgage you qualify for. However, being pre-qualified and pre-approved are different things. Pre-approval means that you have applied for a mortgage; you have filled out the mortgage application, received your credit report, and verified your employment, assets, etc. When you are pre-approved, you know exactly what the maximum loan amount will be.

A pre-qualified letter is not verified and in essence, does not count for much if you are competing with other buyers who are pre-approved. When you are pre-approved, you and the seller know exactly how much house you can afford. It gives you credibility as an interested buyer and lets the seller know immediately that you will qualify for a loan to buy their property.

In addition to being pre-approved, it's important to do so with a legitimate lender. Legitimate lenders include: banks, mortgage bankers, credit unions, savings and loan associations, mortgage brokers, and online lenders.

Some lenders to avoid: those who lose a form or misplace a file, those who gather information from you in an unorganized manner, those who are not informed about interest rates, points or costs, and those who cannot provide you with the right information.

Why You Should Not Make Any Major Credit Purchases

Don't go on a spending spree using credit if you are thinking about buying a home, or in the process of buying a new home. Your mortgage pre-approval is subject to a final evaluation of your financial situation. Every $100 you pay per month on a credit payment could cost your about $10,000 in home eligibility. For example, a car payment of $300/month could mean that you qualify for $30,000 less in a mortgage. Even if you have accumulated enough savings, you should considering not making any large purchases until after closing. The last thing you want is to know that you could have purchase a new home had you curbed the urge to spend.

 

Pre-Closing Checklist Choose a lawyer and send him/her the signed purchase offer as soon as possible. Review the fees, disbursements, anticipated adjustments, property transfer tax, mortgage deductions and other closing costs. Talk to your attorney about how you plan to be registered on title.   Satisfy any outstanding conditions, such as financing or a home inspection, within the time frame set by the offer. Be sure you fully understand how to keep the contract alive, and how to cancel it if the conditions can't be satisfied.   Once your mortgage application has been approved, make sure you receive a mortgage commitment and send a copy to your attorney.   Any tenants must either cancel their leases or sublease their current premises, if permitted. How much prior written notice is needed will vary, so check it out with your lawyer.   Arrange insurance coverage to take effect on closing. Be sure the insurance agent provides your lawyer with written confirmation before closing, showing the name of the insuring company, the amount of coverage, its expiration date and the name of any lenders in the loss payable clause. Coverage should be for the full insurable value of the building only (not the land), on a replacement cost basis.   Contact the water, electric and gas departments to have the meters read on closing, new accounts set up in your name and final bills sent to the seller. Many buyers do a "double-check" a few days before closing, just to be sure. Contacting the telephone and cable TV companies is also your responsibility.   Plan to meet your lawyer a day or two before closing to review and sign all closing documents. Don't wait for the actual closing date, when so many other things must be done. At that time you should deliver the money needed for closing, in certified funds, payable to your lawyer in trust. Be sure to get information about any payments due right after closing - the mortgage, property taxes or condominium maintenance.

Post-Closing Checklist You've just closed your house purchase--now what? Of course, there's the packing, unpacking and decorating. This checklist will help you stay on track. Determine your moving needs, including: Movers or a van (donate items you will not take with you in the move prior to obtaining an estimate) Boxes (include a variety of sizes and divided containers for glassware) Packing paper, tape and markers to identify boxes Consider moving special breakables yourself, if possible Have paper towel, bathroom tissue, plastic cups and other necessities available for use on moving day Measure doors, hallways and stairways prior to moving day to be sure they will accommodate your possessions Save your receipts - you may be able to deduct some moving expenses Get the names and addresses, payment dates, account numbers and amounts you have to pay for your mortgage, taxes, condo maintenance and utility charges. Create your change of address notification list, including: The post office Employers Doctor and dentist offices Benefit providers Magazine subscriptions Auto and home insurance Change your driver's license and your registration information with the Department of Motor Vehicles. Failing to do so could incur a fine. Get to know your neighborhood: the closest grocery stores, pharmacies, police and fire stations, hospital. Ask a REALTOR ® or loan officer for recommendations for veterinarians and other professionals. Call your local government office to identify garbage and recycling days. Change the locks, or at least the tumblers, on all doors. Consider upgrading the locks to deadbolts for greater home security.