Buying A Home: What To Expect
We will go through several steps together while finding and purchasing your home. For many of these we simply inform you that the task has been completed for you; however, others may require some work from you. We inform you about every aspect of the transaction and remind you when there are tasks that you should be working to complete. Below, many of those tasks are explained.
TASK: Secure Financing
TIME FRAME: Before We Begin Looking
The first step in buying a home is to obtain loan pre-approval. This provides you with the information you need to determine how much home you can afford and what type of monthly payment you are comfortable with. In addition, many sellers do not consider offers from buyers who are not pre-approved. We work with several lenders who have proven to offer exceptional customer service and competitive interest rates. Your agent will be happy to help you in referring lenders that will be right for you.
Three elements are crucial to the purchase of a home: the down payment, closing costs, and qualifying for a mortgage. On the next page, you’ll find a quick rundown of what you need to know.
Conventional lenders typically require a 5%-20% down payment, although you may be able to find loans with no down payments. With down payments less than 20%, you will likely have to pay private mortgage insurance, which guarantees the lender will be repaid in case of default.
Mortgages insured by the Federal Housing Administration (FHA) and those available to U.S. veterans often require very low (or no) down payments. Ask your lender if you can qualify for one of these loans.
If you have trouble coming up with the down payment, there are some tips to ease the burden:
Start early. Begin saving for a down payment as soon as possible. After a few years, it adds up.
Ask for a FHA Mortgage, underwritten by Fannie Mae. It only requires 3.5% down provided that you have acceptable credit.
Convert stocks. Consider selling stock for the down payment. The housing market is often a better investment.
Sell an asset. If you have “toys” such as a boat, extra car, or other asset, consider selling it for the down payment.
Borrow from relatives. Today lenders will allow you to use money from relatives as the down payment if it is provided as a gift. Check with your lender for restrictions.
No matter what home you buy, there will be closing costs. These can include discount points, title insurance, escrow fees, attorney fees, a termite report, recording fees, appraisal fees, document preparation fees, notary fees, and loan underwriting fees. Usually, these are due in cash, but sometimes they can be rolled into the mortgage.
Primarily, your income plus the interest rate secured, determines the size of the mortgage for which you qualify. The higher the interest rate, the higher the monthly payment. The higher the monthly payment, the more income you need to qualify for the mortgage. For conventional financing, lenders generally limit the monthly payment to 28% of your gross monthly income. Exceptions can be made depending on individual circumstances. The amount of debt you currently have may also factor in the decision.
Contacting a lender before you start looking for a home is imperative. This head start gives you a chance to resolve any problems that may arise without the pressure of contract deadlines. You can also get pre-approved for a loan, which puts you in a strong position if you make an offer on a house that receives offers from other buyers.
TIME FRAME: At Acceptance of Offer
Upon acceptance of your offer, you will arrange for an inspection of the property. This needs to be completed during the option period so that if something is discovered during the inspection (that you cannot live with and the seller is not willing to fix), you may cancel the contract and only forfeit your Option Fee.
The inspection will take two to four hours and you will only need to be present for the last half-hour when the inspector reviews the findings with you. All homes will likely have a long list of minor repairs. However, we are mainly looking for major mechanical or structural defects to the property. The cost of the inspection varies based on the size and features of the home and will range from $300 to $500. This payment is due at the time of the inspection.
TASK: Prepare Amendment
TIME FRAME: Immediately Following Inspection
After the Inspection, we will complete an amendment to the contract. This amendment will include any items that were discovered during the inspection that you would like the seller to repair for you. We will negotiate on your behalf with the seller for the repairs you want completed or monies in lieu of repairs. Once an agreement on repairs to be completed has been reached, you will forfeit your right to the Option.
TASK: Obtain Homeowner’s Insurance
TIME FRAME: During Option Period
In order to close on your new home, you need to arrange for Homeowner’s Hazard Insurance. You will need to notify your lender of the insurance company you choose, a contact name, and a phone number. You may receive a discount by having your car insurance and homeowner’s insurance with the same company, so check with your current insurance agent as well. We recommend that you obtain at least two estimates from different agents and then make a decision. Your agent can request a claims report on a CLUE which will list any insurance claims in the last 5-7 years.
TASK: Transfer Utilities/Schedule Services
TIME FRAME: 2 Weeks Prior to Closing
You will need to transfer the utilities to your name before moving into your new home. In order to save money on hook-up fees, call ahead and ask the utility companies to transfer the billing to your name upon cancellation by the seller. In the enclosed service provider list you will find most utility information for Austin and surrounding areas. If you need further information, please call us; we are here to help you.
TASK: Funds Available in the Bank/Ensure Loan Quality
TIME FRAME: 72 Hours Prior to Closing
Obtaining pre-approval for a home loan is just the first step in funding your loan at closing. Many times buyers plan to use monies from stocks or 401(k) retirement plans as down payment on their new home. If you plan to liquidate stocks or 401(k) to supplement your down payment, the money from the sale of these funds must be available in the form of cash in your bank account at least 72 hours prior to closing. Because a withdrawal from a 401(k) can be a complicated and time-consuming process, we advise you to begin the withdrawal of these funds immediately.
On average, one out of five home mortgage loans goes through a quality control check. The lender does this to ensure that the borrower’s financial status has had no change since the approval of the loan was granted. No matter how good your financial situation, lenders strongly advise against changing your financial status from the date of your loan approval. This includes, but is not limited to, applying for new credit, gaining new credit, purchasing appliances, furniture, cars, changing jobs or quitting your job. An appropriate time to make any of the above financial changes would be after the closing and funding of your new home. If you have any questions about your purchase decisions while you are waiting to close on your new home, please consult your mortgage lender for advice.
TASK: Closing Disclosure
TIME FRAME: One Day Prior to Closing
3 days prior to closing the lender will complete the closing disclosure settlement statement. This is the document that tells us how much money you will need to bring to closing. We will call you with this amount and to tell you the location of the closing. You will then wire the funds to the title company in the correct amount. Bring a personal check (in case of minor accounting mistakes) along with your driver’s license to closing.
TIME FRAME: Day of Closing
You will receive keys to your new home from the seller when the loan funds. Most sellers may require that funding go through before you may take possession. Funding usually happens by the end of the business day. The closing will take approximately one hour.