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Dennis Toomey

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10 Steps to Home Ownership: Systematic Steps to Help You Buy Your Home

 

1. Are You Ready?


Knowledge and experience are the keys to successful real estate transactions.
REALTOR.com ® contains an enormous amount of valuable information, and such data
-- combined with the expertise, experience and training of local REALTORS -- can be
the essential keys to your success.
One of the keys to making the homebuying process easier and more understandable
is planning. In doing so, you'll be able to anticipate requests from lenders, lawyers and
a host of other professionals. Furthermore, planning will help you discover valuable
shortcuts in the homebuying process.

Do You Know What You Want?
Whether you are a first-time homebuyer or entering the marketplace as a repeat
buyer, you need to ask why you want to buy. Are you planning to move to a new
community due to a lifestyle change or is buying an option and not a requirement?
What would you like in terms of real estate that you do not now have? Do you have a
purchasing timeframe?
Whatever your answers, the more you know about the real estate marketplace, the
more likely you are to effectively define your goals. As an interesting exercise, it can be
worthwhile to look at the questions above and to then discuss them in detail when
meeting with local REALTORS?.

Do You Have The Money?
Homes and financing are closely intertwined. (Financing is the difference between the
purchase price and the downpayment, commonly referred to as debt or the
mortgage.) The good news is that over the years new and innovative loan programs
have evolved which require a 5 percent downpayment or less. In fact, a number of
programs now allow purchasers to buy real estate with nothing down.
In addition to a down payment, purchasers also need cash for closing costs (the final
costs associated with closing the loan). Several newly emerging loan programs not
only allow the purchase of a home with no money down, but also underwrite closing
costs.
Not everyone, however, elects to purchase with little or no money down. Less money
down means higher monthly mortgage payments, so most homebuyers choose to buy
with some cash up front.
As to closing costs, in markets where buyers have leverage, it may be possible to
negotiate an offer for a home that requires the owner to pay some or all of your
settlement expenses. Speak with local REALTORS ® for details.

Is Your Financial House in Order?
Those great loans with little or nothing down are not available to everyone: You need
good credit. For at least one year prior to purchasing a home, you should assure that
every credit card bill, rent check, car payment and other debt is paid in full and on
time.

2. Get a Realtor


More than 2 million people in the United States have earned real estate licenses.
However, real estate is a tough business with a steep dropout rate, and the result is
that only a small percentage of those with licenses actively help buyers and sellers.
The National Association of REALTORS® (NAR) includes 750,000 brokers and
salespeople, individuals bound together with a strong Code of Ethics, extensive
training opportunities and a wealth of community information. NAR members are
routinely active in PTAs, local government committees and a variety of neighborhood
organizations. Being actively involved in community affairs provides REALTORS® with a
better understanding of the area in which they are selling.

Why?
Buying and selling real estate is a complex matter. At first it might seem that by
checking local picture books or online sites you could quickly find the right home at
the right price.
But a basic rule in real estate is that all properties are unique. No two properties -- even
two identical models on the same street -- are precisely and exactly alike. Homes differ
and so do contract terms, financing options, inspection requirements and closing
costs. Also, no two transactions are alike.
In this maze of forms, financing, inspections, marketing, pricing and negotiating, it
makes sense to work with professionals who know the community and much more.
Those professionals are the local REALTORS® who serve your area.

How do you choose?
In every community you're likely to find a number of realty brokerages. Because there
is heated competition, local REALTORS® must fight hard to succeed in your
community.
The best place to find a local REALTOR® is from REALTOR.com's® extensive listing of
community professionals and properties. Other sources include open houses, local
advertising, Web sites, referrals from other REALTORS®, recommendations from
neighbors and suggestions from lenders, attorneys, financial planners and CPAs. The
experiences and recommendations of past clients can be invaluable.
In many cases buyers will interview several REALTORS® before selecting one
professional with whom to work. These interviews represent a good opportunity to
consider such issues as training, experience, representation and professional
certifications.

What should you expect? (Working with a REALTOR®)
Once you select a REALTOR® you will want to establish a proper business relationship.
You likely know that some REALTORS® represent sellers while others represent buyers.
Each REALTOR® will explain the options available, describe how he or she typically
works with individuals and provide you with complete agency disclosures (the ins and
outs of your relationship with the agent) as required in your state.
Once hired for the job, the REALTOR® will provide you with information detailing
current market conditions, financing options and negotiating issues that might apply to
a given situation. Remember: Because market conditions can change and the
strategies that apply in one negotiation may be inappropriate in another, this
information should not be set in stone. During your time in the marketplace REALTORS
will keep you updated and alert you to each step in the transaction process.

3. Get Loan Approval


Few people can buy a home for cash. According to the National Association of
REALTORS® (NAR), nearly nine out of 10 buyers in 1999 financed their purchase, which
means that virtually all buyers -- especially first-time purchasers -- required a loan.
The real issue with real estate financing is not getting a loan (virtually anyone willing to
pay lofty interest rates can find a mortgage). Instead, the idea is to get the loan that's
right for you -- the mortgage with the lowest cost and best terms.
REALTORS® routinely suggest that consumers start the mortgage process well before
bidding on a home. Many lenders (the sources of money) and programs, for example,
are available right here in the finance section of Homestore.com as well as through
recommendations from local REALTORS®. By meeting with lenders -- either online or
face to face -- and looking at loan options, you will find which programs best meet
your needs and how much you can afford.
REALTORS® also recommend preapprovals for another reason: Purchase forms often
require buyers to apply for financing within a given time period, in many cases, seven
to 10 days. By meeting with loan officers in advance and identifying mortgage
programs, it won't be necessary to quickly find a lender, check credit, and rush into a
financing decision that may not be the best option.

What is it?
"Preapproval" means you have met with a loan officer, your credit files have been
reviewed and the loan officer believes you can readily qualify for a given loan
amount with one or more specific mortgage programs. Based on this information, the
lender will provide a preapproval letter, which shows your borrowing power. You can
visit as many lenders as you like and get several preapprovals, but keep in mind that
each one carries with it a new credit check, which will show up on future credit
reports.
Although not a final loan commitment, the preapproval letter can be shown to listing
brokers when bidding on a home. It demonstrates your financial strength and shows
that you have the ability to go through with a purchase. This information is important to
owners since they do not want to accept an offer that is likely to fail because
financing cannot be obtained.

How do you get preapproval?
Real estate financing is available from numerous sources, including lenders here in the
finance section of Homestore.com, mortgage companies that have worked with local
REALTORS® and in some cases, individual REALTORS® themselves. Based on his or her
experience, the REALTOR® may suggest one or more lenders with a history of offering
competitive programs and delivering promised rates and terms.
The loan officer will carefully review your financial situation, including your credit report
and other information. The lender will then suggest programs which most-closely meet
your needs. For instance, a first-time buyer may qualify for state-backed mortgage
programs with little money down and low interest rates, while a repeat purchaser
(someone who has bought a home before) with more equity (money invested in the
home) might want to get a 15-year loan and the lower overall interest costs it
represents. Typically, first-time buyers opt for the traditional 30-year loan, with either a
floating interest rate or a fixed rate of interest over the life of the loan.

4. Look at Homes


Some 6 million new and existing homes are sold each year. There's no shortage of
housing options, but with so many choices the challenge becomes finding the
property which best meets your needs.
The housing market is complicated because the stock of homes for sale is always in
flux. If it were possible to have a complete list of every home for sale at this very
moment in a given community, such a list would become obsolete within seconds as
new homes become available and properties now for sale are put under contract.
In effect, buyers are looking at a moving target in a marketplace that is never static.
Because of this, it is important to know as much as possible about the choices in
preferred markets, and the way to do that is by working closely with a local REALTOR®
who has a good "lay of the land."

What are you looking for?
A home is more than just a collection of bedrooms and bathrooms. Several properties
-- each with four bedrooms, three baths, and the same price -- may well represent
radically different designs, commuting distances, lot sizes, tax costs, interior dimensions,
and exterior finishes.
Each of us is different and so it's important to list the features and benefits you want in
a home. Consider such things as pricing, location, size, amenities (extras such as a pool
or extra-large kitchen) and design (one floor or two, colonial or modern, etc.).
Next, it's important to consider your priorities. If you can't get a home at your price with
all the features you want, then what features are most important? For instance, would
you trade fewer bedrooms for a larger kitchen? A longer commute for a bigger lot
and lower cost?
Lastly, consider your needs in several years. If you'll need a larger home, maybe now is
the time to buy a bigger house rather than moving or expanding in the future. If you
expect your income to increase, perhaps you should consider a more expensive home
financed with a loan program where monthly payments increase in the future.

Where should you look?
All neighborhoods and communities have a special nature that gives them identity
and value. One community may be well known for historic homes while another offers
both suburban living as well as easy access to downtown office areas.
REALTOR.com® offers about 1.4 million homes online. By any standard, it's the largest
source for property information online or off. You can look at homes to contact listing
brokers, and you can also search REALTOR.com® to find brokers who offer buyer
representation services.

How do you find a house?
Some buyers like to search REALTOR.com® by looking at listings on the basis of location
or price; others prefer to have local REALTORS® suggest properties; and many buyers
prefer both approaches.
Regardless of your choice, it's important to target your search. By using basic measures
such as general location and affordability, you can refine your search and focus on
homes that offer the most desirable features.
As a guide, you should maintain a file with information on each of the homes you like.
You can print out listing pages from REALTOR.com® and then make notes for each
one -- what you like, questions, REALTOR® contact data, etc.

5. Choose a Home


There's no doubt that choosing a home is a big decision and you want to do it right.
As a buyer, here's what actually happens. A home has been placed on the market for
which the seller has established an asking price as well as other terms. In effect, this is
an offer. At this point, you have three choices: accept the seller's offer and create a
contract; reject it and not make an offer; or suggest different terms and make a
counter-offer. If you choose this last option, the seller may accept, reject or make a
counter-offer.
No aspect of the homebuying process is more complex, personal or variable than
bargaining between buyers and sellers. This is the point where the value of an
experienced REALTOR? is clearly evident because he or she knows the community,
has seen numerous homes for sale, knows local values and has spent years
negotiating realty transactions.

Is it THE house?
A house is shelter, but a home is far more. It's where you live, relax, entertain friends,
raise families, and work. A home is where you spend much of your life, and so
choosing a house is an enormous decision.
How do you know if a house is THE one? Probably the best approach is to look at as
many homes as possible, something made easy by Realtor.com, where you can
quickly and easily view huge numbers of homes, check prices, take video tours and
view extensive neighborhood information. Once your choices have been narrowed,
you can then contact a local REALTOR? to find specific information and options.

Can you really afford it?
Remember Step 2 - the preapproval process? Getting preapproved means you have
a very good idea of how much you can borrow, what loan programs will most likely
work best in your situation and how much home you can afford.
How reliable is a preapproval? While preapproval is not a loan commitment, it's still
necessary for lenders to check such items as appraisals and the latest credit reports.
Despite fluctuating interest rates, preapproval nonetheless provides a reasoned,
careful analysis of what you can afford. After all, loan officers are routinely paid only
when loans are originated. It doesn't make much sense for loan officers to suggest
high loan limits that later can't be delivered.

6. Get Funding


Often the cost of real estate financing is routinely greater than the original purchase
price of a home (after including interest and closing costs). Because financing is so
important, buyers should have as much information as possible regarding mortgage
options and costs.
Homestore® provides consumers with extensive mortgage information as well as a
variety of loan calculators. Local REALTORS? can provide mortgage information,
discuss financing options and recommend loan sources. In addition, some REALTORS®
also originate loans.

What kind of loan?
There are thousands of loans available out there from a variety of lenders, but in
general, the mortgage you choose will likely be determined by at least several key
factors:
>> How much down? Loans with 5 percent down or less are now widely available --
in fact, loans from major lenders with no money down have appeared in recent
years. If you place less than 20 percent down, lenders will want the mortgage
guaranteed by an outside third party such as the Veterans Administration (VA),
the Federal Housing Administration (FHA) or a private mortgage insurer (PMI, or
private mortgage insurance, is required by lender to protect against any
mortgage defaults). More than 2.5 million VA, FHA and PMI loans are generated
each year.
>> How's your credit? The best rates and terms are only available to those with solid
credit. To get the best loans, make a point of paying credit cards, installment
payments, rent and mortgage bills in full and on time.
>> Are you a first-time buyer? It might seem that "first-time buyer" means someone
who has never owned property before, but under most state programs, the term
refers to those who have not owned property within the past three years. Statebacked
first-timer programs often feature smaller downpayments and belowmarket
interest rates. For details, speak with your local REALTOR®.

How do you get a loan?
To obtain a loan you must complete a written loan application and provide
supporting documentation. Specific documents include recent pay stubs, rental
checks and tax returns for the past two or three years if you are self-employed. During
the prequalification procedure, the loan officer will describe the type of paperwork
required.

Where do you get a loan?
Mortgage financing can be obtained from mortgage bankers, mortgage brokers,
savings and loan associations, mutual savings banks, commercial banks, credit unions,
and insurance companies. A growing number of REALTORS® can also arrange
financing.

7. Make an Offer


REALTOR® groups, working with legal counsel, have developed forms that are
appropriate for realty transactions in specific communities. Such documents include
numerous sale conditions and their wording should be carefully reviewed to assure
that they reflect the terms you want to offer. REALTORS® can explain the general
contracting process in your community as well as his or her role.
While much attention is spent on offering prices, a proposal to buy includes both the
price and terms. In some cases, terms can represent thousands of dollars in additional
value for buyers -- or additional costs. Terms are extremely important and should be
carefully reviewed.

How much?
You sometimes hear that the amount of your offer should be x percent below the
seller's asking price or y percent less than you're really willing to pay. In practice, the
offer depends on the basic laws of supply and demand: If many buyers are
competing for homes, then sellers will likely get full-price offers and sometimes even
more. If demand is weak, then offers below the asking price may be in order.

How do you make an offer?
The process of making offers varies around the country. In a typical situation, you will
complete an offer that the REALTOR® will present to the owner and the owner's
representative. The owner, in turn, may accept the offer, reject it or make a counteroffer.
Because counter-offers are common (any change in an offer can be considered a
"counter-offer"), it's important for buyers to remain in close contact with REALTORS®
during the negotiation process so that any proposed changes can be quickly
reviewed.

How many inspections?
A number of inspections are common in residential realty transactions. They include
checks for termites, surveys to determine boundaries, appraisals to determine value for
lenders, title reviews and structural inspections.
Structural inspections are particularly important. During these examinations, an
inspector comes to the property to determine if there are material physical defects
and whether expensive repairs and replacements are likely to be required in the next
few years. Such inspections for a single-family home often require two or three hours,
and buyers should attend. This is an opportunity to examine the property's mechanics
and structure, ask questions and learn far more about the property than is possible
with an informal walk-through

8. Get Insurance


No one would drive a car without insurance, so it figures that no homeowner should
be without insurance.
The essential idea behind various forms of real estate insurance is to protect owners in
the event of catastrophe. If something goes wrong, insurance can be the bargain of a
lifetime.

What kind and how much?
There are various forms of insurance associated with home ownership, including these
major types:
Title insurance: Purchased with a one-time fee at closing, title insurance protects
owners in the event that title to the property is found to be invalid. Coverage includes
"lenders" policies, which protect buyers up to the mortgage value of the property, and
"owners" coverage, which protects owners up to the purchase price. In other words,
"owners" coverage protects both the mortgage amount and the value of the down
payment.
Homeowners' insurance provides fire, theft and liability coverage. Homeowners'
policies are required by lenders and often cover a surprising number of items,
including in some cases such property as wedding rings, furniture and home office
equipment.
Flood insurance: Generally required in high-risk flood-prone areas, this insurance is
issued by the federal government and provides as much as $250,000 in coverage for a
single-family home plus $100,000 for contents. Local REALTORS? can explain which
locations require such coverage.
Home warranties With new homes, buyers want assurance that if something goes
wrong after completion the builder will be there to make repairs. But what if the builder
refuses to do the work or goes out of business?
Home warranties bought from third parties by home builders are generally designed to
provide several forms of protection: workmanship for the first year, mechanical
problems such as plumbing and wiring for the first two years, and structural defects for
up to 10 years.
Home warranties for existing homes are typically one-year service agreements
purchased by sellers. In the event of a covered defect or breakdown, the warranty
firm will step in and make the repair or cover its cost.
Insurance policies and warranties have limitations and individual programs have
different levels of coverage, deductibles and costs. For details, speak with REALTORS®,
insurance brokers and home builders.
Where to look.
REALTORS® often provide home insurance and such policies are also available from
insurance brokers.

How do you get insurance?
The time to obtain insurance and warranty coverage is at closing, so speak with a
REALTOR? or insurance broker prior to closing. Be sure to ask about limitations, costs,
deductibles and "endorsements" (additional forms of coverage that may be
available).

9. Closing


Go to any local courthouse and you can find property records detailing real estate
ownership in your community -- sometimes records that date back hundreds of years.
These records are important because they provide today's owners with proof that they
have good, marketable and insurable title to the property they are selling. Equally
important, such records enable buyers to provide proof of ownership when they sell.
The closing process, which in different parts of the country is also known as "settlement"
or "escrow," is increasingly computerized and automated. In many cases, buyers and
sellers don't need to attend a specific event; signed paperwork can be sent to the
closing agent via overnight delivery.
In practice, closings bring together a variety of parties who are part of the
"transaction" process. For example, while the history of property ownership has been
checked, it's possible that the records contain errors, unrecorded claims or flaws in the
review itself, thus title insurance is necessary. At closing, transfer taxes must be paid
and other claims must also be settled (including closing costs, legal fees and
adjustments). In most transactions, the closing agent also completes the paperwork
needed to record the loan.

What to expect.
Settlement is a brief process where all of the necessary paperwork needed to
complete the transaction is signed. Closing is typically held in an office setting,
sometimes with both buyer and seller at the same table, sometimes with each party
completing their papers separately.
Whatever the case, the result is that title to the property is transferred from seller to
buyer. The buyer receives the keys and the seller receives payment for the home. From
the amount credited to the seller, the closing agent subtracts money to pay off the
existing mortgage and other transaction costs. Deeds, loan papers, and other
documents are prepared, signed and filed with local property record offices.

What you need to do.
One of the best parts of settlement is that buyers and sellers need to do very little.
Before closing, buyers typically have a final opportunity to walk through the property
to assure that its condition has not materially changed since the sale agreement was
signed. At closing itself, all papers have been prepared by closing agents, title
companies, lenders and lawyers. This paperwork reflects the sale agreement and
allows all parties to the transaction to verify their interests. For instance, buyers get the
title to the property, lenders have their loans recorded in the public records and state
governments collect their transfer taxes.

10. What's Next


You've done it. You've looked at properties, made an offer, obtained financing and
gone to closing. The home is yours. Is there any more to the homebuying process?
Whether you're a first-time buyer or a repeat buyer, there are several more steps you'll
want to take.
Those papers you received at settlement are extremely valuable, so hold on to them!
In the short-term they can help establish tax deductions for the year in which the
property was purchased. In the future, such papers will be important for tax purposes
when the property is sold, and in some cases, for calculating estate taxes.
Also at closing, determine the status of the utilities required by the home, items such as
water, sewage, gas, electric and oil service. You want utility bills to be paid in full by
owners as of closing and you also want services transferred to your name for billing.
Usually such transfers can be done without turning off utilities. REALTORS? can provide
contact numbers and related information.
About two weeks after closing, contact your local property records office and confirm
that your deed has been officially recorded. Such records are public notices that show
your interest in the property.

Moving in
It is generally understood that sellers will leave homes "broom clean" when moving out.
This expression does not mean "vacuumed" or "spotless." Broom clean makes sense
because it means the house is ready to be painted and cleaned.
Your home, your money
For most owners a home is the largest single asset they hold, so it makes sense to
protect that asset.
Many owners make a photo or video record of the home and their possessions for
insurance purposes and then keep the records in a safety deposit box. Your insurance
provider can recommend what to photograph and how to secure it.
You want to maintain fire, theft and liability insurance. As the value of your property
increases such coverage should also rise. Again, speak with your insurance
professional for details.
Lastly, enjoy your home. Owning real estate involves contracts, loans, and taxes, but
ultimately what's most important is that homeownership should be a wonderful
experience. Enjoy!

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