HOME BUYING GUIDE
By, Lorry Williams, Realtor GRI 904-955-4904
The First step: getting pre-approved. Contact the lender(s) of your choice and ask to get pre-approved. This should take about 15 minutes on the phone. Ask them to email us a pre-approval letter and an estimated closing expense sheet. You will need to know how much you qualify for and what that would mean for you in a total monthly payment, including principle interest, taxes and insurance (PITI). To preview homes and make an offer you or your lender needs to provide your Realtor a copy of the Pre Approval letter and expense sheet. Be sure to understand how much cash to close you will need and if you are going to need assistance from the seller to cover these fees. Your lender is the best source for estimates of closing fees and cash to close. They will be happy to revise the expense sheet once you locate a home.
FHA: First time home buyers ( not purchased a home in 3 years ). Generally a 3.5% minimum down payment is required. Home must have a minimum of 3 years roof life remaining, no wood rot, no safety issues, flooring, with a stove and dishwasher installed.
PMI ( Premium Mortgage Insurance ) is for the life of the loan. May require you pay for additional inspections.
VA: Active or retired military who qualify may purchase a home with no down payment, but will incur a funding fee of approximately 3%, which will be added to the purchase price for the total loan amount. Home must have a minimum of 3 years roof life, no wood rot, no safety issues, flooring, with a stove and dishwasher installed. To do the VA$1 down you will need to ask the seller to pay pre paid insurance and tax prorations - generally 3% of the purchase price. May require you pay for additional inspections.
USDA: For homes in rural areas, (ask your Realtor for ones that qualify) 100% financed, but as with a VA loan, a funding fee of approximately 3% will be added to your purchase price to equal your total mortgage amount. Home must have 3 years roof life remaining, no wood rot, no safety issues, flooring, with stove and dishwasher installed.
Conventional: 20% down payment, lender generally more lenient on the condition of the home. With good credit and 20% down, you will be most likely to get those low interest rates you hear advertised. You may also find 5% down conventional loans and conventional renovation loans with similar guidelines.
Renovation FHA-203k (streamlined) : If you've been passing up buying homes that require cosmetic repairs for lack of funds to fix them up, FHA has a program for you. Requires additional paperwork, time to close, and may result in higher closing fees or rate. 3.5% down required. There are several other types of renovation loans available to help personalize and customize a home. Lets talk about your options.
Closing Cost Assistance: *When asking a seller to contribute towards your closing costs you are actually offer them less than offer price . Offered sale price minus closing cost assistance equal's your actual offer *
Cash Purchase: If you intend to purchase the home with cash. You will need to provide proof of funds to preview homes and make the offer. A bank statement or letter from your lenders branch manager is acceptable. You will be required to wire the funds from your lender prior to closing. Cash is not acceptable at the closing table.
Select your Realtor: Surveys show that home-buyers are not aware of the true value a REALTOR® provides during the course of a real estate transaction. Your Realtor can show you any home with any company, new construction, as well as “for sale by owner” representation. Once you find that Realtor, that is the person you should call with questions about any homes you see on-line or while driving around. If you go to an Open House or New Construction, be sure to let the agent know your agent's name. You should schedule an appointment to go over your home needs and to set up e-mail alerts for any new homes that come up under your criteria. The good ones sell quickly and at or above list price. (I know “above list price” goes against all you hear we will cover that more later). If you do not have a Realtor, you ask trusted friends or do your research on line. Items you may want to consider are: time in business, training, designations, company, and knowledge of the area you are looking to purchase a home in. Do not make any credit applications or purchases without your lenders approval, once you are pre-approved and looking for a home.
Who owns the home and what does it mean to you:
Seller owned: The owner of the home has listed the home for sale. These are a desirable type of listing when the sellers are able to take care of repairs that may be needed for your loan type. In this market you may pay a bit more for the convenience of dealing with a seller and being able to close in 30 days. Seller may be willing to contribute towards your closing costs typically not to exceed 3% of sale price, but they may require you to make a full price offer to receive this assistance.
Short Sale or Short Sale Pre-Foreclosure: This means the seller is short on funds and unable to pay off the mortgage when sold at current market value. The seller will accept an offer contingent on their lender accepting the loss and releasing lien to the home. The seller will be required to turn over financial records for review. This process will generally take 90-120 days for approval and an additional 30-60 days to close. This is not recommended if you are searching for your dream home or need to close by a certain date, as a large portion do not close unless the seller has had the sale price previously approved my their lender. You may ask for up to 3% in closing cost assistance, but many banks will not allow the assistance and will remove it before accepting your offer. The offer must also fall within a reasonable range of current appraised market value. A 90% of fair market value is a good place to start. Do not look at list price for this number, have your Realtor do a current 90 day sale estimated value report, then decide what you are willing to offer. This may be more or less than list price.
Bank owned/HUD/REO/Fannie Mae/ Freddie Mac: These homes have been foreclosed on by the lender. The lenders generally list them at current appraised value for the condition of the home. Many have a rule of not accepting less than 97% of list price, especially if it is new on the market. These can be great deals and close within 30 days of acceptance, however the banks generally accept owner occupied offers for the first 7-10 days and may choose to not accept one until this time frame has passed. If no offer is received or accepted they will then accept investor (non-owner occupant) offers. Most require a minimum $1,000 binder up to 1% of purchase price down up to 10% down. You will also have approximately $1000.00 in additional fees charged for closing fees. The seller will have no information on the homes history of repairs or maintenance. The are generally Sold AS-IS, with seller making no repairs, this may be overcome with a renovation loan.
Auction: Silent or Open Bid: When a home has been listed as a “bank-owned” property and has not sold, the bank will place it at auction. Some are “open” for the Realtor to see the current offers and a deadline is placed for bids. “Silent” means you place your best offer at or above the minimum set starting bid.. Additional fees and closing costs will apply generally 5%.-6% of purchase price.
HAP: Homeowners Assistance Program (HAP) to eligible service members and federal civilian, including non-appropriated fund, employees. The program is authorized by law, and administered by the US Army Corps of Engineers (USACE) to assist eligible homeowners who face financial loss when selling their primary residence homes in areas where real estate values have declined because of a base closure or realignment announcement. The timing is similar to a short sale, 60-90 days, as it is a short sale but the government is purchasing the home, paying off the loss, and then selling it to the new buyer. If a home is marketed as “HAP approved”, it is much more likely to close than a Short Sale that had not yet been lender approved.
BOND, SHIP & H2H: Just a few of the first time home buyers programs. It is strongly recommended you not look at short sales. These programs take an average of 60 days from an accepted contract to close. Short Sale approvals generally expire in 30 days. You would be risking Binder, Appraisal, and Inspection Fees should the sellers lender not give us an extension. H2H loans will not work if the property is tenant occupied they do not allow the displacement of a tenant for a purchase. All of these loans require the home be in good condition, with good flooring, 3 years on roof life, no wood rot, no electric or plumbing issues, and generally no cosmetic issues. If you are using these loan types I strongly suggest looking for seller owned homes in very good condition.
Seeing homes: You will schedule a time with your Realtor to see homes. Most homeowners require 24 hour notice so let your agent know which properties you want to see the 48 hours before the appointment. If you prefer for sellers to not be home try to see properties during the day weekdays. You can beat weekend shoppers to the good ones. In the past buyers saw 30 plus homes before selecting “the one”. In todays' market with internet, multiple photos and virtual tours buyers may find “the one” the first day they are out. Do not miss the right home thinking you have not shopped around. You probably previewed 100 homes on line which has given you a better understanding of what is available and what is a good deal. Things to keep in mind that may impact your ability to get a loan - roof age, flat roofs, siding condition, any obvious electrical, plumbing or pealing paint issues, pool condition, railing condition, and wood rot. At the point that you start looking at homes you will need to have proof of funds for your down payment, appraisal, credit check and all inspections. Generally this is $2000 plus your down payment & closing costs/prepaid funds required at closing. Your agent may need a bank statement showing these funds are available when making an offer along with your pre approval letter or on cash deals bank statement showing purchase price plus, inspections, down payment & closing costs.
You found your home:
Writing an offer: Your Realtor will provide you with the current sales in the area to help you determine the amount you would like to offer. The Realtor will write the offer in accordance with your loan requirements and personal preferences. Things like closing date, appliances to stay with home, repairs to be made by seller, if any, and any other contingencies you may need. If it is not attached to the home or planted in the ground it does not convey with the home unless you put it in your offer. The offer will be presented by email or in person by your agent. The seller will generally respond within 48 Hours. If bank owned, it may take 3-7 days depending on the stage of listing and strength of your offer. You will be required to make a good faith binder deposit at this time, generally $500 to 1% of purchase price. This money will be credited to you at closing. The sellers may keep your binder if you default, (do not do as required by contract and/or do not close). If your offer is contingent on loan approval and an acceptable inspections, and neither occur, you should get your good faith binder money back.
Highest and Best: This is when there are multiple offers on a home. You must submit your Highest and Best offer within 24 hours or by deadline indicated by listing agent. This is a “sealed” bid. No one will know what the other offers are and you will not generally be given an opportunity to change your bid. The sellers will generally accept one of the current offers. This may take up to 3 days.
You have an accepted offer: Your Realtor will guide you on timing, but the following are the general items to be taken care of :
Binder- Generally due upon contract acceptance payable to the closing agency by certified check or wire transfer. Generally a minimum of $500. Or 1% of the purchase price up to 10% of the purchase price. The binder will not accrue interest, the binder will be forfeited if you fail to meet your contractual obligations. The binder will be credited back to you on the closing HUD1 (financial break down document). If inspections are unacceptable and completed with in contractual guidelines you should receive your binder back should you choose to terminate the contract .
Loan Application - You must make loan application with your lender with in 5 days. You must provide all documents they request in a timely manor. There will be several stages during the process were they may ask for additional documents. Always provide all pages including the blank back pages of bank statements if they are numbered. Your lender should provide you an updated break down of your closing costs, estimated cash to close , and estimated payment with in a few days of application. Do Not make any purchases on credit or have your credit pulled by anyone during the loan process with out discussing it with your lender first. Do not quit or change jobs during the process with out talking with your loan officer. Photo copy and Deposit full check amounts during the loan process. Do not make any large transfers in or out of cash with out discussing it with your lender.
Appraisal/Credit Check - Your lender will collect the approximately $500. Upfront to pay for and order your official credit report and an appraisal from an Independent 3rd party. This is a critical step. Once the appraisal is in the lender will advise us if it appraised and if the appraiser noted any required repairs. If it did not appraise we will need to renegotiate with the seller. They have the option of reducing the sale price, you have the option of paying cash to make up the difference, if no agreement is reached the sale will be terminated.
Inspections - Generally by contract you will be given 10 days for inspections to determine that the properties condition is acceptable to you for purchase. If the utilities are not on you may be required to have them turned on including any connection fees. Utilities must be on for inspections including appraisal. Some inspections you may want to consider - Home Inspection w/ 4 point report for insurance aprox $350., Wood Inspection aprox $200. Water Test if well aprox $200, Septic inspection aprox $350, flood zone, lead base, radon, mold, any environmental or physical features of concern. All inspections are paid by the buyer at time of inspection. ( except Wood Inspection on VA loans ). By Contract dates - Within 10 days we must notify the seller in writing that you accept the property or request your binder back as unacceptable issues have arose that the seller is unwilling to repair. Your real estate agent can assist you in locating local companies they have had good experiences with however the choice of who you use is up to you.
Insurance - Once inspection complete contact your insurance company / companies of choice and get quotes for home owners insurance be sure to consider flood insurance even if the home is not in a flood zone. Notify the agent that you choose and give them your lenders information. Notify your lender of the agent you selected and give them your insurance agents information. Please be sure the quote is with in range as the estimate your lender used on your estimated expense sheet. If not have lender update your expense sheet for you to review. The insurance is generally paid at closing unless your loan type requires upfront payment. If you would like your real estate agent can also assist you in locating a knowledgeable local insurance agent.
Home Warranty- If the seller has not provided a home warranty and you wish to purchase one at closing please notify your Realtor at least 1 week prior to closing. There are several Home Warranty companies you can select one or get the advise of your real estate agent.
Utilities - Generally the sellers responsibility, however on some properties it may be the buyers responsibility for inspections. If they are not on at time of purchase you may be responsible for turning them on for inspections, contact your real estate agent to verify. Be sure to contact the Electric and Water company 1 week prior to closing. Schedule utilities to be on in your name the day of closing. This is an important step even if you will not move in right away. If any outstanding issues with the account or property you will want to know before closing not after. As you may become liable. Your real estate agent can assist you in locating the correct agencies. IF the utilities have been off for over 1 year you will be required to pay for additional inspections to turn them on.
Homeowners Associations- You will be responsible for reaching out to them to address any concerns you may have about their rules during inspection time and after closing to obtain any community passes to restricted areas. HOA and CDD fees will be paid at closing to the date of closing you will be responsible for payments from closing forward. Your real estate agent can assist you in locating contact numbers.
Title - The closing agency will do a title search and provide clear title at closing. However, they do not do a Municipal Lien Search unless you request one and agree to pay for it. If you want this please notify your Realtor at time of writing a contract or as soon as possible. The closing agency must order and it takes 14 days and will cost you aprox $175.00. This is to verify all utility bills paid (only matters if they won't turn on your utilities with out them being paid (CCUA!), Previous permits pulled closed out correctly, and check for county violation liens against property.
Closing: The day before closing you should be contacted by about the cash required to close. You will be required to wire the closing funds and pay any fees your lender charges. Contact your agent for wire instructions. Go to your bank at least 6 business hours prior to closing and wire the funds. You will need to bring wire transfer receipt, and your checkbook to closing, if a minor change is made to the total you can write a personal check for the difference. You must present your valid/current Drivers License or state issued ID. Some require a 2nd form of photo ID, please bring one with you if you have it. If the home is seller owned you will receive the keys at closing unless otherwise agreed by contract, or your lender has not funded your loan. If you purchase a Bank owned/Government owned property you may not receive keys for 3 days or until all forms are submitted to the selling bank or government agency, please plan accordingly. It is strongly recommended that you arrange for water and electric to be turned on in your name the day of closing. We will do a walk through the home 1-2 days before closing, Please schedule with your agent.
After Closing: Congratulations your are now a proud home owner! Change the locks right away. You are now responsible for the home and its maintenance. Be sure you make your first payment and all payments when due. Watch your mail for three items: You should receive your bound Title Policy, your homeowners insurance policy and your recorded deed. Store these in a safe place. If you are filing for homestead exemption take the recorded deed, your drivers license or id with new address, and a utility bill to the county to apply, (do this right away).
I hope you find this information helpful. The highest compliment you can give your Realtor is to refer them to people you come in contact with who are in need of your Realtors assistance in the purchase or sale of a home.
Lorry Williams, Realtor 904-955-4904