Buying A Home

You have made the big decision to buy a home. Now what should you do?

Loan Pre-Qualification

Get pre-qualified or pre-approved by an experienced local lender for a loan. This will help you know how much you can afford so you don’t encounter any speed-bumps later on in the home buying process.  This also looks good to the seller and will help you close the deal, especially when there are multiple offers on the table.  To make sure you get the best deal on a mortgage, make sure your credit is in good order.  Scores 700 or above are considered very good, and those 600 or below will cost you more.  Lenders prefer clients who pay bills on time and have not already acquired much debt.  If there is anything you can do to get your finances in order before applying for a loan, try to do so.  Keep in mind this could be a process that takes more than a few days, so plan ahead!

Search the Web

Look online to see what kind of homes are in your price range and get an idea of what you want.  Your real estate agent will be able to give you more information about the benefits of different areas and guide you through the entire process, but only you can decide which features you want and don’t want.  Begin by writing down which features you “must” have, features you would “like” to have, and finally which one or two features are absolute “deal breakers.”  Such a list will enable you and your agent to choose key search criteria that will help you find properties that match your preferences.
> Search Available Properties

Buying

When you find your perfect home and decide to make an offer, take a look at what the homes in that area are selling for.  Your real estate agent will help you with this process by evaluating market conditions and comparing comparable sales within the previous six months so you can make a reasonable offer.  Go over your finances to make sure you have enough for the down payment and the closing costs.  Since most home buyers need a loan to make their first purchase, keep in mind that the amount the lender will loan you depends directly upon the value that the appraiser says the property is worth.

Once you have a contract signed by all parties, it is time for you to do your due diligence to see if the property has the value you believe it has. The first inspection is commonly called the termite inspection, even though it includes many other factors such as: other pests, mold, moisture, wood debris, etc. The home inspection may be done at the same time or just after the pest inspection. Buyers are advised to meet with the inspector at the end of the inspection to discuss and observe the most major concerns. While home inspectors will not find everything that is wrong with the property, they will discover all of the major flaws and many other cosmetic items that can be performed by the buyer on weekends or during the next remodel.

It is important to know that under North Carolina’s current standard contract, the seller does not have to make any repairs. The buyer’s ultimate recourse is to walk away during the due diligence period if the property is not acceptable. Still, most buyers will request that some of their most serious concerns are addressed and most sellers will make some of those repairs.

Before you go to the attorney’s office for the closing, you will go through the final walk-through.  Make sure the sellers have made all repairs detailed in the contract/repair request and they have left behind any personal items as specified in the contract, such as curtains, washer/dryer or refrigerator.

Closing Costs

It is important to know how much you can afford and what costs you will be expected to put down during the buying process.  There are a few costs you should expect; earnest money, due diligence fee to the seller, down payment and closing costs.

Earnest money is the first of those costs, this is the money you deposit to show the seller you are serious about buying the home. It is a check for approximately 1 to 5 percent of the selling price.  The real estate agent will put this money into a designated escrow account, which is a non-interest bearing trust account.  This money is applied to the purchase price if the offer is accepted and returned if the offer is rejected.  The “due diligence” fee is a separate non-refundable payment made directly to the Seller as consideration for taking the property off the market while the Buyer makes financial arrangements, has inspections performed, and checks into ordinances and restrictions. A guide for determining the amount of the due diligence fee is “the shorter the due diligence period, the smaller the fee”.

The third cost to expect is the down payment; this is the percentage of the cost of the home you must pay when you make the settlement.  The amount of money you put down varies, but in general the more money put down at settlement, the lower the mortgage will be. Some types of loans require you to put down 10 to 20 percent of the price of the home, but different types of loans allow you to put down lesser amounts.

Closing costs are the final costs to expect in the home buying process.  These include lender associated costs and other processing fees.  The lender is required to give you an estimate of the closing costs, so you know in advance what to expect.  This estimate can come anytime from well in advance to three business days after the offer is made. Closing costs include:

  • Origination fee: most lenders charge 1% of the new loan amount as the fee for providing the loan
  • Survey: $300-$400 a plot plan showing the lot and the location of structures on the lot as well as any easements or encroachments.  Be aware that larger plots of land can cost more. While optional, a survey is recommended to support title insurance and reveal unanticipated conditions associated with the property.
  • Appraisal Fee: $400-$450 an independent assessment of value of the home done by a certified appraiser who is selected by the lender. If you are buying with cash, you would be wise to still have an appraisal performed.
  • Credit Report: $12- $55 a report of the buyers credit history ordered by the lender.
  • Attorney: $600 +/- A real estate attorney oversees all the technicalities of the closing.
  • Title Insurance: In North Carolina, $2 per $1,000 of coverage-based on loan amount
  • Home Inspection: $350-$750 An inspection usually completed within the 10 days following acceptance of the contract.  The inspection includes built-in appliances, structural components and operating systems of the property and is done by a general contractor or licensed inspector and lasts about 2 to 4 hours.
  • Termite Inspection: $75-$90 must be done within 30 days of closing by a licensed inspector.  Any infestation of active termites must be chemically treated before closing.

Home Warranty

A home warranty can help protect against expensive repair bills and give peace of mind.  While homeowners insurance covers major expenses like property crimes, fire, water, hail, or other structural damages, a home warranty provides discounted repair and replacement for major components of a home such as the furnace, plumbing or air conditioning.  A home warranty does not cover the same things as home insurance and, therefore, should not be used as a substitute, but rather in conjunction with home insurance. With a home warranty, you pay an annual fee as well as a small service fee in exchange for the repair.  Home warranties are sensible for those who have high priced appliances, are less handy, worry about finding a reliable repair service or home owners who do not have an emergency fund.  Some home warranty programs may not cover appliances that have not been properly maintained, so be sure to know the details of the plan you are considering. A home warranty is important for both buyers and sellers in that it can work to protect both parties from expensive repair costs.