7 Basic Things You Need to Know Before Buying a Home
Getting Started in Buying a Home
Buying a home can be a hard and arduous process, especially if it is your first or second time that you have ever purchased. It can also be a quick and easy process for someone who is seasoned.
Regardless if this is your first or twentieth time around the block you still need to be aware of what you are looking forward to knowing.
Let us look for at dispelling some of the myths about buying a home.
Getting Path the Myths in Buying
Myth 1: I am not qualified to purchase.
As a real estate professional as both an investor, a consultant, and as a REALTOR® I hear this statement all of the time while aiding someone in buying a home. And to be honest, this may only be true for half of the people who ask this question.
People first think of checking their credit and they want to do it for free. Thus, they turn to websites like Kredit Karma (www.creditkarma.com). Don’t get me wrong about Credit Karma. This company provides some great services and great information. However, their scoring mechanism is their prediction as to what the main three repositories will give to you for your credit score. This means this is their approximation as to what these companies are actually scoring.
I know for a fact that after pulling my Credit Karma score and then actually pulling my FICO score I discovered credit Karma was off my nearly 100 points when it came to TransUnion. That is right, there was a 100 point discrepancy.
My conclusion is this. Use Credit Karma as a guide for scoring. Use them to keep track of changes to your score (which is great for credit monitoring). Also, use them to get new lines of credit (mainly through Capital One). But, try not to use their scores for your actual scores.
Read the full story on credit here.
One thing you could do is to pull your free annual credit report from each of the three repositories (Equifax®, Experian®, and TransUnion®). Or you can go to sites like Free Credit Report (www.freecreditreport.com) or even go to FICO’s website (www.fico.com).
Another procedure is to simply go to a mortgage lender and check to see about becoming prequalified. This person will pull your credit and see exactly where you are in the buying process. Many times you will be qualified and not even know it.
Just because your score came in at a certain number does not mean that there isn’t a loan program out there that you qualify for.
Before you decide that you are not qualified it is best to check to make sure. You just never know until you know.
Myth 2: I don’t have 20% down
Many people think that they need a large down payment in order to purchase a home. And this cannot be farther from the truth.
Both FHA, VA, and even conventional loans can get you into a home with 5% or less of a down payment to help in buying a home. If you are ex-military then that number can be close to 0% down. And those that are not previous military there are even down payment assistance programs that are available.
Also, there are government programs like NACA (www.naca.com) that could help.
Again do not prejudge yourself as non-qualified without speaking to a professional mortgage lender.
The Next Steps
There are some steps you will need to take after you have made the decision to purchase.
Talk with a Mortgage Lender/Broker
Now comes the time to see what you are qualified to purchase. The person who aids you the best there is a professional mortgage consultant.
There are two terms that get interchanged a lot and that is where do I go to find a person who can get you a loan.
There are two types of people when you are looking for bank financing. One is a mortgage lender and the other is a mortgage banker. They may sound the same but there are completely different. The one you used is going to be based on you and what you are seeking.
A “mortgage lender” is someone who works at a specific bank (e.g., Wells Fargo, Bank of American or Navy Federal Credit Union) and will seek her own “products” to see what you can qualify. She is only looking at the loans that are within her own institution and not anywhere else.
On the other hand a “mortgage broker” does exactly what it sounds like, he brokers through a series of different banks across the entire nation. He will look at all banks to see what is out there. And then he will find the best loan that suits your needs.
Once you speak with them you will fill out a form called a mortgage loan application or a “10-03”. With potential verification of assets and income along with your current FICO® scores will determine just how much home you are able to buy.
After speaking with a mortgage lender and then this person will give you a letter known as a Pre-Approval Letter. This letter states what you are able to purchase. This does not mean you should always seek out the maximum amount of financing, but it does say the top amount you will be able to a loan for.
Finding the Right REALTOR®
Now it is time to seek out a REALTOR® to help you in buying a home. In this case, you are looking for a Buyer’s Agent also called a Selling Agent (not to be confused with the agent representing the seller who is the Listing Agent).
When looking at a Buyer’s Agent you want to work with someone who you like and trust. You may not really “know” them yet though. It has to be someone who you know will have your back. This is the person helping you with one of the biggest transactions you will be doing in your life.
They should be able to talk with you about the values in your local area and subdivision with just a little amount of research.
This is the person who will look up values in the area of any home you like to give you a range of values. Then after you have made your decision on what to offer he or she will write up an offer for the home.
Each state has its own procedures as to how a transaction occurs after an offer is accepted and is beyond the scope of this article. Make sure you understand and ask your agent about the closing processes for your state.
Some states are Mortgage states and use real estate attorneys and other states are Deed of Trust states which usually use real state title companies.
Seeking a Home
Now you are in the process of finding the home you like. After talking with the agent he will create a search on the Multiple Listing Service or MLS.
What is the MLS?
The MLS is a word that agents will throw around without much thought to what it means to a person who is not in the real estate industry.
The MLS is now usually an electronic collection of available properties for sale. This can include homes, land, or commercial properties. In our case, we will look only at personal residences.
A personal residence will normally come in one of four forms. It can be a condominium (condo), a townhouse, a manufactured home, or a single-family residence. (You can also buy a duplex, triplex, or a quadraplex (4 unit housing) with a residential loan but we will ignore those in this article.)
When a person decides to sell a residence that seller will seek out a Listing Agent or Selling Agent to collect data and put that home on the MLS so all other REALTORS® can market that home to their buyers. This collection of residences can be researched electronically by a number of factual parameters like the price, size, number of bedrooms, among many other criteria.
The MLS cannot search by subjective items like “good neighborhood”. Or even “good schools”. The reason is that is subjective and not factual information. What one person perceives as good may be considered bad or horrific by another person. One way to view it is to view the data you want to be searched by from a beggar’s perspective and then from a person of royalty’s perspective.
Long gone are the days of the MLS where it was only a printed binder that came out every week.
Taking a Look Around
Now that your REALTOR® has created a search or two for you now is the time to review online what you like. Once you have narrowed it down to a few it is time drive the neighborhoods and see if you like the area.
What about local amenities and proximity to the things you need or want. You may be the type of person who wants to live far away so nobody bothers you. Or you may be the person that needs a grocery store next door. Your needs are your own.
I usually suggest people drive neighborhoods in the late afternoon to early evening. This way you will see what goes on around the home. Do you like a lot of children playing in the streets or not. Or what about how your neighbors maintain the property’s curb appeal. This is how you get a snapshot of what is going on in the area.
Another thing to consider is proximity to work or school if those are a priority. There is a lot of things that go on when picking a home.
Setting an Appointment with Your Agent
By this time you have narrowed a wide number of homes down to just a few. It is now time to call your agent and set up an appointment to view these potential purchases.
I normally suggest in seeing all of the homes in one morning or afternoon. It is a lot easier to see 4 homes on one day than to see four homes on four different days.
When you call your agent they will have to see if the homes have any showing restrictions. The home could be tenant occupied, vacant, or occupied by the owner. Sometimes the homes can only be shown at certain times of the day or on specific days. There are a number of reasons why a home may have showing restrictions. Maybe they have a guard dog, or the seller works the graveyard shift. There is no telling just how many times I could only show a home at odd periods of time.
A good agent will be able to make arrangements including if there are showing restrictions. Let them do their job so that they can make it easier for you. This may result in different days to view all of your homes. Just be aware of this.
Once you have a time set meet the agent at the location for the start of showing process. This could be at their office or it could be meeting at one of the homes. This will depend on schedules so be open to whatever he or she says.
Now the fun begins in the home buying process.