How Much House Can You Afford?

Before you begin your home search, you need to do a little planning. Many lenders will offer you a preliminary approval for a mortgage so you can negotiate as a buyer. Knowing your price range will bring your house hunting into focus. How much house you can afford depends on many factors, including how much you can manage for the monthly housing payment and how much you can contribute toward the down payment. Monthly payments include principal and interest on the mortgage loan, property taxes and insurance against fire and other hazards. These four costs are often abbreviated as PITI. For some buyers, monthly housing costs may also include homeowners’ association dues, condominium fees and mortgage insurance

House Hunting Begins At Home

The search can begin in your present home. Once you’ve clarified what you like in your present community, you will have a better idea of what you want to find in your new home. Build your buyer savvy by viewing real estate websites, reading newspaper ads, home publications and design magazines, watching real estate television shows and visiting open houses.

Choose A Neighborhood

In real estate, an old maxim says there are three criteria that determine market value: “location, location and location.” The concept of neighborhood isn’t as precise as county or city. Some people consider the boundaries to be the district around a grade school. Others consider it walking distance, more or less within a half-mile radius. A neighborhood is the immediate area around your house.

Choosing A House

Finding a home can be easier than choosing a county and a neighborhood because you are considering tangible details. Thousands of houses are sold in this area every year. Viewing all those homes on the market is obviously impossible. But you can turn what can be an overwhelming selection to your advantage. If you can clearly describe the features you require, your real estate agent can do a preliminary screening for you. After you select the best houses, you can concentrate on analyzing your top choices.

Negotiating The Purchase

You’ve found your dream house! Now what? You make an offer by submitting a signed real estate offer to the seller or the sellers’ listing agent. This will be the sales contract once the seller accepts. When you and the seller sign, you are agreeing to the contract conditions. Before you sign, read it carefully and make sure you understand every detail. Ask questions. Verbal agreements should be written into the contract. If you plan to have a lawyer represent or advise you, retain one as early as possible. This is where your buyer’s agent and an attorney can give you the assistance you need. The offer to buy becomes a contract when all parties have agreed on terms, initialed every counter if any, and signed the offer. When you sign the offer to buy, you also will have to submit a deposit, called earnest money, to show that you are serious about your desire to buy.

Making Sure Your Contract Is Complete

Sales contracts differ, but there are several provisions you may want to include in a contract for the purchase of real estate:

Deposit – You should clearly state the amount of the earnest money deposit, the amount of money you will be paying at settlement and your sources of financing.

Contingency on Financing – Be specific about the total loan amount and the exact financing terms. Many contracts have an alternative financing clause that allows buyers to pursue different financing than that which is written in the contract, if it doesn’t affect the seller’s net proceeds or delay settlements.

Contingency on Property Inspection – You may make the contract contingent on a property inspection report. You will usually have to pay for this inspection prior to closing. A certified home inspector can help you find problems or potential problems with the home. You can negotiate with the seller to fix issues that come up with the inspection or ask for reasonable price concessions.

Title Attorney or Insurance Company – In some areas, the buyer has the right to select a title attorney or title insurance company. You should shop and compare prices before deciding what attorney or title company will conduct your settlement. Be sure to clear the title company with the lender, whose interests are also involved.

Closing and Occupancy Date – Include an arrangement with the seller in the event you can’t secure possession on the agreed date, such as a daily rent-back agreement for post-settlement occupancy.

Homeowners Insurance

Most lenders require a homebuyer to provide a one-year paid receipt at settlement for homeowners insurance, also called a fire and hazard insurance policy. Homeowners insurance provides protection for fire and other perils to your home and its contents.

Title Insurance

Title insurance provides protection in the event past actions threaten the title to your property. Most lenders will require title insurance to protect their interests. Ask about an owner’s policy as well to protect your title. You may save money if you buy owner’s title insurance at the same time as mortgage title insurance rather than buying it separately.

What To Expect From A Home Inspector

A home inspector’s fees are based on the size of a property and/or complexity of the inspector’s report. The practiced eye of a professional inspector can often spot flaws not evident to a homebuyer. Specific information could even reduce the price of a house if the seller will agree the price has not already been discounted for defects. Try all lights and switches, turn all faucets on and off, run showers and flush toilets. Turn on the furnace and central air conditioning (in the off-season, hire a professional to certify proper functioning of both heating and air conditioning), test all stove burners and the oven at bake and broil, run some ice cubes through disposal to test blades. Run the dishwasher, washer and dryer through complete cycles, and open and close all windows and doors. Try everything, even keys and the fireplace flue.

After Loan Approval

When the lender approves the mortgage, you will receive a loan commitment letter stating the mortgage amount, interest rate and the loan term. You should check it carefully and return a signed copy to the lender or follow other specific instructions. Next, the buyer’s agent and listing brokers will coordinate a settlement date. You will be notified of the date, place and time of the closing and should receive a checklist of everything you, as the homebuyer, need to bring to the settlement.

Walk-Through Inspection

The purpose of the walk-through inspection is to determine if all conditions in the contract are satisfied. Your final walk through should be done either the day of or a few days prior to your closing date. The time for you to inspect and note defects for correction by the seller is during the contract negotiations and/or prior to signing the sales agreement. The buyer should be accompanied by the buyer’s agent. The seller should be sure utilities are on so that equipment can be operated. If agreed-upon repairs are not completed, funds may be withheld from the home seller by the settlement attorney for these items. Upon notification that repairs are complete, the attorney will release the balance of funds to the seller.

Closing

There will be a lot of paper signing and passing of the keys (don’t forget mail keys, garage keys and electric door openers). At the settlement, there will be an attorney or title company representative, all buyers, the listing and buyer’s brokers and all owners, though in some locations the buyers and sellers can schedule separate settlement appointments. The attorney or escrow/title company will have searched the title, provided title insurance and obtained old and new lender instructions. With the buyer, the attorney explains the deed of trust or mortgage, the deed of trust note or mortgage note, VA, FHA or lender forms, and settlement sheets. The buyer signs these and pays the balance of the down payment and the buyer’s closing costs with a cashier’s or certified check. The seller will receive these refunds at or after settlement, depending on your area. Taxes and homeowners’ association dues or condominium fees will be prorated on a daily basis. The sellers, buyers and brokers are supplied a copy of settlement sheets for their records. The house keys are passed. You are now the proud owner. Congratulations!