Prepare and Plan
Buying a home is a major undertaking. Before taking the plunge, make sure that you’ve thought it through and are ready to proceed.
Consider your motivations for buying to help determine if you are really ready to enter the market.
Think about your personal reasons for moving. Do you need a larger home to accommodate a growing family? A shorter commute to work? Don’t forget to consider the difficult aspects as well. Are you emotionally attached to your present home – will it be painful to leave? Being mentally and emotionally prepared is the first step toward a well-conceived and well-executed move.
Do You Feel Pressure to Move Now?
Do you feel that you’ll be priced out by a rising market if you don’t buy now? Or are you afraid you’ll miss bargains in a troubled market? Review our tips for evaluating real estate markets to help you decide how to proceed.
How Long Do You Expect to Own Your New Home?
Buying or selling a home is an expensive and involved process. Closing costs alone can amount to 4-8% of the sale price – for both buyer and seller, making a home purchase financially unattractive unless you plan to own the property for several years. Remember that you’ll face another round of closing costs when you sell; so your house will have to appreciate 8-12% just for you to break even.
Assess Your Financial Condition
Do you have enough cash to fund the down payment and closing expenses? Can you comfortably afford the mortgage payments as well as taxes and insurance? Do you have any credit problems? Review our affordability guide to help you get the answers.
Homeownership as an Investment
While markets can be turbulent and values occasionally decline, owning a home remains an attractive investment over the long term. Additionally, don’t forget to consider the tax advantages of homeownership – mortgage interest is deductible and profits from the sale of a home are usually exempt from capital gains taxes.
Assemble all of your information and develop a good idea of what you want before you begin shopping.
Your house hunting will be more efficient and less stressful if you take the time to organize yourself. Make sure you know what you can afford, where you want to live, and what features you want in your new home.
WHERE DO YOU WANT TO LIVE?
Think about the communities in your area and decide which ones you like and why. Consider schools, recreational facilities, and access to work and shopping. Write down the various features you like and dislike about each community; then review the list to decide which areas are right for you. It’s important to know where you want to live from the start – otherwise it’s too easy to get excited over a great house in the wrong location. Don’t forget to consider price range when narrowing down your choice of locations – you’ll want to spend your time looking where you’ll have a good chance of finding something appropriate.
MAKE A FEATURES LIST
List the features you want in your new home, including rooms, room dimensions, lot size, architectural style, access to schools, recreation, etc. Use this wish list when viewing homes to help evaluate each property.
DETERMINE YOUR FINANCING OPTIONS
Finding the right mortgage is almost as important as finding the right house. There are many financing options available in today’s marketplace, so it pays to take the time to find the right type of loan. Many lenders offer pre-approval programs that allow you to secure a loan before you even find your home – giving you a real advantage when negotiating with sellers.
PREQUALIFY FOR YOUR LOAN
Many lenders allow you to apply for a mortgage before you even find a home. Once prequalified, the only major requirement for your loan is a satisfactory appraisal of the property to be purchased (once you find it). Prequalifying can not only give you peace of mind while shopping; it can really give you an advantage in a tight market – where a seller may preference a buyer who has funding secured.
Shop for a Home
Finding a good agent “one who knows and understands the local market” is the first step in your home search.
A good real estate agent is a partner in your home search, someone with whom you’ll be working closely. Spend the time to develop a strong relationship.
ADVANTAGES OF USING AN AGENT
Your agent can give you valuable insight into the market and provide access to a large number of available homes through the Multiple Listing Service. Working every day in the local housing market, your agent is an invaluable source of advice on pricing, features, and trends.
A GOOD AGENT DOES MORE THAN JUST SHOW HOMES
An agent can put you in touch with lenders, home inspectors, attorneys, and any other professionals you need to complete your purchase. Don’t hesitate to ask for recommendations – chances are your realtor knows qualified professionals in all of these areas.
CHOOSING AN AGENT
A good agent is experienced, with a strong knowledge of the local market and a willingness to put in the time required to help you find the right home. If an agent doesn’t have the time, interest, or commitment to develop a thorough understanding of your needs, look for one who does.
WORKING WITH YOUR AGENT
Once your search begins, make sure to take advantage of your agent’s knowledge and experience. Don’t hesitate to ask questions or request market data to help in the search. Review our tips on working with a realtor to help get the most out of this relationship.
It’s a good idea to do some fact-finding before you start looking at homes — before you get caught up in the excitement and stress of the shopping process. Hopefully you’ve gotten to know the communities you’re considering during the organizational phase. Now it’s time to narrow the search and find your new home.
Review your notes and decide where you want to conduct your home search. Use our community research checklist to help you decide on the right location. Your agent can help you review recent sales activity in the area to get some idea of what you can expect to find in your price range.
Gauge Market Conditions
Real estate markets are highly cyclical. The current status of the market can have a significant effect on your homebuying strategy. Try to develop an understanding of the state of the market, so you’ll have some idea of the conditions to anticipate when shopping – and a feel for how hard you can bargain when negotiating.
What’s Best – Hot or Cold Market?
Unless you’re a first-time buyer, you’ve probably got a house to sell while you’re shopping for a new home, so it’s not easy to determine if a strong market is helpful or harmful. As a general rule, if you are moving up – looking for a new home significantly more costly than your old one – you may want to act during a weak market, when the savings on an expensive, new property will more than outweigh the losses on the older one. Conversely, empty nesters looking to switch to a smaller home may want to plan their move during a hot market, when they can maximize gains on the sale of a larger home.
When is the Best Time of Year to Sell?
In most markets there are two primary selling seasons – spring and fall. Spring is the strongest, since many buyers want to move in before the next school year begins. Summer and winter are generally poor selling periods. Avoid marketing your home at these times if you can. Of course, some areas have their own specific seasonality. If you are selling a home in a seaside vacation spot, for example, summer is an excellent time to be on the market.
Understand Recent Area Sales
Don’t listen to anecdotes about bidding wars and homes getting snapped up in one day. There is no substitute for accurate information. Check out the actual sales prices of area homes, and try to get a feel for what is really happening in the marketplace.
The actual search for a home can be the most daunting part of your buying experience. You’ve done the preparation and research – now it’s time to put it to use.
There are two primary characteristics of a successful house hunting experience – staying focused on exactly what you want and exposing yourself to the maximum number of suitable properties. Your agent can help you find suitable properties, but it’s up to you to remain calm and keep your wants and needs in mind.
Work with Your Agent
Your agent should compile a selection of properties that match your general search criteria and arrange for viewings. But you can also reap additional benefits from your relationship with a well-chosen realtor. Review our tips for working with a realtor for some suggestions.
Look Around Yourself
Your agent will find most of the available homes in the area, but you can help in the search. Check the weekly real estate ads in the local paper, and drive around any neighborhoods you find attractive looking for signs or open houses. Your agent can arrange a showing of any interesting properties.
Get the Info You Need
Make the most of your home shopping time. Remember to bring your wish list. Don’t forget to ask questions during showings – get all the information you’ll want later when you’re considering each property. Review our home evaluation checklist for a summary of what you’ll need to ask.
Check Out New Housing Projects
Don’t forget to check out new housing developments in the area. New homes offer many advantages, including warranties, customization, and modern features. You can get a good idea of the new housing projects in your area from your agent or through ads in the local newspapers.
Should You Consider Building?
Building a new house is stressful and time-consuming, but the reward can be considerable – the chance to have a home that is custom-designed to suit your family’s needs. If you’re considering this route, our guide to building a home will give you an idea of what to expect. Your agent can help you find a lot (and probably a builder as well).
Finding a Good Deal
It’s always difficult to find a suitable home at an attractive price, particularly in a strong market. But good deals do exist. Let Rosa Tarantino help you find the right home at the right price.
Buy A Home
You’ve done your homework and seen what the market has to offer – now it’s decision time.
Choosing which home to purchase is the critical phase of your search – make sure the house is right for you before deciding to buy. Consider your wish list, the location, and the price when making your final decision.
Consider the Neighborhood
You’ve already researched the community (we hope!) in general terms – now it’s time to take one last look at the neighborhood to make sure it’s the right place for your family. Consider your route to work, the local shopping – anything that affects your lifestyle and daily routine.
Check the Details
Make sure the house is right for your family and lifestyle. Will your furniture work out? Is the yard big enough? Does the layout work well for your family’s routine? Check through your wish list and notes to make sure you’re not forgetting anything.
Research Multi-Family Units
There are some specific concerns involving multi-family housing. If you’re seriously considering this type of home make sure that you do the research so you know what you’re getting. Review our multi-family housing checklist if you are planning to buy a condo or townhouse.
Don’t Buy if You’re Not Sure
Don’t buy a home out of frustration or impatience – this is a major investment and it should be treated as such. If the market is strong or your standards prove to be unreasonable you may need to revise your expectations before continuing the search.
Be Wary of Overheated Markets
Think carefully before getting into a bidding war or buying a home with a hyper-inflated price. Extreme sellers’ markets can develop when national and local economic conditions are exceptionally strong. During these periods prices can rise dramatically and buyers can be pressured into taking aggressive — and often irresponsible — actions. Be careful, however, as these strong periods are inevitably followed by severe corrections. Homeowners buying at peak periods often find themselves with substantial paper losses — a condition that can take years of normal appreciation to correct.
You’ve chosen a home — now it’s time to get the best deal you can.
The offer is the first step in negotiating the purchase of your new home. Try to consider all of the relevant facts when determining your offering price. Homes often sell for negotiated figures that are below the asking price – sometimes considerably below, so give serious consideration to your initial offer.
Consider Market Conditions
Home pricing and sales activity is strongly affected by the strength of the underlying market. In a weak market purchasers may be able to negotiate substantial reductions from asking prices. Conversely, it is risky to make a low offer in a strong market – another buyer may appear suddenly and pay full price.
Review the Specifics of the Property
Does the home suffer from a lack of curb appeal or other problems? If so, you may want to be more aggressive in your negotiations – chances are there will be less competition, even in a strong market. If the house needs renovations or repairs make sure you know exactly what to expect so you don’t have any unanticipated expenses after closing.
How Badly Do You Want the House?
Will you (or your family) be extremely disappointed if you lose the house? If so, consider being less aggressive in your negotiations — especially in a strong market. Conversely, if you are willing to take a chance you may be able to get a better deal.
Evaluate the Seller’s Motivation
A homeowner who is under pressure to make a sale is more likely to accept a low offer. Recognizing a motivated seller is a major step toward making an advantageous purchase. Common causes of pressure on a seller include financial difficulties, divorce, or the need to move by a certain date.
Consult with Your Agent
Your realtor is an experienced professional with deep knowledge of the local market, so make the most of this resource. Your agent can tell you how long a home has been on the market and can provide comparable sales for review. It’s even possible that your agent may know of a motivated seller.
Are You Buying a New Home?
Many builders have a general policy of not negotiating prices (particularly in major developments), so if you are buying a new house you may have to pay full price. Nevertheless, you may be able to get a deal occasionally – particularly if the market is weak or sales in the project are slow. You have little to lose by trying.
Writing the Offer
An offer can be in the form of either a letter or an actual purchase contract (the preferred format when working with an agent). Whichever format you choose, make sure that you clearly specify all of the required information and terms in the offer. If you are pre-qualified for a mortgage, offer to provide a copy of your approval letter to strengthen your hand.
Counter-Offer and Negotiation
Instead of accepting your initial offer the seller will probably respond with a counter-offer. After reviewing the counter-offer you are essentially back to the beginning of the offer process – but with a better idea of the seller’s negotiability. Consider all of the information and decide if you are willing to increase your price. This offer and counter-offer phase of the negotiation is often done verbally – through the agents or even at a meeting of buyer and seller – with revised contracts signed after price and terms are accepted by both parties.
A properly written contract sets forth the terms of the sale and protects the interests of both buyer and seller.
The contract specifies the terms of the sale and the rights and obligations of the buyer and the seller. A well-written document protects both parties, while a poorly drafted contract can cause serious problems.
Get it in Writing
Oral agreements are usually difficult or impossible to enforce, so if you’ve negotiated your purchase verbally make sure to have contracts signed as soon as possible.
Always make sure that any contract you sign has an attorney review clause that allows you time (at least three business days – preferably five) to review the document and have it checked out by your lawyer if you feel it is necessary. Many states specify a mandatory review period, whether it is specified or not, but don’t take any chances – make sure it’s in writing. This gives you the chance to make sure all bases are covered before you are committed.
Choose an Attorney or Escrow Company
In some areas it is standard practice to retain an attorney to handle the closing. In others the norm is to have the title or escrow company handle the transaction. If you do hire an attorney (which is a good idea), try and find someone local who specializes in real estate closings. An experienced real estate attorney can help you move quickly to closing and sidestep any problems or oversights. If you are using an escrow company, make sure that they have a solid track record.
Cover All Contingencies
Make sure that the contract covers all contingencies of the purchase and allows sufficient time for any required activities or testing (i.e. obtaining a mortgage, home inspections, etc.). Reasonable contingencies are essential to protecting yourself in the purchase – don’t allow anyone to pressure you into skimping on due diligence.
Learn About Deeds and Title
The deed is a legal document that transfers ownership of the home. There are several types of deed that can be used for your purchase as well as a number of special provisions that may apply to your new home. Your attorney or escrow agent can answer any questions you have on title and deeds.
Know Your Deposit Obligations
The contract should specify the due dates and disposition of earnest money and deposits. Typically a small amount is posted at the signing of the contract with the balance of the deposit (usually 10% of the purchase price) due within 1-3 weeks. Don’t agree to a schedule you cannot meet – if you need extra time to line up the funds, specify this in the contract.
Close the Deal
Securing a mortgage is the first step toward closing – and moving day. Of course, if you’re pre-qualified you are a step ahead.
The mortgage application process can be confusing and intimidating, especially to first time purchasers – but today’s market offers homebuyers more options than ever before.
Have Your Records Ready
Organizing your records ahead of time will help speed things along when you’re completing mortgage applications. Our mortgage documentation checklist can help you keep track of everything you need.
Shop For a Lender
There are many types of lenders in today’s mortgage market – review their loan terms to decide which offers the best package for your needs. If you have credit problems or other difficulties, look for a lender specializing in this type of loan. Don’t forget to check out online lenders as well.
Consider Loan Types and Terms
Today’s mortgage market offers a bewildering array of financing options and loan programs – each with different rates, points, and amortization schedules. Consider the details of each so you can select the one that best suits your needs.
Choose the Right Loan
After considering the various mortgage programs available it’s time to make your selection. Don’t forget to review all aspects of the loan, not just the interest rate – the points, fees, and term can be just as important.
Watch Interest Rates
Keep an eye on interest rates during (and after) your mortgage search. Many lenders offer the option of locking in the interest rate before closing – a valuable alternative if rates are rising.
Apply for Your Loan
Carefully complete each section of the application and provide all of the documentation required by the lender along with the loan application fee. Maintain frequent communication with your loan representative – if you haven’t heard anything within 1-2 weeks call and ask about the status of your application. Respond promptly to any requests for additional information.
You’re almost there — but there are still important tasks you have to complete before the closing.
There’s a lot to do in the weeks leading up to the closing so good organization is a must. Proper scheduling can reduce your stress and prevent any mistakes or delays.
Create a schedule of the items you need to complete before closing. Set up a file with all of your purchase and closing related documentation so you have it readily available.
A comprehensive home inspection is a must for any responsible homebuyer. A proper inspection should help uncover any defects in the home – before you move in and get hit with unexpected repair costs. Depending upon your location and the age of the home you may need additional inspections as well – radon, termite, septic, etc. Your attorney (if you are using one) and realtor can help guide you through this process, so draw on their experience.
Schedule the Appraisal
Your lender will probably hire the appraiser, but you need to make sure it gets done on time. A satisfactory appraisal is essential to obtaining your mortgage commitment and moving toward closing.
Make sure that any contingencies specified in the contract are satisfied. If the seller is required to make repairs prior to closing, schedule a walk-through to insure that they are properly completed – and don’t hesitate to have your home inspector review the work if you are uncomfortable making the determination yourself.
Finalize Your Mortgage
Your lender should issue a mortgage commitment shortly after the property is appraised (assuming the appraised value is adequate). Contact your mortgage representative to make sure things are proceeding as expected. Don’t wait until the last minute – if there is a problem you want to find out as soon as possible.
Order a Survey
You’ll need a survey of the property. Contact the last surveyor who worked on the site and make arrangements at least 2-3 weeks before the closing date. If you are using an attorney, he or she may arrange to get the survey, so check and make sure before you order one as well.
Order Title Insurance
It is essential to make sure that the title insurance is ready for closing day. The title company will need to do a search on the property to uncover any potential problems with the transfer. Make sure to leave enough time before closing, not only for the search, but to deal with any problems that surface. If any title problems arise, don’t panic – usually these issues can be resolved fairly quickly. If you are using an attorney, he or she will probably arrange for the title work to be done.
Prepare Your Purchase Funds
You’ll need to have certified funds available to cover the purchase price and closing costs, so now is the time to cash out investments or make other arrangements to free up the cash. Your attorney can help you determine the total amount you’ll need to bring to the closing.
Purchase Homeowner’s Insurance
You’ll need a binder from your insurance company to verify that you have properly insured the home – otherwise you may not be able to close on your mortgage.
Get Ready for Moving Day
You probably want to move in right after the closing (you’ll have to if you’re selling your old home the same day), so now is the time to start preparing. You need to hire a mover (unless you plan to handle the move yourself) and start packing your possessions. It’s also time to make arrangements for utility shutoffs and installations – our utility checklist can help you organize these tasks.
Schedule the Walk-Through
The final walk-through should be conducted the day of or before the closing. The walkthrough allows you to confirm that the house is ready and that any required repairs have been completed. If you’re buying a new home the walk-through also gives you a chance to identify any items that have not been satisfactorily completed.
You’re almost there. The preparations have been completed – now it’s time to finalize the purchase.
Check with your attorney or escrow agent a day or two before the closing date to confirm that everything is on schedule. Remind the attorney or agent to complete the closing statements and other documentation in advance – this may seem obvious, but closings often become protracted affairs because the professionals are unprepared.
Bring Certified Funds
You will need to bring a certified check to cover the down payment (less funds already on deposit) and closing costs. Check with your attorney or review the documents to get an estimate of the total amount required. It’s also a good idea to bring your checkbook as well — small last minute costs (filing fees or photocopying charges) can often be paid with a personal check.
Have Your Paperwork Available
Bring all of your documentation to the closing in case you need something at the last minute. Your closing file should include the contract, inspection reports, and copies of all correspondence relating to the purchase.
Understand the Closing Documents
Review the closing statement (HUD-1) and other documents beforehand so you understand the purpose of each. Check out our guide to closing documents for a complete description of the paperwork involved.
Close Your Mortgage
You will probably execute your note and mortgage just before the closing of title. The lender should have provided a check to be released subject to the execution of the documents, the confirmation of clear title, and the satisfaction of any other conditions.
Deal With Any Problems
Closings frequently proceed without a hitch, but problems are not uncommon. Don’t panic if the closing hits a snag – most issues can be resolved by simple means, such as escrowing funds to cover a contingency or unfinished repair. Even if the closing has to be postponed, don’t overreact – chances are the matter can be resolved in a few days.
Execute the Documents
At this point the parties should execute the closing statements and the seller should sign over the deed. The deed must be filed with the local recording agency – your attorney or escrow agent should handle this but it’s a good idea to confirm that this was done. Congratulations, you’ve just bought a home!
Collect the Keys and Other Items from the Seller
In addition to the keys, the seller should bring (or leave in the house) any relevant paperwork – service records, warranties, instructions, etc. If these are not provided, request that they be forwarded as soon as possible.
Congratulations! It’s done — you’re a homeowner.
It’s finally moving day! Depending upon your arrangements with the seller, you will be able to move in either right after the closing or the next day.
Be Prepared for the Movers
Make sure the moving van has room to park as well as easy access to both houses. Movers expect payment upon delivery, so you’ll also need to have a certified check and/or cash available to settle the bill. Many movers accept credit cards as well, so inquire in advance if this is your chosen payment method. Tipping is customary – usually about $20 per mover – though this is obviously highly variable with the length and difficulty of the move.
Work With the Movers
Be available to answer questions about packing order and fragile items. Point out any items you intend to move yourself, and keep these things separated from those to be handled by the movers. Make sure the movers have clear directions to the new house as well as a phone number to reach someone if they get lost or have any problems. Make sure someone remains at your old home until the movers are packed and ready to leave.
Do a Final Walkthrough
Make one last inspection of your old home to insure that nothing has been forgotten and left behind. It’s OK to have a few minutes to yourself if you are feeling emotional at this point.
Arrange for Mail to be Forwarded
You’ll actually want to make these arrangements a week or two before moving day. Go to your old post office and arrange for mail to be forwarded to your new address (if you had a P.O. box you may want to retain it for a period of time). Send out change of address cards with your new location.
Get Settled into Your New Home
Target the most important areas of your new home and unpack for these rooms first. Arrange to have someone available at the house during the first few days to coordinate installations and deliveries. Have written instructions prepared for installers to make sure you get phone lines and TV jacks in the right places. If you have any improvement projects planned you can start scheduling the work if you haven’t done so already.
Change the Locks
Though many people don’t bother with this precaution it is extremely advisable to do so — you probably know very little about the seller and even less about anyone to whom they may have given a key.
Deal with Any Problems
If you discover any problems with the home after you move in, stay calm. Have the problem checked out and documented by a qualified professional, then consult with your attorney – the seller may be liable for any deficiencies that were not disclosed to the purchaser.
Finish the Paperwork
Store your purchase and closing documentation where you can easily find them at tax time (or whenever else they are required). Complete any paperwork required by local schools (if you have children who are enrolling). Don’t forget to change your driver’s license, automobile registration, and voter registration, if necessary. Lastly, confirm that the deed was correctly filed with the appropriate authorities.
Escrowing Funds at Closing
This type of escrow is not the same as the account used in the normal course of the closing. This section refers to escrow accounts that are established to deal with problems that occur prior to or at the closing.
It is important to understand the specifics of each situation to insure that your interests are fully protected. This means understanding how an escrow account works and making sure that sufficient funds are escrowed. It is also essential to have supporting agreements and documentation that properly and completely protect your interests.
Funds are usually escrowed to address two different types of problems:
Many purchases are contingent upon the seller completing some type of repair or other work prior to the closing. Aditional problems are often discovered by the buyer’s inspector.
If these items are not completed on time the closing may be delayed – causing considerable inconvenience to all parties.
An alternative to delaying the closing is to establish an escrow account to cover the cost of the repairs – which will be completed after the closing. Since the buyer is protected by the escrowed funds the sale can be completed on schedule.
The escrow arrangement should meet the following requirements:
- The funds should be adequate to cover the cost of the work under any reasonable circumstance – including an allowance for contingencies.
- The agreement should allow the escrow agent to release funds only after the buyer has approved the work.
- The buyer should have the right to replace any contractors that do not perform satisfactorily – even if the replacements are more expensive.
Always make sure you understand the scope and cost of the work involved before agreeing to an escrow arrangement.
If the seller is subject to judgments or other claims, the ability to pass clear title to the buyer may be jeopardized.
Typically, any existing claims are paid at the closing out of the purchase funds. However, sometimes a seller will dispute the validity of a claim and declare the intention have it legally removed.
Unfortunately, this type of action is often unfeasible within the time available before closing. Funds can be escrowed by the seller to protect the buyer and insure that there are no title problems.
In this situation, the escrow agreement should meet the following requirements:
- The amount deposited should be enough to cover the claim plus any foreseeable interest that may accrue. An additional amount should be added to cover contingencies.
- The buyer’s lender and title company must accept the arrangement in writing. The title company must provide the title insurance and the lender must agree to fund the mortgage based on the escrow.
- The buyer must have the right to force payment of the claim from the escrow if the seller has not resolved the problem is a reasonable period.
Make sure you fully understand the situation before accepting this type of arrangement
Understanding the Closing Documents
There are a number of documents that have to be reviewed and signed at the closing. Each serves a different purpose, but all – or most – are required to complete the purchase.
This is your contract with the lender whereby you agree to repay the loan with interest as specified.
The mortgage provides the lender with a claim against the home you are purchasing as security for the note.
Truth in Lending Form
This is a form that confirms that your lender has disclosed all loan costs to you in accordance with legal requirements.
This stands for, “Real Estate Settlement Procedures Act.” It is essentially a declaration that you understand the closing procedure.
Most lenders require that the first year’s homeowner’s insurance premium be paid in full before the loan proceeds are released at the closing.
Closing Statement (HUD-1)
This is an accounting of all amounts that are due to and from the buyer and seller in the transaction. The HUD-1 lists all of the uses of the sale proceeds, including the payoff of the seller’s mortgage, apportionments for property taxes, real estate commissions, etc. The statement is used to determine a final amount of cash that is due to or from the buyer and seller.
Some utilities require more lead time than others to terminate service at your old residence and activate at the new. While the time required varies, you can use this checklist as a starting point.
One month or more before closing…
Cable Television and/or cable modem
Contact the cable company early, in case the new home needs any wiring or hook ups to accommodate your service. Call especially early if you are installing cable modem service.
With today’s often complicated home phone set-ups it is important to give the phone company some extra time – especially if you will need several extra numbers and/or jacks in specific locations.
Satellite television and Internet service
Unless your new home has a compatible dish already in place, you will require installation services. Depending upon demand in your area this could entail a wait of a month or more, so put your order in early.
DSL Internet service
DSL installation is subject to large backlogs in most area, so put in your order as soon as possible.
One to two weeks before closing…
If you receive automatic deliveries of heating oil or propane you should contact the supplier and terminate the service (and transfer the account to your new home if you still require deliveries).
While they are not, strictly speaking, utilities, any automatic delivery services (bottled water, pool suppies, etc.) you may use should be contacted 1-2 weeks in advance of your move to terminate deliveries or change the service to your new address.
Several days to one week before closing…
Contact the electric company and switch your account to the new address effective on the closing date (make sure you have electrical service at both locations on moving day).
Contact the gas company and switch your account to the new address effective on the closing date (make sure you have gas service in both locations on moving day).
Notify the water company several days before the closing.
Notify the sewer authority several days before the closing.
If you pay for private garbage pickup you should notify the service provider a few days before the closing. Even if you have public garbage service at your old location you may need to arrange for private pickup at the new house. Check it out – you don’t want to end up without garbage service just after you move in. If you want to have a special pickup – either at the old address or the new – make the arrangements at least a week in advance.
Comparing Loan Types
There are many factors to consider when choosing the right home mortgage for your purchase.
Fixed vs. Adjustable Rate
A fixed rate loan carries a higher interest rate than an adjustable, so it may be a more costly option if you don’t plan to stay in your new home for at least five years. Conversely, if you plan to remain there for many years it may be worth locking in a fixed rate – especially if interest rates are at lower than average levels.
Term – 30 Years or 15
While there are loan programs available with various durations, most home mortgages have a term of 30 years. There are some significant advantages, however, to choosing a loan with a 15 year term. Although the payments will a bit higher, the loan will be paid off in only 15 years – and you’ll save thousands in interest.
Points vs. No Points
Some loan programs require the borrower to pay points while others do not. Among competitive lenders, a no point loan will carry a higher interest rate than one with points. The no point loan is probably the best deal if you don’t expect to remain in your new home for more than 2 or 3 years. If you intend to remain for at least 5 years then it’s most likely worth paying the points to get a lower rate.
There are a variety of loan programs available for borrowers who want to borrow more than 80% of the purchase price. Depending upon the lender, the borrower, and the state of the market there are loans available to finance 95% or more of the purchase price. Most of these high loan-to-value mortgages require the borrower to purchase private mortgage insurance.
Mortgage Documentation Checklist
Every lender requests some level of documentation in support of a loan application, though each has its own specific list of requirements. Most will require some or all of the items on this checklist in addition to a completed application form.
Copies of contracts
The lender will want a copy of your purchase contract specifying the price and closing date. If you are selling your current home the lender may want to see the contract on that transaction as well.
Income verification documents
The lender will want copies of pay stubs for the previous 2-4 weeks. Additionally, they may request tax returns with accompanying W-2 and 1099 forms.
You may be asked to supply contact information (name, address, phone number) for your employer to allow the lender to verify your information.
Credit card and installment loan information
The lender may want to see copies of several months credit card statements, as well as payment books or statements for car loans and other consumer debts.
You may be asked to provide statements for bank and brokerage accounts for the past 2-3 months.
Proof of down payment funds
Some lenders require verification that the buyer has the required funds to cover the down payment and closing costs. If any portion of the down payment is being provided by others (family members, for example) the lender will probably require a letter stating that the funds are a gift and not a loan. This is often called a gift letter.
Some lenders may require copies of car titles and ownership documents for other major assets. If relevant, divorce or bankruptcy paperwork should be provided. Borrowers who are relying upon income from a legal settlement or similar source will need to provide documentation.
You’ve considered what it will be like to own your new home, but you probably haven’t given a thought to how you’ll own it. Understanding the different forms of title is the first step toward choosing the right one.
This is where a single owner holds full title to the property. The owner may sell, finance, or encumber the property at his or her discretion. The property passes to the owner’s heirs through probate.
Tenancy in Common
In a tenancy in common arrangement, multiple parties each own a share in the property. The owners do not have to be related, and the ownerships interests need not be equal. Each owner accrues tax liabilities and benefits in accordance with the ownership percentage and may freely sell or transfer his or her interest without consent of the others. The interest of each owner passes to his or her heirs through probate.
This is a common form of title for properties with 2 or more owners. Each owner holds an equal, undivided interest in the property. Upon the death of an owner the interest does not go into the decedent’s estate, but rather passes to the remaining owner(s).
Tenancy by the Entirety
This is similar to joint tenancy, but is only allowed in certain states, and only for use by a husband and wife. Upon the death of either spouse the survivor automatically becomes the sole owner of the property. A property held in this way cannot be sold to satisfy creditors unless the claim is against both spouses (except in certain situations involving obligations to governmental bodies).
Owning Through Other Entities
Property can also be owned by a partnership, corporation, or trust. In this case, the individual(s) involved own an interest in the entity (or, in some cases with a trust, are a beneficiary) – which itself holds title to the property. There are a number of advantages and disadvantages to using each of these entities to hold property. These forms of ownership are primarily used by investors rather than homeowners.
A home purchase contract should include contingencies to protect against uncertainties and allow the buyer the time to complete the required checking and other tasks prior to closing. All of these contingencies should be included.
Every home purchase contract should be expressly contingent upon review and approval by an attorney. Many states provide for an automatic review period regardless of the specifics of the contract.
The contract should be contingent upon the purchaser obtaining a mortgage commitment within a set period of time. The contract generally stipulates that the loan should be at “market” rates and terms – so the buyer can’t be compelled to accept an unfair loan if that is all that is available.
The contract should allow the buyer a reasonable period of time to arrange for required inspections. The exact inspections necessary may vary with area, but typically include a general home inspection (always!), termite/pest inspection, and a radon test.
This is partially covered with a financing contingency – since the buyer will not obtain a mortgage if the property fails to appraise. Nevertheless, it is sometimes worth including a separate contingency – if, for example, the buyer does not require a mortgage but wants the appraisal anyway.
Repairs and cleanup
If the purchaser’s willingness to buy is based upon certain action by the seller – making a repair or removing excessive garbage or debris, for example – the contract should contain an express contingency to that effect.
Sale of buyer’s home
Some contracts are contingent upon the sale of the buyer’s home to another party. While it is often difficult to get a seller to accept this type of condition, a buyer who cannot otherwise afford to proceed has little choice but to try.
Some transactions require special conditions. For example, if the home needs a significant work the buyer may want a contingency period to get pricing from contractors.
Whether your offer is in the form of a contract or a letter, it’s important to make sure it includes all of the required information.
Buyer name and contact information
The offer should include the full name of all proposed buyers as well as contact information (address, phone number, etc.).
Seller and property information
The offer should include the seller’s name(s) and the address of the property to be purchased.
Purchase price and terms
The offer should clearly state the purchase price being offered for the property as well as any terms that are required.
The offer should include a complete breakdown of any deposits as well as a description of how they will be handled prior to closing. Typically, a small deposit is made with the offer (or shortly thereafter), with the balance of 10% of the purchase price due in 7-14 days. All deposits should be held by an attorney or escrow agent and should be refundable unless the buyer defaults on the contract.
The offer should specify the proposed closing date. Of course, the date is approximate at this stage.
All contingencies should be clearly specified in the offer. Typically, a home purchase is subject to the buyer obtaining a mortgage and conducting a series of inspections. The offer should specify time limits to satisfy each contingency.
Contracts and attorney review
If the offer is not in the form of a contract the letter should clearly state that it is subject to a satisfactory contract being drawn. If the offer is a contract it should provide for an attorney review period of at least three business days during which either party may cancel.
Buying a Fixer Upper
If you’re considering a home that needs some work it’s even more important to do all of you homework. A fixer upper can turn out to be your dream home – or a nightmare of delays and cost overruns – so it’s essential to learn everything you can at the outset.
Don’t Forget the Contingencies
Make sure your purchase contract includes sufficient contingencies to allow you to have the property reviewed by a home inspector and a contractor – and to back out if you don’t like what they tell you.
Is There Potential?
If you make the effort, do the work, and spend the money…will you have what you hope you will? Some fixer uppers can be wonderful homes once they are restored – but not all.
Inspections, Inspections, Inspections
The number one goal when buying a fixer upper is avoiding surprises. Surprises in home renovation are almost always bad – and expensive. Before you close title on any fixer upper it is essential to have a comprehensive, top to bottom, inspection done. Find out what is wrong before you close, not after.
Are the Bones Good?
Installing trim, fixing sheetrock, and painting walls is one thing – major structural work is another. Make sure your fixer upper is sound structurally. Unless you are very familiar with construction work it is probably best to avoid a property with any major foundation or framing problems.
Price What You Can
It’s probably impossible to get solid pricing before the closing on every repair and improvement you are planning to do, but it is essential to get a reliable approximate cost for the project. Have your contractor inspect the property with you and give you firm pricing on the major projects – and some guidance on the rest.
Financing the Fixer Upper
One thing is certain – you’ll still be spending money after the closing. Possibly a lot of money. Make sure you include the improvement costs in your budget – and add a generous contingency factor as well. Poor funding is probably the #1 cause of home improvement problems, so make sure your financing program will provide the money you require.
Do It Yourself Fixer Upper
It can be very dangerous to purchase a fixer upper based on the assumption that you will do the repairs yourself. Homeowners often find they lack the skill, tools, time, or motivation to complete improvement projects themselves – often in the middle of the work. This is bad enough, but if you buy a property you can only afford to improve if you do the work yourself – and then find out you can’t finish – you could have serious troubles. Be careful.
Multi-Family Housing Checklist
It’s important to consider all of the issues that pertain to multi-family housing before deciding to purchase this type of unit. Review the items on this checklist so you don’t miss anything.
Take a close look at the community
Is the housing density too high? Are the buildings attractive? Will you have enough privacy? Check out the parking situation – are there garages? Is parking reserved or otherwise restricted?
Review the project amenities
Most multi-family projects offer community amenities, including open space, playgrounds, tennis courts, swimming pools, gyms, and golf courses. Find out whether you will be able to use the facilities as a resident or if you will need to join a separate organization (and pay an additional fee).
Check out the maintenance arrangements
Because multi-family homes are interconnected, maintenance is generally handled by the homeowner’s association. Find out which items are your responsibility and which are handled by the association. Are the landscaping and building exteriors well maintained or do they appear to be neglected?
Check out the maintenance reserves
The homeowners’ association should maintain cash reserves to replace and repair building systems (painting, roof replacement, etc.) on a reasonable schedule. Inquire about these reserves. Do the amounts seem adequate? Is the work schedule reasonable or is it overly optimistic?
Review the rules and regulations
Multi-family communities generally have rules and regulations to protect the interests of all residents. There are often rules covering parking, pets, rentals, and renovations or improvements to units. Make sure that the rules do not interfere with your use and enjoyment of the property.
Check the monthly maintenance fee
The costs of maintaining public spaces and amenities is paid by a monthly fee assessed to each property owner. These fees are mandatory and non-payment can result in the establishment of a lien against the property for the amount due, plus interest. Check to make sure the fee is reasonable. If the community has been complete for several years, check to see if the fee has been increasing unreasonably.
Watch out for runaway boards
The homeowners’ association is run by a board consisting of community residents. While it stands to reason that they would act in the best interests of the community, the sad truth is that many of these board members begin to act as petty dictators, imposing their will on their hapless neighbors. If a community seems to have a runaway association board you may want to consider looking elsewhere.
Is the homeowners’ association protected?
Check to make sure that the homeowner’s association is not subject to any pending litigation. Legal troubles can result from a number of sources — contractors injured while working on the site, disgruntled residents, etc. Make sure that the association carries sufficient insurance — at least $2-5 million.
What are you allowed to do to your unit?
Check to see what changes you are allowed to make to your unit. Typically, owners are allowed to make non-structural internal changes, but must obtain approval for any other work. This is not universal, however, so it makes sense to find out exactly where you stand.
Evaluating Real Estate Markets
Real estate markets are extremely cyclical, with pricing and demand greatly influenced by interest rates and economic conditions. Flexible buyers and sellers can often do very well by timing their entry into the market.
Choose a Weak or Strong Market?
Most people who buy a home also have one to sell. Thus, except for first-time buyers, it may be difficult to determine the most advantageous time to enter the market. It’s important to consider all aspects of the transaction – the homes being bought and sold, interest rates, time pressure, etc. – to determine what is best for you.
When is a Weak Market Best?
Generally, it is advisable to act during a weaker market when moving up – purchasing a more expensive home – since a bargain on an expensive new home will offset losses on the old one.
When is a Strong Market Best
If you are downsizing – moving to a smaller home – you may want to act during a strong market to maximize gains on your larger, current home. Retirees and empty nesters are the primary members of this group. Since a home is a major asset, choosing the right time to sell and then buy a smaller property can have a major impact on retirement savings.
Signs of a Weak Market
A weak market is characterized by large numbers of homes on the market and stable or declining prices. During such times homes tend to sit on the market for fairly long periods, and sellers may have difficulty finding buyers – so this is the time to find a real bargain.
Signs of a Strong Market
A strong market is characterized by appreciating prices, tight inventories, and short selling times. Buyers may have a difficult time finding a suitable property in their price range.
Signs of an Overheated Market
Overheated markets are characterized by rapidly increasing prices, extremely low levels of available inventory, and bidding wars for attractive properties. While obviously an ideal time to sell a home, buyers should exercise extreme caution when purchasing during an overheated market – prices almost always contract sharply when the economy falters.
Popular perceptions and pricing often lag behind the actual turn of a market. For example, prices are often slow to react to the onset of adverse economic conditions, as sellers and agents are reluctant to accept the change until properties have languished on the market long enough to force price reductions.
Nothing causes greater stress and disappointment than chasing after homes that are out of reach. Start your search with an honest assessment of what you can comfortably afford to spend.
Keep Your Payments Affordable
Most lenders consider home payments to be affordable if the combined mortgage, property tax, and homeowner’s insurance costs equal 28% or less of the owner’s gross income. While this is a good starting point in calculating your affordability level, don’t forget to contemplate other costs – utilities, commuting expenses, maintenance, etc.
Do You Have the Cash You’ll Need?
Standard mortgage programs require a minimum down payment of 20% of the purchase price. While numerous alternative programs exist, many of these require the buyer to purchase private mortgage insurance or carry higher interest rates – all of which can considerably increase the monthly payment. In addition to the down payment, the buyer can expect to spend 4-8% on closing costs. Don’t forget moving expenses, decorating costs, and any necessary repairs.
Interest Rates Affect Affordability
Buying when interest rates are low can dramatically affect how much house you can afford. A buyer who can afford the payments on a $170,000 mortgage at 10% can manage a $200,000 loan at 8%. That’s $30,000 of extra buying power for the same monthly payment.
Determine Your Own Comfort Level
While rules of thumb can be useful when determining affordability, each buyer really has to consider his or her own lifestyle and financial situation. Do you have large expenses in addition to your home? Will you want to purchase new furniture or do you have everything you need?
Will Your Employer Provide Assistance?
Companies often provide financial assistance to transferred employees. Some employers pay for moving and relocation costs. Others offer payments to help employees moving into areas with high real estate values. Any benefits of this type can help extend your affordable price range, so find out if your employer provides any assistance.
Homeowner Tax Breaks
Favorable tax treatment is a major benefit of homeownership. The tax breaks offered to homeowners can substantially increase affordability and investment returns.
Mortgage Interest Is Deductible
Interest from a home mortgage is fully deductible from income taxes. Since mortgage payments in the early years of a loan consist primarily of interest, this tax break has long helped buyers afford new homes. The deduction applies to interest on up to $1,000,000 in loan proceeds used to purchase or build a primary and/or secondary home.
Home Equity Interest Is Deductible
Interest on a home equity loan of up to $100,000 is deductible, regardless of the use of the proceeds.
Property Taxes Are Deductible
Property taxes paid to local or state authorities are deductible from federal income tax returns.
Capital Gains Are Tax-Exempt
Capital gains – the profit made when an appreciated home is sold – are completely exempt from taxation, subject to certain limits and conditions. Single filers may exempt total gains of $250,000 and married couples, $500,000. This exemption is subject to a number of qualifications, but usually applies to any property the taxpayer has lived in for two of the previous five years.
Increased Basis for Improvements
Money spent on certain home improvements adds to your cost basis for the house, reducing the amount of any capital gain upon sale. Be sure to keep all receipts and records from home improvement projects.
Working with Your Agent
Establishing a good working relationship with your agent is a major step toward a successful and low-stress homebuying experience.
Who Represents Whom – Understanding Agency
Agency is a relationship where one party (the agent) represents the interests of the other (the principal). At one time all real estate agents represented the property seller. This is no longer the case – agents can now represent either the buyer or the seller. Your agent, therefore, should be acting as a “buyer’s broker” and representing your interests exclusively.
Use Your Agent’s Experience
Most professional agents are extremely knowledgeable about the local real estate market. This is a valuable resource, so use it well. Your agent can help you decide which communities are right for you – and are within your price range. Your Agent Has the Tools Realtors have access to the Multiple Listing Service as well as data on recent sales and closings in the area. This information can be very useful when you are researching the markets, so make sure to include your agent in your planning sessions.
Even the best agent is not a mind reader. Tell your agent what you want in your new home and where you would like to live. Be honest about your price range. Discuss whether you are willing to consider a house that needs work. Talk about home size, style, etc.
Speed is often important, especially when dealing with booming markets or particularly attractive properties. Make sure your agent understands that you want to be contacted at once if something promising becomes available. Provide phone numbers (home, office, cell) where you can be reached at various times of the day.
Agents are salespeople – they typically have strong and outgoing personalities. Don’t forget, however, that it is your home search. Don’t let your agent take charge of the process and show you only a handpicked list of properties. Insist on reviewing the multiple listings and on making your own decisions about what you want to see.
Community Research Checklist
While much of your opinion of a town will be based on your own viewpoint and impressions, there are some objective standards to review as well. Consider these factors when researching a community.
Is the community accessible?
Access is a key consideration of any location. Is the area well served by major highways? How far is the nearest major city? The closest airport? How long of a commute will you have.
Is the school system highly regarded?
School quality is a crucial factor in property value, so it is important even if you do not have children. Are the school buildings and grounds well maintained?
Consider prestige and pricing
Is the town considered an upscale community? Reputation can be important – sought after towns tend to appreciate strongly during good markets and retain their value best when the economy falters. Keep an eye on pricing, however, and make sure there are offerings within your price range.
Is there significant development in the area?
This can be a source of strain on the community as local services become stretched by the growing population. However it also indicates that the area is in demand – and that property values may continue to grow.
Review town services and recreational facilities
Does the community offer parks and other recreational amenities? What services are provided by the town – police, fire, garbage collection, etc.? Is there municipal sewer and water service?
Are property taxes high?
It’s important to check out the real level of taxation. Since many communities use old or outdated assessments, the specified rate may not tell the whole story. Check on the actual tax bills of houses of the size and type you plan to buy – this should give you an idea of what to expect. Also check to see how quickly taxes have been rising in recent years.
Is there shopping and recreation nearby?
Few homeowners want to drive a significant distance to buy groceries or see a movie. Check to see if the town is well served by stores and recreational facilities.
Watch out for problems
Try to discover any potential problems that may impact your quality of life. Is there excessive traffic in the area? Are there any proposals or plans to build an unappealing facility – power plant, prison, etc. – in the area?
Home Evaluation Checklist
While much of what makes a home the right choice is vague and difficult to quantify, there are a number of objective considerations as well. Review the following items to help determine if a house is right for you.
Review the exterior condition
Check the roof and siding for signs of excessive wear. Is the paint peeling or chipping? Inspect the windows and doors – are they in good condition? Check the foundation for cracks.
Check out the lot layout and condition
Is the lot large enough? Is it level and well landscaped? Check the area around the foundation – is the ground sloped away from the house to allow for proper drainage? Does water pool anywhere near the house?
Inspect the basement
Is the basement dry and free of mildew? Check the basement walls – are they free of cracks and other damage? Is the ceiling high enough to allow you to finish the basement in the future?
Rate the kitchen
Is the kitchen large enough for your family? Are the cabinets and fixtures attractive and in good condition or are they dated and worn? Is there enough storage space? Is there a laundry room?
Consider the bedrooms and bathrooms
Are there enough bedrooms in the house? Are they large enough for your needs? Does the house have a sufficient number of bathrooms? Are the bathroom fixtures and vanities modern and in good condition?
Think about room sizes and layout
Does the home have all of the rooms you want – living room, dining room, family room, study, or library? Are the rooms large enough? Does the house have a nice layout with good traffic flow?
Check out the mechanicals
Are the heating, plumbing, and electrical systems up-to-date and in good condition? How old are the furnace, hot water heater, and air-conditioning units (if the home has central air)?
Review the interior finishes
Check out the flooring, interior paint, and wallpaper – are they in good shape or are they old and dingy? Does the home have built-in shelving or other special trim?
Consider the items on your wish list
Does the home have the features that you have identified as important — fireplace(s), two or three-car garage, room for expansion, etc.?
Building a Home
Building a new home can mean different things. Contracting for a new home in a large development isn’t very different from buying an existing house — except that you’ll have to wait until it is built to close. On the other hand, building a custom home on your own lot can be quite different. This type of project is considerably more involved – and potentially more rewarding.
Understanding What Is Involved
Building a home can be an extremely rewarding experience – allowing you to create a custom-designed living space. But building can also be a stressful and difficult undertaking, so it’s important to understand the entire process – and what part you must play to make it a successful project.
Buying in a Development
The most common way to buy a new house is to purchase one in a development. Depending on the size and stage of the project, you may be able to view anything from floor plans and sketches up to fully-furnished models. Most homes built this way are semi-custom – you are usually offered a selection of plans from which to choose. While this method of building offers limited customization, it is also the simplest and easiest.
Building on Your Own Lot
Buying a lot and building your own fully custom home is the pinnacle of the building experience. It is also the most complex and difficult way to obtain a new home. You need to buy the lot, hire an architect, arrange construction financing, and find a builder.
Can You Be Your Own Builder?
Many books and articles have been written extolling the benefits of acting as your own builder or contractor. While it is true that most builders use subcontractors to perform most of the work — and hence you can as well — it is important to understand that homebuilding is a complex job. An amateur builder can easily squander any potential savings — or worse, make a real mess out of the project. So before you consider being your own builder, take the time to do some research and learn about the process.
The failure of homebuyers to make timely selections is one of the primary causes of construction delays. Some items (cabinets, for example) have considerable lead times; others are often subject to back-order. When these products fail to arrive on time, the entire construction schedule can be affected – so make all of these choices well in advance.
How Long Does It Take?
This is a difficult question to answer. It depends upon a number of different factors, each exerting a major influence. The most important factors include:
- The size and complexity of the design.
- The quality of the builder’s organization.
- The backlog of work (how busy is the builder?).
- The topography of the lot.
- The weather.
- The financing.
- The cooperation of the homeowner (making selections, not making changes, etc.).
Building a small, noncustomized home can take as little as 90 days from the date ground is broken. Large custom projects can take 1-2 years. The typical construction time for the average semi-custom home is probably 5-8 months.