The American Dream of owning a distinct home in a distinct neighborhood is alive, well, and possible. For many reasons prospective homebuyers often fail to turn this dream into reality. My goal with this checklist and review and the comprehensive real estate primer on my web site is to help you understand the process of buying and selling real estate.
This Buyers Checklist and Review is your first step. To get you started in understanding the process I am providing a short overview of the home buying process, from concept to reality. Since this short guide cannot possibly answer all your questions, please contact me, Casey Margenau, with your questions at casey@margenau.com or call me at 703-827-5777. When you call or e-mail me you can rest assured that I will not contact you again unless I have your permission. I have a large and distinguished clientele and I respect their privacy. My goal is to leave them free to concentrate on finding the home that fits their needs by taking care of the details and negotiating the best price for them.
Planning
How Much House?
Before you begin your search for that "dream home" it's a good idea to do a little planning. Knowing how much house you want to buy will bring your house hunting into focus.
You will have to consider how much you want to spend for monthly payments and how much you want to invest in the down payment. Monthly payments include four costs called P.I.T.I., principal and interest on the mortgage loan plus property taxes and insurance against fire and other hazards. (Monthly housing costs may also include homeowner association dues, condominium fees and mortgage insurance.)
Pre-Qualifying
The smart buyer works with a Realtor to understand financing before shopping for a home. After all, your home is an investment and its worth is not so much determined by sales price as it is by a number of other economic issues including the financing which translates that price into a monthly payment.
The pre-approval program from a lender is a program that lets you know exactly what mortgage you will qualify for right from the start. As part of the program you receive a letter of approval that identifies the maximum mortgage, monthly payment (P.I.T.I.), qualifying interest rate and the type of loan. This letter shows that you're a qualified buyer which puts you in a better position with the seller. We have set it up for you to apply online at casey@margenau.com. If you decide to use this resource you will have good competent local loan officers bidding for your business.
Sources for Your Down Payment and Closing Costs
The obvious source of money for your down payment and closing costs is either your savings or the proceeds from the sale of a home you already own. But there are some other not so obvious sources. Consult with your financial advisor or casey@margenau.com if you have questions regarding down payments.
Figuring Your Housing Budget
Generally, lenders figure that the home buyer shouldn't pay more than 25-33% of gross income for principal, interest, taxes and insurance (PITI) payments, or 33-41% both PITI and monthly debts combined. This might be a little more or a little less depending on other outstanding long term debts, alimony/child support payments, number of children and their ages, other household budget items, loan type and down payment. The easiest way to make a quick estimate of the mortgage amount you may qualify for requires applying these two basic formulas. Keep in mind the loan amount you qualify for will vary according to the length of the loan and the interest rate, although the result (your maximum allowable monthly payment) is the same.
Two Lender Formulas
Most lenders will require that loan applicants meet a set of guidelines before approving a mortgage loan. For conventional loans, the first formula compares income to housing costs without including long-term debts. The second includes all debts.
25-33% Formula
Total Monthly Housing Costs (P.I.T.I.),.
Gross Monthly Income = 33% (or less)
33-41% Formula
P.I.T.I. + All Monthly Debts. Gross Monthly Income = 41% (or less)
To figure your housing budget, simply reverse the two formulas by multiplying your gross monthly income (before taxes) by 28% and 41%.* For example, a family with a monthly income of $12,500 might qualify for a mortgage on a house that produces payments between $4125 (without debts) and $5125 (including debts). For specific figures, contact casey@margenau.com and we will help prepare a housing budget for you.
*These ratios will vary, depending on loan type and down payment.
More Mortgage Help
New types of mortgages, such as graduated payment mortgages and adjustable rate mortgages feature monthly payments that start lower than usual in the early years-and thus help home buyers "afford" more and buy sooner by helping them qualify for a higher mortgage amount.
Shopping
House Hunting Begins at Home
The best approach when choosing a place to live is to do some homework. Your move can be an improvement if you duplicate what you like in your present community and avoid what you dislike. Most people pass through three distinct stages: Choosing a County and City; Choosing a Neighborhood; and Choosing a House. We've developed some questions to help you identify your needs and preferences in these areas. Once you've clarified what you like, you will have a better idea of what you want to find in a new community. Our web site casey@margenau.com will provide you with information on the neighborhoods that we specialize in and we will be glad to answer any questions you might have about them. We are also available to help you find the right neighborhood, schools and other information that will suit you and your family.
County and City Questions
- How would you characterize your present area? (Urban, suburban, semi-rural or rural.) What is it you like or dislike about the area?)
- What natural features do you like or dislike? (Woods, hills, flat land, rivers, lakes, etc.)
- How do you commute to work? (Is it far, does it take long? Do you use public transportation? Can someone reach your home on public transportation?)
- Where do you do your shopping? (Imagine a list of typical stops in one week ... how many miles and how much time would visiting the entire list require? Do you want greater convenience?)
- What types of schools does your family currently attend and what type will their needs be in the future? (Is this what you're looking for in a new area?)
- What does the area offer for recreation and entertainment? (Theaters, sports arenas, museums, parks, country clubs, social clubs, indoor and outdoor sports facilities, etc.)
Choosing a Neighborhood
An old real estate maxim says there are three criteria that determine market value: "Location, location, and location." The fact is that the adage is true. The same boards and bricks may be used to build two identical houses at two similar sites, yet the identical house across the country will bring a price thousands of dollars higher. The difference is location ... or neighborhood. The best way to define "neighborhood" is the area surrounding your house. But every neighborhood is a distinct area with distinct characteristics that include: its people (your future neighbors), what it looks like, and where its services are located. No matter how much hard data you gather about a neighborhood, nothing compares to information that can be provided by a real estate agent who knows the neighborhood professionally. I was born and raised in Northern Virginia and am familiar with all aspects of its neighborhoods including the schools, shopping, churches and the people who live here, so check my web site and don’t forget to send me your questions. As a reminder, we will never contact you without your permission.
Neighborhood Questions
- Taken as a group, how would you describe the neighbors? (Families, singles, couples-the ages of the adults and children)
- How do the families earn their livings? (Professional, white collar, blue collar-one or two wage-earner households-Upper, upper middle, middle, lower middle, low income)
- Do the neighbors' interests and backgrounds make them a homogeneous or varied group? (Do you have things in common-do neighbors socialize-do home owners or renters make up the majority)
- What types of dwellings make up the neighborhood? (Apartments, condominiums, multi-family structures, single-family houses, mobile homes, etc.)
- How are yards and homes maintained? (Cars parked in garages, driveways, on the street-age of homes-homes close together or spread apart-homes have swimming pools, tennis courts, fences, walls, patios, extensive landscaping)
- How does the neighborhood rate for convenience? (List your five most frequent destinations-are they clustered together? How much time is required for fire, police or ambulance service to arrive in an emergency? How close are cultural centers, parks, restaurants, theaters, playgrounds?)
- How do the children routinely reach their schools, play areas, friends' homes? (Walk, bike, bus, car, public transportation)
- Do any local ordinances affect pets, parking, lawn care or other activities?
- What are the disadvantages of the neighborhood? (Freeway, railroad, airplane noise, factory pollution, heavy traffic, exposure to heavy storms, possible flooding, etc.)
Choosing a House
In some ways finding a home is easier than choosing a neighborhood, because you are considering tangible details that you are familiar with. As you read and study about buying real estate, you will often find the words "house" and "home" used interchangeably. There is a huge difference between a house and a home.
A house can be a place to eat, sleep, park your car, and put all your "stuff" (including other family members). It is a material possession and an investment. A home is where you feel comfortable, warm, safe, and protected. A house is something you buy logically. A home is an emotional purchase. When buying real estate you have to balance your emotional wants and your logical needs because there will almost certainly be a time when the two conflict. That’s where your real estate professional comes in. He or she can do your preliminary screening for you. After you select the best houses, he or she can help sift through and answer the logical questions.
House Questions
- How many people will be living in the house?
- Do you prefer a new or resale home?
- What is your preferred housing style? (Townhouse, colonial, contemporary, split level, split foyer, Cape Cod, ranch, rambler-note next section, 'Area House Styles")
- How many rooms do you require and what type of special features do you need? (Bedrooms, baths, formal dining room, family room, fireplace, garage, etc.)
House Hunting
Many of my clients find it helpful to keep a record of the houses they inspect. You will find a handy worksheet at the back of this pamphlet that will help you compare your desired features to those in homes you will be viewing. You might also consider taking instant pictures of the houses to compare at your leisure.
Financial Details
There are so many things to consider when it come to the financial aspect of home buying. Please take time to visit my web site www.margenau.com to find comprehensive information on taxes, home mortgages, affordability, etc. Also, do not hesitate to call me if you have questions or want to discuss your situation.
Computerized House Hunting
A complete description of homes you might like to visit can be found on my website www.www.margenau.com.
Offer to Buy
Negotiating the Purchase
All right, you've found your "dream" house! You want to buy it. Now what?
Your agent will submit a signed offer to purchase the house with the type of financing you desire. If the seller accepts it, the offer becomes the sales contract or "purchase agreement." Once you and the seller sign the purchase agreement, you are agreeing to the contract conditions. Your agent will go over the contract with you to make sure you thoroughly understand every detail before you sign it. Verbal agreements will be written into the contract. Ask questions!
Offer and Counter Offers
Your real estate professional will counsel and guide you. When it comes to your offer to buy, your realtor will take the offer to an "offer presentation" with the home seller and the listing broker. The seller will accept it as written, make "counter offers" on unacceptable aspects, or reject it. Your agent will then bring the offer back to you so that you can accept it, counter-the-counter offers, or reject it. The offer to buy only becomes a contract when all parties have initialed every counter offer, signed the offer and received notice of acceptance.
When you sign the offer to buy you will also have to submit a deposit to show that you are earnest about your desire to buy. This deposit is appropriately called "earnest money".
Combing Your Contract
Sales contracts differ, depending on circumstances. However, there are several provisions you may want to include in a contract for the purchase of real estate.
Personal property, for example, is any item in the house that is not physically attached to the house. If there is an item that you are specifically interested in purchasing with the house, be sure to ask your agent if it is already included or if it can be included. He or she will make certain that it is part of the sales contract. casey@margenau.com can elaborate or answer questions regarding any of the following:
- Deposit (including "earnest money")
- Contingency on Financing
- Contingency on Inspection
- Repair Work
Money
Locating the Right Loan
We can help you find a mortgage. However, you should keep your options open. If you want to shop around for a reputable lender with competitive terms, or pre-apply for a mortgage on line please visit me at casey@margenau.com and fill out our on-line form. We will make sure you get 3 or more competent local lenders to bid for your mortgage. Generally, a mortgage approval requires 15-30 days for conventional and FHA and 45-60 days for VA from application to approval. Allow additional time (after approval) to complete closing details.
Ten General Questions Most Lenders Will Ask You
Being prepared is the best way to approach lenders. Here's a sample of the information most lenders will need:
- The amount of money you wish to borrow and the length of time you will need the money.
- Your current address. If you've been at your present address less than two years, they will need your previous address.
- Your social security number.
- Your present employer's address and, if you've been at your present job less than two years, your former employer's address.
- Your gross monthly income.
- Your bank account numbers and your approximate balances.
- Your assets (real estate, personal property, paid-up life insurance, etc.)
- A complete list of your debts, with their account numbers.
- A copy of the purchase agreement.
- An account, in writing, of any problems that will affect your application.
With this information in hand the lender will process your application by:
- Verifying the facts.
- Getting a credit report.
- Making a property appraisal.
- Reviewing your application and all verified information.
- Deciding whether or not to give you the loan.
Mortgage Strategies
When it comes to paying for a home, buyers today have an almost unlimited number of financing options. Some involve financing assistance from the home seller. Others are from standard financial institutions like banks and savings and loans. Here is a partial list of the types of financing available today:
- Owner Assisted
- Second Mortgage
- Wrap-Around Mortgage
- Temporary Buy down Mortgage Plan
- Owner Financing
- Institution Assisted
- Conventional/VA/FHA
- Adjustable Rate Mortgage (ARM)
- Growing Equity Mortgage (GEM)
Details on these mortgages are available at casey@margenau.com or you can contact me directly at (703) 827-5777
Protection
The real estate industry has been a front runner in the area of consumer protection. casey@margenau.com will be able to answer your questions pertaining to warranties that may be available on new home construction or your rights as a buyer in general.
Professional house inspection
A professional inspector can probably spot flaws that you'd miss, especially in areas not easily accessible to a homebuyer. However, if no serious problems are found, inspection can pay off indirectly in assurance that you are making a sound investment. In most cases the money spent on a home inspector is a very good investment. Keep in mind that the service is normally an additional cost that is your responsibility, not the home sellers.
Title Insurance
Title insurance provides protection in the event any of a number of past actions threatens the title of your property. You'll be required to carry title insurance on the amount of the loan from the mortgage company, which protects their interest. You can also carry an “owner’s” policy to protect your interest. If you decide to purchase an owner’s policy, you may save money if you buy it at the same time as mortgage title insurance. casey@margenau.com can answer any questions you have regarding title insurance.
Walk-Through Inspection
This inspection, held the day before or the day of closing, is to determine if all conditions in the contract are satisfied. You and your agent will perform the walk-through inspection to make certain that all equipment is in good operating condition. The home seller should be sure utilities are on so that equipment can be operated.
Closing
The Big Day!
The day you've been waiting for has arrived! Tonight you can pop open the champagne, but today there will be a lot of paper signing and a poignant passing of the keys (don't forget to get the garage keys, and the electric door opener, too). There are four items that are essential for a smooth closing:
- Your down payment must be in the form of a certified or cashiers check (personal checks are not acceptable).
- You'll need your homeowner's insurance policy with proof of one year paid in full.
- Your personal checkbook for paying additional closing costs.
- Bring your driver's license and other proper identification.
A title company representative, all buyers, all owners, and the listing and selling sales associates will attend the closing.
Closing Costs
You will receive an estimate of closing costs from the lender prior to the actual closing. Then at the closing a detailed accounting of all your actual closing costs will be provided for your records.
Signing on the Dotted Line
The title insurance closer will explain the closing statement to the seller and obtain the signatures needed for transfer of title to buyers. The real estate taxes will be charged according to the terms of the purchase agreement. Homeowner dues or condominium fees will be prorated on a daily basis to date of closing. You, the seller and the sales associates will be supplied a copy of closing documents and closing statements. The house keys are passed.
