Home Buying 101
How to buy a home... No seriously! I suppose first we have to go house hunting right...
We could but how do we know how much we can afford for a house? well there's a few variables that can affect the answer to this seemingly simple question.
First - you need to figure out if you are going to pay cash (don't worry this is not expected, ever), or finance and what sort of financing you are going to use.
Most people go with a conventional mortgage obtained through their preferred lender. There are also additional programs such as FHA and VA that can help cover some of your out of pocket expenses and even help you qualify for a loan with a low credit score (500 minimum) and a low down payment. But for the sake of this exercise I'm going to just discuss the basics to expect when obtaining traditional financing through a mortgage lender.
First you need to figure out if you are going to pay cash (don't worry this is not expected, ever), or finance and what sort of financing you are going to use. Most lenders agree that people should spend no more than 28% of their monthly income towards housing and no more than 36 percent of total income going to debt.
Example: To calculate how much 28 percent of your income is, simply multiply 28 by your monthly income. If your monthly income is $6,000, then multiply that by 28. 6,000 x 28 = 168,000. Now, divide that total by 100. 168,000 ÷ 100 = 1,680.
I have partnered with my preferred lender to offer a convenient and secure website to calculate your debt to income ratio, projected future mortgage payment and you can even begin the pre-approval process and take the stress right out of that step. Check it out here
Now that you know how much we can afford we know now what homes we should be looking at. If I can afford up to $300,000 on my new home, I definitely don't want to be looking at homes that are 500,000 that I may fall in love with and feel let down when I come back to reality, and even the most impressive homes at 300k may not seem as wonderful as that 6 bedroom 4 bath Modern Farmhouse with the reclaimed wood. Another bonus - You have met with your preferred lender who has now pre-qualified you to receive a home loan. I know it may not seem important but as you start previewing homes, you notice the good ones sell and they sell fast and the last thing we want is that dream home that fits your budget slipping away to the pre-approved buyer who was ready to write an offer on the spot!
Now, we are ready to shop.... so we hop on Zillow!? Okay so we could and trust me I feel the appeal of Zillow and its sister sites (realtor.com & Trulia). But let me please stop you right here - Where does Zillow get the houses they are marketing from? They actually get them from Realtors! Most of the homes you view on Zillow were exported from the Multiple Listing Service (MLS). This is a database that all realtors are required to list all homes for sale and a record of these sales are kept. We pay dues and are held by a strict code of ethics, However MLS shares listings with 3rd party sites like Zillow to help advertise the homes for sale. While we appreciate their service, they are not an accurate and up to date source of homes on the market. So the solution.... You already know what I'm going to say.....
Hire a Realtor!
First, I want you to go ask your closest friends and family if any of them are in Real Estate because the best Realtor you can have is someone you trust and we are in an industry where 90% of our business comes from friends, family and referrals. Don't have a best friend in Real Estate? Lucky you, Here I am! haha, Now I'm sure you are wondering how much this is going to cost you? FREE! Yea, and no strings attached. See buying and selling homes is a bit of a risky process, especially for a buyer. Have you ever seen "Money Pit". You do not want to buy a house, to later find out you over paid, it's falling apart and there's nothing you can do about it. So as a safe guard - there is me! As a buyer's agent, we are here to represent, and protect you - we also have access to every home in the mls (hence our code of ethics) so you can see these homes in person on your schedule, and then we handle scheduling inspections and completing all the contracts and paperwork per Oklahoma law - so yea we are a big deal.
What other costs are involved in the home buying process?
Besides the actual purchase price of your home you will be expected to pay not only a down payment but also closing costs.
Closing costs are the fees associated with "closing"( the point in time when the title of the property and funds are transferred between seller and buyer), Its important to understand closing costs because they make up 2-5% of your homes purchase price. An example of these costs are the fees charged by lenders for checking your credit, originating a mortgage loan and conducting an appraisal on the home you're purchasing. Other possible closing costs include inspections, Private Mortgage Insurance (if you're making less that 20% down payment on conventional loan), and recording fees paid to local government for recording of public land record.
A Down Payment is also expected at the time of closing. This is a cash payment made upfront and is typically combined with a home loan to fulfill the total purchase price of a home. The amount of your down payment will depend on your lender and your type of loan. This can range from 3-20%, for those who are unable to make the 20% deposit amount there are a lot of options available such as FHA loan programs and PMI as I had mentioned in the closing costs.
Okay now that you know what you're getting into and you've found the perfect house, we are ready to make an offer but first we need to "run comps" by checking the MLS, this is how a homes value is estimated, by using the sale records that are maintained in the MLS, We are able to see what compatible (same neighborhood, size, age, features, condition) are on the market, and have recently sold. Because a homes value is based on the market. The bank will also use a similar method when determining how much they are willing to lend against the home. So this helps save us time because any one can ask any price for what they believe their home is worth, example Tom wants to sell his house for 300,000 but the homes in his neighborhood are all selling for 240,000, its likely that no one is going to give Tom $300k, however, maybe Karen finds Tom's house on Zillow and decides to offer Tom the full price for his home, awesome! Now Karen pays for an inspection and completes all the paperwork to get a mortgage to buy Tom's home, well the bank has now come in and said they won't give but 260k for Tom's home, Karen can still buy the house but she will have to come up with the 40k on her own. This is a mistake that happens very often and wastes a lot of time and money to end up having the deal be canceled.
So now along side your buyers agent, you have determined the value of the home you would like to purchase and they will write up an offer with your terms and include your pre-approval and submit to the sellers agent.
The sellers options now are to accept your terms, make a counter offer or reject.
They've accepted! Now what?
Now we have
the property inspected, this is technically optional and if you don't conduct the inspection within 10 days, you lose your right to ask for repairs or costs to make the repairs yourself. Now this may not seem like a big deal, I mean how hard is it to fix a leaky sink? ugh not hard, but it's going to be annoying when your standing in your kitchen that's now sinking into the ground thanks to the failing foundation, that's probably going to cost you 40k (that's a real story, and a real cost we were quoted. Don't worry I didn't let my client buy that home), so I highly recommend having an inspection, will schedule it and supervise it on your behalf. Once the inspection is complete, you have a few options - cancel the sale, accept the home as it is, ask for certain repairs be made prior to closing, or ask for money from seller to make the repairs yourself. We have 7 days to negotiate the terms and your realtor will play a big part in the outcome, like I said you need to trust your realtor, your biggest asset is in their hands, but better theirs then the seller of the home or his realtor, who may be a bit biased.
During this period your lender alongside your Realtor and a trusted title company will work together to complete your home buying process moves smoothly resulting in you taking possession of your new home about 30 days from the date of offer acceptance.
I'm here to help and can assist you in the home buyer process at any stage! Give me a text or call today 405-772-3241
XOXO - You're OKC Realtor