The Home Buying Process

1. Determine What's the Right Home For You

Are you looking for a home? Before deciding which house to buy, think about your lifestyle, your current and anticipated housing needs, and your budget. It’s a good idea to create a prioritized list of features you want in your next home – you'll soon discover finding the right house involves striking a balance between your "must-haves" and your "nice-to-haves."
 
To start, consider your lifestyle. If you love to cook, you'll want a well-equipped kitchen. If you're into gardening, you'll want a yard. If you're planning your office at home, you may want a room for a separate library or work space. If you have several cars, you may require a larger garage. Use this list as your search guide.
 
Next, think about what you might need in the future. As you consider your housing needs, it's important to consider how long you may live in your home. If you're newly married, you might not be concerned with a school district right now, but you could be in a few years. If you have aging parents, you may want to look at homes that offer living arrangements for them as well as you.
 
It’s important to think about your new home’s location just as carefully as you do about a house’s features. Location is a huge part of any move. In addition to considering the distance to work, you need to evaluate the availability of shopping, police and fire protection, medical facilities, school and day-care, traffic and parking, trash and garbage collection, even recreational facilities.
 
Perhaps the most important decision is deciding on the type of home you want. Do you want a condominium or a co-op? A town house or a detached single-family home? Do you want brick, stone, stucco, wood, vinyl siding, or something else? Do you prefer a new home or an older one?
 
Through all of this, make sure to talk to your real estate professional about where you want to live. While more buyers now use the Internet to gain access to listings, it is still a good idea to use an agent. The agent brings value to the entire home buying process: he or she is available to analyze data, answer questions, share their professional expertise, and handle all the paperwork and legwork that is involved in the real estate transaction. CENTURY 21 professionals have the expertise to help their clients narrow down their choices by sharing market trends and local information.
 
2. Calculate How Much Home Can You Afford
 
Now that you know what you're looking for, the next step is figuring out what type of home you can afford. A review of your income, savings, monthly expenses, and debt will be necessary.
 
Early on in the process, you'll want to get pre-qualified for a mortgage loan, which helps determine how much you can afford. It enables you to move swiftly when you find the right home, especially when there are other interested buyers. It also indicates to the seller that you are serious and can afford to buy the property. A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you'll be able to finance through a loan and what your monthly payment will be. When you find a home to buy, a pre-approval also reassures the seller that you have the financial means to purchase his or her home.
 
Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. It pays to check with several lenders before you start searching for a home.
 
The price you can afford to pay for a home will depend on several factors, such as:
 
  • gross income
  • the funds you have available for the down payment, closing costs and cash reserves required by the lender
  • your debt
  • your credit history 
  • the type of mortgage you select
  • current interest rates
Another figure lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (also known as PITI).
 
Each buyer is unique and a mortgage professional can help you find out just what you can afford. Your income and your debts will typically play the biggest roles in determining your price range. It's simple to make an estimate, just run the numbers for yourself using an Affordability Calculator.
 
3. Know Your Neighborhood
 
When you buy a home, you're investing in a community. You'll spend a significant amount of time and money supporting the schools, community organizations and commercial centers in the surrounding areas. Before you make the final decision, take a good look at the location and make sure it fits your needs.
 
Evaluate the properties proximity to other important locations in your life. How long will your commute time be? Is there a hospital or doctor's office nearby? What about schools, childcare, shopping, family and friends?
 
Consider all your transportations options. A new home could lend itself to public transportation options or car-pooling. Depending on the type of community, you may be able to find alternative methods of transportation. Take the time to drive from the new home to your commuting destinations to understand the impact it will have on your lifestyle.
 
Visit and understand the school district you'll be moving in to. Even if you don't have children in the school system now, you may some day. The district reputation could positively or negatively impact the selling price of your future home as well.
 
Make sure you feel comfortable in the area. Drive around the neighborhood at different times of the day and night on multiple days of the week to observe activity/noise levels. Discovering that barking dog next door or noisy road conditions will eliminate unneeded stress from a hasty decision.
 
CENTURY 21® real estate professionals are experts in the areas they serve. Ask your agent for a list of schools, shopping centers, parks or other important amenities. Buying a new home is about more than the structure and property. It's about your new lifestyle as well.
 
4. What If You Already Have A Home?
 
Buying a new home and selling an existing home at the same time has it's own set of difficulties. But with planning, you can ensure everything goes smoothly.

Before putting your house on the market or committing to buying a new one, take a look at the prices of houses in the areas where you'll be both selling and buying. You'll need a realistic idea of how much similar houses are going for.

Since you're both a buyer and a seller, you'll need to protect yourself in your weaker role while letting your stronger role take care of itself.

What if you're unable to perfectly time the sale of one house with the purchase of another? You may own no houses for a time, in which case you'll need money in the bank and a temporary place to live. Or, you may own two houses at once. That's why it's important to have a back-up plan. Here are some options to consider:

  • Research short-term rental and storage options (family, friends, storage facilities, containers).
  • A bridge financing is a loan for the down payment on a new home backed by the equity in your old house.

Alternatively, you may be able to draw on a home equity line of credit on your old home.

Talk to your lender to get what options may be available to you.

Buying a Second Home

Buying a second home isn't that much different than buying a first home. Affording it usually depends on your ability to qualify for a mortgage on the second home. Benefits include tax breaks, a getaway for the family on vacations or holidays, a future retirement home, renters making your mortgage payments for you, or just a smart investment.

Many people see buying a second home as an investment opportunity. You'll need to identify sources for your down payment, since you're not selling your current house and using the proceeds, and you'll need to expect a larger monthly obligation for housing expenses.

Keep in mind that if you declare it as a rental, your mortgage might be slightly higher. Work with your lender to create a customized loan program with the best combination of rate, points, and closing costs for your needs.

5. Shopping For A Home

Selecting a buyer's agent to help you find your dream home is an important first step. He or she can represent the buyer's interest in a real estate transaction. Before making a decision, however, have a realtor explain the pros and cons of using a buyer's agent versus a sales or dual agent.
 
When you're ready to visit houses, ask your CENTURY 21 professional champion to help you with:
  • Arranging showings
  • Tracking of the properties you've seen.
  • Identify if the home meets your criteria - refer to your "what's right for you" list
After touring each home, write down what you liked and didn't like. Develop a rating system that will help narrow the field. For example, pick the house you like best on day one and compare all other houses to it. When you find a better one, use the new favorite as the standard.
 
6. Working With A Real Estate Agent
 
Buying a home is one of the most important decisions you will make. That's why it's in your best interest to choose an experienced real estate agent who listens to and understands your needs, and works in the area where you want to live. When you choose a CENTURY 21 Agent, you're dealing with an experienced professional who understands your concerns and will provide you with the personalized service that makes all the difference.
 
CENTURY 21 is in 68 countries, with more than 7,700 offices, 104 languages, and represented by 117,000 agents who understand the life changes that real estate decisions can bring. What should you expect in your first meeting with a real estate agent? A CENTURY 21 agent typically will talk to you about the neighborhood where you want to live, home prices, schools, transportation, and the surrounding commercial and residential areas
 
7. Making An Offer To Purchase
 
Once you’ve found your dream house, it’s time to get started with the financial and contractual side of the purchase. Let your CENTURY 21® professionals guide you through this process. Purchase contracts vary in length and terms from state to state, and within a state, from locality to locality. Because you and the seller have different goals, rely on your CENTURY 21 agent’s experience and expertise. He or she can bring order and calm to the process and will know what questions you may not know to ask to help you reach a favorable outcome.
 
Multiple home purchase offers on the same home are not uncommon, so you may only get one chance to make an offer that the seller will consider. That's why it's important to think carefully about your strategy. In most cases it is better to have your real estate professional negotiate the offer. If you have any personal interaction with the homeowner, don't give out any information about your move, your current housing status, financial status or your feelings about their property - positive or negative. This could hurt you in future negotiations.
 
How Much?
 
Find out what other homes have sold for in the area, how much money you might have to put into repairs or renovations. These considerations factor in with how much you're comfortable spending.
 
Also, it helps to know the features that help or hurt resale. In some areas, a swimming pool actually detracts from a home's value and makes it harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may affect the home sale and future value.
 
In addition to sale prices for other homes, there are several ways you can determine a good amount to offer:
 
The condition of the house. Is the home in move-in condition, in need of paint and other cosmetic improvements, or a fixer-upper that needs some real work?
 
If you are in a buyer's market — where there are more homes for sale than there are people to buy them — prices are probably stable or falling. If you are in a seller's market — where there are more buyers looking for homes than there are homes for sale — prices are probably moving upward.
 
If you've gotten a credit pre-approval, you know how much you can borrow for your home purchase. Of course, you may not be comfortable paying as much as you've been approved to borrow, so think carefully about your financial situation before making an offer.
 
Next, decide how much you are willing to pay for a home. Remember, the advertised price of a house is just a starting point – it may take quite a bit of negotiating to arrive at a final cost.
 
Buying a Home With Cash
 
Though most buyers don't buy a home with all cash, anyone considering such a move may be wondering how. Because all cash buyers sidestep the time-consuming loan qualification process, the deal can close very quickly. The primary advantage of buying a home with all cash is completely avoiding mortgage interest. Buyers also save money that would be spent on loan origination fees, required appraisal, some closing costs and various other charges imposed by the lender.
 
At the same time, all-cash buyers should consider potential pitfalls of the transaction. Buyers who want to use the home as their primary residence lose out on many of the tax advantages available to homeowners with conventional loans.
 
If you can afford to pay cash but are concerned about price appreciation, you may be better off obtaining some financing. Also, look at other investments that are paying off and determine if spending cash on a home is worthwhile.
 
8. Getting A Mortgage
 
It is very important to research your mortgage company before dealing with them. Don’t be afraid to ask any questions you feel necessary and if anything strikes you as odd make sure you comment on it. Make sure you ask for references from satisfied customers.
 
There are several ways to secure a mortgage. You can get one directly by working with a mortgage banker or you can go to a bank, credit union or savings and loan. Your Century 21 Agent can help connect you with a reputable mortgage lender.
 
Many home buyers choose to arrange financing before shopping for a home and most lenders will pre-approve them for a certain amount.  Pre-approval helps buyers to focus on homes that fit your plans and budget. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.
 
Mortgage Interest Rates
 
Some lenders are willing to negotiate on both the loan interest rate and the number of points. Most established lenders set their rates like large corporations set the prices on their goods. However, it pays to shop around for loan rates and know the market before you talk to a lender. You should always look at the combination of interest rate and points and get the best deal possible. The interest rate is much more open to negotiation on purchases that involve seller financing. These loans involving seller financing usually are based on market rates but some flexibility exists when negotiating such a deal. When shopping for rates, look for published rates online.
 
Locking in a mortgage rate with a lender is one way to ensure that the same rate will be available when you need it. Lock-ins make sense when borrowers expect rates to rise during the next 30 to 60 days, which is the usual length of time lock-ins are available. A lock-in given at the time of application is useful because it may take the lender several weeks or longer to prepare a loan application. However, some lenders require borrowers to pay lock-in fees to assure particular rates and terms. Be sure to check that the rates and points are guaranteed and that your lock-in period is long enough. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. 
 
APR: Annual Percentage Rate
 
The APR is the actual yearly interest rate paid by the borrower, figuring in the points charged to initiate the loan and other costs. The APR discloses the real cost of borrowing by adding on the points and by factoring in the assumption that the points will be paid off incrementally over the term of the loan. The APR is usually about 0.5 percent higher than the note rate.
 
Points
 
A point is calculated as one percent of the loan amount. Points that you get charged are additional to the interest rate that is charged on the loan and the point charges varies from lender to lender. A lender often makes his fees by charging points or by negotiating a lower interest rate.
 
Your Credit Report History
 
A credit report is used by lenders as one measure of the risk and a borrower’s likelihood to repay. There are numerous types of credit report issues that would cause a lender to reject your application for a loan, including: missed credit card payment(s), default on a prior loan, bankruptcy in the past seven years, or non payment of taxes. Other black marks on a credit report include any judgment (perhaps for non-payment of spousal or child support) or any collection activity.
 
If you feel that your credit report is wrong, experts say it's best to take it up with the organization or company claiming you owe them money. But if you've been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration.
 
You can order a copy of your own credit report from all 3 credit reporting agencies once per year by visiting
 
Negative Credit Rating
 
There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual's credit report from seven to 10 years. Credit problems are the main reason would-be home buyers are denied a loan. The first step to clearing up your credit is to get a copy of your credit report to make sure that the negative credit information is indeed accurate. Some states now have mandatory timelines to respond to your inquiry or remove the blemish.
 
If your credit report is correct, take care of any outstanding delinquent obligations first. Lenders usually won't consider any borrower who has had a delinquent payment in the past year.
 
Private Mortgage Insurance (PMI)
 
Private mortgage insurance, or PMI, insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price.
 
PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year's mortgage insurance premium is usually paid in advance at the close of escrow, and there is usually a separate PMI approval process.
 
In most cases, PMI can be dropped after the loan to value ratio drops below 80 percent. The Homeowners Protection Act requires PMI to be dropped when the loan-to-value ratio reaches 78 percent of the home's original value AND the loan closed after July 29, 1999. For other loans, find out from your lender what procedure to follow to have PMI removed when your equity reaches 20 percent. For homeowners who have improved their properties and believe that their equity has increased as a result of these improvements, refinancing the property at a loan-to-value ratio of 80 percent or less is another possible way of eliminating PMI payments.
 
How to Apply for a Mortgage Loan
 
Your chances of obtaining a mortgage really depend on all the information that will be contained in the credit report. So, it’s a good idea to get your credit report, before you apply for a mortgage, and correct errors. If there are any inaccuracies you don’t know about, this could cost you thousands of dollars in extra interest or even cause a denial of credit.
 
When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the house you'll buy) to determine your loan eligibility. Here's what you'll need to provide:
 
  • The name and address of your bank, your account numbers, and statements for the past three months
  • Investment statements for the past three months
  • Pay stubs, W-2 withholding forms, or other proof of employment and income
  • Balance sheets and tax returns, if you're self-employed
  • Information on consumer debt (account numbers and amounts due)
You'll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report. If you've already made an offer on a house or condo, you'll need to give the lender a purchase contract and a receipt for any good-faith deposit that you might have given the seller.
 
Once you apply, your lender will verify all the information you’ve provided. This is a loan approval process and it can take several weeks, depending on the type of mortgage you choose and other factors that will affect your approval such as fulfillment of contract contingencies.
 
Since the home that you're purchasing will serve as collateral for the loan, the lender will order a market value appraisal of the property. The lender will not lend you more than a certain percentage of the value of the property. If your down payment will be less than 20 percent of the value of the property, your loan will require private mortgage insurance and the lender will obtain insurer approval. If the lender has not already done so as part of a pre-approval process, it will verify your employment and bank accounts as well as obtain and evaluate your credit report.
 
Want more information? Contact Us for expert advice and to put you in touch with a reputable loan officer.
 
9. From Accepted Offer To Closing
 
Home Inspections
 
This is a major step in the buying process and there are many potential problems that can be discovered during this period.  These include a leaky roof, radon gas, termite damage, a foundation problem, and wall cracks, to name a few.  These problems happen all the time.  The difference between closing on your dream home and starting the process all over again is what occurs during the negotiations between you and the seller.
 
Your Century 21 professional can help make these discussions go more smoothly.  In most states you will also have the option of a walk-through before the closing.  This is your last chance to make sure that all of the items that you have agreed upon were completed to your satisfaction.
 
Homeowner's Insurance
 
Protecting your new home with insurance is a must. How well you do that depends on the details of your policy. And while you are not legally required to have homeowners' insurance, mortgage lenders stipulate that you do.
 
A standard policy will suffice in most instances. It protects against several natural disasters and catastrophic events. However, it will not guard against earthquakes, floods, war, and nuclear accidents. The policy can be expanded to include these disasters as well as coverage for such things as workers' compensation. In fact, the lender may require that you purchase flood or earthquake insurance if the house is in a flood zone or a region susceptible to earthquakes. You also can increase coverage beyond the depreciated value of personal property such as televisions and furniture by purchasing a replacement-cost endorsement.
 
Timeline and Paperwork
 
The closing meeting is where ownership of the home is officially transferred from the seller to you. 
 
First, the closing agent reviews the settlement sheet with you, answers any questions, and asks you to sign the settlement sheet.
 
Then, the closing agent asks you to sign the other loan documents. Evidence of required insurance and inspections is also presented (if it wasn't previously given to the lender).
 
After that, if everyone agrees that the papers are in order, the buyer submits payment to cover the closing. If the lender will be paying your annual property taxes and jomeowners' insurance for you, a new escrow account (or reserve) is established at this point.
 
After the meeting, the closing agent officially records the mortgage and deed at your local government clerk's office or registry of deeds. This legal transfer of the property may take a few days after closing. The closing agent usually will not disburse the funds to everyone who is owed money from the sale (including the seller, real estate professionals, and the lender) until the transaction has been recorded. It is at the point of deed recordation that you become the official owner of the home.
 
10. Moving To Your New Home
 

Home Moving Checklist

Six to eight weeks prior:

  • Purchase or rent moving supplies: tape, markers, scissors, pocketknife, newspaper, blankets, moving pads, plastic storage bins, rope and a hand truck. Free boxes can usually be obtained at a local supermarket, but consider purchasing wardrobe boxes for moving clothes.
  • Have a garage sale to clear out unwanted items and plan accordingly. Consider donating unwanted items.
  • Keep a detailed record of all moving expenses. Your costs may be tax deductible depending on the reasons for your move.

Two weeks prior:

  • Hire a reputable mover or rent a moving truck. Be sure to get referrals or references, check with the Better Business Bureau, get estimates, purchase moving insurance.
  • Two weeks before moving day, contact your telephone, electric, gas, cable/satellite, refuse and water companies to set a specific date when service will be discontinued. Contact utilities companies in your new town about service start dates, including Internet & long distance telephone services.
  • Notify healthcare professionals (doctors, dentists, veterinarians) of your move and ask for referrals and record transfers.
  • Register children for school and ask for school records to be transferred.
  • Notify lawn service, cleaning and security companies when service should be terminated.
  • Advise the post office, publications and correspondents of change of address and date of move.
  • Check your homeowner's insurance and make arrangements for new coverage.

Moving Day

  • Have tools handy for breaking down beds and appliances.
  • Move valuables (jewelry, legal documents, family photos & collections) yourself - don't send them with the moving company. Make sure you have a complete Home Inventory of all your possessions.
  • Give every room a final once over. Don't forget to check the basement, yards, attic, garage and closets.
  • Have the final payment for the movers and money for a tip
  • Don't forget to check in with your local CENTURY 21® Real Estate Professional - he or she may be able to provide useful local advice, and/or referrals.