(Realtor + Buyer Specialist with Team Callahan)
So you want to buy a house and don’t know where to start. You are in luck! I help guide home buyers through the home buying process every day! Here are 5 easy steps to buying your new home!
Preparing to Buy your New Home
Making the choice to purchase your new home can be overwhelming. There are many things that can run through your head. The first is usually the thought of “Can I afford a mortgage or should I continue renting?” The funny thing about this question is that you are already paying a mortgage, it is just not your own! Get your calculator out and multiply 12 by the amount of rent that you pay every month. Wow! Isn’t that a lot more than you thought? You are paying that to your landlord’s mortgage. What if you paid that towards yourself instead? Each year you would be paying yourself for your own home and paying down the mortgage while increasing equity (aka the amount of money the house is worth in the current real estate market). This is the first step to creating wealth for yourself while having a home to call your own. Pretty cool, huh?
The next question I hear a lot about is “How much money do I need to buy a house?“. This depends on a couple different factors. The first factor is what type of loan program you are using to buy your new home. The main ones are usually FHA, Conventional and VA. FHA requires at least 3.5% of the purchase price be put down at closing. Conventional is usually at least 5% down payment. I have seen some lenders do 3% on the lowest end for this type of loan. For a VA Loan, which is for our country’s military service members, you do not need a downpayment, just proof of eligibility. These are the most common in the Savannah market. Many buyers are under the impression that you have to have at least 20% down payment saved and this is not the case! Purchasing your own home is very affordable!
Another cost that you will have when buying your new home is closing costs. These usually cost about 3% of the purchase price and cover the lender and attorney fees. The Buyer is responsible for these costs in the state of Georgia. The closing costs are negotiable in the contract and the Buyer can request the Seller’s help during the negotiation process. In our current market, most Buyers pay for their own closing costs simply because the market is so competitive. Another 1% of the purchase price goes to the first year of home insurance and taxes as well as a few months of impounds for the escrow account that the lender sets up at closing. What is an escrow account, you say? Every month when you pay your mortgage payment after closing, a portion of that payment is saved in your escrow account to save for taxes and insurance each year. The lender pays these bills every year for you, so you do not have to. To summarize, closing costs are usually 3% of the purchase price for lender and attorney fees with an extra 1% for starting your escrow account, taxes and insurance at closing.
Hiring your real estate agent:
Once you’ve decided you are ready to buy, the first step in that direction is to hire your real estate agent! There are many different agents that you can choose from. I always believe that you should pick an agent that you trust to work hard for you while you purchase your new home! Someone that you get along with is always a plus since you will be spending a lot of time together during this process. There are a number of ways that you can find your real estate agent if you don’t already have one. One way is to do a Google search. You can read through the reviews online, which is always a good way to get third-party opinions about an agent. Another way is to ask your friends and see who they had great experiences with. Choosing your agent is a very important piece of the home buying process, since they will be representing you in the purchase of your home and negotiating on your behalf. Once you do decide on an agent, you will be required to sign an Exclusive Buyer Brokerage agreement that allows the agent to work with you on the purchase of your home. Once you sign this, the agent will have permission to advise you, negotiate on your behalf and take you through the process from beginning to closing on your new home.
Once you have hired your Realtor and decided that you are ready to purchase your new home, the next step is to talk to a local lender.
Talking to a Local Lender
Once you are ready to move forward in the home buying process, the next thing you will need to do is talk with a local lender and put together a financial strategy. I always recommend asking your realtor for their recommendations for a lender, since they work with them every day and know the vital importance of using the right lender in the home buying process. The lender will ask you to apply online. They will check your income, debt and credit score as well as your debt to income ratio. From all of this information, they will give you your pre-approval number, interest rate, down payment on a cost worksheet, so you will have an idea of what fees that you can expect when you close on your home. I always recommend to my clients to talk to a couple different lenders to shop and compare their rates and fees. Just make sure to do this within a 14 day period, so it doesn’t affect your credit too much.
Shopping for your New Home
Once you have hired your Realtor and are pre-approved for your loan, it is time to go shopping!! Your Realtor will send you lists of homes that work with your criteria and will schedule showings for you. While you are in the homes, your Realtor will give you their opinion of value and condition according to the location and price as well as any extra information that they have about the property. Once you have found a property that you want to write an offer on, your Realtor will put together a negotiation strategy for that house. All Realtors differ on how they do this. A negotiation strategy in this market must be creative and strong to win! Your Realtor will advise you on how to do this. Once you have signed your offer, your Realtor will submit to the listing agent and negotiate on your behalf. Usually in about 24 hours or less, you will have an answer from the seller. If you win, you will be under contract!
From Under Contract to Closing on your New Home
Once you are under contract, there are a couple stops before you get to closing. The first step is to drop off your earnest money. This is negotiated in the contract. It is usually about 1% of the purchase price and it usually is deposited with the listing broker to hold the contract. This money is held as a sign of good faith from the buyer to the seller until closing. At closing, if the buyer has performed the contract, that earnest money will go towards the closing costs and down payment at closing.
The next step is to schedule an inspection during your due diligence period. This period is usually around 7-10 days in our market. During this period, the buyer is allowed to schedule inspections, have contractors bid work and quote home insurance. It is a good idea to take this time to get a full picture of the house you are about to buy. If everything goes well, you will move forward towards closing on your new home. If there is something found in inspection or the buyer decides to terminate their contract, they can do so at this point and get their earnest money returned. If they are good with the results of the inspection and the condition in the house, the buyers will move forward.
The appraisal is the next step when you are under contract. The lender hires a third party appraiser to go to the house and assess the value of the home. They will gather comparable sold houses in the area and provide their assessment of the value of the house.If this number comes in at purchase price or higher, we are good to move forward to closing without any issues. If the appraisal report comes in lower than the purchase price, we will provide comps to the appraiser to ask them to adjust their report. If this does not work, we will go to the Seller and ask them to reduce the price. There are some sellers that will agree to this, just since they do not want to start the process over with another buyer, some will take the chance. I have seen it both ways. This situation is tough, especially in our market that has these bidding wars on the properties on the market. We have seen many appraisal issues in this market, so it is always best to be prepared to pay out of pocket if you are bidding a lot higher than the list price.
Once the appraisal is finished and processed by the lender, the lender will send out a final closing disclosure for the Buyer to sign a few days before closing. By law, they usually need 3 business days between the signing of the closing disclosure and the signing of the closing paperwork. Sometimes these numbers vary, just realize that they are all estimates until we get to the closing table. The attorneys will send over the wiring instructions for the closing funds needed. These funds should be wired before closing day.
On your closing day, your Realtor will schedule a walkthrough of your new home you are about to purchase! This is important to do on the day of closing, so you can say that you are completely comfortable with the condition of the home that day before you sign the papers. Once you have done your walkthrough, you will go to your appointment at the closing attorney’s office and sign your paperwork there. Once signed and the funding documents are accepted by the lender, you have done it! You are officially a homeowner!!!!
There it is! Five easy steps to buying a new home! Some parts are more complicated than others. The most important part is choosing your Realtor, which will smoothly guide you through the process. Interested in starting this process? I would love to walk you through it!
Happy Home Buying,