Buying a new home is tremendously exciting, yet things can get frustrating along the way especially for first-time buyers who are unfamiliar with the process. It’s important that you are mentally prepared for the road ahead and know what to expect so your journey is as smooth as possible. Whether you’re looking to buy your first home or moving on to greener pastures, these frequently asked questions will certainly be a good starting point.
By taking this first step of finding information and learning about the process, you’re well on your way to becoming an informed and smart buyer.
Start by evaluating your individual/family lifestyle needs and familiarizing yourself with your finances – consider what’s important to you at present and for the future. This will help you weigh your priorities and build a realistic wish list for your home search. It will also help you determine your comfortable price-range and how to budget for your home purchase, before you even start looking.
At this early stage you can also look into pre-qualifying (which is different to pre-approval) with a lender and having your down payment and earnest money deposit ready, so you’re well-prepared when you want to make an offer on a home.
You can start by using this simple calculator to determine approximately how much house you can afford. When evaluating how much you can afford for your home and mortgage, conventional lenders usually evaluate 2 things:
1. Your gross (pre-tax) income in relation to your monthly mortgage.
2. Your maximum debt load, including your mortgage payment, and this should not exceed 30 percent of your gross income.
There are many types of mortgages available with varying interest rates, terms and flexibility, and you’ll need to shop around to determine which one will suit your needs best. If you have not explored your options yet, contact me to learn more about acquiring financing and I will put you through to relevant professionals and lenders to answer your questions and assist you based on your needs.
It is useful to note here that pre-approval is NOT pre-qualification. When you pre-qualify with a lender, they are simply determining how much mortgage you can afford based on your income.
Pre-approval on the other hand, is a more formal process and represents an official guarantee from your lender to grant you the loan up to a specified amount. It is advantageous to obtain pre-approval for a mortgage, as this tells the seller you are serious and have already secured your loan; it will make your offer to the seller more attractive and keep you a step ahead of other buyers in the process.
Once you’ve got this far and have found the perfect home for you, it’s important to present a strong offer to stay ahead of your competition, avoid rejection and starting over, or risk losing the home to another buyer. Here are some things to think about, so you’re prepared when it’s time to put your best offer in.
Even though money talks in this instance, as with all things price is also negotiable. The first thing to remember is you need to begin with a realistic number, something you are comfortable with but which also reflects a true value of the seller’s home in the current market.
When arriving at your price it’s important to look at current market values. Evaluating recent (3-6 months) sales in the neighborhood where the home is, and performing a comparative analysis of several similar properties will help you gauge a range.
Next you’ll need to look into local market trends. Is it a seller’s market? Is there little inventory in your location of interest, and in your budget? If so, it usually means you will be competing with multiple offers from other buyers and that homes are selling fast. This is your queue to make your best offer, as soon as you find a house you’d like to call a home. On the other hand when inventory is high and there aren’t many buyers then you have more room to negotiate on your terms.
These market conditions are not cyclical however, and therefore are not predictable. The housing market is dynamic and constantly fluctuating, based on many other economic factors.
A real estate professional will have access to the latest MLS data; will know your current market, most recent neighborhood trends, and can help you arrive at that magic number and negotiate the best deal on your behalf skillfully. Keep in mind that seller and buyer agents keep communication lines open, and your representative will usually know what your competition is looking like and how to give your offer an edge over others in the negotiation.
Terms of Contract
The terms you set in the contract will also affect the strength of your offer. The most important element is your financial terms.
Recently I’ve seen a rise in cash buyers. In most cases if you are a cash buyer, you are at an advantage. Cash offers usually get accepted over financing offers because they close faster, closing costs are lower, and the offer is not contingent on other factors such as approval for financing or appraisal by your lender. All these factors make a cash offer more tempting to a seller. To overcome this disadvantage, a financing buyer would need to either present a higher price, or have fewer contingencies in their contract terms.
When presenting a strong conventional financing offer, it’s important to include a pre-approval letter from your lender as it saves time, gives you an edge over other buyers who have not been pre-approved, and tells the seller you are serious. Also consider your earnest money or deposit. A higher deposit usually shows you’re already sold and are committed to the process.
Other contract terms to consider when presenting your offer:
- Closing date: the sooner the better from the seller’s point of view. Most financed contracts close between 30-45 days. A cash contract can close in as little as 7 days.
- Closing costs: remember this is another financial consideration for a seller. If your offer proposes the seller take care of all closing costs, it will affect his profit from the sale which may affect their approval of your offer. If closing costs are shared it may be more attractive. All this is relative to your specific situation and market, and its best to consult with your agent.
- Inspection: Don’t forget to include terms that protect you as well. A property inspection clause would be the most important and is a must. Completing your inspection the first week or two of your contract date would be wise, in case anything comes up you can either back away from the contract, or reopen negotiation for repairs etc.
- Repairs: if needed repairs are a requirement for you to purchase, you should definitely include this term in writing in your offer right from the start.
No two offers are built the same, the combination of your circumstances, current market conditions, and housing inventory will always affect the terms you should consider including. Working with your agent will help you understand the contract, include clauses beneficial to you, and build a strong offer based on facts and figures that are relevant in your market.
Although buyers can enter a transaction as an unrepresented party, this approach still carries with it a price. For unrepresented buyers, it is harder to know if they’re over-paying and if the contract terms are to their advantage, which usually creates further complications in securing financing.
It is in your best interest to be represented by a licensed real estate professional, who knows the law and regulations, understands the market and your specific needs, and can advocate for you and represent your side fairly in the transaction.
A representative of a buyer client will be loyal to you and will work only in your best interests throughout the entire transaction.
No you will not. In Virginia, typically when a house is listed for sale the seller’s contract with their brokerage will include a clause detailing the professional fee, that will also be paid to your representative for their role in matching the seller with a buyer. You may only need to pay a flat administrative fee for processing and handling of your paperwork.
My buyer representation services include:
- Assisting you with identifying priorities and wish-list items
- Providing resources and information on your communities of interest
- Selecting relevant properties and arranging showings
- Preparing a comparative market analysis (buyer’s CMA)
- Explaining the contract and additional important forms
- Recommending contract terms to protect you, rather than the seller
- Negotiating on your behalf for the most favorable price and terms
- Following up on each step of the transaction, while keeping you informed and addressing any issues if and when they arise.
- 100% confidentiality to protect your bargaining power throughout the transaction.
If you’re not currently represented and would like representation, call me for a confidential consultation. I can review your needs and your budget and help you find the right home for you.