1. Working With a Realtor
A realtor is able to assist you with the research, showing, negotiating, financing, paperwork, and legwork involved with a home purchase. It is important that you take your time to select the realtor that is best for your situation. You should interview several agents and ask them key questions about their experience, knowledge, and dedication. Choose one who can and will communicate with you effectively and will concentrate on showing you only those homes that meet your requirements no matter who has them listed for sale.
In Florida, you have the choice of using a transaction agent, a buyer’s agent, or non-representative agent. Transaction agents have fiduciary responsibilities to both buyers and sellers and work to make the deal happen in a way that satisfies all parties. Transaction broker commissions are paid by the seller. Buyer’s agents represent the buyer exclusively and their commissions are paid by the buyer. You should negotiate a commission that allows you to be comfortable, but also gives the agent an incentive to work hard in your behalf. A non-representative agent can show you properties, but doesn’t have many legal responsibilities to you.
2. Checking Your Credit
Lenders look at your credit history and score (FICO number) to determine how likely it is that you will pay back your loan. So, before you apply for a home loan, obtain a copy of your credit report from one or more of the three major credit rating companies, Equifax, Experian, and TransUnion. Federal law requires them to give you a free copy once a year. You can also ask a lender to obtain your combined three bureau report for you.
Review the information in your report carefully. It will show your entire credit history and your credit score as of the day it was ordered. If you find significant inaccuracies or mistakes, bring them to the attention of the company that compiled the report immediately. Each company has a procedure for correcting errors and it is essential to begin the process before you have found a home to buy or apply for a loan. Once you are in the process of obtaining a loan, it may be too late to convince a lender that your credit has been wrongly rated.
If you already know that there are blemishes on your credit, let your lender know about them beforehand. Tell why they are there, what you are doing to repair them, and why you are a still good credit risk. If you had a few late payments due to extenuating circumstances – like the loss of a job, divorce, or medical bills – let them know so that they understand that it is not likely to happen again.
3. Getting Pre-Approved By a Lender Before You Look For a Home
You should get pre-approved for a loan, not just pre-qualified. Getting pre-qualified, while sounding good, is only obtaining an approximate idea of what you can borrow. Your information hasn’t been verified so it has little value when negotiating with a seller. A pre-approval means that a lender has reviewed your credit history, verified your income, assets, and employment, and has almost approved your loan. An unconditional approval for a certain amount is even better. When you do find the home you want to buy, it only has to appraise high enough to cover your loan amount. Then your loan should close quickly.
Getting approved gives you an advantage over other buyers. By knowing exactly how much you can borrow, you can negotiate a price you can afford and show the seller that you are a more certain buyer who can close quickly. If you are non-approved or pre-qualified you are only guessing that you can make the purchase. A seller may not want to take a home off the market to give you time to arrange financing and get approved.
4. Searching For a Suitable Home
There are many ways you can search for a home, either by yourself or with the help of a realtor. If you have already chosen a realtor, they will search for homes that meet your requirements, usually beginning with the local Multiple Listing Service (MLS). They will make arrangements to show you the homes that you find interesting.
You can also find information yourself for homes listed in the MLS. Look on realtor websites like this one (http://www.GainesvilleFloridaHomes.com), on local and regional MLS websites like http://www.gacar.com, and on national MLS websites like http://www.realtor.com . Many realtors also advertise their home listings with yard signs and on many types of media.
Some sellers attempt to sell their home by themselves. These For Sale By Owner (FSBO) sellers will advertise with yard signs, websites, newspapers, and magazines. Many FSBO sellers will work with realtors, but some won’t. So, sometimes you will have to contact the seller directly to see the home.
5. Learning About Factors That Affect Home Values
When the home you like is in an unfamiliar part of town or you are moving to a new city, you should do diligent research to find out about current market values. Ask your realtor to do a Comparative Market Analysis (CMA) to get the sale prices of similar nearby properties that sold recently. It will compare homes of similar size, age, and features. Then see where your prospective home fits in on that list. It may be near the top of the price range and be overpriced. It may be at the low end of the price range and be a terrific deal. Make sure there isn’t a good reason for the high price such as many extra features or low price such as needing major repairs, having smaller than average rooms, or being closer to a source of noise. Noise can come from many sources such as school yards, factories, highways, and airports.
If you have school age children you should always check out the school district and school zoning. In many cities there are neighborhoods that are zoned for schools that are not the closest to the home. Good schools mean good value for your children and other families with school age children. That will make it easier to sell your home later. However, if you are retired you may want to look for a home in a quiet neighborhood away from a school or university.
You should talk to neighbors and contact the local police to obtain crime statistics. It is virtually impossible to find a completely crime-free neighborhood, but the type and frequency of crimes is important.
You should find out the distance and response time for police, fire, and emergency medical (911) service. You may also want to find out the distance to shopping, recreation, and potential employment. These and other things particular to your situation might affect your quality of life and long term property value.
6. Making An Offer
Real estate purchase and sale contracts, and their addendums, riders, and attachments, can be complex and confusing. Make sure to know your obligations and responsibilities before signing your offer or initialing changes made by the seller on a counteroffer. Ask your realtor, attorney, and lender to fully explain everything. Not being aware of all of the amounts, terms, conditions, and timing could cost you a considerable amount of time and money. Remember that when an offer and all of its changes are accepted, signed, and initialed by both you and the seller, it becomes a legally binding document.
Therefore, when you are ready to make an offer for a home make sure that your realtor knows your exact situation. You will have to decide on a price to offer, how much of a deposit (binder) to place in escrow, and whether you will pay cash or obtain financing.
If you require a loan, it is important to protect your deposit (binder) in case your financing isn’t approved. You should add a financing contingency that states how much you want to borrow and your down payment amount, the highest interest rate you want to pay, and how many years your mortgage will be. It is also essential to add an inspection contingency. Other conditions can be included depending on your particular situation. For example, you may have to sell your existing home first, before closing on this one.
Since it is unusual for a seller to accept your exact price and conditions, the negotiation may continue back and forth for several days until either an agreement is reached about every item in the offer, or there is no agreement and the offer expires. During these negotiations, it is important to prioritize your needs and desires so your realtor can communicate your position accurately to the seller or seller’s agent. Remember that the market value of a home is determined by the price that a willing buyer and a willing seller agree to, not by an outside source.
7. Negotiating With The Seller
There is usually a lot of money at stake for you, the seller, the lender, and the realtor(s). However, other factors can make negotiations with some sellers emotionally charged. The seller may have fond memories and much sweat equity in the house and has to sell it for financial reasons. Or, a change of employment to another city is forcing the sale. You should try to understand the seller’s motivations, appreciate the situation, and empathize with them. On the other hand, some sellers are all business and the only thing that matters is their bottom line. In either case, you will be better off to look at all of the items in the negotiation in an objective, unemotional manner.
When negotiations do not result in an agreement it may be that the seller is asking for a price not supported by recent comparable sales. There may be motivations beyond the physical aspects of the home and land that the seller has factored into the price. Then you must decide what the home is worth to you today and how much it may appreciate in value in the future. You may be justified in paying more or ending the negotiation and begin looking for a different home to buy.
8. After You Have a Contract (Agreement)
When you are financing a home purchase the lender will obtain an appraisal of the value from a certified licensed appraiser. If the appraisal comes in above the purchase price you have found a bargain. If it comes in significantly below the contract price, thelender may refuse to make your loan without you increasing your down payment. In this case you may be better off to invoke the financing clause in your agreement to cancel the purchase.
When you are paying cash, your contract should have an appraisal contingency and you should obtain an appraisal to find out the home’s estimated value. If the value is significantly lower than the sale price, you can invoke the appraisal clause to cancel the contract and receive your deposit back.
Florida law provides that in residential transactions the seller must give you a seller’s property disclosure and a community disclosure. There are also several other disclosures that are required depending on the age and condition of the home. You should also make sure to get a copy of the deed restrictions (restrictive covenants) that go along with the property. The deed restrictions tell you what the property can be used for and what can be placed on it.
When the negotiation results in a fully executed contract (signed agreement), the next step is to have the home inspected. A home inspection completed by a competent inspector is worthwhile because it could save you much money and aggravation in the future. Look over the report objectively and ask for detailed explanations about items that need repair. When the repair items are minor and below the amount specified in the contract, the seller will have to complete them before the closing date. You should always do a walk through inspection before the closing to make sure all repairs have been done satisfactorily. When repairs are expensive or complicated and the seller refuses to pay for the work, you should invoke the inspection clause in your agreement to cancel the purchase.
When you are borrowing money, the lender will require a survey from a professional surveyor. Even if you are paying cash you should order a survey to make sure that the property measurements are correct, the building location and measurements are correct, there are no encroachments, and there are no claims to part of the land by neighbors. A survey will also show the location of easements and rights-of-way for roads and utilities.
A title search will be ordered from a title company or real estate attorney to see if there are any liens or claims to the property. Clear title is necessary for the lender to issue your mortgage or for your protection if you pay cash. A title insurance policy will be issued guaranteeing the title against anyone who comes along later making claims.
9. The Closing
The last step in buying a home is the closing. While the items above are being done, a closing agent is chosen to collect all of the paperwork from the realtors and lender, examine the title, collect and disburse monies, and record the appropriate papers and deed in the official (county) records. The closing agent can be a title company or an attorney and is chosen either by the seller or buyer depending on local traditions. On the closing date, the final papers are signed by everyone involved, money changes hands, and you become the legal owner of the home. It is usually not necessary to attend the closing because everything can be sent by overnight delivery, fax, email, and wire transfer.
10. After The Closing
After the closing, you own your home. Utilities should be transferred and if it is your principal place of residence in Florida (you are living there and it isn’t a rental property), you should file for Homestead Exemption at the county property appraisers office. This will reduce your assessed value for tax purposes by at least $25,000. There are several exemptions of varying amounts depending on your situation, so remember to ask to see what is available.
To summarize, you should always prepare in advance by learning about the home buying process. It is important to look at this process in a logical and objective manner by not allowing your emotions to cloud your judgment.