- Down payment funds. Typically, down payments can range from as low as 3% to 20% of the purchase price but can be higher depending on the preferences and resources of the purchaser. Higher down payments typically result in a lower mortgage interest and a lower on-going monthly payment. Down payment funds typically cannot be borrowed and have to come from the purchasers own resources.
- Closing costs that are paid by the seller typically include the cost of an appraisal, home inspection, title insurance, attorney fees and lender fees.
- Escrows for property taxes and homeowners insurance.
- Property related repairs and upgrades.
- Moving expenses.
On an on-going basis, the financial obligations of home ownership include:
- Monthly mortgage payment that includes interest, repayment of principle, property tax escrow and homeowner’s insurance escrow. It can also include other charges for association dues and mortgage insurance if necessary. Depending on the type of mortgage an
- Utilities cost for things such as electricity, water and sewer charges, fuel for heat and hot water and cable.
- Repairs and upgrades to the home.
- Miscellaneous costs (both financial and quality of life) associated with other factors such as the length of commute to work and schools, access to shopping and healthcare should be assessed in the same manner as on-going monthly financial obligations.
Consulting with a licensed mortgage professional early in the home buying process is usually a useful exercise. A mortgage professional will be able to assess your ability to qualify for a mortgage give you a good sense of the maximum purchase price you can qualify for, the key features of the mortgage and the on-going monthly mortgage payment. Getting a prequalification letter from a reputable mortgage firm will give you financial credibility that will assist you in negotiating successfully with a property seller. Most importantly, however, it will help you make a good decision in how much home you can afford.
Finding the Right Home
It is very important to consider the factors that are most important to you in the home that you purchase. Home ownership is a long term commitment. In many cases, things that are bothersome cannot be easily changed. So, careful consideration to the characteristics of the home you want to buy should made and discussed with your partner.
Writing a list of all the things that you and your family are looking for in a home is a great idea. Checklists are readily available online to this end. This will help you to keep emotion from carrying you away in the excitement of the finding a home. The following are some factors to consider when finding a home.
- Style of home. The style of a home embodies a layout that drives convenience and livability. People usually have decided preferences regarding the style that best suits their tastes. Style may also be a factor in the resale and long term appreciation prospects of a home. So it is important to decide what style of home you like and its marketability in the community you are considering.
- Features of the home. The number of bedrooms and bathrooms, whether the home has a basement, the layout of the kitchen are all factors that should be considered in buying a home. Realize that the size of a home drives expense. The bigger the home, the more expensive it is to heat and cool and power and the higher the property tax bill. So finding a home that fits your needs during the expected ownership horizon is very important.
- Character of the lot. It is important to consider whether you want a larger lot and it attendant maintenance requirements or a smaller lot that is easier to care for. Whether a lot that slops is acceptable or not. Sloping lots can be challenging during snowy winters in the northeast US. Generally, corner lots are bigger but offer less privacy. Consider zoning of the lot and adjacent lots. Ask the local zoning official about what can be built on a vacant lot that is close by and assume that the worst case will occur. The character of the real estate is important to consider because it is usually very hard to change.
- Condition of the home. Is the home you are considering constructed with quality workmanship and materials? Is there deferred maintenance that needs to be attended to soon after the purchase. If repairs are needed, consider whether you have the knowledge and financial resources to address the problems. Be aware that in many cases, the apparent good purchase price of a “fixer upper” turns out to be a mirage as the reality of remediation after the purchase.
- Distance to work, schools, shopping, houses of worship and healthcare. Location, location, location. In some cases, a longer commute will enable you to afford more home but the realities of an unsustainable commute become apparent very quickly after purchasing a home.
- Surrounding amenities. Consider recreational amenities. Consider whether access to parks and playgrounds, theaters, shopping and the like is important.
- Character of the neighborhood and community. If you are new to the area, consider the demographic character of the area and whether the community is growing or stagnating. Are property taxes increasing at high rate? Research crime statistics. Does the area have access to the services you and your family may require.
The above considerations are certainly not exhaustive but are a good start. The more real estate you look at, the more your own personal preferences will become apparent.
Getting the Right Advice
Getting good, unbiased advice in real estate can be difficult. The real estate industry and related professions are typically paid at closing. At times, there can be inertia to get transaction closed where additional consideration is warranted. It is very important for a prospective home buyer to be measured and careful to not fall into this trap. If you have concern about the direction a purchase transaction is taking, you should stop and reconsider. Do not proceed until you are completely satisfied that your interests have been well served and that you are making the right choice for you and your family.
Making An Offer
When you have found a home that meets your needs, you will prepare a written offer to the seller to purchase the home. Your real estate agent should assist you in deciding what price to offer. It is very important to offer a price that you can afford. Guard against agreeing to pay more than you can manage (or more than the home is worth) in a heated negotiation. Your real estate agent should provide you with detailed market data and analysis that will allow you to conclude that you are offering a reasonable price and are not over paying for the home. Your real estate agent will assist you in negotiating with the seller to arrive at final price and terms.
Once my offer is accepted
Once you have signed the purchase contract the final steps in the purchase process begin.
- Attorney Review. Both parties will have the signed contract of sale reviewed by an attorney. The attorney will review the contract. Once the contract has been finalized, the buyer is typically expected to make what is known as an earnest money deposit of a portion of the down payment.
- Mortgage Application. Once attorney review has completed, the buyer will make a mortgage application as necessary. The mortgage company usually will order an appraisal of the property as part of the application process.
- Home Inspection. Once the buyer is reasonably sure that the mortgage application will be approved, the buyer will commission a home inspection of the property by a qualified home inspector. The home inspector will review the structural integrity of the home and will make a full report to the buyer. The report should also be provided to the buyer’s attorney so that a subsequent negotiation with the seller to resolve any issues with the home identified in the report.
- Closing the Deal. When the mortgage application has been approved and all home issues have been resolved, a final closing is scheduled. At that time the buyer will need to produce the funds to complete the purchase. At the closing, funds are transferred to the seller, a deed to the property is given to the buyer. At that point the buyer is the rightful owner of the property.