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The 'For Sale By Owner' Handbook - Information, Tips, How-To and Articles
ByOwnerMLS - Home Buyers Guide
Buying a new home can be a daunting task, but it can also be exciting. Home ownership is at a record high in America. That's partly due to historically low interest rates, but also because more people are realizing the benefits of owning their own homes.
Three Requirements for the new Home Buyer
Because buying a home in American almost always means securing mortgage financing, there are three things new home buyers must have in order to buy a new house. The prospective home buyer needs the cash for a down payment, a regular income and a good credit history. If you are missing one of these three components it may still be possible to buying a home, but will involve more steps and will likely be more expensive.
When buying a home, the first thing you need to consider is how much you can afford. There are many free mortgage calculators available on the Internet that can help you determine how much mortgage you can afford. Be careful when choosing an adjustable rate mortgage (ARM). Interest rates are now low, but what happens if they rise in the future? It is important to consider all of these aspects and not choose a home that stretches your finances every month.
Be prepared to face your lender by getting a copy of your credit report. Find out what's in your file and see what you can improve. Your credit score is determined by the way you've handled your credit in the past. While you can't change history, you can pay down high credit card balances and include explanations for bad trade lines.
It is also a good idea to save as much money as you can for a sizeable down payment and for your loan closing costs. The more money you can put toward your loan, the less you'll have to pay in interest costs over the term of the note. Financing your closing costs into the loan will cost you more money in the long run.
Choosing Your Mortgage
Why talk about the financing before the new home is even identified? Because by being pre-approved with a lender before you begin your search, you'll have more power to negotiate a good deal when you find the home you want.
Pre-approval for a mortgage is different than simply pre-qualifying. Pre-approval means that the lender has verified your financial resources and has committed money in your name for a specific type of loan. This gives you the power of a cash buyer, often letting you negotiate more aggressively. Another benefit of being pre-approved is that you can close the loan faster after you make an offer.
The next step is to research what type of loan is right for you. Find out the down payment required. You also need to research both the interest rate and the annual percentage rate (APR). It is also important to ask about the closing costs, including any extra fees the lender may charge, which are not always initially clear.
There are many different loan programs available to borrowers today, including fixed-rate mortgages, adjustable rate mortgages (ARMs) and option ARMs. Specifics of the various programs differ and require an in-depth conversation with your lender.
Other options include government loans, such as those insured by the Federal Housing Administration (FHA) and the Veterans Administration (VA). You must meet certain requirements to qualify for these loans.
Sometimes, the home seller is paying on an assumable mortgage. If you meet the lender's requirements, you can assume that mortgage and pay only a mortgage assumption fee. This fee is often significantly less than the cost of new financing. You cannot be pre-qualified for an assumable loan, so you don’t enter the negotiation with the benefit of having the equivalent of cash in hand.
If your financial situation makes it difficult to secure financing through traditional channels, you might consider a co-borrower to increase your overall credit score or a lender that specializes in working with people who have less than perfect credit. These lenders are often referred to as “sub-prime lenders” and are know to have more lenient guidelines.
Finding the right home for you
Many Americans are finding that buying a home directly from a homeowner could save them between 3 and 6 percent, which is the fee the owner may have had to pay a real estate agent to aid in the sale of their property. Often, homeowners will part with their homes for less if they haven't carefully researched the price of other homes in the area.
There are many ways to find a new home that suit you well. Many buyers simply visit the areas they are interested in living and look for yard signs marking houses for sale. Newspapers carry listings of home for sale and the Internet is fast becoming the best place to find properties for sale. More than 70% of home buyers spend at least a portion of their time researching homes on the Internet.
Real estate professionals are often used to seek out properties for sale and can be a valuable source of information about a new neighborhood. While they know about a great many homes available for sale, they may not know about those homes that are for sale by owners.
Even if the house you find seems perfect, be sure to factor in the other homes in the neighborhood before making your final decision. While it may be fairly simple to find a home in another area with the same amenities, it will be impossible to get a neighbor to relocate a commercial business that adversely affects the neighboring homes values. Remember that most people live in their homes for seven years before moving and be certain that you can live in that environment for that length of time.
Making an offer on your next home
Knowing what to pay for your new home is the first step necessary in opening the negotiation process. Many buyers are now turning to the Internet to get estimates of home value. By ordering an electronic appraisal over the Internet, buyers can learn how long a house has been on the market and what other homes in the area have recently sold for.
New computer models, called automated valuation models (AVMs) make it possible to get very good estimates of what a home should sell for at far less than the cost of a full appraisal. There are many options available to you in this area. You can find some excellent home valuation resources on the ByOwnerMLS.com website.
This information, along with the value you have placed on the community, will give you an idea of what you are willing to pay for the home. This maximum price should not be your first offer, however, as you must leave room to negotiate the price.
If you’re not using a real estate agent, this is a good time to consult with a real estate attorney, who can write up the contract or review the contract offered by the seller. The contract should include a home inspection. If the inspection turns up major flaws, make sure you can cancel the contract. Likewise, the contract should be contingent on your ability to successfully secure mortgage financing.
Closing the deal
If your final offer is accepted, you will be asked to provide earnest money, which is typically between 1 and 10 percent of the agreed-upon purchase price. This money should be held by an attorney, title company, or in an escrow account. It should not be delivered to the seller.
Once the escrow is established, the inspection is ordered. Typical inspections include evaluations of the plumbing, electrical, exterior, interior, roof, windows, insulation and the appliances that are being sold with the house. Inspections for termites, radon gas, lead-based paint and asbestos are also commonly conducted, but may cost extra. If the house you are interested was built before 1978, these environmental issues should be investigated.
The home inspector will write up a report with all minor and major defects listed. It is entirely your decision what to do with the inspector’s report. Perhaps the problems are so large that you no longer want the house, which is why it’s important to have an out written as a contingency of the purchase contract. Or perhaps the problems are only minor and you still want the house.
A title insurance company will then examine all previous owners of the property to make sure there will be no difficulties in getting a clear title. Any liens or other problems that could jeopardize the title are uncovered and an title insurance policy is provided.
Your lender may require an appraisal to confirm the value of the property. They will also require that you maintain insurance on the home. If the property is located in a flood zone, you'll be required to buy flood insurance.
To close the transaction, the attorney or closing agent (often the title agent) checks all the paperwork to ensure that all financing requirements have been satisfied and that all monies due to the seller have been delivered. This agent will generally handle the recording of the required documents in the County Recorders Office after the transaction is finalized.
How Much Can You Afford? This calculator provides an estimate of the maximum mortgage loan a prospective Buyer can expect to get from a bank or other lending institution.
Seller's NET CASH Calculator Use the calculator below to estimate proceeds from the sale of your house.
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The Legal Center
State Specific Real Estate Forms are a Must!
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