- Your Decision to Purchase
- Prepare Yourself
- Finding a Good Realtor
- Shopping for your Dream Home
- Escrow Inspection & Appraisal
- Preparing for Settlement
- Buying REO Properties
The Decision to Buying a New Property
Purchasing a real estate property should be considered a long term investment because it's likely the most important financial decision you'll ever make. Whether you're a First Time Home Buyer or you are an experienced buyer, your decision must be planned and thought out carefully.
Reasons to buy:
- 1) Mortgage interest rates are at a historical low
- 2) Home Prices are more affordable
- 3) You won't be paying rent to a landlord, instead, you're investing in your own equity
- 4) there are some beautiful properties to buy (with a finished basement and back yard), and
- 5) It's a great time to buy real estate.
Has your personal Earned Income increased?
Owning real estate is an excellent investment; whether you're looking to expand your financial and/or investment portfolio or searching for the home you and your family dreamed of living in to, owning real estate is the best way to go.
Preparation is Essential
Before you begin shopping for your new home or begin calling a Realtor to show you homes in the area, it's important that you make some preparations.
Gather Important Financial Documents
In today's mortgage industry, lender guidelines are more stricter, which is fine because in the past, just with good credit you were able to buy a $400,000 home or of more value because lenders would not verify income or employment, but buying real estate today is completely different. Therefore, you should gather all your Financial Documents before meeting with a licensed Loan Officer:
- Bank Statements (last 3 months)
- Income Tax returns (last two years)
- Recent pay stubs (last 3 pay periods)
- Credit Card Statements
- Auto loans
- Copies of leases for investment properties
- Other Investments
- 401K statements, life insurance, stocks, bonds, and mutual account information.
Review Your Credit Rating.
Your credit score will determine what type of property you're able to purchase and at what price. You should have your credit rating reviewed by an accredited lending institution so that we can determine what you can afford. The three credit reporting agencies used by most lenders are Equifax, Experian, and TransUnion. We have a TOP 3 LIST of good referrals who have done an outstanding job with past clients and at your request, we would recommend very experienced and knowledgeable lenders in the residential, construction, and commercial real estate fields.
When you decide to take the initial step of buying a new home, don't make a sudden career change or decide to buy a new car (don't make large purchases) because this will affect your chances of becoming qualified to purchase a new home. Be conservative! Be Smart! This will only help you in the long run.
Choosing a Good Real Estate Broker
Some people believe that buying a real estate property is an easy task. Some people believe that they don't need a Realtor to assist them with the buying process, but buying real estate does require making many important financial decisions and it does require a lot of paperwork. Therefore you should have a real estate expert on your team when undergoing such an investment. We can assist you with this process, and we can also provide you with access to properties before they are presented in the Multiple Listing Service.
As written by Richard M. Hartian, here are Seven (7) Reasons Why You Need A Realtor:
1) A Realtor understands you. It's the Realtor's job to listen to what you say. Every buyer and seller has a wish list. But the savvy Realtor will also read between the lines and know the difference between "have to have" and "nice to have." He or she will not waste your time showing you homes that are out of your price range or preferred area. If you're a seller, the realtor will not bring you a buyer who's unqualified or otherwise unsuitable for your property.
2) A Realtor is a teacher and a coach. When you start working with a Realtor, his or her first step should be to educate you. What are the market trends? What's selling (or what's not)? The volatility of today's market means that circumstances are changing on a daily basis. A good Realtor keeps up with trends, prices, and regulations. He or she knows how much of that you need to know and keeps you informed. When the actual purchase process begins, the Realtor will guide you through the tricky maze of offers, counter-offers, and the fine points of negotiating that can add dollars to your bottom line.
3) A Realtor is a trained negotiator. You walk in the front door and you're in love. It's the perfect house, the prettiest yard-even the dog will love it. Someone needs to keep a clear head here, and that's what Realtors are trained to do. They practice their negotiating skills on a daily basis, which you probably do not. A good Realtor will see that you pay a fair price for your dream home. From the seller's point of view, the Realtor can protect you from making costly mistakes, like the impulse to accept the first offer you get, fearing you may never get another. Realtors provide a critical buffer between sellers and buyers.
4) A Realtor sees things differently, including the house. If you're selling, the Realtor will advise you how to maximize your home's potential with a coat of paint, a vase of flowers, or a bit of landscaping. If you're buying, the Realtor may help you see the Cinderella potential in an Ugly Sister bargain of a house. In either situation, the advice of a good Realtor can put extra dollars in your pocket.
5) A Realtor knows the territory. Realtors generally work within the boundaries of a limited market--a neighborhood, an area, or a town. Or they may specialize in a specific type of property, such as condos, single family homes, or historic properties. They know what's currently on the market. They know what's new, what just sold, and for how much. They can advise sellers on setting an attractive listing price and coach buyers in making a reasonable offer.
6) A Realtor is a skilled interpreter. Have you seen the mountain of paper that is produced by a single real estate transaction? Are you really going to read all that, and if you do, will you understand it? You're dealing with purchase agreements, disclosures, and a dozen other things required by state or federal laws. A good Realtor knows what each document says and even more important, what it means. One mistake could cost you thousands. The Realtor will keep you from missing a critical step, and will see that everything is signed, sealed, and delivered on time.
7) A Realtor puts you first. A home is quite likely the priciest asset you will ever own. Whether you are buying or selling, it's bound to be an emotional experience. The Realtor has a duty to protect your interests, first and foremost. The Code of Ethics of the National Association of Realtors says: "When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors pledge themselves to protect and promote the interests of their client." Today's real estate market is challenging at best. Even the Lone Ranger had Tonto. Be smart. Don't go it alone. Find a Realtor you can trust and you'll be able to complete your transaction with confidence and a sense of security about the results.
Shopping is the fun part
Once the initial steps of getting qualified with a lender are completed and you've received your Pre-Approval letter, now the fun begins! Now it is time to find your dream home.
Drive around the neighborhood
You're the only person who knows the type of property that best suits you and your family. Drive around to get to know the area and the neighborhoods better. Walk around a few properties that are for sale, check out the back yards and get a feel for what it would be like to own a property in that particular area.
Narrow your search to what I call the TOP 3 areas that most interests you. Then have your real estate agent make appointments to visit properties in those areas. Ask your real estate agent to perform a CMA (Competitive Market Analysis) and ask about the potential long term resale value of the properties you are considering.
Make an Offer
Once you choose the property you want to buy, have your real estate agent help you make an offer. It should be a good and attractive offer that the seller will accept. Your agent should follow up to make sure your offer was received and should find out a time frame of when the seller will make a decision. Our policy is a 48 hour turn around time or we inform the buyer that the seller is not really serious of selling their home. No need to waste time because there will always be another home waiting for you.
Ratified Contract & Earnest Money Deposit
An effective agreement is a legal arrangement between a potential purchaser and the property's seller. Verbal agreements don't exist. Therefore, a ratified contract is effective only when it's signed by all parties. In most cases, earnest money deposits are held onto escrow with the real estate company who is representing you. If you're buying a foreclosed property, then the Bank's policy is that the listing company hold escrow. Sometimes banks request that their title company hold it. Rest assured, our agent will review everything with you, especially before you sign your offer.
- Keep all written records of everything. Your agent will assist you in drafting up the Contract Forms for your purchase, but always request copies of everything. Keep all paperwork for your records .
- Respect the Contract. Now that the seller has accepted your offer, you will be given a time line to complete the contingencies of the contract. During the transaction, your agent will keep you constantly updated. You will always be one step ahead of the seller.
The Closing Attorney or Agent
Per Maryland law, the buyer has the right to choose either a title company or a real estate attorney to perform the settlement. The title company will research the complete recorded history of the property to ensure that the title is free and clear of encumbrances. Some properties may be subject to restrictions, other may be recorded easements or encroachments, but the title company will ensure that by the time you reach settlement, there will be no outstanding judgements or liens attached.
How to Hold Title
You should consult an attorney or a tax advisor on the best approach of holding title. Different methods of holding title have different legal, estate and tax implications, especially when selling or upon death of the title holder.
Once your agent delivers a copy of the ratified contract, you will need to have a licensed property inspector perform a Home Inspection. This inspection must be completed within the timeframe that was agreed upon in the ratified contract. Various inspections may include roof, HVAC, structural and environmental. At your request, we can recommend several different inspectors.
Based on the results of the Home Inspection, one of two things may happen:
- If there are no major defects to address such as hidden MOLD or a damaged roof, then you're a step closer to the settlement.
- However let's believe there are major defects based on the home inspection, then the buyer can request a re-negotiation on the contract to include (repairs to be completed by the seller, more closing cost assistance, or a price reduction). Just remember that if you agree to buy the subject property AS IS CONDITION, you can't re-negotiate anything with the seller. The difference with us and everyone else is that we will explain everything to you during our initial meeting.
It is important that you remain in constant contact with your lender, who will let you know when additional documents are needed to have your loan officially approved. If the agreement is conditional upon financing, then the property you're buying will be appraised by an independent licensed appraiser to determine the market value for the lending institution. Appraisals must be completed so that the lending institution can confirm their investment in your property is accurate. Appraisers determine the market values of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. As you reach closer and closer to the date of settlement, you should double check with your lender in making sure the underwriter has all the pertinent documents to officially Clear Your Loan for closing.
If the property that you are buying is a townhouse or condominium, then you should request what is called a RESALE PACKAGE, (which includes by laws, the rules, regulations, and other important information that is required for delivery by the Seller. If the Seller fails to deliver a resale package, then you have the right to terminate the contract with no additional penalties imposed.
If you are obtaining financing from a direct lender, then you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lender and the purchase price of the property. You can save hundreds of dollars on an annual basis on homeowners insurance by shopping around. Here are some other suggestions:
- Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
- Ask your insurance agent about discounts. Your insurance may get you a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials. Persons over 55 years of age or long-term customers may also be offered discounts.
- Insure your house NOT the land underneath it. After a natural disaster, the land will remain there. If you don't deduct the value of the land when deciding how much homeowner's insurance to buy, then you'll end up paying more than you should.
At your request, we can recommend good and experienced loan officers and title companies. Go to Preferred Vendors on our web page.
Apart from receiving a "cleared to close" on the buyer's loan, the day of closing should be the best day of the transaction, but there are a few steps still pending to making it a successful transaction.
Final Walk-Through Inspection
The final walk through inspection is more of a formality. It takes place a day before or the day of the closing. You and your agent will visit the property to verify that everything is in working order, that everything is the same as when you last seen the property, that there are no extra boxes or items left behind, and that everything included in your purchase is still at the property.
Home Services and Utilities
Your agent should supply you a list of Utility Companies of the metropolitan area to include Pepco, BGE, Washington Gas and more. You should connect new service a few days prior to closing or else by the time you arrive to move in, all utilities have been turned off. With some companies, a re-connection fee of $150 will be charged to you to start new service.
Be Prepared for last minute surprises
Just like anything else in life, there may be last minute surprises. It could be a natural disaster or something at the property breaks down or some other minor detail that was out of your or the Seller's control. Don't panic! because every problem has a solution. We've most likely encountered these types of problems before and will know how to resolve them with you, in a calm like manner.
The title company will deliver all parties involved with a settlement statement, better known as a FINAL HUD 1, which summarizes and details the financial transactions enacted in the process. You and the seller(s) will sign the FINAL HUD 1, as well as the closing agent, certifying its accuracy. If you are obtaining financing, you will need to sign the lender documents issued by the lending institution. If you are unable to attend the scheduled closing, other arrangements can be accommodated for you, but this all depends on the circumstances and advanced notice that we receive. If you are bringing funds to the settlement because of it being a cash offer deal, then you can elect to either have the funds wired electronically into the closing agent's escrow account or bring a certified bank check (made payable to the title company) in the amount specified on the FINAL HUD 1. Lastly, your agent will arrange to have all property keys and any other important information delivered to you at the day of closing. Remember we're always one step of you and the seller.
Since 2008, Mr. Ibarra has been a fully certified REO Broker and has sold more than 200+ REO properties for Fannie Mae, Chase Home Finance, Bank of America and much more. He continues to sell REO's today and works closely with several asset management companies based in other states of the country. The volume of REO's in the market place has decreased tremendously, but you can still purchase a good deal every now and then. Below is an article that summarizes what REO means and the benefits of.