Step 1: Consult with a lender
The first step when buying a home is to speak with a mortgage lender to be prequalified. A lender is a financial institution that offers and underwrites home loans. A lender will work with you to help you identify what you can afford. It is advisable to shop around for several quotes, because lenders will have different interest rates—this will affect your monthly cost. Your mortgage payment each month will be a repayment of the loan amount plus interest.
You will want to obtain a pre-approval letter for the amount that your lender is willing to cover. For example, if you know you want to buy a $300,000 home, have your lender draft a pre-approval letter stating you are approved for a loan of this amount. During the pre-approval process your lender will ask you questions about yourself, including your income, and they’ll also pull your credit score. This letter is stronger than a prequalification letter.
Step 2: Hire a realtor
Why hire a realtor to represent you in the home-buying process? Your realtor will explain to you the different levels of representation which protect you as a buyer during this process—in this industry, it is called RECAD. They will also address any questions you may have concerning the “dos” and “don’ts” of buying as well as commission.
1. Expertise in real estate. Becoming a realtor requires extensive coursework and training. Because realtors buy and sell homes for clients every day, they’re prepared for any situation that may arise during the sale or purchase of a home.
2. Guidance throughout the process. The process of buying or selling a home is complex. The value a realtor can provide during a transaction is unmatched. Buying a home is one of the largest investments one may make, so it’s important to find someone you trust to help you make the right decision. A realtor can guide you from start to finish, including showing you homes, writing an offer, and negotiating a contract.
3. Knowledge of the market. The Birmingham home market is changing all the time. Ray & Poynor is a locally owned and operated company—we’re not only your real estate resource, but also your neighbors.
4. Objectivity in advice. Buying or selling a home can be emotional, and a realtor is there to manage expectations and navigate you comfortably through the process. We make a point to be in constant communication with our clients, so you’re always apprised of what is happening whether you’re buying or selling.
5. Help in achieving your goals. Home ownership is a dream for many of us. Whatever your goal is, we want to help you achieve it. Our relationships with our clients don’t end when a sale has closed—we serve as a real estate resource for life.
A realtor is your advocate throughout your real estate journey.
Step 3: Decide what’s most important to you
Now that you have a better idea of what is in your price range and hopefully a pre-approval letter, you need to decide what you most want out of a home.
Ask yourself the following questions:
- What location do you desire?
- Do you want to renovate, or would you rather purchase turnkey?
- What kind of parking arrangements would you like?
- How do you entertain?
- Is a backyard important?
- How many bedrooms and bathrooms do you need?
- Do you want to be in a particular school system?
Now’s the time to evaluate what you need and what you are able to compromise.
Step 4: Know the out-of-pocket costs
When buying a home there are some immediate out-of-pocket costs that you will need to cover. Examples are below:
Inspector. You’ll likely want an inspector to look at a home before you buy to ensure there aren’t any major issues that need to be addressed. An inspection typically costs around $350-500. If you want to make an offer the first day a home hits the market, know that this cost will be out of pocket immediately. Note that you will not recoup this cost whether or not you get the home.
Earnest money. Once you write an offer, you’ll need to provide a check for earnest money. Earnest money is typically 1-2% of the purchase price.
Down payment. The down payment is what you put down on your loan. For example, if you are financing 80%, 90%, or otherwise, you would be required to put the remaining % as a down payment. Hopefully alongside your lender, you will know how much you’re able to pay each month as your mortgage as well as what your initial—cash—down payment will be.
Other considerations:
- Is a gift from a loved one going to be involved in the home purchase?
- Is someone willing to cosign on your loan?
- Have you established credit in your name?
Have these conversations before writing an offer.
Step 5: Research your monthly costs
There are home ownership costs beyond your mortgage that you’ll want to take into account when creating a budget. This includes monthly utilities and yearly property tax. You’ll also want to consider a termite bond and sewer inspections.
You may want to budget a “rainy day” fund for any unexpected repairs that may arise. If your home comes with a warranty, know what is covered under this warranty before you pay for any repairs out of pocket.
Note: Remember to file your Homestead Exemption with the county’s Department of Revenue. A Homestead Exemption will reduce your property tax by shielding a portion of your home’s value from taxation.
Step 6: The home-showing process
When a house goes on the market, a realtor will put it in MLS (multiple listing service). There are several different listing statuses:
Coming Soon: A home that will be available for showings soon but has not officially hit the market. Homes in “Coming Soon” can not be visited by prospective buyers until they are in Active status.
Active: A listing actively available.
Contingent: An active listing that has a contingent contract pending.
How to schedule a showing:
As your realtor, I will schedule showings on your behalf. I will be apprised of homes coming soon or active that I think you may be interested in. I am happy to show you any available home that you would like to see. If you see a “for sale” sign in a yard, or something you like online, give me a call and I’ll arrange for you to see it.
Step 7: Making an Offer
Once you decide to make an offer, you will ideally already have your financing lined up. It’s important to have a clear picture of how long financing will take to receive if you choose to make a non-contingent offer. A non-contingent offer isn’t the best choice for everyone, but it can make your offer more competitive.
But first, what’s a contingency? A contingency is a condition in a contract that must be met for the sale to close.
Common buyer contingencies include, but are not limited to:
• Inspection Contingency: If there are inspection items that need to be repaired/addressed, you will negotiate them through your agent with the seller.
• Financing Contingency: A financing contingency means the home sale is contingent upon the buyer (you!) securing financing in the time frame outlined in the contract, which should already be established if you are preapproved.
• Appraisal Contingency: An appraisal is an evaluation of the fair market value of a home. An appraiser will come to the home and determine this amount once an offer has been accepted. If the house does not appraise, your realtor will address that with the seller.
Your realtor will write your offer and negotiate the contract on your behalf, keeping you apprised of any developments throughout the process.
Remember to be prepared for those immediate out-of-pocket costs (Step 4) when making your offer.
Step 8: Under Contract — Now what?
Once your offer is accepted, you will be “under contract” on the home. During this time frame, you’ll schedule an inspection (if you haven’t already done so) and you’ll need to get your financing in order with your lender. Someone will come out to appraise the home as well.
Step 9: Closing
Once you’ve gone through the inspection period and lined up financing, the house will set to close on a date determined by the contract. Prior to closing, we will have a final walk-through to ensure the home is in satisfactory condition and to check that any repairs requested during the inspection process were completed. At closing, we will meet with the sellers and the listing agent of the home—typically at an attorney’s office. There will be a lot of paperwork to sign to make your home ownership official.
Step 10: Home Ownership & Beyond
Becoming a homeowner is a dream for most of us. It’s not always smooth sailing, but know that you can contact me at any point in the future for advice or recommendations about your home and associated services.
Things to remember:
- Home Insurance
- Home warranty. This is not the same as insurance—it’s a year-long plan that provides coverage for appliances, electrical systems, plumbing and HVAC. This may be offered by the seller or purchased by the buyer.
- Change utilities to your name
- Bring driver’s license to closing
- Keys from sellers
As your realtor, I’m here to serve as your real estate resource for life—our relationship doesn’t end at closing!