The home buying process can be quite long and complex, but it can also be a great adventure. What I want to do here is educate you as much as possible about the entire process. This will be broken down into three different pages. Just click the link at the bottom to continue. And please remember to call me if you have any questions at all.
Getting Started
Buying a home is the largest purchase most people will ever make, so use this home buying guide to assist you with the process. Home ownership has great benefits. Home ownership also comes with certain responsibilities.
If you're thinking about buying a home, you should also be thinking about your credit. The first step in the home buying process is understanding your credit.
When you apply for a mortgage, lenders will review your credit report. Your credit report is a history of how you've managed your finances: it's a record of money you've borrowed and your history of paying it back.
Your credit report is a record of all your credit transactions whenever and wherever you've used credit to purchase goods and services. Your credit will have a big influence on whether or not you can get a mortgage, the terms of that loan, and the interest rate. If you have good credit, you may have a much wider range of mortgage offers with lower rates.
Get a free credit report. By federal law, you can now get a free credit report once a year from each of the three nationwide consumer credit reporting companies. Go to www.annualcreditreport.com for this. Please note that southern states will have the free reports available after June 1, 2005. If you need to make corrections to your credit report, write each of the three companies below using the format provided:
Experian
P.O. Box 2002
Allen, TX 75013
Trans Union
P.O. Box 1000
Chester, PA 19022
1-800-916-8800
Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
________________________________________
Sample letter:
Complaint Department
Name of Credit Reporting Agency
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute the following information in my file. The items I
dispute are also encircled on the attached copy of the report I received.
(Identify item(s) disputed by name of source, such as creditors or tax
court, and identify type of item, such as credit account, judgment, etc.)
This item is (not accurate or not complete) because (describe what is
not accurate or not complete and why). I am requesting that the item
(state a specific change) to make the information accurate.
Enclosed are copies of (talk about any documentation you are enclosing like
payment records, court documents) supporting my position. Please
look into this (these) matter(s) and make the necessary corrections the as
soon as possible.
Sincerely,
________________________________________
Next, create a household budget if you do not already have one. Know what your income and expenses are so that you can determine how much you want to pay each month as a mortgage payment.
Start gathering information for lenders. It is good to have copies of the last three tax returns, bank statements for the last three months, current pay stubs, records of any past derogatory credit history that has been paid off and records of any supplemental income you have had. If you are self-employed, you may need business records and income tax records for the past three years. If you are divorced or have declared bankruptcy, make a complete copy of the settlements.
Most home buyers will need a loan in order to purchase a home. It is very smart to meet with one or more lenders before beginning your home search. This will help you know how much you can afford. Don’t forget about your budget. It isn’t always smart to plan on how much you can afford compared to how much you want to pay. These can be two very different numbers.
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.
Lenders recommend that your monthly mortgage payment should be less than or equal to about a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
There are several benefits of being pre-approved. One is the peace of mind you’ll have when looking for a home. The last thing you want is to lose a home you really like because you haven’t gotten your finances in order. There is also a benefit in sending a letter of pre-qualification with an offer. This lets a seller know that you are serious and that you can afford the home. When you actually get to this step, have the pre-qualification letter state the amount you are qualified for as the amount of the offer, not a higher amount as this could give away your negotiating position.
Do You Qualify For a Special Lending Program?
Many lenders offer special programs for people in certain professions. There are specific programs for teachers, police officers and fire fighters and other professions. Ask your lender if you may qualify depending on your own profession or your spouse’s.
First questions:
1 story or 2
What kind of yard
House, condominium, patio home or townhome
Age of the house – new?
Features we NEED
Bedrooms
Bathrooms
Garage spaces
Study or office
Already landscaped
Fenced yard for kids or pets
Square feet
Things we want
Fireplace
Pool
Wet bar
Hot tub
Brick or stone exterior
Tile roof or composition shingle
Wood floors
Granite counters
View
How about Distance to
Schools
Shopping
Restaurants
Highway access
Place of work
Churches
Parks
Golf
Lake
Once you put together a list of needs and wants, you can provide your REALTOR® with that information. He can then perform a detailed search for homes that might work for you.
Schools
If you have kids, this will be important. If you do not have kids, this may be an important factor for resale value. There are several good resources to help locate good schools. Look at school district boundaries to determine which schools serve which neighborhoods. You can also look at specific school performance reports.
Your Home Search Online
Once you have figured what you want in a home, what you can afford or want to spend and where you want to be, start looking online. You can do that on my website using my Austin online home search feature. You can build and save searches to come back to later. You can search by school district, subdivision and other criteria. When you see listings you like, you can save them to a favorites folder.
The first reasonable offer made on a home will most likely get a good response, being either countered or accepted. Make your offer one that will be seriously looked at. Have your REALTOR® do a search for properties that have sold within the last six months that are good comparisons to the home you are making the offer on. This will give you a good idea of the market value of the home.
You will need to write an earnest money check for around 1% of the offer price. If the offer is accepted, this money will be put into an escrow account with a title company. Write in the offer that the earnest money is to be applied to your closing costs.
You should also write a check to the seller for an option period. More on this later.
The sellers will either make a counter offer, reject or accept you offer. You may go back and forth a time or two before having your offer accepted or rejected. If it is rejected, have your REALTOR® request a refund of your earnest money from the title company. If it accepted, it is time for the next steps.
Residential Service Contract
Most sellers will provide a residential service contract (RSC) as part of their closing costs. These are often called home warranties, but they are actually service contracts. The RSC will generally cover central heat and air, electrical, garage door openers, plumbing, garbage disposal, and more. For specific information on a RSC, visit First American or any other service contract business. Companies who provide the service contracts are regulated by the state and are fairly consistent in terms of what is covered. Additional coverages can be provided at an extra cost.
The Option Period & Inspections
If you are buying a resale home, you should ask for an option period of about 10 days. Your option check should reserve this right. During the option period you should schedule inspections. Make sure you use a state licensed home inspector. Your REALTOR® can help you with this. The inspection will look for flaws in the home, anything that needs to be repaired and things not to code. Keep in mind that inspectors are generally extremely thorough. The report will most likely be quite long, but this isn't necessarily anything to worry about.
In Texas you should also have a pest inspection done. Termites and carpenter ants are the main concern. If pests are found, and this is not uncommon, make sure there is nothing major wrong with the structure. If there is, you may want to back out of the contract. If the infestation is minor, ask the seller to pay for treatment.
If the home has is not on a public water or sewer system, you should have the septic system and well inspected. You will pay for these, but these are for your own protection. Learn more about septic inspections.
You will not be the only ones looking at your inspections. Your lender will want to see them as well. Any repairs required by your lender will need to be taken care of. In many cases, you can ask the sellers to pay for these.
As I said, the list of repairs will probably be fairly long. Don't expect the seller to pay for everything. Ask for the major things, like septic system, air conditioning, windows, etc. If you love the home, don't let a bunch of small repair items kill the deal. If the seller agrees to make repairs, make sure they use licensed contractors and get receipts before closing to prove that the repairs have been made.
OK, so you're near the end of the option period. Having cold feet? Find another home you love even more? The option check you wrote buys you the right to terminate your contract for any reason whatsoever as long as you are within the option period.
This is also a good time to gather information about area utility providers. Much of the area will have water, sewer, gas and cable. However, some of the area will have other options such as well water, septic systems, propane tanks and satellite cable. See a list of Austin area utility providers
Contract to Close
After your option period has expired, you are on your way to home ownership. this is the time for you to do some more things. Check with your lender periodically to make sure that she has everything she needs and that everything on her end is being taken care of. Get homeowner's insurance. You won't close without it unless you are paying cash.
Ask your REALTOR® to get a list of utility providers for you. Have your REALTOR® coordinate with the selling agent the selling agent when to have the sellers turn off the utilities so that you can arrange to have them put into your name and turned on.
During this time, the title company will do behind the scenes work to ensure that you can close on time. The contract to close process is somewhat involved and you will probably not even be aware of what the title company is doing for you. They will do a complete title search, arrange for title insurance and coordinate with your lender to ensure a smooth closing. During this period you will receive a title commitment in the mail or via email. This is an important document that can be a bit difficult to understand. Learn how to read a title commitment .
Closing on Your Home Purchase
Closing is an exciting day. If you are in town, you will meet with title company closer to review and sign documents. There are a variety of items you will need to provide the title company at or before closing:
Homeowners insurance - make sure the title company has your insurance agent's name and contact information prior to closing.
Proof of repairs - make sure the lender and title company have proof of any lender required repairs prior to closing.
Certified funds - the Texas Department of Insurance requires certified funds at closing. This can be in the form of a cashier's check, certified funds or wired funds. Make the check payable to the title company. Your closing officer should contact you prior to closing with the amount of money needed at closing.
Wired funds - if you want to wire funds, please make arrangements prior to closing with your closing officer.
Identification - don't forget to bring a valid photo ID like a driver's license or passport.
If you will not be present at closing, make sure to coordinate everything needed for closing with your closing officer. Closing via overnight mail is not uncommon. They just need to be carefully planned.
When you are done with all the signing, you will be provided with copies of everything for your records. Keep these in a safe place. Before you leave, don't forget your house keys!
One more thing...Don't forget to file for your Homestead Exemption after living in your home January 1. This can reduce your property tax bill and save you money. Need help with this? Contact me right away.
Questions about Austin Real Estate, Lakeway Real Estate or Lake Travis Real Estate? Call me at 512-293-2422.
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