Buying your first home

Your first home

is one of the biggest financial steps that you will ever make. It is exciting but it is important to take this decision seriously. You need to take the time to prepare yourself in every aspect in order to make your home a blessing. Here are the basic steps that you should follow when it is time to buy a home.

You should determine if you are ready to buy a home. Home ownership is a lot more expensive than renting. You are responsible for paying all the repairs. You may also have added utility costs, such as garbage and water. In addition, you will need to pay for taxes and insurance related to your home. You should probably get rid of all of your credit card debts first. You may be under pressure to buy a home from friends or family, but you should wait until it feels like the right time.

Take the time to shop for a loan

You need to get pre-approved before you shop for a home. This will help you to look within your price range. You should contact at least three people before you decide which loan to take. A mortgage broker will look at several different loan companies to find you the best rates. However, your small local bank or your Credit Union may have options that will save you money as well. Once you find a loan with the correct terms you can begin shopping.

You also need to determine how much you can afford. A good rule of thumb is to keep your mortgage along with your taxes and insurance between 25 and 30 percent of your income. Other experts advise that your home cost be limited to two and half times your annual salary. If you spend too much on your mortgage you may not be able to meet your daily obligations let alone save for retirement. A smaller house is worth the peace of mind. If you are carrying debt (credit card or student loan debt), you should keep your house payments on the lower end of that amount.

Once you have determined how much you can really spend and are pre-approved you should find a good realtor. Your realtor should listen to your wants and needs carefully. She may make recommendations or explain the market to help you find a home that suits your needs and that you can afford. She should offer several different options. Once you make an offer your realtor should work to negotiate terms that you are happy with. A good way to find a realtor is through the recommendations of friends and colleagues.

When you start looking for a house, you will soon submit offers on homes you like. If your offer gets accepted, you will open escrow and start your inspection period.It is very important to do a thorough home inspection. This is different from an appraisal. You should pay for the home inspection. The home inspector will look for hidden problems with the home. Through the home inspection you can learn about any issues that may prevent you from buying the home. This may include mold problems, termites, foundation problems and a bad roof. The inspection can save you thousands in repairs later on. Additionally, you may be able to negotiate a lower price if you know the home needs a new roof.

It helps to have an independent home inspection, separate from the one the homeowners had done. If your realtor is also representing the people you are buying the home from, you may want to find an independent inspector to check things for you. Take the time to find a good home inspector since this can save you a lot of money later one.

Once you have bid on your home and the offer is accepted you will go into escrow. The escrow holder will work to make sure that all the documents, money and other necessary information is together before you close. Escrow is set up to protect the buyer, the seller and the lender. It can take time to complete escrow, although the time really depends on circumstances around your purchase. Once everything is completed for escrow you will sign the closing papers. You may or may not sign your mortgage papers at escrow. Your lender will also require title insurance.

What is an escrow?

Buyers and sellers of a piece of property establish terms and conditions for the transfer of ownership of the property. These terms and conditions are given to a third party knows as the escrow holder. In turn, the escrow holder has the responsibility of seeing that terms of the escrow are carried out. The escrow is an independent neutral account and the vehicle by which the mutual instructions of all parties to the transaction are complied with.

Whether you are the buyer or the seller, you want assurance that no funds or property will change hands until all instructions have been followed. With the increasing complexity of business, law, and tax structures, it takes a trained professional to supervise the transaction. The length of an escrow is determined by the terms of the purchase agreement/joint escrow instructions and can range from a few days to several months. The selection of the escrow holder is normally done by agreement between the principals. If a real estate agent is involved, they may recommend an escrow holder.

What is a Title Insurance?

The purchase of a home is often the single largest investment people will make in a lifetime; therefore, the importance of fully protecting such an investment cannot be overstressed. Title insurance is protection which assures that the rights and interests to the property are as expected, that the transfer of ownership is smoothly completed and that the new owner receives protection from future claims against the property. It is the most effective, most accepted and least expensive way to protect property ownership rights.

Because land endures over generations, many people may develop rights and claims to a particular property. The current owner’s rights-which often involve family and heirs-may be obscure. There may be other parties (such as government agencies, public utilities, lenders or private contractors) who also have “rights” to the property. These interests limit the “title” of any buyer. There are matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. “Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of “hidden risks” which could provide a basis for a claim after the property has been purchased. The title insurance company will help protect these investments, no matter how large or small, with its own reputation and financial strength.

For the lender, a title policy is a guarantee that it has a valid and enforceable lien (loan or deed of trust) secured by the property, that no one else other than those listed on the policy has a prior claim (or loan etc.) and that the party to whom they are making the loan does own the property being used as security for the loan. This protection remains in effect as long as the loan remains unpaid.

Appraisal

If the buyer is securing a new loan for the purchase, an appraisal will be required by the lender. An appraisal will do several things.

  1. They will research the subject property as to year built, bedrooms, baths, lot size and square footage.
  2. The appraiser will compare data of recent sales in the subject’s neighborhood. The appraiser usually locates at least three (and preferable more) similar homes that have sold within the past six months.
  3. Field inspection is conducted in two parts: (1) the inspection of the subject property, and (2) the exterior inspection of the comparable properties.

The subject property inspection includes taking photos of the front and rear of the home (that may include portions of the yard) and photos of the street scene. The appraiser also makes an interior inspection for features and conditions which may detract from or add to the value of the home. A floor plan of the home is drawn and included while doing the inspection.

Home Warranty

Home warranties offer advantages to both the buyer and seller. This policy protects the buyer by paying for certain repairs and costs of major mechanical systems and major appliances in the home such as heating and air conditioning. There are a variety of plans available.