1. Get A Mortgage Pre-Approval
Perhaps you are thinking of buying a home and wonder what your first step should be. The first step is to get a mortgage pre-approval from a mortgage lender.
It’s an easy process that can be done with a phone call in 5 minutes. Some lenders allow you to submit your request online. What could be easier?
They will ask about your income, how long you have been at your job, your debt (for things like car payments and student loans but not utilities), and how much cash/savings you have saved. And they’re going to run your credit. Credit for buying a home is somewhat different from the credit to buy a house, but the higher your credit score, the lower your mortgage rate will be. Some people fear having their credit run thinking it will drop their score. Any dip is very temporary and I can think of no better reason to run credit! If your credit score is bad, a lender can give you guidance on ways to improve it. Some of the ways might surprise you.
If your credit score is low (580+) you can qualify for an FHA loan with 3.5% down. It is possible to get a pre-approval for a mortgage with an FHA loan with a credit score less than 580, but you will need 10% down. Keep in mind, the down payment is one part of the cash you will need to buy a home. You will need to cover closing costs as well (unless the Seller is willing to give you a Seller Assist which can be used for Closing Costs but NOT for down payment)
The lender will be able to tell you how much you can afford to spend each month, and the highest home price you can afford. Keep in mind that you do NOT need to spend that MUCH. That is your decision. You can decide to spend less. If you have a monthly payment you do not want to exceed, ask the lender how much house you can get for that monthly payment. I can also help to answer that question. There are factors that can change that top purchase price. If an area has higher taxes than his estimate, it will reduce the highest purchase price. If there are HOA fees, it will reduce the highest purchase price. But a mortgage pre-approval good place to start.
But you want to know what the highest price to consider, because if you go out and start seeing houses that are well over your budget, you’re going to fall in love and then be super disappointed.
So make that call to a lender for a pre-approval.
If you need some lender recommendations, I am happy to provide them. I would encourage you to stay away from internet options or large banks. They have a bad history of overpromising and under delivering, especially with regard to fees and rates. I prefer someone who is local and who can be available if anything should require prompt attention. I have had the experience with a deal in crisis and the lender had a six digit extension and was in California and never once answered their phone! Trust me, that kind of stress can easily be avoided by using someone I know and trust.
And when you find out what you can afford, it’s time to give a call to a Realtor. I hope you will call me! Ann Byer 484-678-6445.
2. Find The Best Realtor
If you have a pre-approval and you know how much you can spend, your next call is to a Realtor.
Where do you begin to find the best real estate agent?
Recommendations from people you know and trust – family, colleagues, and friends – is a great start. In this day of online ratings, be cautious of sites where agent pay for a “good” review. You would like agents who know the area well. To ensure that this real estate agent is reputable, ask for references and give them a call.
So what is important in finding a Realtor?
A full time agent will be available to match your schedule, whereas a part time agent might have other commitments.
An agent should be tech savvy. So much of real estate is technology based.
But the most important factor is communication. It’s the number one complaint about real estate agents, both from their clients and other agents.
Some agents work in teams. Decide if it’s important to you to work with one agent from beginning to end, one who knows your needs and wants and is there from beginning to end. Teams will have one person show you properties, another write the Agreement of Sale, a third handle inspection negotiations, and it’s uncertain who might show up at settlement. I am a individual agent and my favorite part of this career is the celebration of sitting side by side with my client at settlement. Do you want that kind of personal experience?
To find the best real estate agent, choose someone with experience, skills, and commitment to clients. Choose Ann.
3. Hire A Buyer's Agent
You need:
- Someone to listen to your needs and help to find the perfect fit in a home
- To point out things in the home that might be a concern
- To direct you to what inspections are important for you to do
- To determine if the list price is over or under the market price
- What is the right price to offer?
- How to handle inspections
- What will it cost monthly
- How much money do you need to settle?
This is just a small sampling of the things an agent will do for you. If you want to get started, or to find out more, call Ann Byer.
4. Decide What's Important To You
Location
Your first criteria should be to decide what School Districts are acceptable to you. A great website to compare school districts is www.GreatSchools.org. You may want to live near work, near family, or near to the airport or other hub. Be sure to tell me if drive time to and from work is important; I can limit the drive time at specific times of day to 15 minutes 30 minutes, 45 minutes or 1 hour.
For many people, high school is important. Unfortunately, most Realtors do not designate a specific high school when they list a home, so if you add this as a limiting criteria, many homes in that high school area will not show up in a search. But with tools we have in our MLS, we can map the boundaries fairly closely.
Yard
What size yard do you want? Perhaps you want a large yard, or if mowing is not your cup of tea, you want a small yard. Keep in mind that there are homes that back up to open space that give a “feeling” of large although your mowing responsibility may be small. So often a house with a small yard might work perfectly. Be sure to let me know if yard size is important to you. A fenced yard is often a desirable feature, but you may need to relay on photos to figure this out; there is no check box on the MLS.
Bedrooms
How many bedrooms do you need? How many full baths do you need? Is a basement critical? Is a fireplace critical?
Sewer & Water
Have you considered the type of sewer? On site septic systems are often found in more rural settings and require proper care, but also save money on a monthly basis. But should the system need to be replaced, it can be quite costly. Public sewer has a monthly fee but there is no system to replace (other than perhaps the pipe between the house and the street).
Do you prefer public water, or is a well okay (or even preferable)?
Special Needs
Are there any other special needs you might have? A pool? An in-law suite? A finished basement?
Do you prefer to restrict your search to only homes less than a certain age?
Once you have considered what is important to you when buying a house, the next step is touring homes.
5. Let's Go See Some Houses!
When you begin to tour homes, you will learn what’s important to you, what is not important to you, and even more significant is that I will learn what’s most important to you.
It is great to have a set of desires before house hunting. But as we go, you’ll want to update that list.
Surveillance
What might surprise you is that more and more Sellers have video cameras in the home. So while it goes without saying that you should be respectful to their property, please know that it may be in your best interest to be respectful. Especially, if you may be in a competitive bid situation. When your child pulls the cat’s tail, the astute Seller will know about it. Most Sellers are not in the home when you tour it. The system to set up showings is very well thought out.
Internet
Of course, you first home tour is the photos on the internet. This is a great way to weed out homes that don’t suit you. Once you find homes that meet your budget, your tastes, and your location, your agent will set up a tour. The Sellers generally leave the house. You can take as much time as you like, but my advice would be to skip the detailed basement and attic tours if a home immediately is a “no” when you enter the front door. It’s hard to remember details after you have seen many homes. Make sure to note the things you liked, the things you didn’t like, and any identifying features of the home. This will help you keep things straight in your head when you look back later.
6. What Will It Cost To Buy A Home?
When you buy a home, you may be curious to find how much does it cost. You will want to know how much it will cost you each month (your mortgage payment) and also how much money you will need for Closing Costs. It’s a pretty important question.
Your monthly payment when you own a home will include principal and interest, real estate taxes, HOA dues (Homeowners Association, if it applies), insurance, and Private Mortgage Insurance (typical when you put down less than 20% toward your mortgage).
UPFRONT EXPENSES
There are certain costs you will incur before you get to closing. Typically you need to put down a “good faith deposit”, sometime called earnest money. This is not “extra” money, it’s just a portion of the total cost paid up front (so you owe LESS at closing). This amount varies as a function of the purchase price. For less expensive homes, plan for $5000, for mid range plan for $10,000, for higher end properties, plan for $20,000+.
You will also need to pay for inspectors (home, radon, termite, perhaps well, perhaps septic, perhaps stucco, perhaps sewer line. Assume these costs:
Home Inspection $500
Radon $140
Termite $110
Well $250
Septic $800
Stucco – varies, but budget $1000
Most lenders expect to be paid upfront for the appraisal (budget $500) and an application fee (this one varies by lender).
MORTGAGE COSTS
The first category of expense is mortgage fees.
Budget for $1,300 plus the cost of the appraisal (which some lenders require to be paid up front). Assume $500 for the appraisal.
PRORATIONS
The Seller paid property taxes to the school district, Chester County, and the local Township/Borough/City. You will need to reimburse the Seller for these taxes for the portion of time he has paid, but during which you will own the house. These prorations are based on these periods:
Local and County taxes are based on the calendar year.
School Taxes are based on a fiscal year 7/1 through 6/30.
So, for example, if you settle on the home on January 1, and school taxes are $4000, you would owe the Seller $2000.
ESCROW/IMPOUNDS
For most mortgages, you send your payment to the lender (or their servicer) each month and it covers the Principal, Interest, Taxes, and Insurance and possibly Mortgage Insurance. The lender then pays the bills for taxes and insurance when they are due.
But this fund (called an Escrow Account) needs a cushion to get started in case a bill becomes due and you have not yet paid enough into that fund to cover it. The lender collects this money at settlement. The amount varies depending upon the date of settlement. To get some idea, assume you will need 2 months of insurance, Nine months of Township and County taxes, and 4 months of School Taxes. Assume one month of mortgage insurance. NOTE: You will need mortgage insurance if you down payment is less than 20% of the purchase price.
TITLE
You will need Title Insurance. The cost of title insurance varies with the price of the home. You can get and idea of the cost here.
Other title charges to expect to pay:
Closing Protection Letter $125
Certifications $150
eDoc Fee $50
Notary $75
Overnight Fee $16
GOVERNMENT FEES
Deed Recording Fee $125
Mortgage Recording Fee $250
Transfer Tax is typically 2% in Chester County PA. However, this is typically paid 50% by the buyer and 50% by the Seller. So expect to pay 1% of the purchase price for Transfer Tax.
For property located in the City of Coatesville, the Municipal Tax is 4%, for property in Tredyffrin Township, it is 3.0%. So expect to pay 2% of the purchase price for Transfer Tax in Coatesville City and 1.5% of the Purchase Price for Transfer Tax in Tredyffrin Township.
MISCELLANEOUS FEES
You are going to pay for one full year of homeowners insurance at settlement. (I have a great guy if you need a quote).
If there is a Homeowner’s Association, you may need to pay a Capitalization Fee. This varies widely but for a rough ball-park estimate, assume $1000. This is the initial amount of money you pay to “get in” to the Association.
If you buy a Home Warranty, you would pay for it at settlement. Assume $500.
There may be a small fee to the Real Estate Broker for your Buyer’s Agent.
You may need to pay for upcoming dues for the Homeowner’s Association.
When you add up all these costs, you will have a good idea of the amount of money you need to buy a house. These are closing costs.
It is possible to ask the Seller to cover these costs.
You will also need the Down Payment. The lowest Down Payment is 3% of the Purchase Price. The Seller cannot pay for this.
7. Making an Offer
Once you have found the home you want to buy, it’s time to make an offer. You’ll need to consider various things and gather financial documents. See our tips below with details.
Here are the things you will need to consider:
- Purchase Price (depends upon many things, which you will go over in detail with a trusted real estate advisor, your Realtor)
- Settlement Date (depends upon your schedule, holidays, and date of offer)
- Deposit Amount (depends upon Purchase Price and competition)
- Inclusions
- Inspections (which ones and deadline for completion)
- Home Warranty paid by Seller
In addition, you will need to have these financial documents:
- Escrow Deposit Check
- BFI (Buyer’s Financial Information)
- Pre-approval from a lender
You will need to sign the Seller’s Property Disclosures and an assortment of other documents.
8. Getting to Closing: What to Expect After You Sign
You’ll know what steps to take from the time you sign an Agreement of Sale (the Contract) to the time you go to Settlement (the Closing).
1. The Inspection Contingency – You will do inspections, typically within a week after you sign. You will decide which things you wish to ask the Seller to repair. After we negotiate, we will create a form (called a Change inTerms) to document what Seller and Buyer agreed to. Once ths document is signed, the Inspection Contingency is removed.
2. Formal Mortgage Application – You will make a formal mortgage application with the lender of your choice within 7 days after the signing of the Agreement of Sale. The lender will most likely have all the information you need, but you’ll provide pay stubs, copies of investment accounts and bank accounts, etc.
3. The Mortgage Appraisal – Once you have made an application to the lender, they will order an appraisal. The bank want assurance that the property is worth what you have agreed to pay.
4. The HOA (Home Owner’s Association) Contingency – The Seller will order documents form the HOA for your review. You have a 5 day period to review them to be certain there are no conditions which would prevent you from buying the property.
5. Ordering Title – I will order a Title Commitment to ensure that the property can be conveyed with clear and marketable title.
6. Settlement takes place typically in the offices of the Title Company. You will be a cashier’s check to cover the Closing Costs and Down Payment. The lender will wire the loan amount to the Title Company. After signing the loan documents and title documents including the Deed, you will be handed the keys to the property. You are now a homeowner!
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