Buying a Home
There's no doubt about it — owning a home is an exciting
prospect. After all, you've always dreamed of having a place that you could
truly call your own. But buying a home can be stressful, especially when you're
buying one for the first time. Fortunately, knowing what to expect can make it
a lot easier.
How much can you afford?
According to a general rule of thumb, you can afford a
house that costs two and a half times your annual salary. But determining how
much you can afford to spend on a house is not quite so simple. Since most
people finance their home purchases, buying a house usually means getting a
mortgage. So, the amount you can afford to spend on a house is often tied to
figuring out how large a mortgage you can afford. To figure this out, you'll
need to take into account your gross monthly income, housing expenses, and any
long-term debt. There
real estate and personal finance websites on
the Internet that can help you with the calculations.
Should you use a real estate agent or a broker?
A knowledgeable real estate agent or buyer's broker can
guide you through the process of buying a home and make the process much
easier. This assistance can be especially helpful to a first-time home buyer.
In particular, an agent or broker can:
- Help you determine your housing needs
- Show you properties and neighborhoods in your price range
- Suggest sources and techniques for financing
- Prepare and present an offer to purchase
- Act as an intermediary in negotiations
- Recommend professionals whose services you may need (e.g.,
lawyers, mortgage brokers, title professionals, inspectors)
- Provide insight into neighborhoods and market activity
- Disclose positive and negative aspects of properties
Keep in mind that if you enlist the services of an agent or
broker, you'll want to find out how he or she is being compensated (i.e., flat
fee or commission based on a percentage of the sale price). Many states require
the agent or broker to disclose this information to you up front and in
Choosing the right home
Before you begin looking at houses, decide in advance the
features that you want your home to have. Knowing what you want ahead of time
will make the search for your dream home much easier. Here are some things you
may want to consider:
- Price of the
home and its
potential for appreciation
- Location or neighborhood
- Quality of construction, age, and condition of the
- Style of the
- Number of bedrooms and bathrooms
- Quality of local schools
- Property taxes
- Proximity to shopping, schools, and work
Making the offer
Once you find a house, you'll want to make an offer. Most
home sale offers and counteroffers are made through an intermediary, such as a
real estate agent. All terms and conditions of the offer, no matter how minor,
should be put in writing to avoid future problems. Typically, your attorney or
real estate agent will prepare an offer to purchase for you to sign. You'll
also include a good faith or earnest money deposit. If the seller accepts the
offer to purchase, he or she will sign the contract, which will then become a
binding agreement between you and the seller. For this reason, it's a good idea
to have your attorney review any offer to purchase before you sign.
Once the seller has accepted your offer, you, your real
estate agent, or the mortgage lender will get busy completing procedures and
documents necessary to finalize the purchase. These include finalizing the
mortgage loan, appraising the house, surveying the property, and getting
homeowners insurance. Typically, you would have made your offer contingent upon
the satisfactory completion of a home inspection, so now's the time to get this
done as well.
The closing meeting, also known as a title closing or
settlement, can be a tedious process--but when it's over, the house is finally
yours! The closing may require some or
all of the following entities to be present: the seller and/or the seller's
attorney, your attorney, the closing agent (a real estate attorney or the
representative of a title company or mortgage lender), and both your real
estate agent and the seller's.
Depending on what state you live in, all parties may be required to attend the closing at once or the closing can take place over the course of several weeks. Some closings can be conducted by mail or via the internet.
During the closing process, you'll receive and/or sign a variety of paperwork, including:
- Closing Disclosure: This lists all of the final terms of the loan you've selected. Your lender is required to send you the Closing Disclosure at least three business days before the actual closing meeting.
- Promissory note: This spells out the amount and repayment
terms of your mortgage loan.
- Mortgage: This gives the lender a lien against the
- Deed: This transfers legal ownership of the property to you.
In addition, you'll need to provide proof that you have
insured the property. You'll also be required to pay certain costs and fees
associated with obtaining the mortgage and closing the real estate transaction.