Tuesday, June 16, 2009

How do I buy a home?

We all know the old adage about real estate: Location, Location, Location. It’s true, but it is also very subjective. The companion adage is a bit harsh, but also true: “One man’s trash is another man’s treasure.” Only you can define your perfect location. Make a list. What’s important to you? Quality of schools? Distance to work or schools? Proximity to your place of worship? Reputation of your city? Does it seem to always be in the news for squabbling council persons or crime rates? What are the plans for future expansion? What will that cost you in property value and future taxes? Much of this “homework” can be accomplished through your own research on the internet, at local schools, city hall and the Chamber or Commerce. Much more can be accomplished by hiring a competent professional real estate agent who knows the local market.

This professional will also guide you through the negotiations and explain the contract. The first thing to know is that the contract is a legal and binding instrument! What have you agreed to do? What has the Seller agreed to do? Are they paying for all of the repairs you want? How much earnest money should you put down? Is it at risk? Will you get my option money back? When can you really move in? Do you want a Residential Service Contract? What is that? Can you name the Title Company for closing, or do you have to take one you don’t want? Is everything here routine, or should you seek competent legal advice for this particular point?

By now, or maybe even before, you should be approved for a loan. Get a letter from your lender that says something like “Joe and Anne Smith are approved for a loan of X-thousand dollars at Y-percent for Z-years subject only to the appraised value of the property. Anything less is NOT an approval.

The next step is to have the property inspected by a Licensed Inspector. Don’t “brother-in-law” this one! This is you and your family’s future both economically and emotionally. You still remember where you grew up, don’t you? An inspector will look at the components that make up a house and issue a report. It will include an opinion on the condition of the roof, the foundation, the plumbing system (if the water heater about to go), any evidence of termites or other wood destroying insects, and the list goes on. Remember that buying a pre-owned home is similar to buying a pre-owned car. You need to expect a few dings. If you don’t want dings, buy a new home. But get that one inspected, too! Nobody has lived there yet…. How do you know everything works and was built or installed properly?

Simultaneously with the inspection, apply for homeowner’s insurance. Insurers are becoming increasingly picky about which properties they will insure, and for whom. Credit scoring now effects the rates quoted from many insurers. So does the claim report history of the property. Have the policy in place prior to closing! You don’t need this last minute snag when the moving van is in your driveway.

Finally, be prepared to submit last minute documents to the lender or title company. This has sadly become routine, but necessary to complete the “paper trail” for the lenders and investors who ultimately buy your loan.

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