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Buyer's section: |
The important steps
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Pre-Approval vs. Pre-Qualification
REALTORS® recommend that buyers get pre-approved prior
to initiating the mortgage
process to determine the best type of mortgage for you and avoid rushing into a
mortgage decision. Pre-approval is an official agreement
by the lender specifying the exact amount for which you‘ve
been approved. In order to get pre-approved, you‘ll meet
with a loan officer who‘ll review your credit history and
often suggest a mortgage type that fits your situation.
This process requires supplying the lender with various
financial documents. By receiving pre-approval before making
an "offer to purchase", you‘ll demonstrate your serious
intentions and financial ability to the buyer.
Pre-approval is not to be confused with pre-qualification,
however. Pre-qualification provides an informal means to
find out how much you may be able to borrow. Before setting
your price range for how much you can spend on a new home,
you may want to pre-qualify for a mortgage. You can be pre-qualified
over the phone by answering a few questions about your income,
long-term debt and the amount of your downpayment. Getting
pre-qualified gives you a ballpark figure of the amount
you may have available to spend on a home.
Downpayments and Financial Assistance
Even first-time buyers are usually aware that they‘ll
be required to make a downpayment in order to secure a home.
But what you may not have heard is that within the past
decade, downpayment assistance programs have been developed
that either lower the deposit dramatically or eliminate
it altogether. Before making your downpayment, you‘ll want
to investigate these programs to see if you qualify.
While low downpayments might seem attractive to cash-strapped
buyers, keep in mind that the larger the downpayment, the
smaller the mortgage loan -- thereby allowing you to develop
equity quicker. You‘ll also want to consider that mortgages
with less than a 20-percent downpayment usually require
mortgage insurance. When determining the size of your downpayment,
you may want to weigh the other costs involved, including
closing costs and relocating expenses.
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Now that you've found the perfect home, it's time to get
the deal rolling. You'll need to sign a residential purchase
agreement, make an offer, possibly put down a deposit, conduct
inspections and close the sale.
If this all sounds overwhelming to you, don't worry; your
REALTOR® will guide you through each step.
Making An Offer/Residential Purchase Agreements and
Buyer Representation Agreements
If you're ready to purchase the home, you must get all the
details in writing. The offer begins with a written proposal
spelling out your price and any stipulations regarding the
purchase. If the seller has agreed to pay part of the closing
costs, for example, that needs to be specified in the accepted
offer. In addition, sometimes offers to purchase are contingent
upon factors like the buyers' ability to obtain financing
or the sellers finding housing within a certain time frame.
The residential purchase agreement contains the comprehensive
terms of the deal, including sales price, deposit, closing
date, disclosure requirements, inspections, and fees agreed
upon by both parties. Other provisions also are included,
such as the buyer's final inspection and the method by which
all real estate taxes and other bills will be pro-rated
between buyer and seller. There are ways for buyers to look
more appealing to a seller, thereby possibly gaining a negotiating
edge. All-cash buyers and those already pre-approved for
a mortgage have an advantage. In addition, sellers who are
ready to move prefer buyers who don't have a present house
to sell first. An offer to purchase is often followed by
a counteroffer by the seller, which can be countered again
by the buyer. This is common practice as both sides attempt
to negotiate an agreement that meets their individual needs.
Completing the residential purchase agreement is a complicated
part of the transaction process that buyers shouldn't enter
into without the assistance of a REALTOR®.
REALTORS® have access to the standard forms needed and
receive updates from their local, state and national associations
on state and federal laws regulating agreements.
REALTORS® can either answer any questions you might have
or refer you to the appropriate authority.
Buyers' Up-Front Fees
In conjunction with the residential purchase agreement,
buyers are usually expected to put down a deposit at the
beginning of the transaction. If the buyer completes the
sale, this money will be credited toward the buyer's downpayment.
If the buyer doesn't complete the sale for legal or contractual
reasons, the money is typically returned. However, if the
buyer doesn't complete the sale for other reasons, the seller
may be entitled to keep the deposit. The U.S. Department of Housing
and Urban Development (HUD) advises that deposits
should be "substantial enough to demonstrate good faith,"
usually 1 to 5 percent of the purchase price. Often, buyers
may put up to 20 percent down.
Because buyers frequently pay for most inspections, it may be a good idea to investigate
the costs of the inspections you plan to obtain before an
offer is made.
Home Inspections vs. Appraisals
Home inspections vary greatly. Some check the home's structure,
construction and mechanical systems, and appliances, which
may be transferred with the property. Although different
inspectors look for and test different things and may not
discover everything that is wrong with a property, obtaining
inspections is the best way to become informed of necessary
repairs or problems with the home. Be advised that inspectors
do not assess the value of your home.
According to HUD, an
inspector typically checks the electrical system, plumbing
and waste disposal, the water heater, insulation and ventilation,
the HVAC system, water source and quality, ceilings, walls,
floors, and roof.
In addition to being inspected, the home will undergo
an appraisal by a trained professional. An appraisal
is an opinion of the property's value used primarily to
protect the lender's interest. In contrast to home inspections,
appraisals are based on past sales data, the location of
the home, the size of the lot and the condition of the home.
Your REALTOR® may recommend a qualified inspector or appraiser.
Click HERE to find out more about HOME
INSPECTION.
Closing
The closing is the day you've been waiting for: when ownership
of the home officially transfers from the seller to you!
Prior to the closing, the escrow agent will present you
with scores of legal documents to review and sign, and you'll
be expected to pay your downpayment and closing costs. In
addition, a number of other legal procedures must be completed
before the sale can close, including approving the mortgage
application, clearing the title, appraising the property
and recording the deed.
The Real Estate Settlement Procedures Act (RESPA) provides
specific protection to buyers before, during and after closing.
If a settlement service has referred you to a REALTOR® with
whom the service has a business connection, an Affiliated
Business Arrangement Disclosure is required prior to closing.
You're entitled to receive a preliminary copy of a HUD-1
Settlement Statement, which lists estimates of all settlement
fees to be paid by buyer and seller, if you request it 24
hours before closing; the final HUD-1 Statement is a requisite
part of closing. In addition, an Initial Escrow Settlement
Statement is required at closing or within 45 days of closing.
This details the estimated taxes, insurance premiums and
other charges that must be paid from the escrow account
during the first year of the loan.
Within three days after your loan application is received,
your lender must deliver or mail you a "good faith estimate"
of the total amount due at closing, as well as a copy of
the HUD publication Settlement Costs: A HUD Guide.
Closing costs typically are comprised of attorneys' or escrow
fees, property taxes, interest, loan origination fees, recording
fees, survey fees, first premium of mortgage insurance,
title insurance, loan discount points, first payment to
escrow account, paid receipt for homeowner's insurance policy
and any documentation preparation fees. Fannie Mae estimates that most
buyers' closing costs amount to 3 to 6 percent of the sales
price. |
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