Six major steps to owning a home
Benefits of Home Ownership
- All interest, property taxes and home owner's insurance you pay is tax deductible. The total is deducted from your gross income to reduce your taxable income.
- A house typically appreciates about 5% a year.
- You have the freedom to make changes, improvements and express your own taste. You will also be the one to reap the benefits of the work you put into the house in the form of equity.
- With a fixed mortgage you will have a set payment until the house is paid off. No more unplanned rent increases from the landlord. The payment may seem overwhelming at first but, think of what it will cost to rent a house of the equivalent in 5-10 years.
- Owning a home can also be viewed as a savings plan. Instead of writing a check for your mortgage, think of it as paying into a savings account every month.
Owning as opposed to renting is never a bad idea.
It has tremendous financial benefits. Not to mention the personal satisfaction of owning a house that you make into your home.
- Financial pre-qualification with a lender
- Searching for a and finding a home
- Writing a contract
- Securing your loan
- Inspecting your home
- Pre-settlement and closing
Step #1 - Financial Pre-qualification
People tend to think you start by finding a house then the lender. In reality the lender is the best place to start.
A lender will:
- pre-qualify you by asking a series of questions and by pulling your credit report.
- Go over settlement charges, this being what it will cost to close on the property above and beyond the cost to purchase.
- Give potential monthly payments, allowing us to stay in a price range that you can afford and are comfortable with.
Financing Do’s and Don’ts:
- Get a copy of your credit report.
- Don't make any large purchases!
- Try not to make any drastic career changes.
- Do not move money around.
Step #2 - Searching For and Finding a Home
Armed with your pre-qualification letter we can setup a buyers profile using the following basic factors:- Location
- Price range (from step #1)
- Neighborhood
- Home size
- Home style
- Commute
- Schools
Creating a profile allows us to narrow the search to suit your current and future needs.
I am a member of the MLS (Multiple Listing Service)
- MLS is a powerful tool
- It allows agents to share listings with one another.
- It also allows us to narrow our search down to your exact specifications.
- Most people find a home within the 1st month of looking and as little as five showings.
- Don’t be afraid to like one of the first homes you take a look at!
BUYING A HOME WITH RESALE VALUE
- Location A smaller home in a highly sought after area is a better investment than a larger home in a not so great area. Remember the smaller house in a development with larger homes is a better investment then a larger home in a smaller neighborhood.
- Improvements The more substantial improvements are; additional living space, decks, sunrooms, patios, additional bathrooms, etc. Other improvements include windows, doors, flooring, molding, pool, hot tub, appliances, countertops, cabinets, lighting and other fixtures.
- Storage space The more storage the better (e.g. closets, sheds, garage, attic, and laundry room)
- Kitchen Look at faucets, countertops, cabinets, flooring, appliances, size, and pantries. It is a perk to have access to the back yard for cookouts and easy access to the garage for groceries.
- Bathrooms Look for updated vanity/medicine cabinets and flooring. Make sure the tubs/showers, toilets, and sinks are in good condition with quality faucets.
- Bedrooms Four bedroom homes are the most desirable. Size, updated molding, flooring and closet space are a major plus too.
- Lot The larger the better but it needs to be manageable. A good view is important whether it be waterfront, trees, a well manicured neighbor's house. It should be relaxing and appealing to the eye.
REMEMBER: You want a house that is structurally sound and has a good layout. Look beyond the cosmetic appeal. That will be the easiest and most inexpensive to change and will make a huge impact.
Step #3 - Writing a contract
Once you find your home of choice, we write an offer.This offer will map out all conditions, contingencies and terms you wish to have presented to the sellers. This offer will either be accepted, rejected or countered.
- Accepted – This means both parties have agreed on the terms of the contract and we proceed.
- Rejected – This means not accepted without explanation or counter.
- Counter Offer – This means a seller rejects the original offer and amends it to attempt to negotiate.
Remember, an offer doesn’t become a ratified contract until both parties agree to all terms in writing.
DETAILS OF A SALES CONTRACT
A sales contract starts as an offer and only becomes a contract after all terms and conditions have been agreed upon in writing by both buyers and sellers. It is important to remember everything is negotiable.
DETAILS IN THE MARYLAND STATE CONTRACT ARE AS FOLLOWS:
- Settlement Date -Date set for closing on the property. It reads xx/xx/xxx or sooner if agreed upon by both parties.
- Sales Price -Price Buyer is willing to pay for property. This prior to appraisal.
- Listing and Selling Agents Info- Broker, Salesperson, phone/fax #'s and agency
- Buyer and Seller Names and Addresses- Names and current addresses for both parties.
- Financing Terms- This consists of the type of loan, amount of money borrowed, interest rate, term of note, days given for loan application and days given for loan commitment.
- Earnest Money Deposit -This is given by the buyer to be held in a non-interest bearing account with the Buyers Broker or sometimes with the settlement company. This money can only be disbursed if agreed upon by both Buyers and Sellers and is in the ballpark of 1% of the sales price.
- Termite Inspection -This typically paid for by the buyer unless they are VA, FHA or otherwise negotiated. The seller is by MD State Contract obligated to pay up to 2% of the sales price in repairs if damage has occurred unless otherwise negotiated.
- Transfers and Recordation -This is a transfer tax and recording fee that is typically split equally by buyer and seller.
- Lead Based Paint -The seller states the year constructed and if any certifications have been issued.
- Home Owners Insurance- A home owners insurance policy is to be established by Buyer prior to settlement This is required in order to settle, it is a condition given by a lender.
- Date of Contract Acceptance -The date all terms have been agreed upon and signed off on by both parties.
I have only highlighted parts of the contract. Remember, it is important to always read your contract and ask questions.
DETAILS OF A SALES CONTRACT
These documents cover issues that are not stated in the Maryland State contract. An example of commonly used addendums are as follows:
ADDENDUMS TO SALES CONTRACT
- Appraisal Addendum- This is added to make sure the Buyer is protected if a property doesn't appraise for the sales price.
- Water Quality Test - This is performed when the water supply comes from a well. This typically consists of bacteria, lead and radium but, is not limited to that scope. You are able to request permission for any test to be performed. This may be a condition given by some lenders.
- Septic Inspection- A Buyer typically requests the Seller to pay for the septic inspection and certification. This can consist of a dye test or a more invasive procedure. A company that is certified to do septic inspections will dig up the tank/visually inspect the water level and at what rate it drops. This may be a condition given by some lenders.
- Mold Test- This gives the Sellers written permission to Buyer at the Buyers expense to have an air quality test is performed to get an accurate mold reading.
- Home Inspection- This gives the Sellers written permission to Buyer, at the Buyers expense to have a bonded home inspector perform a thorough inspection.
- Lead Based Paint Inspection (homes constructed prior to 1978)- This gives the Sellers written permission to the Buyer to have lead paint test performed at the Buyers expense.
- Lead Based Paint Disclosure (for homes constructed prior to 1978) - The seller is required to disclose any knowledge of any lead based paint.
- Home Owners Association Disclosure- The Seller is required to disclose any resale package, convenance, fees, management company or president with their address and phone number.
- Notice for Disclosure/Disclaimer- This advises the Buyer of their right to the Sellers disclosure of disclaimer.
- Disclosure/Disclaimer Statement- This gives a little history on a house. A Seller is required to disclose any latent defects even if they have been repaired. If a Seller opts to use the disclaimer they are still required to disclose any defects they are aware of by state law.
- Agency Disclosure- Realtors are to disclose agency, this being Buyers Agent, Listing Agent and Dual Agency.
- Dual Agency Consent- This occurs when 1 or more agents working for the same Broker are involved in a transaction together. Written permission is required in writing by both Buyers and Sellers.
- Home Sale Contingencies/Kick Out Addendum- This is used when a Buyer needs to sell their current home. It allows a Seller to take a contract with certain conditions pertaining to the Buyer's sale. A time period is given for the Buyer to get their current home under contract or it can be declared void. A kick out allows the Sellers to continue to show and offer a property that is under contract in hopes they find a non-contingent Buyer.
Step #4 - Making a Loan Application
Before inspections are performed and final negotiation have been made, it’s time to finalize the loan. This is when you sit down with your lender to sign papers and provide financial documents.
Items your Lender may require you to provide:
- A signed, legible sales contract
- A copy of the sales/purchase contract. (If you are selling your present home)
- Social Security numbers of all applicants
- A list of your addresses and landlord's contact information for the past seven years, if you have been renting; or residence history
- Employer(s) information for the past two year
- Employer(s) contact information
- Income information
- Copy of W-2 forms
- Copy of your most recent YTD pay stub
- Your Debt Information
- Installment loans
- Revolving charge accounts
- Student loans
- Mortgage loans
- Auto loans
- Your Financial Information
- Checking accounts
- Savings accounts
- Brokerage accounts
- Stocks, bonds, etc.
- Child support/alimony (optional)
Items your Lender may require you to provide if you are self employed:
- Federal Income Tax Returns for the past two years. Include all schedules and a year-to-date profit and loss statement.
Items your Lender may require you to provide if you own other property :
- List all addresses
- Get current market values
- Specify all debt owned
- Include lender’s name, address, account number, monthly payment and current balance.
- Federal Income Tax Returns for the past two years. Include all schedules and a year-to-date profit and loss statement.
- Copy of all leases for rentals
Step #5 - Inspecting your Property
- The best advice I can give is always get a home inspection.
- Most likely we would have included the right to perform a home inspection as one of the terms of the contract.
- Inspections usually take place 5-10 days after contract acceptance and cover structural, mechanical, electrical and plumbing portions of the property.
- In is mandatory that you or someone designated by you be there during the inspection. It is also recommended that you follow the inspector around to familiarize yourself with your new home. Inspections are performed at the buyers expense and can range from $300 - $500.
- Be reasonable and realize nothing is perfect and that “resale” is not a “new home”.
- Septic Inspection – There are two options
- A dye test
- A more invasive procedure, including digging up the ground and pumping out the system. This is typically done at the seller expense unless otherwise negotiated.
- Water Quality Test – This is performed on a well. A sample of water is taken and tested for what was agreed upon by both parties. The buyer usually is responsible for the cost.
- Termite Inspection - This is a paragraph included in the Maryland State contract and is required by most lenders. This is done at the buyers expense unless you are doing a VA loan. The cost is approximately $60.
There are many other inspections out there. These are the standard inspections performed.
Step #6 - Pre-settlement/Closing
The following needs to be completed the week prior to closing on your new home.
- Homeowner's Insurance – You are responsible for making sure that you have homeowner’s insurance prior to settlement. Ask for a paid receipt to send to the lender and bring to the settlement. Also, ask the minimum value the policy has to cover.
- Cashier’s Check – You will need to bring a cashiers check made out to YOU to the settlement for the balance of the down payment and closing costs. Bring your checkbook in case the check isn’t enough.
- Directions to Settlement- Make sure you know where you are going.
- Change of Address – Make sure the post office knows where you are going? and notify creditors, doctors, family and friends that you have a new address!
- Walk-through - It is typically done the day of settlement to ensure everything is in the same condition it was when you originally put the contract on the home.
A problem free settlement can take from 1-2 hours. After paperwork is finalized keys are exchanged, possession is transferred and congratulations are in order.
