Buying a Home:
Posted: March 01, 2020 by Darryl Murphy
Whether it’s your first time or your fifth, buying a home can be confusing, emotional, and, if it’s done right, entirely rewarding. From the home buyer’s perspective, much of their anxiety is caused by the simple fact that they don’t know what to expect from the process. Buyers are often unsure how to get started, what will be expected of them once they do, what’s going on as the process unfolds, and what they should be doing to ensure a positive outcome. Although there’s likely no cure for this particular brand of anxiety, it is helpful to have for reference a roadmap of the process, something to help point the buyer in the right direction and orient her when she finds herself getting overwhelmed by the journey. This post is meant to provide just this sort of roadmap. Let's get started...
Step #1 when it comes to buying a house is qualifying for a mortgage. Step #2 is choosing a Real Estate agent. These two steps are more or less interchangeable, that is you could do either one before the other, the fact remains, it is prudent to complete both these steps before you start looking at houses.
Step 1. Qualify for a Mortgage
There really is no point investing the time, energy, and emotion into a home search if, in the end, the aspiring home buyer is not able to pay for it. Of course, if she’s independently wealthy and money is no object, she can skip this step. On the other hand, if like most of us she belongs to the 99 and not the 1 percent, qualifying for a mortgage is step number one.
Any REALTOR© worth their salt should be able to refer a prospective buyer to a reliable and effective mortgage broker who can advise and ultimately secure a mortgage. Some may prefer to deal with their bank. I, however, always advise my clients that a mortgage broker will work in their best interest whereas bank reps work for the bank. It’s important to note that working with a mortgage broker does not exclude one from working with a bank, a broker may well advise that a bank's mortgage product is their best fit. This speaks to another benefit of working with a mortgage broker: mortgage brokers are also often able to find solutions where banks cannot because the products a bank can offer are often far more limited than the wide array of products accessible to the mortgage broker.
It's also worth mentioning those instant and online “pre-approvals” currently advertised by some banks. Generally speaking, "pre-approvals" of this sort are often of little to no real value to serious home buyers. This is because they tend to rely solely on the information provided by the user which is not supported by appropriate documentation. If this is the sort of “pre-approval” you have in your hand when you meet with your real estate agent, don’t be surprised if she refers you to a bank or broker for something more official.
Step 2. Choose a Real Estate Agent
It’s entirely possible that the home buying process will leave you thinking that the real estate industry hates trees. The ocean of paperwork may seem excessive, but every last scrap has a purpose and that purpose, in a nutshell, is to protect home buyers from trouble in the form of fraud, dangerous substances, and undeserved liabilities, to name just a few. For this reason alone, home buyers often choose to work with a licensed realtor to help them navigate the process. Working with a realtor should help make the home search as efficient as possible, not to mention, when the time comes the home buyer will often want a capable negotiator advocating for their side and their side alone during the offer process (step #4).
Not to put too fine a point on it, but the home buying process may, at times, feel somewhat obtrusive. For most people their home represents the single greatest investment of their life. In order to facilitate this process, the real estate agent will, inevitably, have to ask their clients personal questions about their finances. It goes without saying then, that the real estate agent has to be trustworthy, someone their clients are comfortable sharing personal information with. Aside from negotiation skills, it’s important that an agent be a skilled listener and that he demonstrates said skills. At the same time the agent should speak plainly and have the strength to disagree with their client (tactfully) rather than simply agreeing with them for fear he will intimidate and ultimately lose the client. By far the best agents are those that can identify problems their clients didn’t even know they have and, this being the case, sometimes agents have to burst their client's bubble to help them avoid future troubles.
Step 3. Search for a property
The search for a property is (usually) the most fun part of the process. Aspiring home buyers often approach the search with a wealth of enthusiasm with great expectations and dreams of what their future home will bring. It’s also not entirely uncommon for buyers to experience a bit of a let down as they come to grips with the difference between their imaginary future house and the house they can actually afford. One way to counteract this disappointment and to remain level headed through the search is to create two lists: the first list includes those elements of the buyer's future house that are absolutely necessary. The buyer should start by answering questions like, "what types of spaces do I need?", and "what sorts if functions do I need to be able to perform in my house?" This is where buyers often list the number of bedrooms, bathrooms, and other spaces they require for their life. It's important to remain realistic when compiling this list. There is an important difference, for example, between really really wanting a two car garage or main floor laundry and actually needing them. These sorts of items, the one's the buyer really, really wants, are best included on the second list, that is, their list of nice-to-haves.
It’s also advantageous to the buyer to be flexible and open minded when it comes to fulfilling the needs identified on their first list. If, for example, the list includes an extra bedroom to be used as an office space, then, it would seem, that what the buyer really needs is an office space. If the office space can be satisfied in some other way, by placing it in a den or some other suitable space, then it would seem the buyer might not truly need an extra bedroom. Buyers that keep an open mind when it comes to satisfying their needs are likely to have a much more enjoyable experience searching for a property.
Step 4. Make an offer
Once you found the home that satisfies all your needs and maybe even checks off a few boxes on your nice-to-have list, it’s time to make an offer. This is the time when the buyer client has to work closely with their agent on a strategy for securing the home. Unfortunately, there is no one-size-fits-all strategy that fits every circumstance. The prevailing market will significantly impact the success or failure of the strategy employed. For this reason, it’s in the buyer’s best interest to listen to his agent’s advice given what should be her expert knowledge of the market she serves.
Strategy aside, this is the stage in the process, the negotiation stage, where emotions can get the better of the aspiring buyer and the stage at which buyers can make mistakes. Specifically, I'm referring here to some buyer's willingness to overpay for the house they fall in love with. No matter how much the buyer falls in love with the house in question, the buyer has to guard against making an offer that is greater than the value the house can support. Heartbreak is sure to follow when the buyer is unable to secure the required mortgage because the appraised value of the house is less than the required mortgage. Even if the amount falls within the range of the buyer’s pre-approval, if the appraised value of the house is less than the required mortgage, the mortgage will not be approved.
Step 5. Satisfy and release the conditions
Some offers to purchase a house are issued and accepted without any conditions. In cases where the buyer does not need a mortgage, the buyer is comfortable purchasing the home without an inspection, etc., the buyer’s offer to purchase the property is made firm and this step #5 is, for all intents and purposes, passed over.
The majority of offers to purchase a property, however, will include various conditions that must be met by either the buyer or the seller before the offer is “made firm'' and the sale will proceed. Financing is one such common condition. The buyer will offer to purchase the home on the condition that she can secure the financing required to make the purchase. Buyers will also often add a clause to their offer stating that the purchase is conditional on the buyer receiving a satisfactory report from a home inspector. The offer will stipulate the time frame during which the buyer will work towards fulfilling these conditions and it is, of course, important that the uses this time to fulfill these conditions. This time is likely to involve a flurry of activity compiling and exchanging documents with your mortgage broker or bank to finalize the mortgage; arranging and attending inspections; and any number of important tasks that are necessary to finalize the deal.
When and if all the conditions of the offer are met, the buyer’s agent will file a form that will release the conditions on the offer making the offer firm and binding on both parties.
Step 6. Prepare for closing
Once the deal is finalized it’s time to start thinking about logistics. Now is the time for the buyer to hire movers, or book a moving truck, recruit friends to help with the move, and, of course, start packing their belongings.
The deal might be firm, but the signing and paperwork is not yet complete. Most of the outstanding work at this stage of the process is completed by the buyer’s and seller’s lawyers, but the buyers and sellers will, from time to time, be called upon to provide information and sign documents.
During this stage the buyer’s lawyer will, among other things, perform a title search. This means the lawyer is investigating the history of the ownership of the property to ensure that no other party has any legal claim to the ownership (or partial ownership) of the property. The lawyer will also ensure that the buyer of the property can continue to use the property in the same way it was used by the previous owner. When this and other investigations have been completed, the buyer will meet with the lawyer to sign a series of documents required to transfer the ownership of the property to the buyer.
Step 7. Closing & Move in
The final stage of the home purchasing transaction is referred to as closing day. On closing day the lawyer distributes the funds from the buyer’s mortgage to the seller’s bank and, when all is said and done, will hand off the keys to the new owner. This process, however, is sometimes easier said than done: the most common delay is caused when the lawyer, or lawyers, involved in the transaction are unable to release the funds for one sale until the funds of another sale are released. Delays of this sort can be compounded when a bunch of sales are interconnected and have to be closed in sequence. Given these potential delays, it's advisable for buyers to, if possible, plan moving day for some day later than closing day.
On move in day it’s the buyers’ job to pack up all their belongings coordinate moving them out of their old house and into their new house. This task is taxing enough as it is. The buyer can make the day far less stressful if she plans her moving day for someday after closing when she can be sure to have the keys to her new house in her hands and avoid having her friends, family, or worse yet, the moving crew she's paying by the hour standing around on the driveway waiting for keys to the house.
Step 8. Enjoy and maintain the home
When all is said and done its time for the buyer to start turning their new house into their home. Most buyers will soon realize that the work is just beginning because now it’s time to maintain the home and protect the investment they’ve made. This in itself is a significant responsibility, but it’s one they can tackle with pride knowing that every bit of their effort translates in some way into maintaining and building equity in their home.
Of course, what you’ve just read is far from a comprehensive guide to every detail and every possible variation on the path to home ownership. I’m not even sure it’s possible to write such a guide, and if anyone ever did write it, no one would ever have the time to read it (even if they wanted to). That said, if you are brimming with questions and looking for more details, stay tuned to this blog. Future posts will offer deeper dives into each of the steps outlined above.
If you can’t wait that long, please, don’t hesitate to call, text, or email
me! I’m happy to answer questions with no obligation to you.