Last updated : Tuesday, March 17, 2009

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Buying a New Home: Steps to Get the Best Deal

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Buying a home is no easy task, especially if you're the new kid on the block. Timely and often arduous, buying a house is also a nuanced process in which you can actually lose money if you aren't completely confident and prepared. We sat down with real estate expert and author Bill Nazur, who walked us through the process of buying a home. While you should always consult with an attorney for advice, you can use these steps as a basic roadmap to end up at the front steps of your new home.

1. Understand your situation. Why do you want to buy? Ask yourselves, what do we need? People usually buy because a) it's the logical next step or b) they want to put roots down in this community. Ask yourself, how long will it serve us? People will often buy without thinking about the future. In a year's time you might outgrow the place.

2. Get your finances in order. People think they can't qualify. From my research, this past year Chase and Bank of America have lent out 600 to 700 billion. That figure is down 45 percent from last year, but real estate values are down 50 percent. This indicates that people are going into the real estate market.
What you'll need:

-Have two years worth of tax returns.
-Have your latest couple of pay stubs (one month's worth).
-Any/all asset accounts (checking, savings, 401ks).
-Credit report from annualcreditreport.com

3. Start your search on the web. Start putting in some criteria and cast a big net. There are mortgage calculators galore out there. You plug in how much you're paying for rent, and they tell you how much you can afford in a monthly mortgage. It's not truly accurate, but it gives you a good idea.

4. Get pre-approved through a direct lender. Ask the lender to "please underwrite my loan." Don't just get a letter from the bank saying you're trustworthy. Get pre-approved rather than pre-qualified. Say you know that "$2500.00 gets us this much home, for every $10,000 higher or lower it's going to cost me this much." Getting pre-approved gives you a good benchmark and allows you to compare. It's like going window shopping for Christmas.

5. Find a realtor who will be able to represent you. Do additional research to find someone who is truly experienced, and who doesn't just say he or she can represent you. This means he should have at least five years of experience. You can also tell a lot about a realtor by how quickly he responds to your calls or emails; you can sense his work ethic. If you walk into his office and it's a mess, he might not be the right person. You should check his clientele and activity. When you buy a home, closing fees are due at the end of the process. These should never be over 2.5 percent of the purchase price. A savvy buyer's agent will have the price of fees calculated before closing, so you know what to expect. A good buyer's agent will also help you understand the seller's situation. The seller's background is public record and can be looked up, and a good agent will do this ahead of time to know where you have room to negotiate. Above all, this person should become a close friend by the end of the process. And NEVER go for a realtor who is representing both the buyer and the seller.

6. Do your research before making an offer. Presumably you've narrowed the search and you're ready to make an offer. Plus, you already have the commitment to lend so you know you'll qualify for a mortgage. Now, find out what the property is worth. The seller will have it appraised at more than what it is worth. The bank has done a broker's price opinion, which is usually four months behind the market, so the buyer might make a lower offer and the seller says its worth more; this creates a backlog of activity, so you have to be patient through this time. If you do research, and have a realtor who knows the trajectory of the market and is experienced in negotiating, you can often convince the seller your offer is accurate. How long does it take to hear if your offer is accepted? You used to hear within 24 to 48 hours, now it takes more like 7 to 10 days. If you are already pre-approved, the likelihood for the seller to accept is greater. When making an offer, assuming the property has six months worth of inventory, I always say to offer 10 to 20 percent less than what they are asking. Let them counter offer. These days, people are surprised when their offers get accepted.

7. Put a retainer into a third party trust. Once the offer is accepted, you need a third party to act as a middleman. In the U.S., some states require you use an attorney, some states are ESCROW states, regardless you need a third party. You put in a retainer (usually one percent of the purchase price) into a third party trust. It's the job of this third party to collect documents and financial forms from both buyer and seller. Now you are officially on the path to buying the property.

8. Inspections, appraisals, disclosures take place. These need to be done within a certain amount of time, depending on the state. The home must be safe and secure. It needs to be "inhabitable"; the toilet and shower must be working; some states require full disclosure about any crimes that have occurred on the property. Within four days of the offer being accepted, all of this happens. Again, depending on the state, there is a 10 to 17 day window between the day the offer is accepted and closing to accomplish all of this so you can pull out of the deal if you want to. The day the offer is accepted is the same day of the independent third party appraisal. Keep in mind, the appraisal = value of home, while the inspection = the quality of the home. You can have a home's value be very high, but the quality can be horrible. The appraiser is not valuing conditional items. However, the appraiser can say he wants a certain item repaired. The seller is responsible to sell the home in an inhabitable state, and the appraiser determines what is inhabitable. If the appraisal comes back at less than the offer, the consumer can pay more, or he can say, "please adjust the sales price to reflect the appraisal." It is your right as the consumer to request this. A lot of fraud occurs here, where the seller will say, "pay the amount you originally offered and I'll pay you the difference." Don't ever agree to that.

9. A preliminary title report and insurance policy is drawn up. This is where the third party collects documents and the preliminary title report and insurance policy, which outlines the property itself and shows anything that touches the property in any way. You want to make sure you know what you're buying, and that the property is free and clear of any leans that don't belong to you, because this creates issues as to who the owner is. The title policy must be clean.

The three biggest components are: the inspection, the appraisal and the title policy. Remember, if you do your finances ahead of time, these three things are all you'll have to worry about!

10. Sign here! Schedule an appointment to sign the mortgage document within three days, which you will do in front of your attorney or escrow company. You'll go through the process of recording a new mortgage note and the deed with title insurance. Within one to three days, you get the keys to the house. From the time of your offer, the whole process typically takes 30 to 45 days.

With over 20 years of experience in Sales, Marketing, and Finance, Bill Nazur has worked with every client ranging from first time home buyers, to the most discriminating investor, having financed over 200 clients each year for the last five consecutive years. Author of Finding Foreclosures, Nazur counsels, advises and trains professionals at all levels of the real estate and mortgage industries.

 

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