The Buying Process
Location, location, location. You’ve heard that before, but that’s because, much of the time, that’s what real estate is all about. When you’re buying a home, it is never more true. As a certified Real Estate Agent, I have the local knowledge, skills and experience to help you through the buying process. From property hunting and price negotiations to finding the right mortgage broker or inspector, I’ll help you meet your goals, whatever they may be. Your dream home is waiting and I can’t wait to help you find it.
Are You Ready to Buy?
Owning a home is the American Dream, but are you REALLY ready to make that dream a reality? There are many things to consider when deciding to purchase a home and it is important that you are 100% certain that you are ready before taking that huge step in life. There are a few questions below that you should ask yourself and if you can’t answer yes to each of them, then you might want to consider getting some things in order before proceeding to purchase.
Don’t let financing intimidate you. If you find the right lender to help you, then obtaining financing can be a very simple process. Just like with anything else, there are some lenders that are better than others. I would suggest working with your Realtor to help point you in the right direction as I always like to present a few lender options to my clients. I have worked with dozens of lenders over the years and have a few that I know work diligently and are good communicators to efficiently get the deal done for my clients. There are a few steps involved with obtaining financing, so let’s go over them to help alleviate any surprises with this process.
Finding a Home
Now it’s time for the fun to begin! You’ve been searching online, scouring Pinterest, watching HGTV religiously and now it is time to actually start looking for your own home! You’ve heard the mantra…Location, Location, Location…but there are many considerations to be made when you finally start to look for your home. You need to be in communication with your Realtor and be sure that they are aware of all the items that are you your “must have” list, as well as your “wish list”. Here is a list of the Top Ten items that I tell my clients to keep in mind when beginning their search.
Negotiating an Offer
Purchasing a home is likely the most expensive purchase that you will make in your life. It makes sense that you want to try to negotiate a deal, but there is a balance that needs to be achieved for a successful negotiation. Each house has a different seller and situation and therefore, each transaction will be negotiated differently. It is best to leave the negotiating to your Realtor, since that is what they are trained, and paid, to do for you. Below are some of the items that will need to be considered when negotiating an offer.
Accepted Offer...Now What?
Congrats...you're one step closer to Home Ownership! Now that you have an accepted offer, you can't just sit back and wait for the closing day, however. There are several items that will need to be addressed and now you have contract deadlines to adhere to. Keep in touch with your Real Estate Agent and your Lender to ensure things are on track. Click below for a brief overview of the next steps that need to be taken after you have an accepted offer.
Behind the Scenes
A few other things are happening in the background while you are preparing things on your end to get to closing. Here are a few more things to keep in mind that are happening to get you the keys to your new home.
"A house is made with walls and beams; a home is built with love and dreams."
Ralph Waldo Emerson
Are You Ready to Buy?
Five Questions to Ask Yourself
1. Do you have your finances in order?
Do you have any outstanding debt from credit cards or student loans? You need to be honest with yourself when answering these questions because you can’t hide the answers from the bank when you go to get a loan from them. Don’t get me wrong, some debt is ok, but If you are reaching for your credit card and have a constant monthly debt with them because you never seem to have enough money, then it is not the right time for you to buy a home.
Do you even know what your credit score is? The bank uses your credit score to determine how well you handle credit and if your credit score is terrible, it means that you aren’t good with managing credit. Sometimes there are unforeseen issues that come up, such as medical bills, job loss, etc that can cause your credit score to suffer, but if you have one of those issues, then you need to get those items cleaned up before you begin looking for a home…trust me, it will save you (and your Realtor) a lot of wasted time, energy and heart ache when you find that “perfect” home, only to realize that you cannot afford to buy it. It is worth the wait to clean up your credit before starting the search.
2. Have you saved enough money for a down payment?
There are many different types of loans out there with different requirements for down payments, with some being as low as 3.5% of the purchase price. If you figure that out, you are looking at only $7,000 for a $200,000 home. However, there are many other costs associated with the purchase of the home such as closing costs, inspection and appraisal fees, insurance, taxes, money for repairs or new furniture and appliances…the list goes on and on. You need to be prepared for all of these expenses, which can add up quickly.
3. Can you REALLY afford the monthly payment?
A lender will review your credit and income and could potentially approve you for a loan that is much more than what you can REALISTICALLY afford on a monthly basis. You need to sit down and factor in all of your monthly expenses, including those not directly associated with your home, so you can be realistic with yourself since YOU are the one who will be responsible for that mortgage payment each month…not the lender who approved you. It’s best to sit down and go through your monthly budget and include everything from groceries to internet to that Starbucks coffee that you have every morning and don’t forget to include savings as well. Once you have your budget, figure out how much you can comfortably fit in with a house payment that includes PITI (principal, interest, tax and insurance). You may need to adjust some expenditures, like maybe investing in a Keurig and making your own coffee at home each day and saving $5/day on coffee. Your home will be one of your BEST investments in your life, so it is definitely worth a little sacrifice here and there, but you need to be WILLING to make those sacrifices, if necessary.
4. Are you ready to plant some roots?
Do you feel stable at your job or career? Do you have children that you want to stay in the same place for their childhood and same school district? Do you have a high possibility of a job transfer? These are all things that you need to consider when thinking of buying a home. Not to say that things don’t come up or plans can change, but if you are planning to buy a home, I would suggest that you plan to stay for at least five years. Financially, this makes the most sense for recouping the closing costs that you would have when you resell, unless the market experiences a large growth in value in a short period of time.
5. Are you at least a LITTLE handy?
Once you make the decision to own your own home, you can’t just call a landlord or management company to come fix every little problem that you have. You have to either be handy enough to fix a clogged pipe or have sufficient means available to pay to have someone do it for you. Even if you purchase a brand new home, there is ALWAYS something coming up in your home that needs attention and you need to be prepared both financially and psychologically to handle them.
So, did you answer yes to the questions? If so, then I would say…let’s get pre-approved and start looking for a home! If not, then let’s discuss what steps you need to take to get to a better place so you can revisit the idea in the near future. I think that home ownership is one of the greatest achievements that you can have and that it can give you a great sense of security, but I just like to caution people because it is a HUGE decision and I’ve worked with many banks on the other side when it comes to foreclosure and I absolutely do NOT want to encourage someone to buy a home if they aren’t ready because I would not want anyone to get themselves into a situation that they can’t get out of. Let’s work together and find out what would work best for YOU!
Steps to Follow to Obtain a Loan
1. Get Pre-approved FIRST!
You may have noticed that in the steps of the home buying process, I have placed the financing aspect ahead of starting to look for a home.This is very important so you know exactly what you CAN afford before you go out and start looking.You want to be certain of what you can afford, as well as what your budget will allow, so you aren’t wasting your time looking at homes that are either over your budget or potentially even under your budget and not offering everything that you want on your checklist of “must haves” for your new home.Your Realtor will also appreciate you having this in place so they know that you are a serious buyer that knows what they can afford, so as to not waste their time either.Another reason to have a pre-approval letter in place is because some sellers, including those of REO and Bank-Owned properties will REQUIRE that you have either a pre-approval letter from a bank or a proof of funds letter stating that you have the funds (cash) available to cover the purchase price of the home before you even make an offer.If you were to go out and find a home and not have this in place, you will be taking a risk that someone else could swoop in and make an offer before you are able to go back and get the pre-approval letter in order to make an offer.For many reasons, it is better to be fully prepared so you are ready to go as soon as you find “the one”.
2. Where do you go to be pre-approved?
There are various financial institutions that you can go to get pre-approved to purchase a home. I usually tell people that they can start with their bank that they currently have a checking or savings account with. The two main items that you want to ask any bank or lender about is what your interest rate would be and how much are the closing costs that they will charge you. I would recommend contacting 3 or 4 different options and ask them about these things, or check online. Your credit score is going to be a big factor on what interest rate you can get and what type of loan product will be available to you. There are a large variety of loan products from first-time homebuyer loans with zero to little needed for a down payment, to loans for veterans, to a conventional loan that requires 20% down, but you might not have to pay PMI (Principle Mortgage Insurance). Your Realtor should also be able to give you some suggestions as well and point you in the right direction of what might work for you depending on your needs.
3. What’s needed to be pre-approved by a bank or lender?
After you speak to the lender about the type of loan product that would work best for you, they will give you a list of items that you will need to provide to them so they can run a quick check on your income, expenses, credit score, etc to see if you will qualify for a loan, as well as for how much of a loan you can qualify for. The typical items that are needed are the last two paycheck stubs, tax returns for the past two years, bank statements showing checking and savings as well as your credit report, which they will need to pull. People get concerned that by pulling your credit, the lender could cause your credit to go down, but that isn’t quite true. There are times when your credit needs to be checked and at times when you are looking to purchase a home, you should be able to have your credit checked by a couple of different lenders before it has any effect on your credit since you are “shopping around” for the best interest rate. Depending on your credit history, I have seen credit scores effected by this, however, so I would try to get as much information from the lender as possible about your options for financing and interest rates BEFORE they pull your credit, so you can decide if you actually want to potentially go with that lender or not. Once you have narrowed it down to one or two options for the lender, then you could have them go ahead and pull your credit to get exact rates and loan information so you can make an educated decision on who to go with.
4. What do you do now that you’re pre-approved?
Congrats! Now you can start to look for your Dream Home! If you haven’t done so already, you can now contact your Realtor and let them know that you are pre-approved and ready to start searching for your home. Keep a copy of your pre-approval letter on hand so you have it when you go to make an offer and you can easily get it to your Realtor, who will need it at that time.
5. Accepted offer, now back to your lender.
Once you get an accepted offer, you now need to go back to your lender and let them know. The lender will need a copy of your executed Offer to Purchase and will also need to meet with you at this time, most likely. You will now need to fill out the actual Loan Application, as well as pay the Application Fee. Once you have the accepted offer, your lender will then order the Appraisal and get going on all of the fine details of actually putting your loan together. There will be various steps along the way that your lender will need more information from you, so you need to be ready to get them whatever they need as soon as possible to avoid any delays. The Offer to Purchase is full of deadlines that must be met or you could lose the home, so you need to make sure that you, and your lender, stay on top of all of those deadlines. A good Realtor will maintain communication with all parties to ensure a smooth transaction as well all the way to closing.
Finding a Home
Top Ten Items to Consider
1. Condo or Single Family
Are you looking to have your own home, but not have to keep up with maintenance items such as lawn care or snow removal? If so, then a condo could be for you. There are restrictions with condo living, such as you usually don’t have your own, private yard and there are rules and regulations that you need to abide by, including potential restrictions on pets. However, there are usually some pros such as shared amenities, pool, walking trails, etc. Discuss the pros and cons with your Realtor to help make a decision on what lifestyle may work better for you.
Location can mean a city or town or even a specific neighborhood within a municipality. Do you want to live in the city or in a suburban area? Do you want to be near public transportation or have easy access to the freeway? Do you prefer to live on a lake or near a forest? All of these are things that you need to consider and discuss with your Realtor so you can decide where you would like to look for your home.
3. Lot Size
America was founded off of the idea of their citizens being land owners…what amount of land is the right amount for you?Are you looking to be able to stretch your legs and play some tag football?Have space for a garden?Does Fido need some room to romp around in the backyard?Are you willing to mow your lawn on a regular basis and maintain it or pay for a garden service?These are all things to consider as the larger the lot, the more it will cost you in either money or time for maintenance.Weigh out all of the options and decide what will work for you and your family.
You might want to start with the idea of where you are in your life and how long do you anticipate living in the home that you are looking for. Is this a starter home, which you plan to move from within the next few years? Will you be looking to have children and need extra bedrooms or are you empty nesters who need less? Are you looking to have an extra bedroom for a dedicated office space? Keep in mind that when you are searching, either on your own or with a Realtor, that most times a search website will be utilized in which criteria is input based on what your wants and needs are. Let’s say that you and your spouse are looking for a home. You have no children, but would like a bedroom for when guests come to stay, along with a separate room for an office space. So, essentially, you are looking for 3 bedrooms. However, 2 bedrooms plus a den or additional living space that could be used as an office would also work for you. If you input the criteria to include only 3 bedrooms…then your search will not return any homes that have only 2 bedrooms and a den, because you asked for a minimum of 3 bedrooms. Searching online can be very helpful, but you have to be open-minded with searching sometimes because every home is not going to fit a perfect checklist of wants and needs. This is true for all search criteria, not just bedrooms.
There is sometimes some confusion when it comes to bathrooms and what constitutes a full bathroom versus a half bath.A full bathroom has a toilet, sink and either a shower stall or bathtub (or both), while a half bathroom has only a toilet and sink.When looking for a home, you want to be sure to specify to your Realtor what your minimum requirement would be.Most buyers would prefer more than 1 full bathroom, but does that mean you just want an extra toilet and sink to be available?If so, then you would say that you need a minimum of 1.5 bathrooms.Otherwise, if you have multiple people in your home and you need more than one shower or bathtub for getting ready in the morning, then you would then say that you need a minimum of 2 FULL bathrooms.Make sense?
There are a few factors to consider when deciding what type of garage you want or need. The main factors are vehicle capacity, extra storage, attached or detached and alley entrance or driveway. There are standard 1 or 2 car garages, but sometimes they are “bumped out” a little to allow for extra storage for items such as lawn mowers, garbage cans, bicycles, etc. In these cases, a 2 car garage with extra space on the side, but not enough for a full vehicle, would be considered a 2.5 car garage. Buyers also need to determine if they have a preference if the garage is attached or detached. What does this mean? If you live in a cold or snowy climate, many buyers would prefer to have an attached garage, which means that there is a direct entrance from the garage to the inside of the home. If the garage is detached, then you need to walk outside to get inside the house. Keep in mind that you may need to shovel a pathway during snowy times. The other factor that needs to be considered when thinking about a garage is if the entrance to the garage is on an alley or if you have a private or shared driveway. These are pretty self-explanatory, but keep in mind that if you have an alley entrance, you need to find out what the requirements are for snow removal. Does the city remove the snow? Do all the neighbors “chip in” to pay a snow plow each year? Or are you responsible for clearing the snow from in front of your property and hope that everyone else clears their areas as well so you don’t have difficulty getting out of the alley in the morning to get to work. If you have a private driveway, you will need to take care of this yourself anyway, but it can be a bit tricky if you live on an alley to ensure that things run smoothly and you don’t have any issues, especially early in the morning when you wake to a foot of snow that came unexpectedly overnight.
Depending on the part of the country that you live in, basements can either be common or not. In Wisconsin, basements are very common and to not have one can be a negative for some buyers. Structurally there isn’t much difference to have a basement or not, but if you grew up with one and are used to it, then it might be a deal breaker for you. Buyers enjoy having the extra storage of a basement, as well as having the mechanicals of your home tucked away and not taking up the space in a laundry room or elsewhere if you didn’t have a basement. Another aspect to think about is if you want a finished basement or the ability to finish it yourself down the road, if you choose to do so. Recently, in the Milwaukee area, the local MLS has begun to acknowledge the additional square footage of a finished basement in the marketing description when a home is listed for sale. Technically, if there is no egress window in the basement, you can’t count that bedroom or rec room as “livable” square footage. However, many people enjoy having the extra finished space in a basement and it adds value for them.
Going along with the basement, storage can be an important factor for buyers.Do you need extra space for storing business supplies, recreational equipment such as a boat or ski equipment?Peoples’ needs can vary greatly with this, but it is something important to think about before you make an offer, because you don’t want to have outgrown a home before you even move in!
9. Proximity to Amenities
This is a very important item for most buyers.Do you have a certain neighborhood that you want to be near so you can walk and enjoy shops and restaurants?Would you prefer to have a park right across the street so Fido can enjoy his daily stroll?Do you need to be near your parents so they can help with the kiddos?Being near school, church, family, shopping, etc are very important.You know your lifestyle and do you really want to be stuck in a car for hours out of your day driving to work and then across town to school to pick up the kids before driving even further to get home?Convenience, especially in today’s world, is key.Take some time and write down some pros and cons for different neighborhoods and municipalities so you can narrow down what exactly is important to you and your family and what will work best for your lifestyle.
10. Updated or Fixer Upper
Everyone seems to be a DIYer these days.Everywhere you look there is a new television show where someone is fixing up a home with the latest gadgets or trendiest designs.Whether you buy a home that needs some TLC or one that has been “Flipped”, you will always find something that needs to be done or that you want to change…welcome to home ownership!Ask any homeowner and they will tell you that there is always a new project that they are waiting to begin.My point is, you need to think about your budget, your abilities to take on projects, your skill level, your WILLINGNESS to actually complete a project and everything that will go into trying to tackle your own “Fixer Upper”.It can be a very appealing idea, but you also don’t want to get into a home and be stressed and unhappy with your unfinished project that you were so “gung ho” about two years ago and still haven’t touched.I’m not trying to be a Debbie Downer here, but you need to be realistic in your goals and expectations.There is a wide variety of options from Updated to Fixer Upper and you need to figure out what you comfort and expertise levels are so you can make the best decision for yourself and your family.Sure, I’m all about getting that great deal and building some sweat equity, but just be realistic and don’t bite off more than you can chew.This will be your home and you want it to be an enjoyable experience for you and those that need to live there as well.
Negotiating an Offer
10 Items to Consider
2. Closing Costs
3. Closing Date
4. Financing Contingency
5. Appraisal Contingency
9. Home Warranty
10. Condo Fees or Assessments
Accepted Offer...Now What?
Follow the Steps Below to Stay on Track
1. Turn in Earnest Money
Earnest money is an amount of money that the Buyer pays in a real estate transaction as a good faith deposit to the Seller. This deposit is held in a 3rd party Trust Fund and is normally credited back to the Buyer upon a successful Closing. If the Buyer has any contingencies in the offer (i.e. Inspection, Financing, Appraisal, Etc) and the contingency is not able to be met, the Buyer should be able to get their Earnest Money deposit back, provided they are within the guidelines of the contract. The amount of Earnest Money to be deposited varies, but in a good rule of thumb in Southeast Wisconsin, is around 1% of the purchase price (i.e. $200,000 Purchase Price = $2000 Earnest Money) The typical timeframe to turn in your Earnest Money is 3-5 days after acceptance, but refer to your Real Estate Agent or contract for exact deadlines.
2. Schedule Home Inspection
A home inspection provides "peace of mind" for a Buyer, as well as the opportunity to find any defects that may not be evident to a regular person who isn't trained on what to look for. Lean on your Real Estate Agent for guidance when it comes to how to negotiate any defects or safety concerns that might come up during your Home Inspection. The typical timeframe to complete a Home Inspection is between 7-15 days after the offer acceptance, however, there could be different variables depending on what type(s) of inspections you are looking to perform. Testing is also something that you would address at this time, but be sure to give yourself the right to do testing within your contract. Again, speak with your Real Estate Agent to discuss what types of testing might be appropriate or to allow you the right to have any Testing to be done, per the contract, as recommended by your Home Inspector.
3. Contact Lender
Once you have an accepted offer, you need to contact your Lender. The Lender will need a copy of the accepted offer and will most likely need to finalize paperwork to allow them to begin the actual loan process, as well as make your application payment, if applicable. Contact your Lender right away to find out what steps you need to take with them.
4. Order Insurance
Homeowners' Insurance is not required in the state of Wisconsin, however, if you are financing the purchase of the home, then it will be required by your Lender. There are many insurance companies that offer Homeowner's Insurance. You could check with your current insurance company that you use for Auto or Life Insurance and most likely get a better rate for bundling multiple types of insurances together...though it is a good idea to look around and get a few quotes. You will need to have Homeowners' Insurance in place a week or two prior to closing, but check with your Lender to confirm when they will need proof of your Homeowners' Insurance. Also, be sure to find out from your Lender if your home is in a flood plain and, if so, you may need to get flood insurance as well.
5. Turn on Utilities and Services
Contact all utility companies a couple of weeks prior to closing to set up an account so you have service the day of closing...nothing worse than moving in and not having electricity or heat in the middle of a cold January! Keep in mind the following utilities/services: Electric, Gas, Water, Landline Telephone, Cable or Satellite Dish Service. Other possible Utilities/Services depending on your specific home and what is included or available to the property would be: Garbage Collection, Propane Gas, Water Softener Rental.
6. Final Walk Through
Within a few days prior to closing, your Real Estate Agent will set up a time with you to do a "Final Walk Through" of the home. This is when you will normally see the home after the Seller has moved out all of their items. You can assess the home and make sure that it is in the same condition as it was when you made your offer, as well as confirm that any requested repairs or changes were made.
The day has arrived! Communicate with your Lender and Real Estate Agent to coordinate a day and time for closing a week or so prior to the actual close date. Once the Closing Date and Time are scheduled, your Lender will send you a copy of a Closing Statement a few days prior to closing for review, along with any further instructions on how to handle any funds that you need to bring to closing. Funds are normally brought to closing in the form of a cashier's check or a bank wire, but your Lender will confirm what needs to be done. There will be a person at the Closing, called the Closer, who will go through each document with you and also explain any further questions that you may have as you sign your mortgage (loan) paperwork and the closing documents. If you ever have any questions, you should be able to reach out to your Real Estate Agent as well to guide you through the process and answer any questions that you may have about charges and credits that are on the Closing Statement or other documentation ahead of time so there are no surprises at the closing table.
Behind the Scenes
What's happening to help get you to closing?
Part of the requirements to obtain financing is to have an acceptable appraisal. An appraisal is completed by an Appraiser, who is hired by the Lender to assess the property and provide a fair market value. The appraised value must be equal or greater than the price that has been agreed upon in the Offer to Purchase, otherwise, the price will either need to be renegotiated, the Buyer will have to bring more money to closing to make up the difference or the Buyer will not be able to obtain financing.
2. Title Commitment
A Title Commitment will normally be provided to the Buyer by the Seller, unless otherwise specified in the Offer to Purchase. Your Lender will also order a Title Commitment called a Lender's Policy, which is a part of the Buyer's closing cost expenses. The Title Commitment is ordered by the Title Company, which normally also serves as the Closing Company.
3. Special Assessment Letters
The Title Company will request Special Assessment Letters from the municipality in which the home is located. These letters will verify if there are any assessments owed on the property or any outstanding code violations, etc. If there are any known assessments or fees owed, the Seller is normally responsible for them to be paid at or prior to closing, however, the Offer to Purchase will dictate how that will be handled, if necessary.
4. Condo Association Search
If the home that you are purchasing is a condominium, there is most likely a Homeowner's or Condo Association that governs the property and other units in the complex. The Title Company will contact the Condo Association to confirm that the account has been paid up-to-date by the Seller and also see if there are any outstanding assessments or fees owed. Again, these will normally be paid for by the Seller at or before closing, unless otherwise noted in the Offer to Purchase. The most likely situation where the Seller would NOT pay for these items, would be if it is a Bank-Owned Foreclosure or a distressed property such as a Short Sale, but that isn't always the case either.