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Buying a home is something most people do at least once in their lifetime. Many people dream of buying their own home. The amount of new homes has grown tremendously and many people are buying houses. The median price of homes in California is approximately $500,000. The conventional way of buying a home is a procedure that takes a lot of time and patience. There are a few steps and procedures that are included in buying home. It includes getting pre-qualified by a loan agent to determine the maximum dollar amount of mortgage you can truly afford (real important step in the process), seeking a realtor, searching for homes, making offers, hiring a title company, an appraiser, home inspector, termite company and opening and closing escrow and other various services that benefit both buyer and seller. Buying a home is a complex process and most consumers do not know where to start and lack the education in regards to it.
Buying a home is more complex then most think. A purchaser of a home doesn't pay in cash when buying a house. If that were so, then nobody would be able to afford one. A potential buyer must get a loan. The bank doesn't lend their money to just anybody, so there are prerequisites before a buyer should consider buying a home. The potential buyer must have enough money for a down payment which is 3% to 20% of purchase price, a steady job with for at least two years or more, must have a decent credit score with at least a 640 or better. That is standard for the market. (1) The credit score is based on the FICO score. FICO stands for, Fair Isaac Corporation, a company that has been in business since the early 1950's and monitors consumers' credit ratings and put a scoring system on it. (2) Conventional loans are usually financed up to eighty to ninety percent with a down payment required of ten to twenty percent. The potential buyer must also have a debt ratio not exceeding 28/39 of their income. The first number 28 refers to your new mortgage payment that cannot exceed 28% for your gross combined income and 39 refers to your mortgage payment plus revolving and installment debt as well as taxes and insurance cannot exceed 39% of you total combined gross income (3).
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The first step is to be pre qualified. The question should never be what kind of home the buyer is looking for, rather the question the buyer should and seek from a professional loan agent would be, "What can I afford?" This is the first step that a wise consumer should take rather than seeking the direction and advice from a realtor which is the usual path that the typical consumer initially takes, unless that realtor is very experienced and has a lender that he or she already works with and refers the buyer to that individual initially. A person must get pre-qualified by a competent loan agent. A buyer must always meet with a loan officer first so he or she can have an idea of what they can truly afford considering their financial situation. A buyer may find a loan officer by going to the bank looking through the local yellow pages, surfing the net or maybe a referral by a friend that has experienced the loan process. The loan agent advises the potential buyer of the available terms and conditions of what he or she can afford. Once he or she is qualified for a loan, a pre-qual letter is given to the new prospective home buyer and sent off or in most cases referred to a competent realtor.
Once acquainted with a competent realtor, also known as a real-estate broker the buyer should interview and question his or her experience. He or she should be a person who assists buyers by helping them purchase property for the best possible price under the best terms (4). Realtors may also be found by the posted signs found in front of homes for sale. Quality of a good realtor would be open, interested, relaxed, confident, and qualified. Keep in mind, you should find one that you get along with. For this person will be helping you find your most important investment. After the buyer discusses what he or she is looking for in a home, the realtor goes into the MLS (multiple listing service). The MLS is a data base that selling agents post their clients homes into. The MLS shows the realtors all the houses in the area that fits the criteria that the buyer is looking for. The realtor presents to homes to the buyer. The realtor takes the buyers on a tour of the homes that he finds on the MLS. The realtor opens up the house and shows the buyers the house using a lock box that is placed on each home that is listed on the MLS. A lock box is a device that holds the keys to the home inside and cannot be retrieved unless they have an appointed computerized key. This computerized key is used in the industry to ward off theft by keeping computerized data stored and tracking the realtor's identity, time of entry and time of exiting. Once the right home is chosen by the buyer, then they can move on to making an offer to the seller. Getting a realtor isn't always necessary, but for the first time home buyer it is a smart and prudent thing to do. Realtors are usually paid for by the seller. Realtors make their money off of commission and usually charge a standard rate of 6% of what the house sold for and is usually split between buying and selling agents. It is the realtor's job to make sure that the buyer finds the home that is perfect for them. Once the realtor finds the buyer a home that they interested in, it is time to make an offer.
The other duties that the realtor must do is with is making a proper offer and presenting it to the seller once the buyer has agreed to do so. It is up to the buying agent to put together an offer that will be the lowest and best possible price the buyer can purchase for and for the seller be willing to accept. The offer should be between 5% and 20% of the price of the house. The offer must be a mutual beneficial transaction, meaning it would be a good deal to both the seller and the buyer. The realtor writes an offer letter to the seller. The buyer then accepts the offer, reject the offer or make a counter offer. A counter offer is the buyer or seller asking to raise or lower the price (5). A counter offer includes contingencies which are agreements upon to making a deal. For example, some contingencies might be "I will purchase your house when I sell my current house." or "I will purchase your house if you agree to fix the plumbing first." Furthermore, before a deal is struck the seller must sign all disclosures. Disclosures are a part of a contract that includes anything that the buyer should be aware of. For example, things that should be presented in a disclosure are if there is lead based paint under the current paint, robberies, deaths in the house, rowdy neighbors, and most importantly structural defects. When the buyer is serious about buying the house, he or she makes an earnest payment, which is a deposit tell the seller that he is serious about buying the property. If the buyer ends up purchasing the house, the earnest payment goes toward the purchase price. However if the buyer does not end up getting the house the earnest money is returned (6). If an offer is not struck the process of searching for a home starts over, but if an offer is made then
the selling agent opens up escrow.
Escrow is a non bias company that holds the documents and money involved in a real estate transaction and insures that all conditions of sale are met. (7) In other words, escrow is kind of like eBay. It handles all the transactions and makes sure they are done legally. Once escrow is opened, the seller hires a title company. A title insurance company insures that when the house is bought and put under the buyer's name, there are not any liens on the house. Meaning, that no one else has any claim to it or lien against it and say that the property belongs to them. A title company also insures that there are not any debts on the house.
Two other key procedures that go into buying a house is getting it appraised and having it inspected. The lender of the money usually orders the appraisal. Appraisals are estimates on how much the house is worth. Appraisals are important so the house is bought for the right amount of money. To get a house appraised it usually costs around $325 to $500. A very important procedure which is to be done before the escrow is closed is to have the house inspected thoroughly to look for any unforeseen damages. Imagine if a buyer purchased a house without having it inspected. There might be broken plumbing or mildew and fungus growing underneath the floorboards. The inspector must also check for termites. If the house is purchased with unforeseen damages, the buyer must now pay for the damages out of his or her money, whereas if there was an inspection, he or she could have bought the house for a lower price. Before closing escrow, two procedures to insure the buyer is purchasing the house for the right amount of money are an appraisal and inspection.
The final procedure in buying a home is getting all the documents and property under the buyer's name. This last and final step is called closing escrow. This final step in buying a home, usually conducted in a title office, involves signing documents related to the property and the loan arrangements. The papers that are to be signed include the deed, proving you now own the house, and the title, which insures no lien against the house. Once all these procedures are complete, the home is finally legal property of the buyer. Ultimately if buyer finds good professionals to work with, the buyer should have a great buying experience and it would be a smooth operation. The better the real estate agent, loan officer, escrow company and title company the better the outcome of buying a home would be.