Ok, back to the business of buying a house. You ran the numbers, research homes in your price range, found a few worth looking at, and now you're ready to go!
Making the Offer
Remember how I said shopping is the fun part? For me, it's the negotiation! You found the place you want, within your budget. What do you offer? Your realtor can give you some guidance on fair market value, and Zillow can provide a market estimate, but when all is said and done, you're the one paying the mortgage! You can offer whatever your want, and your realtor may resist, but he/she is working for you. To be reasonable, I would recommend making an initial offer no less than 15% of list price. Depending on market conditions, you may have to offer close to list price just to get considered. I have friends in California that had to pay 5% above list price to get an accepted offer! As part of your offer, you may be asked for the pre-approval letter. A savvy realtor/lender may create a custom letter for the exact amount of your offer to bluff the seller into thinking your offer is the highest you can go! Pretty sneaky! In most states, you put in an offer contingent on several items like close date (when you actually make the transaction), inspection schedule, financing deadlines, and other steps in the home-buying process. Now the waiting game - will the sellers accept? In my experience, sellers are motivated to sell due to a life-changing event (new job, retirement, growing family, etc.). If you offer for less than list, expect a counteroffer, with perhaps some changes to the contingencies (e.g. closing in 30 days instead of 45). If you want to go back to the table, and I encourage you to do so, you make a new offer (you can't counter a counteroffer). If they stick to their guns and don't budge, you can either accept or walk away. Don't revise your offer, you'd essentially negotiate against yourself. I have walked away from the table before, and it paid off for me (saved $10,000 on my existing home!). But, you have to be comfortable with potentially losing the home to another buyer. My advice is don't fall in love with a home to the point where you lose sight of the financial impacts.
The Race to the Close
Buying a home is one the most exciting - yet stressful - events in your life. Up until this point has been the fun and easy part. The real work starts once both buyer and seller sign the offer. Once the (digital) ink dries, you are on a tight schedule to get your mortgage lined up in time for the closing date, which is typically 30-60 days after the accepted offer. This ensures there's enough time to take care of all the milestones along the way, and your realtor will be a great help to usher you through the process. This includes a laundry list of items: earnest money payment (good faith payment you put in escrow, ~1-2% of purchase price), record title review (to ensure there's no liens against the house beyond the seller's mortgage), loan application deadlines/reviews, appraisals, home owner's association (HOA) review, etc.
Did I miss something? Nope, just saving the best for last! The all-important inspection. Let me be clear... do not blow this off! Some sellers may try to get you to do a "safety only" inspection or even bypass it entirely as a bargaining chip in an offer. Red flag! A thorough inspection will potentially save you thousands in future home repairs. Inspectors charge between $250 and $1,000 their work, depending on size of the home, and spend 2-4 hours checking just about every structural, mechanical, electrical, and functional aspect of the property. I recommend selecting an inspector not recommended by your realtor, and instead research/hire your own. Why? Though realtors represents your best interest with the seller, they are only paid upon closing. The inspector wants repeat business from the realtor, and may be swayed to downplay some conditions to help get you to close. That's a recipe for collusion! Certainly not always the case, but finding your own inspector reduces that likelihood. I strongly suggest being present during the inspection so the inspector can point out findings in-person. Within 24-48 hours of completion, he/she will prepare and send you a report documenting the results. Finally, there's another phase of negotiation with the seller to determine what needs to be addressed before closing. You can ask the seller to make the repair, replace the item, give you a cash credit at closing, or simply accept the condition as-is. You may want to accept minor items like a slow-draining sink as a sign of good will, but certainly don't accept a leaking roof or a furnace/water heater past its useful life without some concession. What if you reach an impasse with the seller while negotiating remedies, or the condition is so poor you want to walk away from the agreement entirely? Depending on the offer, you may need to forfeit your earnest money, but otherwise it should be written such that you can walk away without penalty.
Closing Time...
At long last, closing day! At this point, you've completed the tasks above and should have a closing disclosure in hand. You need to have the Cash to Close wired or cashier's check when you get to the title office. I recommend wiring as it's more convenient and you don't have that panic of carrying a $20,000 check around with you - what if it's windy and it blows away? The things I worry about... ok, back to closing. Assuming it's in-person, you may be there with the seller simultaneously, or it could be done separately and the documents are shared. Do your wrist stretches on the ride over, because you're signing approximately 756 pieces of paper. That may be an exaggeration, but it feels close! You will get a copy of the paper documents if you wish, but otherwise they will be sent to you electronically. Now, have the realtor toss you the keys like it's a 90's TV show and you're a 16-year-old that just got your driver's license!
Finishing Move!
I suggest exchanging contact information with the seller to maintain a mutually-beneficial relationship. You should set aside any mail that may not make the transition to the seller's new place; if the person moved far away and you're a real hero, save it up for a month or two and ship it to their new place! In turn, you can reach out to seller for questions about the home, or ask who the creepy neighbors are!
Well, that's all of I have to share for now. Purchasing a home is one of the biggest decisions - both personal and financial - in your life. Take your time, do your research, and make sure you're ready to take the plunge!
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