You REALLY want to have your own home and feel you are ready to take that next big step ... so what do you do? If you have never gone through the home buying process, it can be a daunting and scary. But, it is a rewarding and wonderful experience once you have your very own place! We are here to help you through the process every step of the way and do not hesitate to ask us to explain anything you do not understand. Below are an explanation of some of the steps along the way:
1. INCOME
Most folks do not have enough cash to outright purchase a home since it is normally the "biggest ticket" item they will buy during their lifetime. Therefore, you need to figure out how much you can allow for a house payment every month. If you are paying rent and are quite comfortable with that amount, then start at that figure. Adjust as needed up or down. Any Realtor or Mortgage Broker can start from there to see how expensive of a house you can buy starting at that. As a general guide, if you are comfortable paying $500 per month, you could look around $93,000 (30 yr/5% Interest Rate); if you are comfortable at $750 per month, you could look around $140,000 (30 yr/5% Interest Rate); if you are comfortable at $1,000 per month, you could look around $186,000, etc. This is just a "Base" you can start with. Lets go to step 2.
2. DOWN PAYMENT
The majority of loan programs require that you come up with a "Down Payment" on the home. Many folks save up and have a down payment (varying amounts). There are conventional loans available through local banks that can require as little as 3% of the purchase price of the house (if the house is $100,000, you would need to put down $3,000 as a down payment), and there are FHA loans that require 3-1/2% ($100,000 = $3,500 down). However, there are a few select loan programs that you may be able to qualify for. A "Rural Loan" can allow you to purchase a home with only $500 down (however you can not buy a home in the city metropolis area, it has to be a few miles out plus it has income limits) and there are some "first time buyer" loan programs with the local banks that work similar to the Rural Loan but the house does not have to be outside of the city metropolis area (and has income limits), and there are some grants by our State of South Carolina that help low income first time buyers to get a grant for the down payment that does not have to be paid back if you stay below a certain income, etc. You also have the VA Loan program that only veterans can qualify for that does not require a down payment. In other words, there are quite a few different loan packages available and we work with good mortgage brokers that can help you figure out what is the best way for each individual to finance a house. If you have a good amount of down payment money available, you can add that amount to the amount you can borrow to buy a more expensive home. For instance, if you have $10,000 saved up to put down on a house, you feel comfortable at $750 per month ($140,000 per above item #1), then add $10,000 to the $140,000 which would add up to a $150,000 house. Now lets go to step 3.
3. YOUR CREDIT
Ok, you need a loan to buy a house. Your credit scores by the three major credit reporting agencies are the determining factor on the "cost of credit" ... the interest rate that the mortgage company will charge you. The higher the interest rate, the higher your payment. If you have never examined your credit history with the three major credit reporting agencies, you have the right to a free annual credit report from each of them. You can call the official toll free number to get a government mandated annual free credit report at (877) 322-8228. You can also obtain a free credit report from each credit bureau by going to www.annualcreditreport.com and you need to thoroughly review all the information contained on these reports to make sure that there are no inaccuracies. If you find one, you need to dispute it (should be sent via certified mail) to get the necessary corrections made - if you find odd addresses, erroneous employment notations, mistaken name variations, etc., it is an early tip off that someone else's credit is co-mingled with yours or that someone else is using your credit! Credit bureaus have 30 days to investigate disputes. It is hard to get a loan if your middle "credit score" falls below 620 (out of the 3 credit scores, lenders normally go by the middle number instead of the high or low numbers). However, you can still go through Rural Direct to get a rural home loan where they do not go by credit scores, but if you have any legitimate outstanding collections showing on your credit reports, they will require that they be paid off before you can proceed. If you have a legitimate Bankruptcy, Foreclosure or Repossession showing on your credit, you may have to wait up to 7 years before a lender will be willing to take a chance on you again. If you have any collections or judgements showing up, it may be necessary to pay them off or prove why they should not (which should be disputed with the credit agency reporting it). It can take 6 to 12 months for your credit numbers to rise after you fix any inaccuracies. However, a quick way (within a few days) to help your credit scores go up is to "opt out" of companies being able to access your credit unless they have your signed authorization via www.optoutprescreen.com. Another major item you need to note is DO NOT BUY ANY LARGE ITEMS ON CREDIT UNTIL AFTER YOU CLOSE ON A HOUSE! Otherwise, if you buy furniture or a car before you close on a house, it will hit your credit record and drop you and possibly throw you out of qualifying for a home loan! Once you feel your credit is fair and accurate, lets go to step 4.
4. MORTGAGE LENDER OR BANK PRE-APPROVAL
This step can be combined with step 3 in that a mortgage broker can quickly pull up your credit and give you a quick glance into how your credit looks and if there are any issues that need to be cleared up, but it is good to know before hand that you have checked all of this out yourself so you will not have any surprises! But what you want is to know what loan programs this bank or mortgage broker thinks you can qualify for, what kind of interest rate each would offer (this can vary .25% to .5% in many cases), what type of mortgage insurance might be required (added on top of principal and interest), how quickly they could close on a loan (3 or 4 weeks?) once you have picked out a home and gotten it under contract. You may want to interview several lenders (several banks and one good mortgage broker that works with many different lenders). We would love to suggest some to you that we found to be honest, hardworking lenders that look for the best loan package to work for you. At this stage, the Mortgage Broker will tell you how much house you can buy. This would include any down payment money you are going to put down. You need to be careful at this stage and make sure how much the payments would be so that you know that you are comfortable with that amount (many folks back down some so the payments including escrows for insurance and taxes will not overwhelm them but stay in their comfort zone). Lenders do have what they call "Income to Debt Ratio" that they do not want borrowers to go past so they will not get into trouble having too much debt. So they can write you a pre-approval letter based on that you are pre-approved for a loan of $*****. Now you really have a good idea of what to look for in the price of a house! Once you have talked to several lenders and feel comfortable with one, lets go to step 5.
5. CHOOSE A REALTOR TO HELP YOU FIND A HOUSE
Many buyers see a house they like the looks of with a FOR SALE sign in front and they call that Realtor to arrange to see the house. You need to know that Realtor is working for the Seller of the home and not you as the potential buyer unless you sign up with that Realtor to be your Buyer's Agent. The real estate laws of South Carolina, as well as many other States, require that you be advised that any Realtor that shows you a house should mention to you about your rights as a consumer to have your own representation (a Buyer's Agent), be self-represented or that you can agree to Dual Agency (where the Realtor represents both you and the Seller in a limited capacity). It is best if you choose a Realtor to represent you as your Buyer's Agent in your search for a home as they will show you many homes according to the parameters you give them, they will use due dilligence in researching the information on the homes you are interested in, about the area, and any knowledge and negotiation abilities that might assist you in obtaining the best buy for your money and work solely for your best interest. You do not normally have to pay a Buyer's Agent for their services since they are normally paid by the Seller's Realtor for helping them find a buyer (through MLS cooperation). However, your Buyer Agency agreement that you sign with a Realtor to represent you will have several possible options, such as what if the house you want to buy is listed as a FOR SALE BY OWNER, etc. A good Realtor will be sure to go over this with you in addition to becoming a very valued asset in your corner! You can choose to look at a few houses with a few different Realtors until you find one you are more comfortable with and feel will do a good job for you. Most Realtors will work with you for a little while without having a contract so that you can get to know each other and see if they can help you in your search for your new home. Once you have found that Realtor that you want to be your Buyer's Agent, we'll go to step 6.
6. CHOOSE A HOME AND START NEGOTIATIONS
Your Buyer's Agent is going to be continually looking for homes that might match what you are looking for. It is difficult to find everything that you are looking for in an existing home. You usually have to compromise on some things that were "wants" because the home you like the best does not have this or that but you like it the best. After looking at a dozen or two homes, normally you will find the one that really grows on you and that you decide is the one you want to try to buy (however, it can take a few months depending on what is available on the market). Here your Buyer's Agent will help you in getting "SOLD" comparables from the subdivision or area the home is in so you can see what other folks paid for similar properties so you will know what is a good price. Then the Buyer's Agent will write up the offer along with contingencies according to issues the Buyer's Agent sees needs to be addressed on the offer as well as what your chosen Mortgage Broker says needs to be in the offer on financing, you decide on a date to "close" (actually buy the house using a closing attorney) which is also based on the amount of time your Mortgage Broker says they will need as well as the time you need, and you normally write a check for a "Good Faith" deposit (normally $500 or more) to show the Seller you are serious about your offer (and which is applied to the purchase of the home), you sign the paperwork and your Buyer's Agent will then start the negotiations with the Seller's Agent. This stage will usually turn into a "back and forth" type of negotiation, possibly by phone, possibly numerous times, and your Buyer's Agent will guide you through all this. Hopefully a successful negotiation can be worked out and you can proceed to step 7.
7. CONTRACT, HOME INSPECTIONS AND APPRAISAL
Once you have a contract successfully negotiated out on the home, your Buyer's Agent will forward a copy of the contract to you and your Mortgage Broker, and start working on ordering all inspections that you want done on the home. Certified home inspectors normally charge by the size and age of the home and usually start around $250. Their expertise in spotting problems or potential problems, things that do not meet code, whether the heating and air conditioning is running right, that appliances are working, etc. is invaluable. You can also have a survey done on the property to be sure there are no encumbrances (usually $500 or more), and you can have a septic system inspection (usually $350 or more) in which they will automatically pump the tank out during the inspection to make sure everything is working properly. These inspections and surveys are normally paid for by the Buyer. The Seller normally pays for a CL-100 Inspection (termite and moisture inspection). Your Mortgage Broker will order an appraiser to go out to the property and measure, examine and do sold comparables on the home to be sure that the home is worth what you are paying for it. If any problems come up at this stage, your Agent will handle it with you, guiding the entire time. For instance, if the home inspector says some electrical work needs to be done on the home, your Buyer's Agent will work up an Home Inspection Addendum requesting that the Seller take care of this problem. Normally the Seller will take care of the issues, or there will be some negotiations and this will be handled by your Agent with your input. If the appraisal comes back and says that the home is worth $5,000 less than what you were willing to pay for it, then your Agent will be contacting the Seller's Agent to renegotiate. These are normal and expected issues that come up during this period of time. Also, your Mortgage Broker may be contacting you for information on things like employment verifications, etc., that you will need to properly handle in order for the Lender to approve your loan. If all goes well, we can proceed to step 8.
8. CLOSING AND MOVING INTO YOUR NEW HOME!
Again, it is absolutely necessary that you ABSTAIN FROM BUYING ANY BIG ITEMS LIKE FURNITURE OR VEHICLES ON CREDIT before you close. We have had several cases where a Buyer went and bought a new vehicle or furniture for the new home and it hits their credit and suddenly, three days before closing when the Lender pulls their credit one final time, they halt everything and the buyer loses the house because they can not get the loan! How awful!! When you have a "Clear to Close" which will be only a few days before the scheduled closing, that means your lender is ready to give you the loan to buy the house and a time is VERIFIED with a closing attorney to properly execute all the documents. You are advised to set up utilities to be turned on in your name the day of closing, you arrange fire insurance to be placed on the home the day of closing, you prepare to start moving and your Agent or Closing Attorney will advise you of when the HUD is ready (the government document that shows all the numbers in regards to the sale of the house) so you know how much you need to bring to closing (certified funds/down payment money) or if you will actually get money back at closing. On day of closing you will go to the closing attorney's office with your Buyer's Agent, set down and sign all the documents the attorney will go over with you (across from the Seller and Seller's Agent), you hand over any certified funds that may need to be given to the attorney and the Seller hands over all the keys TO YOU!! You have bought a house! Now the real work has to be done (moving all your furniture and belongings in)! Your Agent will be there to help you with any questions you have during this time!
CONGRATULATIONS!! YOU DID IT!!
