Buying a Home
You are thinking about becoming a home owner. There are several steps to purchasing a house, whether it’s your first home or your next home. As you begin your journey to home ownership, it is important to become educated about the process. Keeping an open mind is also recommended because as you explore homes and neighborhoods and meet with real estate agents and home sellers, you may choose to alter your preferences and requirements. Designed to walk you through home purchasing, this home buyer’s guide breaks the process down, pre-purchase planning, and home shopping and closing on your home and more. In addition, you may obtain more information by contacting an Arthur Real Estate agent.
Evaluate Finances: Are You Ready?
Financial evaluation and preparation can streamline your house hunting process. To help you begin, here are some fundamental financial actions to take when preparing to buy a home.
Preparing your Paperwork
In advance, gather the financial documents you will need to secure a mortgage. This includes pay stubs, automobile and school loans, credit card records, statements from brokerages, banks and retirement accounts and income tax returns. Your mortgage lender can provide a complete list of what will be needed.
Shopping for that Perfect House
Working with an Arthur Real Estate agent, your home search becomes more guided and dynamic. Our agents can save you time by focusing your search on the houses that fit your lifestyle and your budget. With their knowledge of the local neighborhoods and of Real Estate in general, they can share insight into the buying process, negotiating, getting to the closing table and even moving day itself.
When making an offer to purchase a home, your Arthur Real Estate agent can assist you in completing a purchase offer. The purchase offer includes the proposed price, a list of what is to be included in the sale such as appliances and fixtures, contingencies or terms the sale is dependent on including a satisfactory home inspection, secured financing, sale of buyer’s current home, seller concessions including assistance with closing costs, proposed closing date, and an offer expiration date, which is typically 24-48 hours.
Upon submitting your offer, the seller will review it and can accept, reject or make a counter offer. The purchase offer is not binding until both the buyer and the seller sign the agreement.
CLOSING COSTS & FEES
- Loan origination fee: covers the costs of evaluating and processing your mortgage loan.
- Points: the percentage of your loan amount, paid at closing.
- Appraisal fee: The fee for having your new home appraised may be rolled into the closing costs. The cost may vary based on the amount of your loan, and the type and use of the property (i.e. condo, rental, etc).
- Credit report: covers the expense of your credit history report.
- Interest payment: You may pay interest on your mortgage loan to cover the time between the closing date and the date your first mortgage payment period begins. It is important to note that interest on a mortgage is usually paid in arrears at the end of the time period it covers.
For example: If a closing is on May 15, and your first monthly payment starts to accrue interest on June 1, an interest payment covering the period between May 15 and May 31 may be required at closing. Consider this timing when scheduling your closing. It is a fee you can reduce by closing near the mortgage due date.
- Escrow account fees: A trust account created by a third party to hold money. Generally, this money goes to pay property taxes and insurance. To fund the account, your monthly mortgage payments may include one-twelfth of your annual property taxes and insurance charges. The first escrow fee may be due at closing.
- Title search: pertains to the examination of public records to ensure that no one but the seller has a valid claim to the property.
- Title insurance: relates to insurance that protects the lender and buyer from losses that may result from disputes over the property’s title. Typically, the buyer purchases the Lender Title Insurance.
Other Third Party Fees
- Document preparation fee: charged for the preparation of the closing documents.
- Underwriting Fee: covers the costs of the underwriting process, which is the analysis of the risk involved in making a mortgage loan.
How much does owning a home cost? Can you afford to purchase a home? These are basic questions that are good to answer at the beginning of your home search process. As you evaluate home ownership in terms of affordability, here are some points for consideration:
The Mortgage and Beyond
The monthly mortgage payment is the largest cost a homeowner manages, however there are more costs associated with owning a home. Other costs to account for include:
- Maintenance (general rule of thumb is 1% of purchase price annually)
- Association fees (in some communities and townhomes)
- Commuting costs
It is also important to consider other expenses in your budget. Will you continue to be able to contribute to a savings plan for college or retirement?To help you evaluate the affordability of home ownership, calculate your current and future household.
Cash Required- Down Payment and More
A home mortgage covers most of the costs associated with the purchase of a home, however there are some costs that require cash. The largest of these costs is the down payment. There are also costs associated with transferring ownership and closing the real estate transaction that require out-of-pocket spending. Moving costs are another expense to factor into the home buying budget. For more information about costs associated with a real estate transaction in your community, contact your Arthur Real Estate agent.
Traditionally lenders have required a 20% down payment to secure a mortgage for the remaining 80% cost of a home. There are many varieties of home loans and many variations of down payment requirements. Some loans are government sponsored like those with the Federal Housing Administration (FHA) that you may qualify to receive. If your down payment is less than 20% of the total loan you may also need to pay for PMI, private mortgage insurance. To learn more about home financing contact your mortgage lender.
There are tax advantages for home owners that should also be factored into your affordability calculations. The primary advantage is the mortgage interest deduction, the ability to write of the mortgage interest amount you pay each year as an expense on your taxes. For a complete understanding of the tax implications of owning a home, contact a tax professional.
RENT VS BUY
The decision of whether to RENT or BUY a home often begins with a decision about lifestyle. Renting provides mobility and for anyone who can’t envision themselves staying in the same home or community for 5 to 7 years, renting is most likely the best option. However if you are ready to make the move to home ownership what follows are some considerations in the rent vs. buy debate.
In many communities, a monthly mortgage payment may be lower than the average monthly rental rate. Home owners can lock in a mortgage rate and their monthly payments. Renters on the other hand may be subject to increasing rents, depending on market conditions. Personal finance experts suggest monthly rent or monthly mortgage + taxes + home maintenance costs should equate to between 25-28% of household monthly income.
The price- to- rent ratio is a good indicator of market conditions and the favorability of renting or buying a home. This ratio represents the price of a house divided by annual cost of renting a similar home.
Home Price: $250,000
Rental (monthly): $1500
Rental (annual): $18,000
Price-To-Rent Ratio: 14
A price-to-rent ratio above 20 suggests renting as the preferred alternative. A price-to-rent ratio of below 15 indicates home ownership may have more benefits.
The Advantages to Owning
One of the advantages of home ownership is the ability to deduct certain costs associated with home ownership from federal income tax. Most homeowners itemize their deductions. This allows, under current tax laws, the following deductions:
- Home mortgage interest
- Property real estate taxes
- State income taxes
- Personal property taxes
- Most moving expenses
Consult a tax professional for an accurate and up to date understanding of the full tax advantages of home ownership in your community.
Loan term equity is another distinct advantage of home ownership. A house is an investment as well as a home. Over time the value of the house may increase depending on market conditions. To gain a more complete understanding of the history of home values in your neighborhood consult an Arthur Real Estate agent.
Other Factors to Consider
- Is the commute realistic and/or affordable?
- To purchase a home will your savings be drained? Can you continue to save money (contribute to 401K, college savings plans etc.) once you have a mortgage to pay?
- Have you factored in maintenance costs of a home? The general rule of thumb** is to budget 1% of the purchase price of the house for annual maintenance.
- In addition to the down payment have you factored in the closing and the moving costs of associated with a home purchase?
- Do you have an exit strategy if necessary?
- When it comes to buying real estate, working in tandem with an Arthur Real Estate agent gives you an advantage in your local market. For buyers, Arthur Real Estate agents assist in making your home search as efficient as possible so that your time is spent looking at homes that meet your needs and your budget.
- Arthur Real Estate agents don’t work alone. Our agents offer full service real estate services and are adept and experienced in working with other real estate professionals including home inspectors, home appraisers, mortgage bankers, title companies, and can guide you through the entire real estate process to purchasing a new home.
- AArthur Real Estate agents are committed to adding value during every step of your home buying process.
- Let Us Help
Count on Arthur Real Estate
This is a great amount of information to think about and digest. It is a fact that the closing process and costs can be complex. However, rest assured your lender will provide you with a Good Faith Estimate (GFE) that lists closing items and approximate costs so that you know in advance what to expect.
The details of the closing are handled by your lender and the various other professionals to help you prepare for a smooth closing. And through every step of the way, you can turn to your trusted Arthur Real Estate agent for advice, information and overall guidance. We are here to make your home buying experience enjoyable and exciting.