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Deciding What you Need and Want

Needs and wants list
Before you start looking, make a list of what you want and need. Once your list is made, go back over it and decide what is most important--which items are musts and which you are willing to give up. Assign each item a priority so that you will know what to look for as you begin house hunting.

Location
Deciding where you want to live may be the single most important factor in choosing a home. Location to employment centers, shopping centers, schools, major traffic arteries, and other attractions are important and have significant influences on value.

Your choice of location may be limited somewhat by the price you can afford. Even so, make sure you consider such things as:

• prices of properties and property taxes;
• distance to work, schools, shopping, and entertainment;
• proposed changes in land use such as commercial shopping centers and roads, and potential hazards such as flooding and noise from a nearby airport or highways.

Type of Home and Lot

A single-family detached home typically provides more living space and land area than other types of living units and permits you greater freedom (less restrictions) to remodel, expand, paint, and alter the appearance.

If you don't like spending leisure time on yard work, consider a condo or garden (patio) home. Condos and garden homes often offer shared greenbelts and garden areas or membership in private recreational facilities such as swimming, golf, and tennis.

New vs. older homes
Preowned homes usually have established yards, and the neighborhood or subdivision is usually built-out. On the other hand, they may require more maintenance.

New homes are not without problems. Although they require less maintenance in the first few years, you may have to put in landscaping and call the builder back to correct faults. And if buildings are still active in the area, you may have to endure nearby construction.

You could already have your dream home in mind. Then again, you might not know what you like until you see it. Either way, your REALTOR® will listen to your preferences and help you find the perfect home.

What Can you Afford?

There are typically three major areas of concern when deciding what you can afford: down payment, qualifying for a loan, and closing costs.

Down payment
A conventional loan typically requires a down payment. It is not uncommon for buyers to place a down payment of 10% to 20% of the purchase price. For example, on an $80,000 home, a down payment of $8,000 to $16,000 in cash may be warranted.

Government-backed loans, insured by the Federal Housing Administration (FHA) and the Veterans Administration (VA) are particularly useful to first-time buyers and often require 5% or less as a down payment.

Generally, a higher down payment means better loan terms and a lower interest expense on the mortgage.

Qualifying for a loan
A lender will determine how much they think you can afford. But remember, just because the lender says you can afford one price doesn't mean that's what you should spend. Be wise and thoroughly examine how much you should spend on a home.

Be prepared to provide the lender with a two- to five- year financial history that contains the following:

• Income--gross monthly income as well as employment history, education, and any secondary income such as bonuses, dividends, and child support. The lender may require a letter from your employer, W-2 forms, or, if you are self-employed, recent tax returns.
• Assets--current checking account balances, savings accounts, stocks and bonds, certificates of deposit, other property, insurance policies, and pension funds.
• Credit--debts on cars and appliances, debts on all credit cards, and history of debt repayment. Your lender may ask for a credit report, so you may want to clear up any known negative terms in advance.

Your REALTOR® can help you determine what price range and monthly payment you can afford. The monthly payment typically consists of principal, interest, taxes and insurance--PITI, for short.

Closing Costs and Other Costs

Purchasing a home involves a number services, and with them, fees. You should expect fees for appraisal, survey, inspections, hazard insurance, loan origination (lender's administrative costs), credit report, document preparation, title search and insurance, recording fees, notary, attorney, and escrow.

You will pay for some fees and the seller will pay for others. The costs will vary depending on each transaction. Most lenders will provide you with a good-faith estimate of such costs. Your REALTOR® can also help you estimate what those costs might be.

An item often confusing to first-time buyers is points. Points are interest collected in advance. One point equals 1% of the loan amount. For instance, three points on a $70,000 loan amount would be $2,100. By collecting points (interest) in advance, the lender increases his rate of return on the loan. So, if market interest rates are at 8.5% for a 30-year loan with no points a lender might offer you an alternative loan at 8% if you pay some points.

And don't forget about utilities and maintenance. These costs will vary depending on the home you choose, but it's a good idea to budget for them in advance.

The Offer

What to offer
A REALTOR® can help you find your perfect home, but only you can decide how much you are willing to offer for it. Ask your REALTOR® about the selling prices and marketing time of other houses in the area.

Once you have determined the amount you are willing to spend, your REALTOR® will help you prepare a written offer. In most transactions you will offer to deposit earnest money with the escrow agent, showing your sincerity in making a reasonable offer and abiding by the terms of the written contract.

Contract forms
Your REALTOR® will help you prepare an offer using standard forms. The offer, if accepted, will become a binding contract. This document is the most important paper you will sign because it lays out all the terms of the transaction. It contains:

• a legal description of the property,
• any property that will be transferred with the home, (blinds, curtains, fireplace screens, etc.)
• the price
• financing conditions and contingencies
• amount of earnest money deposit
• name of the escrow agent and title company
• proration of insurance, taxes, and interest
• fees to be paid and who pays for which
• rights to inspect the property and for repairs to be made
• dates of closing and possession
• what happens if either party defaults on the contract

Inspections and warranties
Before signing the contract, take precautions to protect yourself against unseen defects in the home. An inspection by a qualified inspector can provide you with unbiased opinions about the condition of the foundation, mechanical systems, plumbing systems, appliances, etc. If you can, accompany the inspector at the time the inspection is conducted.

It's also a good idea to get a termite and other wood-destroying insect inspection.

You may also want to have your REALTOR® request that the seller furnish you with a one-year residential service contract as part of the deal. This is common practice with the purchase of existing homes (after the first year, you'll have the option of renewing coverage at your expense) and ensures that certain items will be repaired by the company if they fail to function after you move in. If you buy a new home, the builder may offer a warranty as well. Whether you get a residential service contract or receive any other warranty, find out how claims will be processed and how any necessary repairs will be made.

Seller's options
The REALTOR® working with you will present the contract to the seller's agent or seller. The seller has three options: accept, reject or make a counteroffer--a rejection of the offer with a simultaneous offer from the seller to the buyer. If the seller makes a counteroffer, you then have the same three options. This process goes on until a suitable price is agreed upon by both parties.

Binding contract
Once you and the seller agree to the written terms and both of you sign, the document becomes a binding contract. Be sure that you pay close attention the terms. Otherwise, you may waive some contractual rights.

The contract may also set out other contingencies that have to be satisfied, so read the contract carefully and comply with its requirements.

If repairs are required, the contract will specify who will bear the cost of the repairs, who will arrange for the repairs, and when the repairs must be made. Before you close, be sure that the condition of the property meets the required condition specified in the contract.

Finding Financing

Once a contract becomes binding, you'll probably have to arrange for financing. Depending on the terms of the contract, the purchase of the home may be contingent upon you finding the right financing.

Lenders
Most homebuyers get loans through savings institutions and mortgage bankers and, to a lesser extent, from commercial banks, credit unions, other private sources, or even the seller. Sellers often can offer a competitive interest rate and attractive terms. Check on specifics.

Source: Texas Association of REALTORS®

Also see: Assist You To Buy

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Note: Most of the information is based on Real Estate transactions in Texas and may not pertain to another state.

Information is believed to be accurate but is not guaranteed