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Home buying, especially first time, is a big decision to make. Typically, the process of this decision making takes time to have funds, steady income, good credit score and money management. A big step forward is to know how your household budget is like, what your capacity is, what type of loan arrangements you are qualified for, where you want to buy your home, and what type of home you want to buy. Home ownership is just not for peaceful living. It is the beginning of stage in life of making family and creating family wealth as you keep paying off your mortgage and financially stabilize over time. This is the challenge of life you’d love to take on. To start with, get to know your household budget at this stage.
Download Household Budget File
Having checked on your household budget, be prepared for a courageous leap to buy a home. This stage where you want to know the financial arrangement you have to make. The bank or the mortgage broker will delve deep into your financial strength and capacity. Here is the list of documents that you should collect in your Green File:
- Financial statements
- Bank accounts
- Credit cards
- Auto loans
- Recent pay stubs
- Tax returns for past two years
- 401K statements, life insurance, stocks, bonds, and mutual account information.
- Copy of your credit report and its clean up if required
When you have gone through estimates of closing costs and monthly for tentative price range of what money can buy, contact a bank or mortgage broker to work with and educate yourself for the type of loan you’d like to qualify. This is the stage for Pre-Qualification for loan. Your loan officer will:
- Give you a Loan Qualification letter to acknowledge your potential for raising a loan towards purchase of a residential property.
- Advice you on types of loans available related to down payment.
- Advise you on the documents for creditworthiness you gave to the loan officer to look at.
- Advise you how to set about for next stage of Loan Pre-approval
Download ESTIMATES OF MONTHLY PAYMENTS AND CLOSING COSTS
By the time you have gone past the preceding stage of Pre-qualification for loan, and you have arranged the money you’d need to close to buying a home, you are entering this stage of getting Loan Pre-approval from your bank or mortgage broker. It is generally pre-under written by the bank or the mortgage broker who is ready to commit to fund the loan when purchase contract is given. It is like having a bank on your side to go a buy your home.
Real estate is indeed very local! You are setting about to find not just your new home, you are equally searching for the reputation of the city, town, neighborhood, school districts, marketplaces, and the locale that goes with your home. Above all, the community you’d love to move into matters in your life.
Most people who start with home buying search spend lot of time on the internet and collect a lot of distant information. The important question at the back your mind is always: what the best that my money can buy for the space in the environment you’d enjoy. Remember, when family grows, you’ll run short of home space. Amusingly, it takes just about five years to clutter your space!
Just like the car you drive is your identity, so is your home where you live and the richness index of the city you want to be.
Having gone through Loan Pre-approval and done some research to find location in the town where you prefer to be, it is now the stage for you to engage a knowledgeable licensed real estate agent having experience and credentials.
Inasmuch as you’d like to question a potential agent you have tentatively found and selected to talk to, be prepared for some good questions on you to so as to get good answers to show how well you are prepared to buy a home.
Process of home buying involves lot of contractual paperwork and legal nuances. Be not be all by yourself into this venture, so much so when you can get a dedicated real estate professional without having to pay fee or commission since conventionally the seller picks up the tab. However, if you need devoted services of a real estate professional for a fee, you can have them.
Share your thoughts with the agent you engage to help you finding an ideal home for you and take on all the process to reach settlement table. It’s always better to sign an agreement of mutual privileges and obligations.
Your agent will assist you in making an offer on the property on sale and enter into a contract. The contract is a legal document and it binds you with the seller unless you have conditional provisions to step out.
Escrow agent is selected by the buyer and defined in the purchase offer. An Earnest Money Deposit [EMD], or simply Deposit accompanies the purchase offer. If seller accepts the offer turning it to contract, the check must be delivered to the Escrow company by the listing agent and its receipt is sent to the buyer’s agent within three business days. Copy of the contract is sent to Escrow Agent to start the process of collecting documents and coordination with other players of the contract.
Due to digital transmission of purchase offer and acceptance of offer, proof of transmission of Earnest Money Deposit, either physical delivery or electronic delivery to the Escrow Agent and its receipt activates the contract.
In this era of digital movement of documents carrying digital signatures independently authenticated by third party, Escrow Agent is the neutral party relied on by all parties to the contract. This is the virtual meeting place where money is taken from the buyer and distributed to all involved parties as per contract. Transfer of property is filed with County office. Escrow agent pays or retains fees and taxes for the county government, the state government, and the IRS on behalf of the parties to the transaction for distribution. Escrow Agent also sends report of the transaction to the IRS, the State and the Home owners Association.
Escrow company is in close contact with the lender for the loan, and gets final version of the settlement statement prepared from lender. This is to ensure that the lender charges it fees, applies the interest rate applicable, and funds loan for the buyer on the day of closing.
Remember that contract comes to close at the moment the property changes hands at the settlement table.
In these days of digital transfers, the property can be transferred without seller and buyer coming on the physical settlement table, and so is money transferred electronically. It is the role of Title and Escrow company that contract between two parties closes smoothly.
Your real estate agent has brought you to closing date and time of closing. It is critical that you take care of following aspects of closing day:
- Make sure that you and your agent take a final walk through of the home you are buying in coordination with sellers’ agent. It is extremely important to make sure that the property, its appliances, and fixtures, are all intact, and the property is cleaned up before you go the closing.
- Make sure the keys you will be given at the closing are functional. Your agent will help you here since he/she has the keys.
- There should be no sale signage on the property on the day of closing.
- Make note of the utility meters readings so you can get the connections transferred to you name the same day. Maybe good idea to have a handing-taking over of utilities with the seller with its meter reading at the closing table. This is proof of switch over in case utility companies need it.
- Call the utility companies to switch over the accounts of the property to your name.
- If you are moving in the same day, coordinate it well with your moving company.
- Fix appointment with a locksmith to change locks, or do it yourself if you can. If you are satisfied that no one else can have the duplicate key, then you can skip this step. You will get keys at the closing table.
- Notify the HOA Management company within a week that you are the new owner of the property, and that bills should come to you. Ensure HOA has its records clear on the property.
- If there are some parking restrictions and allotted parking slots, have the HOA Management send you stickers and instructions.
- If there are some common mailbox slots, make sure you have checked keys to you allotted mailbox.
- When you are done with ‘walk through’ inspection of the home, go for settlement. Make sure you have cashier check with you that your settlement agent asked you to bring.
- Use dark blue ink pens with you to affix your autographs on the papers that settlement office asks you sign at the settlement table. When done, give final hand shake and take keys.
- Congratulations! You have entered home ownership. It’s now party time!
- Utility companies to transfer accounts in your name.
- Post office to re-direct your mail from previous address to your new address.
- Management company of Homeowners Association that HOA bills are sent to you.
- Address change to your friends, relatives, office, bank, credit cards, DMV, insurance companies, post office, etc.
Now that you have moved in to your new home having raised loan from a bank, you are now committed to make monthly payment to the lender over a period of time you committed on the Promissory Note, and mortgaged your property as collateral. This is the beginning of your home ownership wealth overtime. The equal monthly payment, called amortization of loan over months for pay off are mathematically computed having component of interest on the balance of loan balance at any time, and the rest is the principal component.
If you can increase your monthly payments to the loan company, you are progressively decreasing loan balance, the interest on the balance, and increasing component of principal payments. The effect is the overall reduction of payoff period of loan.
The equity buildup has two components due to reduction of your loan balance, and the typical increase of the market value of your property due to appreciation of property attributable to economic forces of inflation. Real estate prices are very sensitive to city, locality and neighborhood.
You may be curious to know how the numbers play up towards equity buildup and the financial value of your decision you made to purchase a home for yourself. We have put together an Excel spreadsheet for you to see how numbers change for duration of payoff based on changes in variables of property price, loan, interest rate, duration of committed payoff periods, modify input numbers. Check out here how you can reduce the overall payoff period by increasing monthly or biweekly payments.