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House Buying Guide

Introduction

This guide will provide you with in-depth information and content about the steps in the home buying process. We have also included links to other sections of our website for more detail about certain items rather than repeat that information here.

After reading the House Buying Guide, our hope is:

You will interact with us to answer any further questions or concerns you have.

You will be better prepared for the home buying experience and that your adventure through the home buying jungle will be uneventful and enjoyable.

You will become a better-informed and more knowledgeable home buyer and avoid the costly mistakes most home buyers make.

You will be properly equipped to deal with real estate agents, mortgage professionals, attorneys, home inspectors and sellers you come in contact with.

You will save potentially thousands of dollars by implementing what you learn in this guide.

You may want to go back there, review that information first to get a general overall picture of the home buying process, if you haven't already done so, and also print out the "Steps In The Home Buying Process" pdf document so you have a general overview of the process and so you can make notes of important ideas or action steps you should take as you continue reading here.

The information in this "House Buying Guide" is presented in three sections.

• Section One - This Section - (House-Buying-Guide) contains Steps 1, 2, and 3.

• Section Two (House-Buying-Guide-Part-2) contains Steps 4, 5, and 6.

• Section Three (House-Buying-Guide-Part-3) contains Steps 7 and 8.

Our suggestion is to take each step in the order they are presented. We have found the order of these steps to be in a natural progression in the home buying process. However, links have been provided so you can jump around in whatever order you like.

We welcome your comments and questions. Our goal is to make this the number one home buying website on the Internet. We can only do that if we receive input from readers like you as to what we can do to make this website more effective and beneficial for you.

So please make suggestions, tell us other topics to cover, tell us the current topics you would like us to cover in greater detail, which topics did you find of value and which ones were so-so, ask questions, tell us what we are doing right and what we can do better. Thank you.

"So, ready to begin your adventure
through the home buying jungle?"

Click on the below links to be taken directly to each step:

• STEP 1: Find, Interview and Choose One Agent to Work With.

• STEP 2: Determine Your Credit Status and Ability to Buy.

• STEP 3: Determine the Price Range You Can Afford Given Your Resources.

• STEP 4: Determine Your Needs and Wants.

• STEP 5: The Home Search.

• STEP 6: The Purchase Offer.

• STEP 7: Removing Contingencies.

• STEP 8: Closing (Also known as Settlement or Transfer).

Step 1 of the House Buying Guide, "Find, Interview and Choose One Agent to Work With".

This approach leads to a home buyer having contact with several different agents as they search the net and perhaps email agents with more questions. Also, as you search online, your email address is captured and if you make inquiries by phone or dial up toll-free hot-lines to get more information your phone number is captured.

This could lead to problems later on when you do decide to use one agent, especially if you decide to purchase a home that you received information about from a different agent than the one you use to buy that home with. See our website section "One Date You Are Married" for more information about this little known problem.

Also, you may start getting phone calls or emails from agents "following-up on" the captured information from their website or phone systems, some more aggressive than others. This can be quite annoying when it happens, and it will.

So, hold off on the home search and begin at the beginning.

Here you need to understand:

• Customer vs. Client Level Service

  You want "Client Level" service not "Customer Level". A customer of an agent is equivalent to being a customer at a retail store. The retail store owes no fiduciary duties to you. The sales clerks are trying to sell you something. Of course they have a "customer service" department in case you are dissatisfied with your purchase or service.

  In real estate, an agent has to deal with customers fairly and in good faith. But they only owe fiduciary duties to clients. These duties include: Confidentiality, Accountability, Reasonable Skill and Care, Undivided Loyalty, Obedience to Lawful Instruction, Advocacy and Full Disclosure. It is important to understand these duties and their importance when choosing an agent to work with.

  Check out the discussion on this website on the "Buyer Agent" page for a definition of each duty and a discussion of the importance of being provided all these duties regardless of what home you want to buy or who it is listed with.

  Check out the difference between being a client and being a customer of an agent in this pdf document, "Client Vs Customer Level Services".

  
  

• The negative impact of Dual and Designated Agency

  You want exclusive representation. You do not want an agent trying to represent both you and the seller in the same transaction nor the ridiculous concept of designated agency where two agents in the same firm are "designated" one to represent the seller and the other to represent the buyer.

  In a dual or designated agency situation, confidential information isn't really protected and in both situations the real estate company has a huge conflict of interest, as do the agents as well, with both the seller and the buyer. For more information about this check out our discussion in the section, "Agency Disclosure".

  

• Hiring an “Exclusive” Buyer’s Agent is Best

  Only an exclusive buyer agent can represent you fully without conflicts of interest on any home you wish to purchase. Also, they act as a consultant and advocate for you and not a pushy salesperson. "Be Served - Not Sold" is more than just a catchy phrase. It is exactly what you should be seeking. Yes, I'm bias. I've been an exclusive buyer agent since 1992 and there simply is no substitute for it.

  Even the Federal Government supports this concept. From the HUD (Housing and Urban Development) "Shopping For Your Home Loan - HUD's Settlement Cost Booklet" -

  "It is your responsibility to search for an agent who will represent your interests in the real estate transaction. If you want someone to represent only your interests, consider hiring an “exclusive buyer’s agent”, who will be working for you."

  For tips on finding an exclusive buyer agent check out the Find An Agent" section of our website.

  
  

• The Questions to Ask Perspective Agents

  We have taken the time to compile the 20 best questions to ask perspective agents to help you decide on the best agent to hire. We have also provided a discussion of the answers you do and don't want to hear. This should help you choose the right agent for you.

  Click here to be taken to the "20 Questions To Ask Agents" section of our website.

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STEP 2 - Determine Your Credit Status and Ability to Buy.

• Obtain Credit Reports From All 3 Credit Reporting Agencies Early in the Process

  

  There are three major credit reporting agencies - Experian, Equifax, and Trans Union. Mortgage companies pull a merged report from all three when you apply for a mortgage.

  They generally make their decision based on the "middle" or in some cases the "average" of the three credit scores obtained along with your reports. So you could have excellent scores at two agencies but a less than desirable score at the third due to inaccurate information at the third. This will greatly delay your qualifying for a mortgage.

  Additional information can be found in the section on our website, "Understanding Credit Report Score".

  
  

• Review and Correct Errors

  After you have pulled your credit reports, review the information for accuracy and proceed to challenge any inaccurate information.

  If you need help with repairing your credit and improving your credit scores, you can:

  • DIY - Do It Yourself by becoming knowledgeable about credit repair.

  • Hire a credit repair organization to help you for a fee.

  • Hire an attorney to handle the process for you including potentially suing the credit reporting agencies if they aren't following the law.

  Additional information can be found on our website at, "Credit Repair".

  
  

• Determine The Best Home Financing Method Based on Your Credit Status
  
  • If your credit scores are 720+ you should have no problem getting approved for a mortgage.

  • If your credit scores are 640 to 720, and you have done what you can to correct errors and improve your score, than you will probably have to consider an FHA mortgage as they require lower down payments and have more flexible qualifying requirements.

  • If your credit scores are below 640, you should wait on buying a home. Continue to work on your credit, which takes time - 6 months to a year or more. Save up more money and pay off or pay down your current debts and/or establish new lines of credit if applicable for your circumstances.

    Although you might consider a "sub-prime" mortgage, these are generally no longer available as a result of the so-called "sub-prime mess" that contributed to our current economic collapse. You may still find one of these but the interest rate will be very high, the down payment requirements generally higher as well, and the closing costs definitely much higher.

    However, you still may be able to buy a home using seller finance or via using a lease/option process to rent a home while you improve your credit and then be in a position to qualify for a better mortgage a year or two later.

    For more information about buying a home with bad credit check out the section in our website, "Bad Credit Home Buying".

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STEP 3 - Determine the Price Range You Can Afford Given Your Resources.

• The Cash Needed for a Down Payment

  Hopefully you have some cash set aside for the down payment. You generally will need 3.5% to 10% for a down payment. Yes, you really can buy a home with no money down. However, you stand a much better chance of qualifying for better interest rates and lower closing costs if you have some money for your down payment.

  
  

• The Cash Needed for Closing Costs

  You need cash for closing costs such as mortgage tax, recording costs, flood certification fee, credit report fee, underwriting fee, points, document prep fee, title insurance, bank attorney's fee, your attorney's fee, escrow for real estate taxes and insurance, home inspections, title search, prepaid interest, reimbursements to seller for fuel oil or propane or prepaid real estate taxes.

  
  

• Your Realistic Price Range

  Meeting with a mortgage professional is vital in this step. They can give you an overview of the mortgage process, educate you with regard to mortgage program options, and provide you with a estimate of your down payment and closing costs. They can also provide you with the costs at various loan and down payment amounts to help you arrive at a combination that you are comfortable with based on your resources.

  
  

• The Need for Seller Concessions

  "Seller Concessions" refer to money that the seller gives back to you at closing to help pay your closing costs. Mortgage programs have limits on what a seller may contribute to your closing costs which will range generally from 3% to 6% of purchase price. Expect to still need some money towards closing costs.

  Also, a "seller concession" is mis-named. It really isn't a concession on the part of the seller. It is merely a financing tool that the seller participates in. It is a direct cost of the seller's. Hence, the seller will most likely increase his price by the amount of the seller concession and thus increase your purchase price and mortgage amount. Who paid for the seller concession? You did! Use it sparingly and only if needed. It might be better to get a relative to help you with closing costs than to go the seller concession route.

  
  

• Other Mortgage Considerations and Options
  • Income to Debt Ratios - These ratios are used by the mortgage company to determine what is a reasonable monthly payment for you for a home mortgage along with any other debt payments you might have along with real estate taxes and home owner insurance.

  • Loan to Value (LTV) - This is the % of the purchase price that you are financing. For example, 5% down = 95% loan to value. You are borrowing 95% of the purchase price.

  • Escrow for Real Estate Taxes and Insurance - If you are putting down less than 20%, chances are the bank will require that you contribute monthly into an "escrow" savings account from which the bank will pay your real estate taxes and home owners (fire and liability) insurance and any private mortgage insurance (PMI) or FHA - Mortgage Insurance Premium (MIP) as they come due.

  • Mortgage Type - Mortgages fall under the general categories of: Conventional (conforming), Conventional (non-conforming, also referred to as "portfolio" loans), and Government Loans, such as FHA and VA and special state or local mortgage authorities, such as SONYMA (State of NY Mortgage Authority) in New York State.

  More detailed information about mortgages is available in the section of our website, "Types of Mortgage Loans".

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