Tag Archives: Buying a home

How Long Do Appliances Typically Last? – The Appliance Cheat Sheet

When you’re looking to buy a house there are a lot of things to consider. One of the categories of items to consider is the condition and age of the working components of the house, like the appliances. Knowing about how long appliances tend to last could be very useful information while negotiating your original terms, and also for if you need to renegotiate terms due to advice given to you by an inspector during your agreed upon inspection period.

This conversation could be somewhat null and void if a home warranty is in place, insuring much of the working components of a home. For more information on this and other real estate related quandaries shoot a message on over to your home boy!

 

Appliance Cheat Sheet

 

If you’d like to ask me a question directly please feel free to reach out to me by phone or email listed below, or you can fill in the info box with your question or comment.

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723
 

Planner Shares System For Managing Money – Business Insider

Being a real estate agent is often a lot like being a party planner. There are several people and issues that need to be kept up with, and consistently held to account. Part of making sure that the party goes off without a hitch when working with a homebuyer is making sure that they have a financial plan to execute the purchase. Most people like to keep their finances rather private, so it’s important that people know that making that plan can be done in private. I often recommend that people use a few different free services to monitor their finances and credit: Mint.com, and Credit Karma. They both run ads, but if you can just ignore those you can be a step ahead. Feel free to send me a message if you have any questions about either one of those services. Now, read this article and if you don’t have these basic financial tools in place start setting them up. You can do it – now let’s make a plan and throw that party!

If you are seriously wanting to get your financial house in order you might reach out to an accountant/cpa and maybe even a financial planner to look at how you can use your money to best fit you life and goals. And you might also talk to an estate planner in case you are worried about what will happen to your assets in the case of you passing away. My sister Claire is actually an estate planner and you are more than welcome to call her to ask about what that looks like, just tell her that I sent you. 🙂

Claire Bailey,  Bailey and Poarch: (405) 329-6600

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

 

“A few years ago, I put in place a ‘Money Flow’ system to help my family track our spending.”

A Financial Planner Shares Her Personal System For Managing Money

family walking beach winter

The author’s family is not pictured.Flickr / James Brown

Part of the reason we accumulate debt is that there are so many distractions in our lives – things we want to buy but don’t need.

But we also ring up debt because we simply don’t understand the flow of our income and expenses, so we can’t accurately estimate how much money we have available to spend.

I’ve struggled with this myself. A few years ago, I put in place a “Money Flow” system to help my family track our spending.

You may have heard of a system like this before, but follow along on this tour, because it really works.

Putting the pieces in place

1. Set up two free checking accounts:

  • One to pay fixed expenses (such as the mortgage, car payments and utility bills).
  • One to pay variable expenses (groceries, gas, clothing and so on).

2. Set up a high-yield online savings account.

We call this our “curveball” account. It’s an emergency fund for use when life throws us curveballs – large medical bills, a job loss or reduction in income, major home repairs, that kind of thing.

3. Make a plan for big-ticket items.

My husband and I agreed that we would use one family credit card for large purchases, such as airline tickets and hotel stays. We still have our separate credit cards – it’s wise to keep your own credit cards to maintain your credit score and credit history. Using them once or twice a year should be sufficient. And don’t close those cards because it will affect your overall credit score.

Implementing the system

1. Draw up a budget for fixed and variable expenses.

Add up how much you need in each category. This will be your guideline for how much should be in each of your checking accounts.

Fixed expenses might include:

  • Rent or mortgage payment
  • Property taxes
  • Utilities (gas, electric, water, etc.)
  • Home, auto and umbrella insurance
  • Life, disability and long-term-care insurance premiums
  • Health insurance premiums (if not taken out of your paycheck)
  • Cable TV, Internet, phone and cellphone
  • Gym or yoga memberships
  • Debt payments (credit cards, student loans, car loans, personal loans, etc.)
  • Savings (yes, this is an expense – pay yourself first!)

Variable expenses might include:

  • Groceries
  • Eating out
  • Gas
  • Clothing/shoes
  • Personal services (haircuts, doctor visit copays, etc.)
  • Entertainment

2. Distribute money to the accounts.

When your paycheck comes in, allocate the designated amounts into each checking account based on the budget you created. The sum earmarked for the curveball account can go there directly.

3. Pay fixed costs directly.

All bills are paid automatically from our fixed-expenses account. We do not have to write any checks, and no debit card is necessary. This account has a cushion of a few hundred extra dollars in case a bill shows up unexpectedly or before we have a chance to replenish the account.

4. Pay variable expenses from the second account.

This account should have a debit card, which you can use for purchases.

5. Link the curveball account to either checking account.

If an emergency arises, you can transfer funds within 24 to 48 hours. You can then access the money with a check or debit card.

Realizing the benefits

Once I implemented this system, the process of tracking expenses wasn’t so cumbersome anymore. Separating expenses into fixed and variable categories meant I didn’t have to worry constantly about checking account balances. Having fewer transactions in each account also made it easier to see the bigger picture of our spending.

The chart below depicts the flow of money.

Money Flow Chart2

* After taxes and pre-tax retirement plan contributions.Chart courtesy of MainStreet Financial Planning

Every family’s finances are different, of course. Feel free to customize my system as necessary. The point is to get – and keep – a grasp on the flow of your money. If you know exactly what’s coming in and going out, you can’t be surprised by debt.

Source: Planner shares system for managing money – Business Insider

Millennials And Money

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Are you a millennial? Do you worry about money? If you answered yes to both of those questions there are a lot of people in a very similar situation. I’ve decided to post this article because there will be a lot of people who will miss out on being able to buy a home because they didn’t plan ahead. People born around 1980 or after are simply more likely to have acquired with more debt (personal & societal), and less opportunity to grow financial wealth.

Now, before you get too scared it’s good to remember that we live in the wealthiest country in the world, and if you like me live in Oklahoma you live with a real estate market that doesn’t fluctuate very much, and homes tend to retain their value more than other parts of the country even in the midst of economic woes. So, if you are still reading this, and you answered yes to the first 2 questions then it’s time to start planning. Buying a home is one of the best ways for a middle class person/family to retain wealth. If you are interested in someday buying a home I would recommend starting with programs/apps like Mint.com (to take control of your finances), CreditKarma.com (so you won’t have any surprises when the time comes), and connect with a lender who can help you budget based on what you are likely to be approved for on a home loan.

Finally, I feel that I must say that if you are interested in having more money in the long term and you want to buy a home it would be wise to buy a home that is more affordable in the short term. This is mostly due to the amount of interest that you would otherwise pay on having a larger loan. If you would like for me to explain any of this further please feel free to contact me.

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

 

We’re Making Life Too Hard for Millennials

July 31, 2015

By STEVEN RATTNER

“Blame the baby boomers for the dangerous combination of burdensome debt and thin paychecks.”

Originally appeared in the New York Times.

TO some, millennials — those urban-dwelling, ride-sharing indefatigable social networkers — are engaged, upbeat and open to change. To others, they are narcissistic, lazy and self-centered.

I’m in the first camp, but regardless of your opinion, be fretful over their economic well-being and fearful — oh so fearful — for their prospects. The most educated generation in history is on track to becoming less prosperous, at least financially, than its predecessors.

They are faced with a slow economy, high unemployment, stagnant wages and student loans that constrict their ability both to maintain a reasonable lifestyle and to save for the future.

Longer term, rising federal debt payments and increased spending on Social Security and Medicare will inflict a tremendous financial burden on them, threatening their own prospect of receiving promised retirement benefits.

To a considerable extent, that’s the fault of my generation, the baby boomers. We were the children of the Greatest Generation, but we may also be the most irresponsible generation.

Americans between 18 and 34 are earning less today (after adjustment for inflation) than the same age group did in the past. A typical millennial averaged earnings of $33,883 (in 2013 dollars) between 2009 and 2013. That was down 9.3 percent (after adjustment for inflation) in just a decade and is the lowest since 1980. Older Americans have fared considerably better; earnings of all full-time workers were roughly flat between 2000 and 2011.

Still more striking is that millennials have endured falling earnings even though they have attended college in record numbers.

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So what’s going on? A major reason is the recession. Those who graduate in weaker economic times typically earn less than those who enter the work force during more robust periods. Starting behind often means never catching up.

Millennials who didn’t attend college have found their wages particularly squeezed, perhaps because of the decline of middle-skilled jobs in sectors like manufacturing, a clear consequence of globalization.

The wealth of millennials has been hit even harder than their incomes. Their median net worth was just $10,400 as of 2013, down 43 percent from the $18,200 that Gen Xers had in 1995 when they were under 35. With incomes squeezed, millennials are not only not saving much; they are dipping into whatever savings they do have.

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That’s worrisome when combined with weak incomes and low net worths. Millennials also participate less frequently in 401(k) plans and, scarred by the recession, invest less and keep more than half their money in cash — not a great long-term strategy.

Another huge drag on the finances of younger Americans is the mountain of student debt that has been piled up in recent years. Members of this year’s graduating class left their campuses owing an average of $35,051, about twice the levels borne by their counterparts two decades earlier (after adjusting for inflation).

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That’s in large part because college is becoming less affordable even as it has become increasingly necessary. Since 1993, average tuition has risen by 234 percent, far above the 63 percent overall inflation rate.

Saddled with debt and thin paychecks, millennials are delaying purchasing cars and new homes, low mortgage rates notwithstanding. By June of this year, homeownership among Americans under 35 fell to 34.8 percent, down from a high of 43.6 percent in 2004.

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Some of this may be cultural — younger Americans seem less interested in major possessions like cars and homes. But they are also delaying marriage and having children, which I believe is an indicator of strapped finances.

Just to complete a dismal picture, millennials will also be the victims of the irresponsible fiscal policies pursued in large part by members of my generation. The massive budget deficits of recent years and projected needs to meet future obligations to retirees will result in a steady increase in federal debt, from less than 80 percent of gross domestic product today to an estimated 181 percent of G.D.P. by 2090.

Rising national debt levels may threaten the ability of millennials to collect on promised Social Security and Medicare benefits. That’s not lost on millennials — only 45 percent expect to receive Social Security benefits during retirement (compared with 68 percent of baby boomers).

5

We can’t completely undo the financial obstacles younger Americans face, such as their weak earnings. But we can start to put in place policies that will ease their burden. First and foremost would be to get the nation’s economy onto a stronger growth trajectory.

That’s a daunting challenge that would require revamping federal outlays to emphasize areas like education, infrastructure and research and development. Spending more on these areas would require higher taxes on my generation, which is getting a lot more from government than we are paying into it.

As part of redressing this imbalance, we need to reform the entitlement programs, for example, by reducing Social Security benefits for the highest income Americans. And important steps could be taken to both ease the burden of student debt for those who have already graduated and provide less expensive college opportunities for the rising generation.

Let’s at least start with a greater acknowledgment of the plight of millennials and the role that we — in many cases, their parents — played in creating it.

Source: We’re Making Life Too Hard for Millennials – The New York Times

Roadmap to Buying Your First Home | From The Art of Manliness

There is a website that I was introduced to not very long ago called “The Art of Manliness”, and it turns out that I like it more than I thought I would. I figured that it would be a site written about how to convince yourself that you’re tougher, and cooler than everyone else. It’s actually rather thoughtful, and it’s focus is to teach men how to live strategically, and purposefully – which I think is great in a world where men often seem overly insular. With that said, this article is not specifically written with men in mind. It’s actually written by a couple named Kate and Brett McKay

This article is about what it takes to buy a house from a layman’s perspective. One of the key portions of the article is when it talks about the advantages and costs of using a buyer’s agent (allowing a Realtor® to help you find and buy a house). There are a 2 main points about this that I would like for people to understand:  Realtors® are paid by the seller normally, Looking for and investigating a house on your own can be tedious. Having an advocate who understands the market can be a very good thing, especially if you don’t already know a lot about the industry and have a lot of spare time. This article was written by someone who is not a Real Estate professional, and for that reason I thought it was worth sharing. The article is very honest and straightforward. Please feel free to like, comment, or share – it’s always more fun to have a conversation when there are other people talking too 🙂

If you think that you might be ready to start looking for a house the first thing that you need to do is get your finances in order. There is a mortgage calculator at the top of this page (unless if you are on a mobile device, and then it will be found at the bottom of the page), so feel free to start there and play for a minute. Then you should talk to a lender – talking to a lender is your very first real step. Ok, I’ll stop, but I do encourage you to read this article.

-Grady

Roadmap to Buying Your First Home | The Art of Manliness

by Brett & Kate Mckay

home2

Almost two years ago, I became a homeowner.

I had no idea what I was getting myself into when Kate and I decided we were ready to buy a home. I naively thought there wouldn’t be much to it. Visit some open houses, talk to the bank, sign some papers, and boom, I’d have a piece of the American Dream.

Boy, was I wrong.

Buying a home is a complicated, multi-step process. Down the road we plan to devote entire posts to many of the steps along the way. Today, however, we’ve set out to provide you with the big picture of what to expect when buying your first home. It’s basically the roadmap I wish I had when I was neck-deep in the process.

It should be noted that each state (and country) has vastly different laws regarding real estate. This is a rough idea of the process, but especially when it gets to working with realtors, making offers, and the closing process, things can look quite different. Research you own state’s or country’s processes.

Determine If Buying Is Right for You

Before you start attending open houses and munching on free cucumber sandwiches, you need to figure out if buying a home is even the right move for you. It’s a big decision that comes with huge time and financial commitments. When figuring out whether buying makes sense right now in your life, take into account your finances as well as your future plans. For help in thinking through the pros and cons, check out our guide on whether you should buy a home or rent.

Get Your Financial House in Order

Once you decide to move forward, it’s time to get your financial house in order to prepare for buying a physical one. Here are some things to consider doing:

Start saving for a down payment. If you haven’t already, start saving for a down payment on your mortgage. Most traditional mortgage brokers require that you have at least a 20% down payment to qualify for a mortgage. Even if you’re able to secure a Federal Housing Administration loan (FHA loan – for first-time home buyers only), you’ll still need to have at least a 3.5% down payment (some loans will require a 5% down payment.  For a $250,000 mortgage, that means you’ll need at least $8,500 in the bank, and that doesn’t include all the other costs that go along with buying a home, as we’ll find out later. That’s nothing to sniff at. Start saving today.

Get a copy of your credit report and credit scores. When a bank decides whether to loan you money for a home, one of the things it’s going to look at is your history as a borrower. They want to know that they can trust you to pay back this massive amount of money they’re about to give you. To determine whether you’re creditworthy, the bank or mortgage broker is going to look at your credit report and credit score. Before the banks pull your report and score, it’s a good idea to take a look at them yourself to ensure that there aren’t any errors that could hurt your chances for securing a mortgage. Errors to look for include accounts that don’t belong to you, wrong addresses, incorrect payment status, and remedied delinquencies not reported as such. If you find any errors, take action to correct them as quickly as possible as they can sometimes take a long time (and be nigh near impossible) to fix.

If you don’t have any errors on your credit report, but your credit score isn’t that hot, start taking steps to improve it like paying your bills on time and reducing the amount of debt you owe.

Gather financial documents. When you apply for a home mortgage, your financial life is going to be put under a microscope. You’ll have to provide enough documentation to prove that you’re financially capable of paying back a large loan. I wish I had done this step earlier in the process and not waited until I was actually applying for a loan. Despite having most of my financial documents digitized, it was still a chore corralling them together. Below are the documents you’ll likely need when applying for a mortgage:

  • W2 statements (or 1099 income statements) for the last two years
  • Federal tax returns for the last two years
  • Bank statements for the last few months
  • Recent pay stubs and proof of other income
  • Proof of investment income

Get pre-qualified for a loan. Call up your bank and ask to get pre-qualified for a loan. When you get pre-qualified for a loan a bank takes a cursory look at your financial status and tells you whether you’d be able to qualify, and if so, roughly how much of a mortgage you can get. This can give you a rough idea of how much house you can afford when you’re out looking. Getting pre-qualified is quick and easy. You can usually do it over the phone or even online. One important thing to understand is that getting pre-qualified for a loan doesn’t guarantee that you’ll actually get a mortgage for the amount the bank pre-qualifies you for. That number can change as the mortgage broker takes a deeper look at your finances. Again, it’s a rough estimate.

Start Shopping for a Mortgage

One thing I wish Kate and I had done earlier in our home buying process was shopping for a mortgage. While we were pre-qualified, we didn’t start mortgage shopping until we actually found the home we wanted. There are a few advantages to starting the mortgage shopping process sooner rather than later, like negotiating a better mortgage rate or getting pre-approved (which is different than being pre-qualified – read on) for a loan. When it comes to picking a mortgage, we could write several posts about it (and we will in the future), but for now, let’s move on with the big-picture overview.

Where to get a mortgage.

Start your mortgage shopping with your personal bank or credit union. They often offer good rates for long-time customers. But don’t stop there. Hop online and use a web-based mortgage rate finder like Bankrate.com. You’ll find dozens of mortgage brokers to choose from. It’s worth considering local institutions as well versus just big banks. As with anything, they often provide a personal touch of service that you won’t find elsewhere. If you decide to work with a realtor, they’ll also often have good recommendations or lenders they routinely work with.

What type of mortgage is right for you?

You have several choices when it comes to picking out a mortgage. Each type has their pros and cons.

Fixed-rate vs. adjustable-rate loans. The most common type of mortgage is a fixed-rate mortgage. With a fixed-rate loan, the rate stays the same over the life of the loan. The big pro with fixed-rate loans is the peace of mind that comes with knowing that your monthly mortgage payments won’t fluctuate dramatically from year to year.

On the other hand, adjustable rate mortgages, or ARMs as they’re often called, have an interest rate that changes based on what happens to interest rates in the economy as a whole, which can be good or bad. If interest rates drop, your mortgage payment should drop. But if they go up, your payment can quickly get out of hand. ARMs are tempting for first-time home buyers because their initial rates are lower. And because monthly payments on ARMs are typically lower at the beginning of the life of the loan, they can also be easier to qualify for. The problem with ARMs is that you’re taking a big gamble. If interest rates go up, you may end up paying much more than if you had gone with a fixed-rate mortgage.

30-year vs. 15-year. This refers to the number of years it takes to pay off the mortgage. 30-year mortgages are the easiest to qualify for and are the most common. 15-year mortgages are much harder to qualify for and have higher monthly payments because you’re paying off the house in half the time. The obvious benefit is that you pay off the loan and build equity faster than you would with a 30-year mortgage. If you have a goal to pay off your home as quickly as possible, just get a 30-year mortgage and pay extra. Making just one extra payment per year on a 30-year mortgage can reduce the life of the loan by five years. If you ever have to cut back on mortgage payments, you won’t be stuck with the high minimum monthly payments that come with 15-year mortgages. Just make sure you get a 30-year mortgage that doesn’t have prepayment penalties.

Balloon mortgages. Stay away from them. The way they work is that you make small monthly payments for a fixed number of years — usually five to seven — and then you’re required to pay off the loan in one giant lump sum. Balloon mortgages got a lot of homeowners in financial trouble during our recent housing crisis. Folks who thought they’d be able to sell their homes before the lump sum came due were stuck in homes they couldn’t find a buyer for. Consequently, they couldn’t pay their mortgage, which in turn resulted in foreclosure and bankruptcy.

Look into FHA loans. An FHA loan is a home loan insured and backed by the federal government. FHA loans offer low down payments and lower interest rates than traditional home loans. They’re geared towards first-time homeowners who might not have cash to pay the full 20% on a down payment. To apply for a FHA loan, you’ll need to find a FHA-approved lender and meet a few requirements. There are some downsides to FHA loans. First, you’re required to purchase an upfront mortgage insurance premium of 1% of the total loan. You also pay a modest fee with each monthly payment for the life of the loan.Check out the Housing and Urban Development’s website for more info about applying for an FHA loan. 

Get pre-approved for a loan.

Whether you go for a 30-year fixed or a 15-year ARM, your goal should be to get pre-approved for a loan. Pre-approval is a step above pre-qualification. According to theConsumer Financial Protection Agency, when you’re pre-approved for a loan, “the lender has evaluated your creditworthiness and has committed to extending you a loan up to a specified amount.” To get pre-approved, you’ll need to provide a lender with pay stubs and W2s and two to three months worth of bank statements. When a bank pre-approves you for a loan, they’ll issue you a letter that you can show sellers during the negotiation process. Buyers with pre-approval often have a leg up on buyers who don’t. Put yourself in the seller’s shoes. Who would you rather say yes to? The guy with a letter from the bank that says they’ll pay the full amount for the home or the guy who has nothing but his word that he’ll be able to afford the house.

Pre-approval isn’t a guarantee that you’ll get the loan in the end. There’s a chance that something will pop-up in the more thorough loan underwriting process that will cause the lender to change its mind. Think of pre-approval like getting engaged. It’s a commitment, but until you get married (i.e. actually get the mortgage) each party can still back out.

Start Looking at Houses

Watch HGTV. I never watched a minute of HGTV before we started thinking about buying a home. But as soon as we decided to start looking, I was watching House Hunters all the time. While the show is definitely staged, I actually found it to be helpful in getting an idea of what I wanted in a house and how the home buying process, in a very rough sense, worked. It can also help tamper your expectations, as you often find happy-go-lucky couples who just expect to instantly find their dream home and for everything to be perfect. Not how it works in real life. (Watch episodes online even if you don’t have cable.)

Attend open houses. Browse through the real estate section of your local newspaper and find some open houses to attend on the weekends. You can also find listings on popular real estate websites and apps like ZillowTrulia, and Realtor.com. Your goal at these initial open houses is to just get an idea of what you like and don’t like in a home. For me, I found this casual reconnaissance to be immensely useful. For someone who had only lived in one home his entire life (my childhood home), I really didn’t have a good idea on the different types of layouts and amenities possible in a home. Seeing several homes in-person helped me develop my preference. Open houses are also useful for scouting out possible buyer’s agents (more on that later).

Make a list of features your ideal home has and make a list of deal breakers. Once you have an idea of what you like and don’t like in a home, sit down with your spouse and make a list of the features in your ideal home, as well as a list of your deal breakers. What are the things you must have, and what are the things that you absolutely won’t live with? Housing and Urban Development has a nice little PDF to help guide you through the process. Make sure you and your wife are on the same page before you get serious about looking. It will take some negotiation and compromise, but the effort will be well worth it.

Decide whether you want a realtor. During the casual browsing phase of home shopping, decide whether you want a buyer’s agent. Kate and I initially wanted to buy a home without a realtor, but quickly discovered that finding homes that fit our criteria was super time consuming. I was spending hours each week browsing homes online and setting up appointments to look at them. It started to get tedious, so we ended up hiring realtor Ray Nash to help us out. Ray was awesome. We told him our list of likes and dislikes in a home and the next day he created a customized database of homes to browse through. When a new house came on the market that met our criteria, he added it to the database so we could check it out. All we had to do was tell Ray which homes we wanted to look at in person and he set up the appointments to visit them. Ray saved us a boatload of time. It was also nice having someone hold our hand and guide us through a completely foreign process. As we moved towards actually closing on a home, Ray took care of setting up things like the appraisal and inspections as well as ensuring all the loose ends were tied up before closing day.

Now you might be asking, “Will I have to pay for the services of a buyer’s agent?” The answer to that is quite complex, but typically it’s the seller, and not the buyer who pays the commission for the buyer’s and the seller’s agent’s services. However, the buyer and seller can negotiate the price of the home so that the buyer, in effect, pays for the commission of his agent. For details on how real estate agents are paid click here.

Narrow Down Your List of Homes and Revisit Them

It’s time to get serious about finding a home. Narrow down your list of prospective homes to three or four and revisit them. When you do, take along this checklist of things to inspect.

Make an Offer

Once you’ve found the home of your dreams, it’s time to make an offer. Before you do, know your “walk away” number — the price at which you’ll walk away from negotiations because it’s just too high. When crafting your offer, consider adding contingencies like having broken appliances repaired at the seller’s expense. You can even ask that the seller throw in a piece of furniture into the sale. Everything is negotiable!

Some things that can help you get a “yes” on your offer include being pre-approved for a mortgage and being flexible on the closing date. In our case, being flexible with the closing date helped us snag a deal. The guy we bought our home from hadn’t found a new place yet, so we offered to put off the closing date for an extra two months so he could find a new home. We still had a few months left on our apartment lease, so we weren’t in a rush. The other folks interested in buying the house needed to move in ASAP. Flexibility won the day.

When you make an offer, the possible answers are yes, no, or a counteroffer. Don’t expect to get a “yes” on your first offer. Unless you’ve put up a severely lowball offer, the buyer will likely return with a counteroffer. You can either accept it or give another counter. If the seller decides to end negotiations with you, lick your wounds and move on to the next house.

Get the Purchase Contract

Once you get a verbal “yes” from a seller, the next step is writing up a purchase contract. The purchase contract essentially puts everything you negotiated verbally into writing. The typical clauses you see in a purchase contract include the following:

  • Legal description of the property, including zoning information
  • Purchase price and terms of the sale
  • Down payment to be held in escrow, and future payment structure
  • Closing date — when the deed will change hands
  • Any items included in the sale, such as appliances and furniture
  • Disclosure of lead paint (lead-based paint disclosure form for buildings built before 1978) and other defects
  • Home warranties and warranties on appliances
  • Commissions, if any
  • Signatures

Your purchase contract will likely have contingencies that could void the contract if they’re not met. Common contingencies include passing the home inspection, the appraisal meeting the selling price, loan approval, and the title being free and clear.

Get Home Inspected and Appraised

After you’ve signed a purchase contract, your next step is to get the home inspected and appraised. As a buyer, you’re responsible for these costs, so have your checkbook handy. If you have a buyer’s agent, he or she will usually take care of setting up the inspections and appraisal for you.

We had two inspections done on our house. The first was a termite inspection to ensure that we 1) didn’t have termites, and 2) didn’t have any termite damage. The second inspection was a general inspection performed by a certified home inspector. This is a pretty thorough inspection. He’ll check the condition of the house’s heating and cooling systems, electrical systems, plumbing, as well as the structural components of the home like the foundation, walls, and roof. He’ll then create a detailed report that includes things you should be concerned about. It’s good to be at the house during the inspection so you can follow the inspector around and ask questions that you might have. If the inspector finds any serious faults with the home, you’ll need to decide whether to re-negotiate with the seller or just walk away.

The mortgage broker will typically provide a list of approved appraisers that you can call to set up an appointment with. The mortgage broker wants to make sure that the home is actually worth what they’re lending to you. If the appraiser reports that the value of the home is less than the contracted price, your lender will likely not give you the loan. They don’t want to fund something that’s worth less than the amount of the loan. The appraisal contingency will allow you to either 1) renegotiate with the seller for a lower price or 2) walk away from the loan.

Shop for Homeowner’s Insurance

Assuming the inspection and appraisal came out fine, the next thing you’ll want to do is shop around for homeowner’s insurance. Your mortgage broker requires it before they’ll finalize your loan approval. Buying home insurance isn’t that hard. I asked my friends and family which insurance companies they used, called them all to get a quote, and went with the best deal. The cost of homeowner’s insurance (as well as property taxes) is typically rolled into your mortgage payment. The mortgage lender puts that money in an escrow account and pays the cost of homeowner’s insurance themselves.

Finalize Loan Approval

In the few weeks leading up to the closing date, your mortgage broker will be underwriting your mortgage application. The underwriter will likely ask for more documents or they’ll have questions about the documents you’ve already provided. Because I’m self-employed the underwriter had a lot of questions for me. I had to make several trips to their office with stacks of financial documents. Just roll with the punches.

Close

After weeks or maybe months of work, the big day has arrived: Closing Day. Closings typically take place at a title company’s office. Depending on the complexity of the sale, closing usually takes about an hour and a half. Because you’re a buyer, you’re going to have a huge stack of papers to sign and initial, so make sure to warm up those finger muscles. To ensure that the closing goes off without a hitch, make sure to bring the following items:

  • A certified or cashier’s check. Federal law requires that you be told the exact amount of the check you need to bring to closing at least one day before settlement. You will have to pay the down payment, plus the closing costs — usually 3 to 5 percent of your home purchase price minus your earnest money deposit. The closing agent will tell you whether you need one check or two and to whom they should be payable. Do not bring personal checks or cash.
  • Proof of insurance. The closing agent needs to see proof you have the insurance in effect on closing day. Your lender likely has a copy of your proof of insurance, but bring an extra copy just in case.
  • Photo ID. The closing agent needs to know you are who you say you are. A driver’s license or current passport will do the trick.
  • Your agent or attorney. Especially if you are a first-time buyer, you should have someone with you who understands the process and represents your interests. In some states, you’re required to have an attorney present. Check your local laws to find out if that’s the case for you.
  • Purchase and Sales Contract. Just in case you need to double-check a detail against closing costs.

Congratulations! You’re a Homeowner

Once you’ve signed the last document and the closing agent has dropped the keys in your hand, you’re officially a homeowner. Congratulations! Go out and celebrate with a big juicy steak. As soon as you’re done, though, it’s time to start thinking about moving in. But that’s a subject for another post.

Roadmap to Buying Your First Home | The Art of Manliness.

If home is where the heart is I want to help people find the keys to their hearts!

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