Buying a home can be a great decision for a number of reasons. It could be the desire to begin a new stage of your life, or simply looked at from an investment standpoint. When done correctly, you can channel your monthly rent towards mortgage payments, effectively turning the monthly expense from an overhead into equity over time. Not only will that rent no longer be ‘lost,’ it can help build your credit and hopefully be sold for a net profit down the line.
I have created a breakdown of the basic steps involved from a buyers standpoint, with major points to be considered along the way. Buying a home can involve many moving parts. You can make the purchase of a new property contingent on the sale of your existing one, you can make the purchase as a VA using the benefits that come with that designation. Purchasing with very low down payment based on your first time home buyer status is yet another option to consider. Lastly, from an investment perspective you can use a single family residence which is being leased to a tenant to do a 1031 exchange into a property of a greater value. Also known as a Tax Deferred Exchange, this tactic allows any capital gains realized from the transaction to remain un-taxed until sale of that property to the following buyers.
We have many strategies for all sorts of buyers and those at varying experience levels to help facilitate your goals.
I hope you find the guide below useful, and please feel free to contact me with any questions you have. I understand that each transaction comes with its own set of challenges, and as a natural problem-solver, these are the scenarios I thrive in. Call me at 619.354.8855 for a free consultation on what I think your best course of action is.
Have an idea of how much you can afford.
Jumping into a home search with only a vague idea of what you can afford does everyone a disservice. Knowing the numbers in advance can save months of pointless searching and potential heartbreak, far too many buyers become attached to properties they were never in a position to seriously consider.
It would also help to run a credit score to see your standing and creditworthiness in the eyes of the lenders. This will greatly affect the interest rates you will be offered, and give you an idea of the loan terms you will be offered down the line.
Ideally, you will be pre-approved for a loan at this point, with the bank or lending institution formally pledging to loan you a certain amount , but as a bare minimum, you will want to ensure that you are pre-qualified for a loan. This means that the bank has decided you are creditworthy enough to merit a loan, with no discussion yet as to the amount you will be greenlit for.
2. Partner with a Pro
You will then want to find the right Realtor and lender, amongst other personnel.
As a buyer, using a Realtor is quite literally a free luxury- commission fees are paid by the seller. In fact, it can actually save you money. Bringing on an experienced professional brings with it access to recent sales data on comparable properties, and knowing the fair market value of a property ensures an added layer of confidence when submitting bids on the property down the line. In short, using a Realtor offers peace of mind, ensuring that you are buying the property as it has been represented and the offers the promise of a smooth transaction.
Finding the right lender at this stage is also crucial. These are the individuals that will be pre-approving you for a loan. They help find the loan program that best suits you (e.g. First Time Home buyer, VA loan, shorter term with less down). This will be one of the biggets purchases you make in your life, and you will be saddling yourself with added financial responsibilities accordingly. A lender is there to advise on the best financial decision given your lifestyle and goals.
3. 
FINDING THE RIGHT HOME
You’ve done your homework. You found a real estate professional you can trust to help you conduct your search and answer any questions you have. You also teamed with a lender that understands your financial picture and is committed to helping you realize your goal of home ownership. Now for the fun part!
Before you head off to attractive looking open houses, it is important to know what it is that you are looking for. Know your top priorities, and be as cold and calculating as possible. The best piece of advice I received about this stage in the process is that it is a process of elimination. Don’t warp your lifestyle or plans to accommodate a home that caught your eye, rather it should be the home that fits in to the larger picture of where you want to be and what you want to accomplish over the next few years.
Knowing the list of top priorities helps eliminate the majority of the homes on the market down to a handful that speak to your goals. Ideally, you and your agent will have a few homes to view as a starting point that match up with your budget and dreams on paper.
The homes you will be viewing are preened, groomed and staged to sell. They will look very welcoming and you will certainly fall in love with a fair few. Hopefully at this juncture, you, your agent and your lender will have done their part to ensure that you are only looking at homes that make financial sense to you.
4.
MAKE AN OFFER
Ok, so we’re over a month in now. Pre-approval letter from the bank in your back pocket, weekly searches of the MLS online, visits to the properties that meet your criteria, and a couple return visits to that house that may be ‘the one.’
After a comprehensive search, we’ve found a home in the right neighborhood that has all the check marks we’re looking for. This home makes practical sense given its location, and financial sense given your available resources. We have looked many times, now its time to jump!
This is where the aid of a professional becomes invaluable. Do you low ball an offer? An agent will help you gauge both how important this house is to the realization of your goals and the most cost-effective way to attain it. Sometimes if a home truly speaks to you, it is a good idea to make a reasonable offer in line with the fair market value of the house as opposed to a flat out low ball. This will usually prove to be a waste of time and will send a negative impression to the sellers, indicating that you are not a serious buyer looking to compensate them appropriately.
Once the offer is accepted, you make good on it through an Earnest Money Deposit (EMD), usually 3% of the purchase price. This step indicates to the seller that you are serious in wanting to move forward with the deal. This amount is refundable until the 17th day of escrow, or until contingencies are removed from the contract (Residential Purchase Agreement).
5. 
FINANCING
You’ve been pre-approved for a loan, now its time to decide on the right mortgage to fund your purchase.
There is a world of financing options available to you:
Adjustable Rate Mortgages (ARM) usually start off at a lower interest rate, but then are subject to market changes within a few years.
Fixed-rate mortgages are a much more conventional type of loan, with a set-rate for a 15-30 year period.
Interest-only payments are an option whereby the principal (amount of money being loaned) can remain untouched and unpaid, with the buyer paying only the interest rates during the loan term.
This is an integral part of the process, as clearly a deal cannot happen with no capital to finance it. Several issues can affect your likelihood of getting financed.
I have heard about an individual that purchased a jet-ski while obtaining financing for a home purchase, only to have the lending institution reject the lender due to the new debt/equity statements of the buyer. A more likely scenario would be an appraisal coming in below the purchase price. You can be pre-approved for $500,000, but if the home appraisal comes in at $450,000, this automatically changes the amount the bank is willing to loan you. You do not have enough collateral in a $450,000 property to cover a $500,000 loan.
6. 
CLOSING
Things are coming along. A loan agreement has been issued from the bank, a contract is in play with the home sellers, and we are in the home stretch.
You will now be agreeing on a close date. The timing here is important as you will want to avoid being homeless temporarily while transitioning from the one property to the next. As mentioned at the top of the page, the close date can also be made contingent on the sale of another property, allowing you a healthy cash flow to move forward with this transaction.
Now is the time to get some inspections of the property carried out. A licensed inspector is necessary to disclose any issues with the property. There are termite, square footage, electrical, lot size and boundaries, easements and encroachments inspections and so on.
You are not required to perform an inspection, but it is highly recommended to do so. It is invaluable to bring to light any possible latent (hidden) issues with the property within the inspection period, allowing you to pursue the deal with peace of mind, or conversely to re obtain the Earnest Money deposit and walk away from a property that would have been more expensive than appears on paper.
Closing costs come into play at this stage and it is imperative to know the upcoming schedule of fees and your financial obligations towards them.
Inspection Fees: As mentioned above
Down Payment: Loans traditionally cover 80% of the list price, with the buyer presenting a 20% cash or check payment upfront. With a VA loan or qualifying First Time Home buyer program, down payments can go as low as 3% of the purchase price.
Title Fees: These include the title search, conducted by the title company to uncover any liens or remaining mortgages on the property, and title insurance to protect the lender if any title issues arise.
ALL DONE!
Escrow has closed after a few nail-biting weeks, funds have been wired to the sellers, title and the county have been paid- Nothing left now but to move in and start a new chapter in your life.