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Art of Home Buying

March 2004
Art of Home Buying

Step One: Is owning a Home Right for You?

Homeowners experience the freedom of having a place of their own and the benefit of an investment where the equity potentially increases each year. Historically, homes have appreciated in value, making them worth more than when they were purchased. Additionally, there are significant tax benefits to owning a home and paying mortgage interest.

Homeownership also means you are responsible for all maintenance and repairs. In addition to paying the mortgage every month, there are other expenses to keep in mind: homeowner's insurance, property taxes, condominium fees and utilities. In the event you wish to move, selling a home is more difficult and more time consuming than giving notice to a landlord.

Step Two: Assess Your Finances

Once you have decided to become a homeowner, you should review your finances and determine how much you can af-ford per month. Begin by analyzing your current monthly expenses. After paying your current monthly expenses (rent, groceries, etc.), do you have any money left over? How much are you willing to spend on housing each month? And How much money can you use as a down payment? Most of the lender mortgage loan programs require that monthly housing expenses do not exceed 28% of your gross monthly income.

Step Three: Check Your Credit Report

When applying for a mortgage, a lender will look at how much you can afford to pay and your credit history to determine if you qualify for a loan. You may check your credit report for discrepancies before going to a lender. You can call one of the major credit reporting bureaus for a copy of your credit report. - Equifax 1-800-685-1111 or Experian 1-888-397-3742

Step Four: Mortgage Pre-qualification

Once you have determined how much you can spend each month on your new home, you can determine the maximum sale price you can afford. This will vary depending on the purchase price and the size of your down payment. Any of lenders can issue a pre-qualification letter to a prospective home buyer.

Step Five: Find Your Dream Home

You need to decide what features you absolutely must have in your new home. There are single- family dwellings, duplexes, town homes, condominiums and cooperative units. Within each home there are many differences, such as the number of bedrooms and bathrooms. Create a list of things you must have for your new home.

Then make a wish list of those amenities you would like to have, but can live without. What kind of home do you want? How many bedrooms, bathrooms do you need? Where do you want to live? Are schools and shopping conveniently located? What kind of transportation is available?

Step Six: Find a Real Estate Agent

Today, it is common for home buyers to hire a real estate agent to assist them in finding a home. A seller's agent is obligated to the person selling their home and will look out for their interests. A buyer's agent is responsible to you and is obligated to follow your instructions. Real estate agents receive a portion of the sale price as their commission which is typically paid by the seller. Make sure the agent you select is licensed in this state and familiar with some of the areas you are considering.

Step Seven: Selecting a Home

Once you have selected a real estate agent to help you in your search, share your home requirements and wish list with your agent. Discuss how much you can afford to spend. The real estate agent will then show you homes that seem to fit your needs. Take your time when viewing a home for sale. It may be helpful for you to take notes indicating what you like and what you don't. You should ask questions about the neighborhood, the quality of the home and what it takes to maintain it.

Once you have found a home you would like to own, work with your real estate agent to prepare a purchase offer for the seller to consider. This offer will often be accompanied by a good faith deposit that will be part of your down payment.

Step Eight: Making an Offer

A purchase offer is a written proposal stating what you are willing to pay for the home, when the closing date will be and any other terms that will be included in the contract the buyer and seller need to agree upon. The offer will also include an expiration date, at which time the offer becomes invalid if the seller has not responded.

Step Nine: Hiring a Lawyer

Many home buyers choose to be represented by an attorney, although you are not required to hire an attorney to buy a home. An attorney will be your advocate in a real estate closing (settlement) and can provide valuable assistance and legal advice.

Step Ten: Home Inspection

It is a good idea to be present for the home inspection. A home inspection is advised to be completed prior to closing. The purchase offer and purchase contract may contain a clause that allows you to renegotiate with the seller or decide not to purchase the home if the profession-al home inspection reveals serious problems with the home.

The inspector will provide you with an objective written assessment of the home and any problems discovered. Your real estate agent or attorney can help you work with the seller to fix the problems or lower the purchase price.

Step Eleven: Obtaining a Mortgage

Once you have a contract to purchase the home of your dreams, your LENDER will help you select the right mortgage for your situation.

Step Twelve: Prior to Closing

Prior to closing on your new home, you and your lender need to complete a few final tasks.

Title Search: Before the lender gives you a mortgage, a title search must be done to verify that the seller truly owns the property and that there are no liens (claims) on the property.

Title Insurance: The lender will also require title insurance to protect their investment in case a question about the validity of the title arises after closing.

Homeowner's Insurance: You will need to obtain homeowner's insurance prior to closing.

Survey: The survey is a technical drawing of the property and its structures. A survey can take a few weeks and should be ordered in advance of the closing date. The buyer is usually responsible for ordering and paying for it.

Flood Search: The lender will order a flood search on the property you are buying. The flood search determines whether the property is located in a designated flood zone.

Septic Certification: If the property you are purchasing contains a septic tank, a system certification by an engineer or septic expert may be required.

Termite Inspection: In certain areas, a termite inspection must be completed prior to the closing. A certificate of inspection should be delivered to your lender before the closing.

Final Walk-through: The sales contract should include a clause allowing you and your real estate agent to conduct a walk-through inspection of your new home no more than 24 hours prior to the closing. Make sure all appliances and systems are working and that any items to be left behind are in the house.

Step Thirteen: Closing

The closing (or settlement) is a meeting where you will complete the final paperwork to purchase the home from the seller, sign your mortgage documents and receive the deed and keys to your new home.

Homeowner's Insurance: You will need to provide the closing agent with a copy of your homeowner's insurance policy or a receipt stating that you paid the premium.

Payments: The closing agent will provide the buyer (you) and the seller with a list of all the costs that must be paid at this time. You make these payments and sign for your mortgage. By signing the mortgage, you agree that if you do not make payments, the lender is entitled to sell your property and apply the proceeds to your unpaid debt. You will also sign a mortgage note agreeing to pay back the loan.

Title: The owner will give you title to the house in the form of a deed. The title and mortgage will be recorded in the County Clerk's Office.


Upendra Bhatt is an agent with Prudential Georgia Realty.

He can be reached at Cell: 678-478-2578 (Off) 770-923-7400


Moneywise is hosted by Rajesh Jyotishi with Shalin Financial Services, Inc. A Registered Investment Advisor. For questions, he can be reached at (770) 451-1932, or email at rajesh@shalinfinancial.com

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