It looks like I’m going to be buying a house in Texas pretty soon. I’ve never bought a house before. I literally have no idea how it’s done. I figure it’s a bit more involved than swapping a suitcase full of money for a set of keys, so I turn to the Dope for its collective wisdom.
You need to be a bit more specific. Where are you in the process?
Definitely step 1 wherever that is. The finance part won’t be a problem. I go to see a few houses today for the first time.
I bought my first home a little over a year ago. I started by contacting a realtor, who I used as my buying agent. He then recommended a mortgage loan officer - it was basically a BofA employee that worked in his realtor’s office - seems like a huge conflict or interests, but whatever.
You may want to shop around for the best mortgage finance deal you can get, but your agent should serve as a starting point.
You’ll need to start working with the loan officer pretty early on depending on what type of financing you’re getting - FHA and VA loans in particular require more paperwork than others. You’ll need to give that person things like bank statements, college transcripts, employment history, permission to do a credit report, copies of ID, and all kinds of other stuff (again, depending on the state and type of loan).
This will get you a conditional approval or an estimate of what loan the bank would approve. This will let you know what ballpark of homes you can look at. Which is your next step - house hunting with your agent.
Basically, I told my agent what price range I wanted, where I wanted to buy, what kind of place I was interested in, what my time frame was, etc. He sent me emails with various listing linked-to or attached, and I picked out which wants I wanted to go visit. I ended seeing about 20 places.
At that point, you start making offers. You’ll also need a good faith check or something similar that goes into escrow when you make a bid - I think the amount varies depending on the custom in your market - I would ask your agent ahead of time.
The you do the whole negotiating thing - going back and for with offers on 1 or more places. Eventually, hopefully, you come to acceptable terms with one of the counter-parties. During this process you have an inspector look at the home and note any damages or defects and you can negotiate fixes at this time as well.
You’ll do a contract signing, but the contract will be contingent on you getting approved for the loan and maybe some other stuff. Then you’ll do the actual mortgage application, for which the loan officer should already have most of what they need. This can take a while.
You’ll also start doing things like getting home owner’s insurance, dealing with any HOAs, and whatever else.
Eventually, you show up at an attorney’s office, hand over a check, set up your mortgage payments / taxes / escrow, get keys, and hope for the best.
That’s about how I remember it, ymmv.
First step is figuring out your rational price range and securing a “pre-qualification” for that price range from a lender. You then look with an agent, or agents, and choose the house you like that you think is the best deal (and there are some deals out there!).
If you are not satisfied with the range of houses you are being shown talk to your agent or get another agent. It’s important to be VERY precise with your agent about what your most important goals are re price, specific type of house, neighborhood etc. Communication is vital. Don’t expect them to be mind readers.
In negotiating make sure your precise desires are in the contract. Oral agreements are mostly worthless in real property real estate transactions. DO NOT ASSUME ANYTHING. GET IT IN WRITING.
Once you have negotiated a price have the property professionally inspected with a licensed inspector. You can even get two different inspections if you choose.
Go to settlement.
Be careful about getting involved with foreclosure properties. Dealing with a bank as the seller can be time consuming and frustrating. You may also encounter short sale properties where the owner is selling for less than they owe on the mortgage. Treat these like foreclosure properties. Talk to a lawyer before making any offer.
I’ve bought many houses. The most important thing is to have a competent Realtor working with you. Interview several of them, and get recommendations if you can. Once you’ve selected a Realtor who knows the process and the neighborhood, he will guide you through all the pitfalls. Good luck!
The finance side is pretty much sorted out as I happen to have a (metaphorical) suitcase full of cash. I guess I could get a loan from the bank if there was something extra special that I really wanted, but I’m more interested in learning about inspections, negotiations and questions like this:
If a house has an agreed price of say $100,000, how much does it cast after all the fees etc.?
When factoring in how much you’re going to pay, be sure to remember that you will be responsible for property taxes and homeowner’s insurance (plus, depending on where you live - association payments) even if you aren’t financing your purchase. Also, as a homeowner, you are the person paying for routine maintenance and repairs.
In short, don’t buy all of the house you think you can afford.
Also, get a guy that you trust to do a thorough inspection of the home. (The bank will require this as a condition of lending money anyways.) Too many people just give it a quick once over and collect $300. Spend a little more for a quality inspector or use someone recommended by a friend to go over the house with a fine-toothed comb.
You don’t want to buy a house and find out six months from now that the whole foundation needs to be replaced.
Plus, you can use it as a negotiating ploy. You go to the buyer and say, “I know we agreed on $150k, but the inspector said that the heat/ac is getting ready to blow and the roof needs replacing. I think that we need to settle on $140k or else I’m walking.”
Also, a good realtor will do this anyways, but make sure that any contract you sign is contingent on a positive inspection result and your ability to procure financing.
Good luck and get that checkbook ready!
General rule of thumb is that buyer’s closing costs are 2 to 3 percent of purchase price. So, if you are putting 20% down, then plan on having $23,000 at closing for a $100k house.
Me again. I have a bad habit of not having all my thoughts ready when I post.
I have to nitpick my own comment as you wouldn’t pay all of that at closing. Typically when you put an offer on a house, you include from $1k-$5k of “earnest” or “good faith” money. It is money that is held in escrow by the seller until closing and it is put forward to let the seller know that you are serious about buying the house and not just doing in on a lark.
Then when the contract is completed, that money is applied to the purchase price of the house. If you fail to follow through on the purchase, then the sellers keep that money (unless, of course, you didn’t follow through because of a contingency, like failure to procure financing, that you contracted for).
I’ve bought three houses, so I’m a pro at this process. The first time was a real bitch because I, like you, thought that the bank loaned you money, you put money down, and then got the keys. Nope. Be prepared to write about 20 checks to different people and sign documents for the whole month before closing.
And remember unless you actually have a buying agent, the agent is supposed to work in the seller’s behalf. And by a buying agent, I don’t mean simply going to a real estate agent and having them show you around. Unless they’ve changed the laws or they’re different where you live, that agent is essentially serving as a proxy for the home owner’s agent.
You don’t have to have a buyer’s agent, but just remember if you tell the seller’s agent or proxy something like, "We’re going to offer $100,000, but we’d be willing to go to $110,000, they may have a fiduciary responsibility to tell the seller exactly that.
Yes, remember how everybody you’re working with is getting paid, and that even though “your” real estate agent might be working with you, he’s ultimately getting paid by the seller, and might not have your best interests in mind. That being said, there are lots of honest agents out there who will do what’s best for you, but you might not know if you have one.
For example, you have $100,000 in cash to buy a house, you might find an agent who pressures you hard to use that $100,000 as a 20% down payment on a $500,000 house, because he gets 3% of the purchase price as his commission. Contrast that with an agent who sees you hate all the little houses at $100,000 and suggests that you start looking at $150,000 houses and financing 50%.
Anyway, if you are buying with cash or if your credit is fantastic, so financing is a non-issue, then that will be your strongest negotiating point. Telling somebody asking $110,000 for their house that you can give them $100,000 immediately with no conditionals (other than passing inspection, etc.) is a very strong position to be negotiating from (contrast with a buyer who needs to sell his own house, and needs to line up financing). So don’t be afraid to look at things a bit out of your price range. A good agent should have an idea of how much below asking is a reasonable offer.
Spend lots of time with zillow.com and google maps with the real estate features. That should give you a strong idea of what neighborhoods you can shop in. The biggest shopping issue will be that there are 800 houses in your price range in the area you’re looking, and you have to do something to narrow it down.
One thing that tends to mislead first-time buyers is that how you’re paying for the property (cash, mortgage, combination, whatever) is of little concern to the seller. They’re going to get a check (these days, often an electronic transfer) from your mortgage company for their share of the sale profits (nearly all if they own the house free and clear, less if they have to pay off their existing mortgage).
So, while you can often negotiate a better deal on things like used cars when saying “I’ll pay cash right now”, it doesn’t matter much to the seller of a house. The only reason it matters at all is that banks have snarled up lending so badly that even pre-approved buyers can have their financing evaporate. Thus, the seller may prefer an all-cash transaction just to make sure the sale closes when expected - particularly if they’re relocating on a fixed schedule and having the sale fall through would cause problems.
Traditionally, there have also been tax benefits from being able to deduct mortgage interest payments. I’d recommend talking to your accountant to see what would be better for you.
One other issue is that there are lots of extra costs in settlement and costs can vary for everything.
Re settlement:
Having an attorney do the settlement may, or may not, be more expensive than having a title company do the settlement, but title companies are usually less expensive for basic residential settlements. Sometimes the title company agents are lawyers anyway. If the settlement has any legal or title complexities use an experienced real estate attorney. Compare prices.
Re surveys.
Banks will often require an up to date survey. Depending on complexity surveys can be a few hundred to a few thousand dollars. A simple boundary lot survey normally used in residential transactions is generally (in my area) $ 400 - $600. A full fledged ALTA survey can be considerably more. Compare prices if you are paying for the survey.
Re Inspections:
Ask your agent and others who they like for property inspector recommendations. Bear in mind that an agent may not recommended (for obvious reasons) the toughest “deal killer” PI out there. You need to be reasonable if there is stuff to be done. Sellers can do the math as well as anyone, and there is point where they may say “Fuck it! Go away” if they are presented with some huge laundry list of fixes that includes not just major issues, but tons of detail items.
Bargaining:
One of the biggest levers you have in negotiating these days is if you indeed have the proverbial “bag of money”, do not need a financing contingency, and can settle quickly. There are many sellers at the end of their tethers with the banks. If you are not wildly picky about the type of house do not be afraid to make insulting all cash offers well below the asking prices for houses that have been on the market for a while. All they can say is “no”. If the agent is afraid to insult the sellers you need another agent. It’s a brutal market right now.
I disagree. Having sold two houses, when I got offers, if someone said that they were paying cash, they got my attention. When someone is financing, if you accept the offer, you put everything on hold for up to a month or two and then something might happen that they can’t get a loan. It’s amazing the number of people who had a bankruptcy or a judgment against them who thought that it would be “no problem” getting a loan because their crazy uncle thought he found a loophole.
When someone offers cash, you know the process will be easier.
The advice looks good. I just saw an online listing for a 5-yr old 1800 sf 2-story 3br, 3bth, row town house in urban N Fla. for $86k. I’ll be looking into it from 900 miles away. Probably a come on.
I agree with this and I hope that my previous post didn’t give anyone the impression to the contrary. If big dollar items are in need of repair, then it is reasonable to call the seller out on it. If you submit a list of expenses that includes “Screw loose on toilet paper roll holder in guest bathroom: $2.50” then you are being unreasonable.
That’s really important in any negotiation, let alone a major one. You should both be reasonable and understanding and if the seller gives you the impression that he is a hard ass who won’t listen to reasonable requests, then you might wonder what he is hiding.