A home is likely the biggest and most important purchase you'll make in your life. It's an investment that will last for years, and provides a place for you and your family to feel safe and comfortable. But buying a house isn't like buying groceries. It's a long process involving several steps, and a lot of people.
If you're like thousands of people around the country, you might be looking for a home to buy while prices are still low. But don't feel like you're alone if you don't have a clue what to do to get the ball rolling on such a huge purchase. We've done some of that research for you as we followed Jason Amos, a 30-something photographer who works at Newschannel 6, through his first home-buying experience. We talked with professionals along the way, and put together a home-buyers guide for you and your family.
Underwriting fees, appraisals, earnest money, and option periods may sound Greek to you at first. Some of it did to Amos, too. He bought his house just in time to receive a tax credit equal to 10% of his mortgage. But his realtor, Bambi Wortham, helped make the process go more smoothly.
"I knew a little bit about it, but really I kind of just worked step-by-step with my real estate agent," Amos said.
So where do you start if you want to buy a home?
"The first thing you need to do is get pre-qualified for a loan, just to make sure you know what price range you're looking in, if the house is gonna have to meet certain criteria, and to make sure you're comfortable with the monthly payments in that price range," Wortham said.
She recommends looking for a local lender because they are more familiar with the market and real estate agents. Your pre-qualification is based on credit, background and income -- basically your ability to repay the loan. Amos was surprised when he got qualified for his loan.
"She said, 'You've got great credit!' I was like, 'What, have you got a page missing? Are you kidding me?'" he said.
Once you get pre-qualified, you'll probably have a clearer picture of how much you'll be paying in closing costs. But we'll get to those later. After pre-qualification, you're ready to find a real estate agent to be your advocate and help you find the right property.
"Dealing with an agent is gonna be very beneficial because we know the area's market, you can tell us what we're looking for, and we can narrow it down for you," Wortham said.
"I was looking for a garage I could work on stuff in. I was looking for a workshop," Amos said.
He had intense emotions going into the home-buying process..
"When the process started, you get a buzz. It's just like you go in, you see it, you know that you want it, you make an offer. At that point, I had someone making a counter-offer, but I still beat 'em. Basically they took my offer and I was totally buzzin'. It was like, ya know, falling' in love," he said.
Finding a workshop garage with an upstairs apartment and an additional rental house was Amos' jackpot. With the house picked out, he and his realtor were ready for step 3 -- writing up the contract with the seller.
Earnest money is something you'll pay -- anywhere from $250 to $500 -- as an insurance to the seller. If you back out of the contract, they keep your earnest money. When you're setting the terms between you and the seller, remember one thing:
"Everything in real estate is negotiable," Wortham said.
"She really put in a lot of effort to help with the re-negotiations. We went over line-by-line on my good faith estimate," Amos said.
Your agent will help get everything worked out -- the price, the stipulations and the specifics. Even with a signed contract, you're not done yet. Remember that you can literally buy time. You can pay for an option period -- 7 to 10 days for you to get the home inspected and appraised, and to back out if you're not comfortable. Your home inspection is optional, but it does benefit the buyer.
"It's important that they get it checked out because they won't recognize some of the problems that they are seeing," said home inspector Bob Gray.
Plan on spending anywhere between $200 and $800 on your inspection, depending on the size of the home. Inspectors check wiring, smoke alarms, vents, windows, roofs, foundations, and just about anything else that could be damaged in a house. Then they'll tell you what needs to be fixed.
"I will report what is broken, what needs to be repaired, and then recommend that they have it checked by either a contractor, or a foundation company, or whatever, to do the repairs," Gray said.
Knowing what needs to be repaired -- especially if it's something big like the foundation or central heating and air -- will help you negotiate the price and the terms on the contract before you close on the house.
"I'm paying less for the house itself because of all the work that's required, but I have experience and I know how to do this, so I'm not too worried about it," Amos said.
Meanwhile, your lender will be getting an appraisal on the house.
"What they do is they will check for the last six months the other properties in the area that have sold, and what they've gone for per square foot and make sure this property isn't overpriced," Wortham said.
The appraisal is a buyer's cost. Set aside more than $400 for that one. You'll also need to shop around for home insurance, and don't forget about property taxes. All these extra fees and costs may seem hard to keep up with, but a title company will act as a gatekeeper to help you sort all of them out.
"We take in all the money and we disperse all the money for the different people involved," said Escrow Officer Kolter Lukert.
And that's exactly what you take care of at closing. There's a stack of paperwork, and your hand might get tired from signing your name so many times. Essentially you're paying all the associated fees at closing. Processing and underwriting fees go to your lender for putting the loan together and ordering your appraisal. Recording fees go to the title company for recording the title at the county courthouse. Escrow fees essentially pay the title company for all of their services.
"We insure the title to the property as far as there not being any liens on it, or judgments. We make sure all the taxes are paid," Lukert said.
After you close on your house, the realtor can hand you the keys to your very own home. Wortham says it's typically a big day for a home-buyer, especially when it your first house.
"By the time we're finished, they're usually pretty excited when it's all over and they finally have their own home," she said.
"It is a load off to know that this has worked out and this is a go deal. Now it's up to me. My future is entirely my own with this house," Amos said.
Amos' case is a little different from the norm, because he wanted a fixer-upper all along. There are lots of things on his property that a home inspector would say need to be fixed. But Amos plans on fixing them himself. If you're a handy man or woman, you can potentially save yourself some money on the cost of the home by doing your own repairs. Otherwise, it's probably best that you work out professional repairs with the seller during your option period.