Step One: Choose An Experienced Buyer Representative
A first step in buying a home is finding an experienced real estate professional to represent you during your home purchase. Decide on an agent or agent team to be your representative. Don't just call up the agent on every For Sale sign you see in the street. A Buyer Representative (or Buyers Broker) can assist you in every step of the process including locating the property, negotiating offers, finding a lender, and understanding inspection reports. Learn more about Why You Need A Buyer's Representative. You will be asked by the Buyers Broker to sign a form that indicates they are committed to helping you and you are understanding that you will call them, and let them help you find a home. Agents are compensated when a sale happens. You do not pay the agent up front to show you property, but agents want a commitment that when you do buy you will be buying and using them to write the contracts. In most cases your Buyer Broker's professional services fees are paid by the seller - (but in this current market and economy, there will be cases where the seller either cannot or will not be able to pay the full amount, in which case the buyer makes up the difference at close of escrow.)
Step Two: Know What Your Credit Score Is
Before seeking a lender, you can request a copy of your credit report from all three credit reporting agencies: Equifax, Experian, and Transunion. You can get one free report a year from annualcreditreport.com. Check these reports for any inaccurate information that may lowering your credit score.
It is quite common for creditors to "forget" to close out paid accounts. Old mortgages or car loans that you have paid off but do not appear as "Closed and paid as agreed" can have a dramatic negative effect on your credit score.
Old bankruptcies and collections can be legally removed from your credit report after the statute of limitations for credit reporting has expired (the statute of limitations for Arizona is seven years for credit card collections and 10 years for bankruptcy information).
Additionally, you should avoid incurring some types of new debts (like car loans) right before you try to qualify to a loan. Click here for more information about how to Check Your Credit Before Applying For A Home Loan.
Step Three: Get Prequalified by a Mortgage Lender
Assemble the information and documents a lender will need:
- Valid Identification - Driver's License and Social Security Card
- Gross monthly income - paycheck stubs, checking account statements.
- Total monthly payments - Make a list of all your monthly payments (car payments, school loans, minimum monthly payments on credit cards, child support payments, utilities).
- Tax forms - your lender will need to view your tax forms for the past few years, especially if you are self-employed or have been at your job for less than 2 years.
Ask your Buyer Representative for a referral to a local mortgage broker and make an appointment. The lender will pull your credit report and use your credit score, debt to income ratio and other risk factors to calculate the loan amount you can afford. When your Buyer's Agent gives you lender referrals they are not gettting some kickback or referral fee, your agent is merely giving you resources of lenders who they know offer competative services, have a good track record of getting docs to closing in the allocated time, and who have a good track record of taking care of clients.
The lender will write a letter of prequalification which tells the agent that you have the financial ability to move forward and purchase a home, should you find a home you want to buy. Once you find your home and an offer made this form is also given to the Home Sellers as part of the purchase offer process. There is a standard Arizona real estate form for this need. In Arizona a buyer must be pre-qualified and have what is called a Loan Pre Qualification, which is a form that is signed by you and the lender indicating you and they have conversed about your loan intentions and you are pre-qualified for the loan. (We can send you a sample of the Pre-Qualification form and also can refer you to an Arizona loan broker.)
Prequalified is not the same as preapproved. In a Sellers market, homes sell quickly. If that's the case you should take the extra step of getting preapproved for a home loan before you make an offer on a home.
Please note that agents, in most cases, will not take a buyer to see homes until they have gone through the Loan Pre Qualification process. In this market, there are less than 5 would-be buyers out of 20 who think they can get a loan, who actually can get a loan. Spending time to look at homes until a Buyer is Pre Qualified is a waste of everyone's time.
Step Three: Begin House Hunting
Now that you know your price range you are ready to start looking for the perfect property to purchase. First, make a list of a property and community features that are important to you. Prioritize what is most important to you in a home (architectural style, size, neighborhood/subdivison, schools, cost, lot size views, etc.) Be realistic about the difference what you need and what you would like but may not be able to afford.
Do not ask your real estate agent to recommend communities that are "good" or "where there are a lot of kids" or "where there are no kids" or any other criteria such as these statements. Real Estate agents are forbidden by US federal Fair Housing laws from either "encouraging" or "discouraging" buyers from seeing, or not seeing any specific communities, or areas, or types of homes. As a Buyer, you need to decide where you want to see homes, and do the needed research as to the factors about the community that make it right, or not right for you.
Provide as much information as possible to your real estate agent, as their knowledge and experience can help you target the right community to suit your needs and price range.
Click here to provide the Benjamin Team your preferences and get a FREE list of available properties.
Step Four: Make An Offer
You've found your dream home, but there are a few important steps to take before making a formal offer. Ask your Buyer Representative's opinion of the asking price. They may want to pull some "comps" (sale prices of similar homes) to determine whether the home seems to be priced correctly. After you and your real estate agent have determined a fair price to offer, go over the purchase contract to make sure it includes safeguards to protect you if something goes wrong.
Important Safeguards in a Real Estate Purchase Contract:
Note that in this market of many foreclosure and short-sale these homes are always sold "as-is". As a buyer you will have the right to have a home inspection in the 10 day inspection period, but you cannot ask for any repairs. If there are items found in the inspections that you are not happy with, you can get out of the contract.
- Require an independent home inspection and make sure you have the option to cancel the contract if the inspection turns up major repair problems that cannot be resolved with the seller.
- Make sure the contract offers you an out if the home doesn't appraise for the expected value or you cannot obtain financing.
- Add any necessary contingencies. (In this current market offers that are contingent on the sale of another property are almost unheard of. )
Also note that in the case of foreclosures and short-sales, often times the utilities in the home may be turned off and the owner of the property will not turn them back on for inspections. You may be able to turn on the utilities, in your own name and at your own cost, to get the inspections done however. Bur remember doing so makes you responsible for any damage as a result of the utility turn ons.
Also to think about is if the home is listed as a short-sale a buyer needs to understand that the listing price is not necessarily a price that the banks will take for the property. It is quite common for banks to be in review of many offers for the same property at the same time and the banks may come back to all, or some of the offers, and ask for the offering prices to be raised in order for the banks to consider the offer(s) at all. This is simply the market we are all working under in this economy.
Step Five: Get An Independent Home Inspection
Arranging your own home inspection by a licensed home inspector can save you a lot of future hassles. Always arrange for independent inspection, especially with new construction homes. It is helpful to be present during the inspection, however, if you are a buyer who is out of the area, it is not critical for you to be there. The Benjamin Team is always present at inspections to represent our buyers. Also we always recommend inspectors who are capable of putting their inspection results on line or made available by a PDF e-mail file.
Licensed home inspectors inspect homes to determine if the home has any structural defect or needs any repairs. Major portions of a home inspection focus on these areas:
- Termites - Inspector looks for signs of termites in the home or foundation. (Note, in Arizona all homes are subject to termites. If a home does not have active termites now, it either had them in the past, or will in the future. Out of state buyers are often worried about this, but termites are just part of being in Arizona and any termites at a home are quite treatable. Annual termite inspections after owning a home are always recommended. Termite inspectors are a different inspector than a structural inspector. If you are getting a loan, your lender will require a termite inspection prior to funding the loan for the property. )
- Plumbing - Inspector checks for leaks, dripping faucets, toilet tank leaks, etc..
- Electrical - Inspector checks if wiring and electrical equipment is up to code, and whether all light switches and wall sockets are working properly.
- Home Exterior - Inspector checks for settling cracks and peeling paint.
- Home Interior - Inspector checks for signs of leaks in walls or ceilings, examines the structure and general condition of the property.
- Roof - Inspector checks for checks for leaks or damage to the roof.
- Windows- Inspector checks condition of windows and seals.
- Insulation - Inspector checks condition of insulation and its code compliance.
- Appliances and Mechanicals - Inspector checks that appliances, heating and air conditioning units are in working condition.
- Radon Gas - Inspector checks for presence of radon, an odorless and colorless but harmful gas that comes from decaying granite. (This is a separate inspector than a structural and if of concern to a buyer they should get this type of inspector as well as a structural.)
- Lead-Based Paint - Inspector checks older homes for lead-based paint that can be hazardous if ingested.
- Asbestos - Inspector checks older homes for presence of asbestos in floor and ceiling tiles and insulation. Asbestos poses a health risk and must be removed from the property. (This is a separate inspector than a structural and if of concern to a buyer they should get this type of inspector as well as a structural.)
- Mold - Mold spores are generally everywhere even in a normal environment. For most people they are not affected at all. But if a person has sensitivities or there seems like there is blatant mold in the premises then the buyer may want to have this inspection. (This is a separate inspector than a structural and if of concern to a buyer they should get this type of inspector as well as a structural.)
At the conclusion of the inspection, the home inspector will write an inspection report with all minor and major defects itemized. While thorough inspectors will find minor flaws in most homes, knowing about these problems is important. It depends on whether you are a "handy-fixer" type of person as to whether you want a home needing repairs or not.
Again, note that short-sales and foreclosures are all sold "as-is".
Step Six: Close Escrow
Before you can close on your new home, a few more steps must be completed:
- The appraisal - Lenders require appraisals to minimize their risk in providing a loan. An appraisal ensures that the home that you are buying is worth the amount you're paying. Appraisers are usually hired by the lender with the cost of the appraisal factored into your closing costs. (If you are a cash buyer, you can either choose to have an appraisal or not -- many cash buyers do not.)
- The Survey - Sometimes lenders also require a Location Survey to certify the house is within the boundaries of the lot. Again, the lender normally selects the surveyor and the cost of the survey is factored into your closing costs.
- Title check and title insurance - Your title company checks the title and deed history of the property to ensure there are no problems with obtaining clear title to the property. Without a title check, you could be vulnerable to claims on your property. The company also provides title insurance to protect you against any problems.
Once you've had your inspection, appraisal, survey etc. all parties will agree on a closing date and location. In Arizona, title companies handle the escrow portion of the transaction, serving as a neutral party to exchange escrow funds and enforce the terms of the sales contract. It is almost unheard of in Arizona for attorneys to be involved in the closing.
Note that Arizona has a law called the Good Funds Law which requires the escrow/title companies to be in complete receipt of your funds prior to closing. You will be asked to have your portion of the needed funds wired to the escrow/title company a few days in advance of the actual closing date.
The escrow agent (who works for the title company) will conduct the closing and prepare a closing (or settlement) statement. This document outlines what funds are required from whom, and how the funds will be disbursed.
If you are an out of state buyer, closing documents can be sent to you via Fedex by the title/escrow company for you to sign and have notorized in your current location and then return them to escrow/title after you have done so.
Step Seven: Move in to your new home.
Once your Buyer's Agent has heard from the escrow/title that the home has been recorded the agent can release the keys to the buyer. Until this happens, the buyer cannot get the keys and cannot begin to move things into the new home.