The buying process -- There is more to it than just choosing the right home!
Buying process
Familiarize yourself with the marketplace
Define your price range
Choose a real estate agent
Home selection
Writing the sales contract
Contract presentation
Buying expenses
Attorney's review
Professional inspections
Arrange for professional inspection
Loan application
Arrange for home owner's insurance
Arrange for utilities
Arrange for final walk-through
Closing
Buying process
Purchasing a home is one of the most significant investments that you will make. Often it is also the most confusing, so that, when it is time for you to buy, it is important to be prepared, know all the facts, and make well-informed decisions.
Familiarize yourself with the marketplace
Like everything else, you should spend some time studying the real estate market in the area where you want to buy. In addition to the more traditional sources of information like newspapers, you now have access to the real estate market via this site, the most organized and efficient way to examine the market! Take advantage of it!
Search for real estate
Define your price range
Shopping for a home is easier when you know exactly how much you can afford to spend. Set your sights on the right price range according to your financial advisor; a good rule of thumb is that your monthly housing expenses, including taxes and insurance payments, should not be more than approximately 1/3 of your gross monthly income. In today's complex and versatile financial world you should consult with a lender and decide which program is right for you!
You will need to think about your down payment: if you have less than a 20% down payment you may be required to purchase Private Mortgage Insurance (PMI) which will increase your monthly payments. Ask your lender for information on lending alternatives that do not require PMI.
You will be responsible for closing costs (expenses associated with the transfer of property ownership).
Your lender can help you establish your price range with the Pre-Qualification and/or Pre-Approval programs.
Choose a real estate agent
Working with a real estate professional can save you money, time and frustration. Consider these qualities when choosing a real estate agent:
- Experience
- Knowledge of the market and of the entire process
- Ability to understand your needs
- Level of their service
- References
Keep in mind that you are going to spend quite some time with your real estate agent, while searching for your perfect house. Make sure that you feel comfortable with the agent you choose.
Search for real estate agent
Home selection
Establish and prioritize your requirements before meeting with your real estate agent: price range, location, type and size of house, etc. Based on this information, he or she will start the search for the available properties that best meet your criteria. Be open to compromise, as it is often impossible to find a perfect match!
Your professional real estate agent will make all necessary arrangements for each house viewing.
Writing the sales contract
Your real estate agent can provide you with facts and information, including the sale prices of comparable properties, which will help you in making the purchase decision.
In addition to the basic terms of the sales contract, there are a variety of contingencies which may be included in the contract. Some might already be present as optional clauses in the contract itself, while separate riders are available for others. Your contract should be accompanied by earnest money.
You and your agent will discuss negotiation strategy. Remember that he or she is representing you, the client, unless the agent is acting as a dual agent, representing both the buyer and the seller. Take advantage of his or her expertise!
Contract presentation
Your agent will present your contract to the seller's agent and / or seller, along with the earnest money. He or she will relay to you the seller's counter offer and advise you during the entire negotiation, until an agreement is reached.
Depend on your professional real estate agent for advice and assistance. Both of you are interested in the transaction's successful conclusion.
Terms of the contract
Once the agreement has been reached, you will sign and initial any changes on the sales contract and riders. The seller will then sign the contract and initial the changes. There are certain contingencies that must be met by specific dates, e.g. attorney's approval, home inspection, financing approval, etc. These dates are specified in the sales contract.
Loan contingency
The lender will arrange to have the property appraised, a service for which you may be charged. A professional appraiser will estimate the market value of the property. This information is required because the lender will not loan you more than a given percentage of the value of the property.
If the appraised value is less than the purchase price you have agreed on, the amount of your mortgage may be smaller than you anticipated, and you will have to provide a larger down payment. If any of the terms of the loan, as specified in the loan contingency rider cannot be met, you have the right to withdraw the contract, and the earnest money will be refunded.
Buying expenses
The costs in buying a home may include the following:
- Down payment
- Loan application fee (covers the appraisal and credit report)
- Loan origination fee
- Loan discount fee or points
- Transfer tax stamps- State of Illinois and County Real Estate Transfer Tax Stamps
- City or Village Transfer Tax stamps, if applicable
- Buyer's title insurance
- 1st year prepaid homeowner's insurance
- 1st year prepaid PMI (Private Mortgage Insurance) if applicable
- Inspections, if applicable
- Attorney
- Interest from the date of closing till the end of the month (unless FHA or VA loans, which have no payment the first month, interest is paid in arrears)
- Escrow for real estate taxes (how much depends on the lender and on the month of closing), homeowner insurance and, if applicable, PMI
- Miscellaneous lender and title fees
The seller will credit you with unpaid real estate taxes or set up an escrow to prorate them when the taxes are billed.
Attorney's review
Even though an attorney is not required by law, it is advisable to retain one.
Your attorney will review the sales contract and all riders, insuring that everything is correct.
The attorney's approval contingency must be made part of the sales contract. Changes must be requested in writing and within the time limits stated in the sales contract.
Professional inspections
It is important to make your contract contingent upon a satisfactory professional inspection. Once your contract is accepted by the seller, you have a specified number of days from date of acceptance in which to enlist the services of a professional inspector. It is your responsibility as the buyer to hire the professional inspector.
A professional inspection is a visual analysis, along with a written report, of the building and its internal components in order to find potential problems.
An inspection is different from an appraisal. An appraisal is used by a lender to determine the market value of a property. An inspection is an in-depth look at the structure and mechanical components of the property including the roof, plumbing, and electrical and heating systems.
The inspection should be done by a qualified contractor, builder or professional home inspector who can spot potential problems that would not be apparent to the non-professional. The buyer hires the inspector. If the property you are buying was previously owned it is to be expected that some components will show signs of daily wear.
If some problem areas are found, your inspector can give you a rough estimate of the cost of repair or replacement or suggest a contractor to do so. The inspector can also advise you about the life expectancy of specific items so you can be prepared to cover replacement or repair costs, even though they may be months or years down the road.
The inspector will also inspect your future home for the purpose of identifying positive features, maintenance needs, and energy saving recommendations.
A written report will be issued usually at the end of the inspection or given to you shortly thereafter. Remember you have to address any problem areas within the time frame specified in your contract
When you are choosing your inspector, begin by interviewing several on the phone.
- Is the inspector responsive to your questions?
- Are the services comprehensive?
- What will be included in the inspection?
- When will the report be available?
- What is the cost of the inspection?
- Will the inspector be available to answer your questions after you move into the home?
Check on the inspector. Ask for credentials and references-and then verify them.
Make sure you are present for the inspection and participate in order to learn more about your new home. The purpose of the inspection is to educate the homebuyer about the property. What better way than to be there for the entire inspection process? It is recommended that you not bring children or friends who may distract your attention from this important process. The inspection is a learning experience, and by fully participating you will learn and remember more about the property than you would by just reading the final report.
Be sure the inspector provides a written report, not just a verbal walk-through. Home inspection reports come in basically three styles: narrative, checklist and combination. Some are prepared on the spot and some are delivered a short time later. Because time usually is "of the essence" in a real estate transaction, the one delivered on the spot is usually the better choice. It doesn't make any difference if it is typed or hand-written; the important thing is to have the information at hand.
It is important to realize the limitations of even the best home inspection. The most cautious home inspector can still miss things. Although inspectors may indicate a problem with the house, the inspection process is not a guarantee that everything associated with the house will continue to work well after the inspection. Homebuyers should not expect the inspector's report to serve as a guarantee that the home's components won't fail or need repair at some point in the future.
Radon measurement: A professional radon inspector must be state-certified through the Illinois Department of Nuclear Safety. Your inspector should be certified by the IDNS, and not solely by the EPA (which has relinquished control of its radon proficiency program). All tests done by people other than IDNS-certified companies must be turned in with a non-compliance form.
Termite inspection: The inspector can conduct a specific inspection for the presence of termites and other wood destroying insect infestations, and provide a written report of the findings.
Mold inspection: One of the more recent concerns in the inspection process is the possible presence of mold. It is commonly known that mold has been around for many years. Yet there is a growing awareness of the problems mold can cause. Experts are unclear about whether more mold is actually being found in the air, or whether the press and local communities have made us all more aware of it. Mold can be toxic or non-toxic. Most molds found in homes and buildings today are non-toxic. Large mold infestations usually can be seen or smelled. If you have a concern about mold being present in a property you are buying, you may want to have an additional inspection by an inspector who is certified in this field.
Be sure to consult your professional real estate agent for advice.
Arrange for professional inspection
You make the appointment for the professional inspection, and your real estate agent will do the necessary arrangements. However, remember that failure to complete the inspection and submit any resulting requests, if any, by the date specified in the sales contract voids the inspection rider.
Loan application
Now you have found a home, offered a contract, agreed on price and terms. Now it is time to promptly apply for the loan. You must have final approval by the date specified in the sales contract.
Arrange for home owner's insurance
Your mortgage lender requires you to have minimum insurance coverage. One year's prepaid homeowner's insurance must be obtained prior to closing. The original copy of the policy and the paid receipt must be presented at or before closing. It is in your best interest to apply for home owner's insurance at the same time you apply for your mortgage.
Most people choose to buy broader coverage than the minimum. You should consider protecting against:
- damage to your new house and other structures on your property
- damage to or loss of your personal belongings
- loss of use of your home because of damage to it
- liability claims through lawsuits
- other risks
Call your insurance agent for additional information to insure proper coverage.
Flood insurance
The lender may require you to buy flood insurance if the property is located within a designated flood plain as determined by the Flood Plain Maps or the Department of Housing and Urban Development.
Arrange for utilities
About two weeks before closing you will need to call the utility companies to have the gas, electric, water and sewer, garbage and telephone services etc. transferred into your name as of the closing date.
Arrange for final walk-through
A few days prior to closing your professional real estate agent will schedule a final "walk-through" of the property to make sure that everything is in working order and in the same condition as when the contract was signed.
Closing
Closing is the act of transferring ownership of a property from the seller to the buyer. Depending on where you live, the lender, attorney, title company, or escrow agent will see to it that all terms and conditions of the transaction are met.
Prior to closing you will be notified of the final dollar amount that you will need to bring to the closing. Either your attorney, your lender, or the title company will provide you with these figures, depending upon who is handling the final paperwork.
The money must be in the form of a certified check, cashier's check, or bank draft. It may be easiest and safest to have the check made out to yourself and to sign it over to the appropriate party at closing.
The closer will:
- accept and coordinate the flow of documents
- verify and collect closing costs and down payment funds
- prepare a closing statement of the entire transaction
- make sure all documents are signed correctly
- arrange recording of the deed and mortgage
- secure title insurance or title option
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