Welcome to Buying Basics. If you've never purchased a home, you've come to the right place. This section is designed to give you increased knowledge, confidence and better negotiating skills in the home buying process.

BUYING A HOME

CREDIT

Knowing the Score

Buying a home starts with you. You need to be ready to buy the homes that you are probably already looking at. Knowing how much you can afford is very important. No matter who you are, you should take a look at your credit. Your credit consists of two main parts, your credit file, and your credit score based on the information contained in your file. Your file may contain inaccuracies that affect your credit score, so it's wise to check it early in the process.

Your credit score will determine your risk rating for a lender. Your risk rating determines the likelyhood of loan default, and will affect the interest rate you will be given. When you buy a home you buy the property and you buy a loan. It is important to establish the highest credit score possible to get the best financing.

$100,000 Loan        6% Interest    30 years = $600 a month (Principal and interest)

$100,000 Loan        8% Interest    30 years = $734 a month (Principal and interest)

A 2% change in interest rates in this example would cause you to pay $48,240 more over the life of the loan.

As you can see from the above example, a few percent difference in interest rates can have a big effect on payments and how much you pay. This illustrates how important it is to start thinking about credit early in the process.

Credit Resources

Here are two great resources for you. Click to link to them

Equifax.com

Myfico.com

Equifax gives you access to your credit file, and Myfico gives you access to your credit score. If you register with Equifax, you can get unlimited monthly access to your credit report and indentity theft insurance. Myfico allows you to get your score with a one time fee of around $10. They are both outstanding resources for credit related issues. Myfico also provides a lot of general information on scoring and loans. Both sites can provide you with information about resolving disputes related to your credit and tips on how to bolster your rating.

FINANCING

The Approach

Now that you've thoroughly researched your credit, you can comfortably approach a lender and discuss financing. Remember, you are buying a loan product. This phase is as important as choosing a home. There are many types of loans, from adjustable in 1-3-5-7-10 years, fixed in 15-20-30 years, to a whole host of other products such as graduated payment, interest only, reverse mortgage and so on.

Financing Links

In shopping for a loan it is important to know your rights, click on the link to read your rights.

Borrower's Rights

The Iowa Mortgage Association provides information on all types of loans. Click to link to them and scroll down the page to find the information.

Iowa Mortgage Association

If you are a first time buyer and you qualfify, you may be eligible for a program from the Iowa Finance Authority that can provide low interest loans and give you a grant(free money) for closing costs. Click on the link.

Iowa Finance Authority

Pre-approval Letter

After you visit with lenders and find a person whom you may want to work with, you should ask that person for a pre-approval letter. The pre-approval helps you to be ready to write an agreement once you've found a home that you feel is right for you. If a seller has two similar offers, one from a buyer with a pre-approval and one from a buyer without, the buyer with a pre-approval is more likely to have their offer accepted.

**NOTE** If you ask the lender for a pre-approval and they do not or will provide it, look for another lender right away. In my experience that is a red flag that either: 1.) They can't even do the loan  2.) They are not organized and will not handle your purchase efficiently. 3.) They are recalcitrant

YOUR HOME SEARCH

Narrowing the Field

Many people change their mind during their home search, that's normal. Not many in the public have been out looking at ten to twenty homes recently, and when a home buyer begins to get an idea of what a home in their price range looks like, they can become more focused in their search.

After you find out how much house you can afford, start looking at what is available in your price range. The most important points outside of price are: 1.) Area  2.) Size  3.) Number of bedrooms 4.) Garage space

Many buyers start searching by picking up the Sunday paper and by going out looking at open houses. That's fun, in the beginning, but as your search progresses, it should expand outside of this as opens are only a small sampling of what is available.

Buyer Agent

A Buyer Agent can be a big help at this stage. A Buyer Agent is a real estate agent that works with you as a buyer and represents you exclusively. Having your own agent is the only way to make sure your interests are represented exclusively. Get a buyers agent early to help with any question raised in your search, because eventually you will need an agent anyway to write an offer if you want to purchase a listed home.

It's a myth that buyers don't pay commisions. The buyer is the only person bringing money to the closing table. That means the buyer is paying for the seller's agent, and their own. What fee the Buyer's Agent will receive is decided by the seller of each property, but that fee will come out of the money paid for the home. It will not be an extra fee, but it is reasonably factored into to the selling price. If you are a buyer, you should get the representation you are already paying for early on in the process.

Buyer Agent Bonus

A Buyer's Agent can help you in many ways. Instead of calling ten agents to see ten properties, and reinventing the wheel each time with each agent, you can call one person that will set up appointments for you. Some benefits are:

1. No obligation, non-exclusive
2. No extra fee
3. Agent can have MLS access to find you the best homes
4. Agent has experience to help you evaluate property
5. Agent will provide guidance on writing offers that protect you
6. Agent will provide guidance on writing offers that get you the best value
7. Agent can provide knowledge and guidance from start to finish
8. Agent will continue on with you if your offer is not accepted
9. You can start working with another agent if yours is not working out
10. Your confidences will never be shared with sellers

MAKING A PURCHASE

Evaluating the Home

You have found a home you want to write an offer on. At this point it is a good idea to have a Market Evaluation done on the property. A Market Evaluation will look at homes that have sold, homes on the market, homes that have pending sales, and homes that may not have sold. It will yield a suggestive price range. The Evaluation can help you determine if the property is priced fairly, overpriced, or underpriced, and whether or not you are in a buyer or seller's market. Therefore, it is a big help in determining your negotiating strategy.

Writing an Offer

Any offer written should include contingencies. Contingencies are provisions for things such as a satisfactory inspection, obtaining financing with the terms you desire, buyer review of addendums, or covenants, in the case of townhomes, just to name a few. Contingencies protect you, but they exist on time lines. Any and all terms of the agreement must be carefully monitored by the Buyer's agent. Have your agent give you a copy of the offer once it has been signed by both parties, so you can know what was agreed to after all counteroffer terms have been covered.

Earnest Money

You will need to include some funds at the time you make your initial offer. An offer given without funds carries little weight. $200 -$1000 is a standard amount. Some sellers may require more, but not often less. Your earnest money will be applied to the purchase price at closing. You get the earnest money back if the deal does not consumate as a result of your contingencies being exercised. The seller may keep the earnest money however, if you fail to adhere to the terms of the agreement and attempt to walk away from the purchase. In actuality however, it rarely occurs.

CLOSING

If your inspection is satisfactory and you obtain financing, you will probably close the transaction. Your lender will work with the sellers broker to coordinate the close. Earlier I mentioned that you are actually consumating deals, a house and a mortgage. You will close on the loan and thereby close on the real estate. Your mortgage lien will be recorded and title to the property will be transferred as well. A lot of things happen with the closing, but thankfully the buyer doesn't have to manage them, they get handled by your lender and your agent. Just be sure to have your "pen" hand ready.

This tutorial is meant as a broad overview only. For more detailed aspects of the buying side of the transaction, read other reports on this site. Please do not hesitate to contact me if you have any questions.