Shopping for a home can be loads of fun. As long as you have good walking shoes and a fresh notebook, all those open houses are just beckoning you to come in and take a look. Once you find the house of your dreams, though, it’s game on. Things move quickly from there, and it’s best to be prepared when it comes time to make an offer — or you could be left on the losing end of a bidding war or risk having your offer rejected because your financing wasn’t in place.
Being prepared to make an offer and close the deal on your new home ideally begins before you start attending showings in earnest. Before you start shopping, you’ll need to find a real estate agent and get pre-approved for a mortgage. Once you’ve taken care of those things and have found the home you want, here’s what you need to know about the steps to take before you sign on the dotted line.
1. Make An Offer
Once you’ve found the house you love, it’s time to make an offer. Your real estate agent will start by checking comps, or comparable sales in the same neighborhood as the house you’re looking at. She or he will look up the history of recent sales (usually within the past six months) to see the prices for homes similar to the one you’re looking at in square footage, number of bedrooms, etc. It’s not an exact science, but it does give a range of reasonable prices so you can make an educated offer based on the house’s value.
Your offer should also reflect the state of the market. A seller’s market means that there are more buyers than available houses, so sellers can charge more due to basic supply and demand. In these markets, you may want to offer the asking price or more. In a buyer’s market, on the other hand, there may be a glut of houses but not many buyers. In this case, you can make an offer below the seller’s asking price and perhaps get a good deal. Either way, your real estate agent will make an offer in writing through the seller’s real estate agent.
2. Negotiate Your Price
If the seller is in a hurry to move on with his life, he may accept your offer immediately. More likely, though, he’ll come back with a counter-offer of a higher price than you suggested. You can either accept this price or come back with a new offer that’s somewhere in between. Be careful not to go back and forth too much here — over the course of a 30-year mortgage, the difference of a few thousand dollars isn’t going to affect your monthly payment much, and you could risk losing the house to another buyer if your market is heating up. You can also be creative about what’s included, such as appliances or that backyard swing set to help agree on the final sale price.
Once your offer is accepted, the house goes into escrow, which is basically a waiting period until all the other steps of the transaction are completed. You’ll have to write a check for a few thousand dollars that shows you’re serious about buying the house. This check is held (uncashed) by a third party until the sale is complete.
3. Hire A Home Inspector
The next step is to have the home inspected by a professional. Many lenders will require this to make sure you’re getting a livable house before completing the mortgage process, but it’s a good idea even if it’s not required. A great inspector will make note of everything going on in the house, from the condition of the roof to the age of the furnace. All of the things you didn’t notice at the showing — how well the plumbing works, whether there’s enough insulation, the presence of termite damage, etc. — will be dealt with now.
If there are any serious problems, you can go back to the seller and renegotiate the price based on what you expect to pay to fix a problem. On the other hand, you could ask that certain things be fixed before the house is sold. You may have additional offers and counter-offers at this point to hash out the final price. If you can’t agree, you can still walk away from the transaction.
4. Finalize Your Mortgage Loan
Although you’ve been preapproved, you’ll still need to make some choices about your loan before you’re ready to purchase the house. The lender will need the final price of the home, of course, and you’ll have to choose your loan term, or the number of years you will have to pay off the debt. The longer it takes to pay, the lower your monthly payment will be — but you’ll end up paying more in interest in the long run. Ask to see the breakdown of the amortization schedule, or the list of monthly interest payments over the life of the loan, to help you understand the math. Look at both short- and long-term loans as well as different interest rates to fully weigh your options.
You might also be able to pay points for a reduced interest rate. Each point is equal to one percent of your total loan amount, and your lender will accept this as a cash payment up front in exchange for lowering your interest rate. This can save you money in the long run, but you need to have cash on hand to make it work. Ask the broker to crunch the numbers for several scenarios to decide if paying points makes sense for you financially.
5. Complete The Transaction
With the final price locked down and your mortgage choices made, your real estate agent will schedule a lawyer to oversee the final paperwork, including the title transfer and paper signing. You’ll also need to have the home appraised and show proof of property insurance before your mortgage is complete so that the bank is confident that their collateral — your house! — is well protected. At that point, you’ll sit down with the seller and his lawyer to sign a giant stack of papers signing over ownership of the house to you. There are many forms to fill out to satisfy all the laws in your municipality and record the deed, and the lawyer will walk you through each one as you sign them.
Once you’re the proud owner of a new house, it’s up to you to make it a home. As you move in with your belongings, don’t be afraid to personalize the space and add your own sense of style to the decor. After all, it’s the people living within its four walls that breathe life and laughter into a home, so go get started on making some great new memories in your dream house!