STEPS AND EXPENSES INVOLVED IN BUYING A HOME IN TODAY'S MARKET

Attending many real estate training courses, I hear a recurring theme: Buyers are having a very difficult time getting a loan and closing on a property. This message comes not only from realtor, but also bankers, mortgage lenders and consumers.

Here are useful STEPS AND EXPENSES INVOLVED IN BUYING A HOME IN TODAY'S MARKET:

1. What is your credit score? This is one of the lender's first questions. If your credit score is low then expect to pay points for the loan or be required to have a high down payment. The ideal situation is that you have prepared to buy a home by monitoring your credit score and removing anything negative on the report.

2. Do not make any major purchases at least 3 months before applying for a loan. Be prepared for a lender to ask you to explain just about every purchase greater than $1,000 in the past few months. Also, after you make an offer on a home DO NOT make any major purchases or open any new lines of credit before closing. The lender will most likely pull your credit the day before, if not, the day of closing. Yes, this could change your debt to income ratio and the lender can deny your loan the day you are supposed to receive the keys to your new home. Devastating.

3. Have paperwork ready to send to the lender. Generally, you will need to send them your last 3 pay stubs, your last 2 years W-2's and tax returns, 2-3 months of bank statements and proof of all assets. You may feel a bit violated by the time they are done with you, but rest assured, everyone is doing it.

4. Save money. To acquire and FHA loan you will need at least a 3.5% DOWN PAYMENT. To secure a conventional loan you will need to put 10-20% down.

5. Save money...yes, more than just your downpayment. Most first time home buyer's do not realize you will have expenses in addition to a down payment. Let's say you have found that perfect home. Now you have to pay for the Seller to consider your offer. This is called EARNEST MONEY. The amount paid is usually 1% of sales price. You write a check to the title company and will see that money credited back to you when you close on the loan. 

6. Save money...yes, more than down payment and earnest money. You will have to pay $250-$550 for a HOME INSPECTION. It is very wise to have a professional home inspection completed on your new home. This cost can sometimes include termite inspection. Your realtor should be able to guide you towards a good home inspector.

7. Save money...yes, more than down payment, earnest money and home inspection. Once you have had an inspection completed and you are comfortable the home is in a good condition to buy you or your lender may now order an APPRAISAL. Your lender will require you to pay for this. The appraiser is chosen from a random pool of appraisers. Your cost for this service is $400-$500.

8. Save money...yes, more than down payment, earnest money, home inspection, appraisal. Your property will need a SURVEY. This expense can be negotiated with sales price. If the Seller does not have a copy of one previously completed they may contractually be obligated to purchase a new one. If not, you or the title company can order a survey to be completed. This will cost you $300-$450.

9. Save money...yes, more than let's just say the aforementioned, but at least its the last expense you need to know about. It's what they call PREPAIDS. You will need to pay 1 year of home owner's insurance, prorated taxes and cost of the loan. These expenses all depend on insurance company chosen, time of year home is purchased and the lender expenses. A good estimate is about 1.5% of sale price.

10. One expense that I did not mention is the TITLE POLICY. This is almost always paid for by the Seller. If you are competing against other Buyers you may end up paying for this yourself. If in the rare case this happens, you can find out the exact price of this from the title company. This expense is based on on sales price. For example the Title Policy for a $200,000 home is $1,377.

Keep all these tips in mind and work with a good realtor. It will be very useful to have a knowlegeable person that can guide you seamlessly through a hairy process. If you are planning a move to the Houston area contact me. It's really not a terrible process, but it is good to know what you are getting yourself into.