How Much Can I Afford? What To Expect Homebuying Tips How To Select An Agent

The general guidelines for the lending industry specify that your monthly mortgage payment should be no more than 28% of your gross monthly income and your total monthly debt should be no more than 36% of your gross monthly income. Every situation is different, however, and the guidelines are somewhat flexible depending on the loan program.

• Making the Offer
  When you've found the house you want, you need to present a written offer to the seller. Your agent will draw up a purchase agreement which proposes the amount you are willing to pay for the home and specifies all terms and conditions of the purchase. Your agent will then present this offer to the seller's agent who, in turn, will present the offer to the seller. The seller will at that time either accept the offer, refuse it or make a counter-offer with the changes he/she prefers. Should the seller make a counter-offer, you then have the option to do the same: accept it, refuse it or make an additional counter-offer. If and/or when an agreement has been reached by both parties, the purchase agreement, along with the counter-offers, if any, become a binding sales contract.
  
  
• The Purchase Agreement
  Following are some items which are usually included in the purchase agreement:
  
  
• Sale Price
• Property address
• Deposit amount to make the offer (this amount is to show the seller you're serious about the offer and will be deposited into an escrow account and applied to your closing costs)
• Down payment amount and proposed loan terms
• Closing date
• Loan contingency: you can include a stipulation in your contract which voids the agreement in the event you do not qualify for a loan
• Appraisal contingency: voids the contract if the property appraises for less than the sale price
• Specifies who the escrow and title companies will be and what portion of fees for each will be paid by the buyer and seller
• Option for a home warranty which you can request to be paid by the seller
• Specifies who the buyer's agent and seller's agent will be
• Termite report and which required repairs will be paid by the seller or buyer
  
  
• Select a Lender
  The next step after your offer has been accepted is to find a lender. For more information on what to expect after you apply for a loan, please check out our Loan Process page.
  
  
• Inspections
  Once the offer has been accepted by both parties and you've applied for a loan, you will want to order an inspection of the property to be completed by a professional inspector. This inspection will tell you the condition of the house and will uncover any problems or areas in need of repair. You may request that specific items be repaired by the seller before the close of escrow by having your agent contact the seller's agent in writing with a list of such items. An inspection contingency may also be written into the purchase agreement giving you the option to cancel the contract in the event that the home does not pass inspection.

  An appraisal of the property should be completed at approximately the same time as the inspection and is usually ordered by the lender. Unlike the inspection which focuses solely on the condition of the house, the purpose of the appraisal is to find the estimated market value of the property. In the event that the property does not appraise at or above the sale price, you have the option to cancel the purchase agreement (provided the appraisal contingency was part of your agreement), renegotiate the sale price or come up with the additional funds to cover the difference in the loan amount. Your lender will only lend on the appraised value of the home.
  
  

• Closing Costs
  In addition to the funds required for your down payment, it may be necessary to bring extra funds into escrow to cover closing costs. Expect to pay for escrow, title and lender fees in addition to the cost for an appraisal and an inspection. Depending on your loan program and whether or not you are required to establish an impound account, you may also be required to pay a portion of your taxes, homeowners insurance and mortgage insurance in advance. Closing costs can amount to between 3% and 6% of the sale price. Build an additional sum into your down payment at the outset so there are no unpleasant surprises later in the process.
  
  
• Mortgage Insurance
  If your down payment is less than 20% of the appraised value of the home you wish to purchase, you will be required to have private mortgage insurance (PMI). This insurance is ordered by the underwriter and will be added to your monthly mortgage payment. You may also be required to pay a portion of this insurance up front at closing.
  
  
• Final Walk-Through
  Within 24 hours of the closing of your loan, you will be given the opportunity to conduct a final walk-through of the property with your agent. At this time you should check to ensure that the seller has vacated the property and that all agreed-upon repairs have been made. Additionally, check that all appliances and fixtures to be sold with the house are present and in working order. If you observe any problems, you may delay closing until the issues are resolved.
  
  
• Closing
  After all necessary loan documents have been signed and the loan has funded and been recorded with the county, the purchase process will be at its conclusion. Your agent or escrow officer should contact you to arrange a time for you to pick up the keys to your new home, resolve any remaining issues and/or sign any outstanding paperwork.

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Homebuying Tips

• What to look for when shopping for a home.
  When in the market for a house, make a list of the features you find desirable and undesirable in a home. Divide these features into three separate groups: features which are essential, those preferred but not necessary and things you absolutely do not want in a home. Make a checklist and bring it along with you when viewing homes. Take notes. These evaluation sheets and the comments you make on them will help you to conduct an organized and less confusing search as the number of houses you visit increases.

  When viewing a home, check to ensure that all sinks, tubs, showers and toilets are functioning properly. Open windows, flip switches and open and close doors. Ask about the condition of major appliances and heating and/or air conditioning systems. Find out which appliances, if any, the seller intends to take with him/her in their move.

  Visit the neighborhood at various times of day and night and on different days of the week. The quiet street you observed on a weekday could be quite different at night or on the weekend.
  
  

• Resolve those credit problems.
  To increase the amount of mortgage you can afford and to simplify the loan process, resolve any credit issues before applying for a loan. Request a copy of your credit report from a credit bureau such as TRW or Equifax and straighten out any disputed items immediately. Correcting misreported information can take a minimum of 30 days so it's advisable to clear up your credit as soon as you become aware of a problem.

  It is also recommended that you get current on any outstanding or late payments. The sooner you work on improving your credit history, the smoother the loan process will be.
  
  

• Hold Off On Making Any Major Purchases.
  Keep in mind that all debt you carry at the time of your loan application will adversely affect your debt ratios and be counted against the amount you are able to borrow for a mortgage. If possible, pay off revolving credit cards and any long-term debt.
  
  Additionally, you will need to have several months of reserved funds in your bank account throughout the loan process. Avoid heavy spending or frequent withdrawals before and during the loan process. Wait until after your loan closes to buy that new car or furniture for the new home.
  
  
• Employment.
  Do not make any job or career changes while shopping for a home or at any time during the loan process. Your chances for qualifying for a loan will be greatly increased if you can show that you have a stable employment history (usually 2 years or more). Any last-minute employment changes could delay or even prevent the funding of your loan.
  
  
• Down Payment.
  It is advisable to have the funds for your down payment in your bank account at least three months before applying for the loan. Different programs have different requirements, but nearly all programs require that a portion of the down payment come from the buyer's own personal funds and that they be "seasoned", meaning simply that they need to have been in the buyer's possession for a minimum of three months. Should a portion of the down payment be a gift, it would be helpful to have these funds in your account or under your name as well. Receiving gift funds well in advance and having seasoned funds for your down payment will help simplify the loan process and increase your financing options.
  
  
• Homeowners Insurance
  Shop around for homeowners insurance (also referred to as hazard insurance) early on in the application process. Provide your escrow officer with all pertinent insurance information and provide your insurance agent with your escrow officer's name and phone number as soon as possible to prevent any delays in closing your loan.

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How To Select An Agent

Following is a list of items to look for when selecting a real estate agent:

• Make sure the agent has an active real estate license and is in good standing with your state's licensing agency.
• Ask prospective agents if they belong to the National Association of Realtors. Members of this organization adhere to a special code of ethics.
• Does the agent specialize in the area in which you are looking to purchase a home? How familiar is he/she with the amenities, schools, property values and special features of that particular area?
• Drive around your target area and note the agent names on "For Sale" signs. Agents who sell a lot of homes in one area will tend to be more familiar with the type of neighborhood you are looking for.
• Ask the agent for a list of properties he/she has assisted buyers in purchasing. Note if they are similar in type and price range to the homes you are interested in. Chances are you will do better to select an agent who specializes in the kind of property you are looking to buy.
• Ask for references from previous customers and call them to find out how satisfied they were with the agent's ability to assist them with their purchase.
• Get referrals from friends and relatives who have recently purchased homes.
• Go to open houses and talk with the agents.
• Most importantly, make sure the agent you select is someone you feel comfortable with and who will have your best interest at heart.