Congratulations! You've made the decision that it's the right time for you to start thinking about purchasing a home. This will be one of the biggest purchases you make in your life, and it will be fun, exciting, and rewarding! It will also be scary, frustrating, and confusing. You definitely need the right people by your side guiding you through the process, telling you what to expect and prepare for, and being completely honest. This is a good guide for you to read in its entirety before beginning the process to ensure you are mentally, financially, and emotionally prepared for the home buying process!
1. PARTNER UP
Before you start looking at homes (I know, it's tempting to fire up that Zillow search!), you really need to partner with a real estate agent who is familiar with your potential search area as well as a reliable mortgage lender. Many times the agent you choose will have some recommendations about mortgage lenders that they've worked with and know to be ethical and honest. I will say, one of the biggest mistakes I feel that homebuyers make is NOT comparison-shopping lenders. Should you use a broker or go directly to a bank? There can be big differences between mortgage lenders, from types of loans to interest rates and loan fees. Don't be afraid to ask questions about what your loan will cost you and specifically, what will go into your down payment! You'll also want to think about who you might use for an attorney and a home inspector, but I'll get to that later.
Okay, so now that you've decided to speak with a mortgage lender, you should get a pretty good general idea of what your price range is. Start looking at the LOW end of that range. You will inevitably see what's available (no matter what range you're in!) and want to see what "just a little more" will get you. Remember, purchasing a home is a huge commitment! Don't spread yourself too thin. Average home maintenance costs each year are between 1%-2% of the home's value. That means that on a $250,000 home, you are likely to spend between $2,500-$5,000 each year. So, keeping that in mind, make a list of NEEDS, and WISHES. Don't limit this to characteristics of the home; include your neighborhood needs, school needs, commuting needs, etc.
3. LISTEN AND KEEP AN OPEN MIND
Now you've got a good idea of what your budget is and you're ready to look. Talk to your agent about your list of NEEDS and WISHES. You may be thinking that you want a 2-story center hall colonial, but may have never considered a renovated bi-level. When I bought my most recent home, my husband and I had ranch-style on our "prefer-not" list (which by the way, you should never make a list like that!), but guess what? We fell in love with our ranch with a full walkout basement and a large wooded back yard. Try to let go of pre-conceived notions you may have about your perfect home. This is also true for the neighborhood you choose to begin your search. You may describe what you want, and your agent may tell you that you're priced out of the neighborhood you've chosen. LISTEN to what your agent says about other potential neighborhoods with an open mind. There may be nuances to a neighborhood that you never realized that would suit your needs. If you feel so strongly about a neighborhood that you're unwilling to look anywhere else, you may need to re-visit your list of NEEDS and WISHES.
4. THINK ABOUT IT...BUT NOT TOO LONG
Let me start out by saying that many people find the home they will end up purchasing on their FIRST trip out. There seems to be this idea that if you find a home that you love on the first trip out, you might be missing out on homes you haven't yet seen. The truth is, in this day of Internet searches and Google Earth, it's really as if you've seen the home already, and you're just validating those beautiful, professional photographs. When a home is priced well it will sell quickly! The people that saw it yesterday and went home to sleep on it, may put an offer in on the day you go to look at it. That's the way real estate works! If you're not ready to buy the home you're looking for when you find it, then you're not ready to be out looking at homes. There are few things worse than finding the home that meets all of your needs (and some of your wishes!), and missing out because you wanted a few days to mull it over. Sure, like I said earlier, it's a huge decision, but if you've prepared well before beginning you search, you should be ready to make a reasonable offer when you find the home for you. That being said, if you haven't found what you're looking for, expect your agent to bring more options to the table or to help you tweak your search criteria as needed to be able to include homes that are closer to what you're looking for.
5. MAKE A REASONABLE OFFER
Now, it is for a purpose that I include the word "reasonable". When it comes time to make an offer, human nature is going to make you think you need to "get a good deal". What you need is to pay a fair price. Your real estate agent will do their job of looking at comparable sales in the neighborhood, market activity, and making any discoveries about the property that could have an impact on value. He or she will share this information with you and make a recommendation on their opinion of the value of the home. This is not set in stone, but it should be a good indication of what you should pay for the home. It does no one any good to go in and make a low offer that will potentially upset the sellers and make them less likely to negotiate with you on the initial price or at any other negotiation point within the sale process. I like to ask my buyers to imagine themselves on the other side of the negotiating table and ask how they would feel about their offer. It really helps put it in perspective. Sit with your agent and go through the contract! Know what you are offering and what the provisions of the contract are! Once you decide on a reasonable offer, let your agent negotiate for you and bring back some good news! Be aware, you should be prepared to submit $1,000 as a good faith deposit when you make an offer and roughly 50% of the remainder of your down payment will usually need to be paid within 10-15 days of the seller accepting your offer.
6. ATTORNEY REVIEW
Congratulations! The seller(s) have accepted your offer! What a great day. It's time to have a small celebration, but don't break out the party hats just yet. The next step of the process will be the attorney review period. From the date that the contract is signed, you have three days to get it to your attorney to begin reviewing the contract. The attorney will review for things like dates and time frames, oil tank hazards, items included in the sale, flood insurance certifications, any fees that could be paid by either party, etc. This is your chance to clarify anything in the contract or ask your attorney for advice on anything that you may not be aware of with a real estate purchase. In my opinion, it is imperative that you work with an attorney who regularly practices real estate law. There are timelines and nuances with a real estate purchase that really need to be handled by an expert in the field. The attorney will typically handle the search for clean Title and Title insurance (this shows that the seller owns the property free and clear and is legally able to sell it to you). This is a cost that will roll into your closing costs. They will also offer and probably recommend that you have a survey of the property done if one hasn't been done or cannot be located. Your attorney and the sellers' attorney will likely go back and forth a few times negotiating various points on the contract, and then finally, all parties will agree, and you will be out of attorney review! Whew! You're now officially under contract!
7. HOME INSPECTION
Typically, once you're under contract, you will have 10 days to have a home inspection performed. You can ask your real estate agent for recommendations or ask people that you know who have recently purchased a home. I want to point out quickly that this is one of the only places where you will need to pay at the time service is performed versus at the closing table. A home inspection in New Jersey costs on average $250-$750 depending on the size of the home. There are exceptions, of course, and it's best to ask home inspectors for a price ahead of time. The home inspection is arguably one of the most important steps in the process. It will take 2-4 hours on average, depending on the size of the home, and you should be there the entire time. This is your opportunity not only to learn about how your home works (HVAC systems, plumbing, electrical, etc.) and how to maintain it, but also this will be the most thorough test of quality and condition of the home. The home inspector will check everything in the home that doesn't require x-ray vision. You will have the option to also check the levels of radon in the home and for the presence of wood destroying insects (mostly termites and carpenter ants or bees). This is also another potential negotiation point for you. If the home is in need of repair and that wasn't clear when you made the offer (this is important), you can ask the sellers to make the repairs or to give you a monetary credit for the amount that it will cost to get the work done once you take ownership. Your real estate agent should be present at the home inspection and should a good resource to you in figuring our how to interpret the home inspection results. It is important to note that the home inspector will notate every single thing that he finds about the home that needs repair. This list will be long and look scary, and will have things on the list that you would likely find in every home in America today. Typically, you should not ask the seller to address every single item on the list. Let your real estate agent help you out with this! Your attorney will send a letter to the sellers attorney either asking for any issues to be addressed/credited or letting them know that you have completed the home inspection phase without issue.
The appraisal is pretty straightforward, but an important step nonetheless. If you're financing the purchase of your home, the investor that is lending you the money will want to ensure that the value of the property meets or exceeds the purchase price. You can also feel good about your investment and that it's worth the price you are paying. In the instance where the appraiser finds that the value of the home is less than the amount you are paying, this is almost surely a negotiation point for the price of the home. You can't be expected by the seller to pay more than the home is worth. In a situation where you love the home so much that you are willing to pay more, you will need to pay the difference in cash and that is not a practice that I usually recommend.
9. FINAL WALKTHROUGH
A few days to a week before your scheduled closing, you will do a final walkthrough of the home with your agent. This is the opportunity to see the home without the sellers' furniture (they should be moved out by now), and also validate that any repairs that you agreed upon from the home inspection period have been done. This is a last negotiation point in the process in the event that anything was concealed by furniture or if there was any damage to the home when the sellers moved out.
10. DOWN PAYMENT/CASH DUE AT CLOSING
I made this its own section because it is probably by far the part of the sale that I get asked about most. Truly, the person best equipped to answer the question of what goes into your down payment and what is due at closing will be your lender. This is the person who knows the terms of your loan and all of the costs associated with it best. Just as a general overview, this is what goes in: down payment towards the purchase - 3.5%-20% of the purchase price (less any initial deposits you've already made - see section 5), attorney's fees, title search and insurance, recording fees, and an initial deposit into your escrow account that will cover your property taxes and hazard insurance. With the new TRID/RESPA changes, you will be given a closing document three days prior to closing, so you have ample time to prepare. You will need to bring a bank check to closing!
CONGRATULATIONS! YOU'RE A HOME OWNER!
You're almost there! You're at the closing table. Usually closings in New Jersey take place at the office of your (the buyer's) attorney. The seller's attorney will likely be there as well as the real estate agents representing both sides. The sellers may be there, but they will often opt to sign their paperwork ahead of time and have their attorney represent them. You will sign what seems like an unending stack of paper with your attorney explaining to you what each document is. You will receive a huge envelope or folder of signed paperwork and please, put it in a safe spot at home! You will get the keys to your new home and you can go home and start deciding where to put the couch. Congratulations, you did it!
Thank you for reading this far! I know this was a lengthy article, but it's important information. There is of course so much more I could write or say, so, if you have any further questions about any of the steps, or questions about real estate in general, please contact me: