1. Buyer’s Agent vs. Listing Agent
There are usually two agents involved when you buy a home; the “buyer’s agent,” who represents you, and the “listing agent,” who represents the home seller. Dual agency is when there is only one agent representing both sides of the transaction, and it is something you want to avoid at all costs!
Money saving tip: When buying a home, you don’t pay your real estate agent - they’ll get a commission from the home seller.
2. Fixed Rate vs. Adjustable Rate Mortgages
Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common are for 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for 5, 7, or 10 years.
Money saving tip: Adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends; but if you’re planning to own your home longer than five years, it’s less risky to choose a fixed rate loan. Make sure to shop around so you can get the best mortgage possible, which will save you a lot of money in the long run. Ask your friends, family, and real estate agent for lender recommendations.
3. Pre-approval Letter
Before you apply for a mortgage or even start looking for a home, you should get a pre-approval letter from the bank, which is an estimate of how much they’ll lend you. This letter will help you determine what you can afford, and ensures home sellers that you will be able to get a loan when needed.
Money saving tip: When you go in for a pre-approval letter you should be clear on what the bank is offering. Ask them about closing costs, what fees are involved, what you’re getting for that fee, and if they’ll lock in your loan at a specific interest rate. Note that if you end up competing for a home against other offers, it can help to have a local lender. Local lenders want continued referrals and really care about their reputation; listing agents prefer to deal with them for this reason.
Real estate agents frequently refer to homes for sale as “listings.” A “listing” on a website shows information about the home, like the price and number of bedrooms.
Money saving tip: For the most up-to-date listings, use sites from real estate brokers rather than real estate portals. Brokers have access to the multiple listing service, which real estate agents are required to update, so the information is more accurate than sites who aren’t affiliated with a brokerage. In a competitive real estate market, you can miss out on a good deal if you use sites that don’t show all the homes for sale.
After you’ve made an offer on a home, you’ll need to schedule an inspection, which costs around $500 – $800, depending on the market. The inspector will go through every nook and cranny, and review things like the plumbing, electrical, foundation, walls, heating, and appliances.
Money saving tip: Get advice from your realtor on a good inspector. If they find something wrong, you can negotiate for a reduced price. If they miss something, you could be stuck with expensive repairs after you’ve purchased the home.
When you apply for a mortgage, your lender will require an appraisal of the home you want to buy. A licensed appraiser will estimate the home’s value based on comparable homes that have sold in the area and an investigation of the property.
Money saving tip: If the appraised value is less than the offer you are making on the home, you might not be approved for a loan. The bank doesn’t want to invest in a home that’s overpriced (and neither do you!). Before making an offer, ask your agent to do a comparative market analysis, which will tell you what comparable homes have sold for nearby.
When you put in an offer on a home, you can specify certain conditions that must be met before the deal will go through – these are called contingencies. You have to make sure you can actually get the loan (a financing contingency), that the inspection doesn’t show anything too crazy (inspection contingency), and that the appraised value is close to what you’re offering to pay (appraisal contingency). Those are just a few common examples; there are several other types of contingencies, which you should discuss with your agent.
Money saving tip: If you’re in a bidding war on a home, sometimes it can help to shorten contingency periods or waive them altogether. You may not necessarily have to pay more money, just be more flexible.
8. Offers and Contracts
Once you find the right home, you’ll make an offer on the property with the help of an agent or attorney. If the seller counters your original offer, it’s usually because they want more money or a faster timeline for closing the deal, at which point you’ll have to negotiate. When submitting an offer, it’s a good idea to add a personal touch by including a cover letter that explains why you want to buy the home.
Money saving tip: Choosing an experienced realtor is key to winning in negotiations. Do your research to find one who has done recent deals in your area, and be sure to read online reviews.
9. Closing Costs
Be prepared to pay a lot of fees when you purchase a home. Typically, closing costs will amount to 2-5% of the purchase price of the home, and that doesn’t include the down payment. Common fees include excise tax, loan-processing costs and title insurance.
Money saving tip: Ask your lender about every fee involved in the Good Faith Estimate, and see if you can shop around for a better price for those services or negotiate down. Examples include homeowner’s insurance, wire transfers, underwriting and settlement fees.
10. Title Insurance
After all the negotiations are done and the seller has accepted your offer, you should receive a home title report within a week. Most mortgage lenders require you to pay title insurance as part of the closing costs; title insurers search the public records to make sure the home seller actually had rights to the title and that there are no liens on the home (like an unpaid contractor or unpaid taxes).
Money saving tip: Ask your agent for recommendations, and shop around to find the best title insurance rates. You may also be able to negotiate some fees the insurance provider charges.