Home Buying Process
The first step in buying a home is making the decision to buy. In order to make this decision, one has to assess his or her financial situation and evaluate the economic benefits of owning a home. Buying a home has great investment which bears many financial benefits. These include saving plan, equity, and value appreciation. However, one has to know the proper time to purchase a home by evaluating his or her economic situation.
If the decision to purchase is made, one has to hire an agent that would be very beneficial for a home buyer. He or she will give an insight into the current market conditions, help analyze what is needed, and what should be done to fix the house to personal requirements. Thus, the agent will act as the coordinator of all the purchasing steps in the process; help choose a home that meets all particular needs, including budget, lead negotiations on the buyer’s behalf with the aim of securing the best deal, handle paperwork as well as check the deadlines, inform the purchaser of any technical terms, discuss until the best agreement is made, and act as the advisor. Once an agent is hired, the next step would be securing financing. The average cost of a real estate agent in Massachusetts is 6% of the purchase value.
The agent will help to find a preferred consultant. The role of this consultant is to assist in reliving the pressure of securing finances, review buyer’s financial position, and suggest available options. Further, he or she will guide to reach a suitable price point, and then, negotiate for the best financing deal on purchaser’s behalf. There are several mortgage options available in the market. They are categorized as fixed or adjustable rates. The financial consultant should help decide on which one suits the buyer best. The mixed rate mortgage has a fixed interest rate. It is suitable for the long term such as 30 years. Adjustable rate mortgages are those that bear interests that change with time. An example is the hybrid adjustable mortgage rate that stays fixed for 5 years after which the interest rates will change annually. The advantage of adjustable rate is that it begins at lower interest. However, there is uncertainty in the later interest rate adjustment. The disadvantage of the fixed rate is the higher constant rates. The only advantage of this option is the steadiness of the amount to be paid, hence making planning easier.
Conventional home loan is one that had not been insured by the federal government. Federal Housing Administration (FHA) mortgage is provided by the Department of Housing and Urban Development. The government guarantees to pay the settled defaulted mortgages. The main advantage of this option is the low level of down payment which could be as low as 3.5% of the value of the house. The disadvantage is that besides paying for the mortgage, the borrower will also pay for the value of the mortgage insurance. Conventional mortgages, on the other hand, do not require one to pay for the value of insurance. However, it has the disadvantage of asking for a higher value of down payment, about 20% (Cornell). The decision on which mortgage to use will depend on the value of down payment the borrower has. If one has smaller down payment, FHA loans will be the best choice. Nevertheless, if the borrower can manage a down payment of 20% and above, it is better to use the conventional loans to avoid paying for the monthly insurance.
After securing finances, the next step is finding a home. The agent will help in this process of searching for a house that meets particular criteria. As a home buyer, one has to ask himself or herself several questions to help make the search more accurate. These include the types of desired amenities, space, and location, whether a fixer-upper is suitable, home value appreciation, neighborhood stability, accessibility, and the negotiable features in the home. This is the step where the buyer has to undertake value calculation. The best way to determine the accurate market value of the home is by comparing it with the transaction price of the perfect substitutes. Once the buyer has estimated the market value, he or she is able define a good price bargain.
During the appraisal process, the Uniform Standards of Professional Appraisal Practice (USPAP) should be adhered to. The buyer needs to obtain relevant information regarding taxable value, insurance, and market value of the property. The important information for this appraisal includes the market data about the State of Massachusetts and the specific city, the local area the property is located, particular characteristics of the property, and comparable data from similar property. The property would be analyzed based on the highest and the best characteristics when used for other purposes or when demolished. The analysis should also include valuation of the land (Lecture, a). The report obtained from the appraisal process would assist the buyer in determining his or her budget before making a purchase offer. The agent should help the buyer in this process of making an offer. The list price of the property is to be evaluated using the market analysis from the market data.
Once the best offer has been determined, the buyer is now ready to engage the agent in charge of the property. Due diligence is required before committing the purchase. The agent has to identify all the changes and improvements that have been made to the property. Any structural transformations have the potential of reducing the value of the home. Once the buyer is satisfied with the home and has agreed to the price value, the process is due to the end. The agent and the financial consultant will guide the buyer through this step. At this point, an attorney is helpful in ensuring that all signed contracts that pertain to the deal are legal.
The legal documents required before and during closure include title documents, sales contract, loan documents, and disclosure. The loan documents include a trust deed and loan balance promissory note (Lecture, b). Trust deed would assist the lender in tying the title to the loan repayments. Disclosure provides important information about the property such as environment hazards, namely known effects and risks of natural disasters. In Massachusetts, the Standard Offer to Purchase Form is used. Once it is accepted and signed, the contract is binging. However, the buyer and seller will proceed to sign the purchase and sales agreement. The work of the attorney is to protect the buyer from hidden legal weaknesses of the contract. He or she has to ensure that all the legal documents are valid, and once the contract is signed, it is binding. The sales and purchase agreement is made after the inspection of the property has been done. The attorney will undertake the process of getting security for the property by receiving home and other forms of insurance for the home (Mass.gov.).
The closing fees for the contract are settled upon the close of the contract. The lender will provide the buyer with the Good Faith Estimate (GFE) which will determine the closing cost. It is wise to compare the Housing and Urban Development Settlement Statement with the GFE upon closing. The real estate agent should accompany and offer his or her final piece of advice before the agreement is signed.