Here at RE/MAX Real Estate Associates, we’re such big advocates of homeownership because we know the power and freedom that comes with achieving the dream of being a homeowner.
We believe that owning a home is the ultimate in financial security and a key to creating wealth. If you’re buying a home for the first time or need a refresher on the process, this guide is for you.
We put this guide together to be a complete guide on how to buy a Home (in the Houston area).
Let’s get started!
Your Purchase Power
The first and most responsible place to start is to determine your purchasing power or aka the amount of money you’re qualified to borrow from a bank or mortgage lender.
To learn how much home you can afford in the eyes of a mortgage lender, start with the basics.
Rather than focusing on the purchase price or lender approval amounts, it’s better to decide how much you want to spend on a mortgage payment each month first. A common rule of thumb is that your mortgage payment should be between 25 and 30 percent of your income.
“Your mortgage payment should be between 25 and 30 percent of your income.”
The only reliable way to determine what you can afford is by adding all of your monthly bills and expenses. Make sure to get estimates of what your new utilities will cost based on the size of the home you plan to purchase.
If you’re moving to a new area or to a bigger home, most utility providers have calculator estimates on their website and if not, your real estate agent can help get you this information.
Once you are comfortable with your estimates, you can start looking at the other costs that factor into mortgage payments
The Down Payment
The next step of the process is to determine how much you can/want to put down on a home. Save as much as you can, but make sure to set aside some money for appraisals, inspections, closing costs and moving expenses. If you can save enough to put 20 percent down, you will be much more attractive to lenders (and sellers).
Additionally, loan products with a 20 percent down payment requirement are easier to obtain if your credit is less than perfect.
However, if you can’t save that much, don’t be discouraged. There are plenty of ways to buy a home with little to no down payment. However, your interest rates may be a little higher, and you will have to pay private mortgage insurance.
What is Private Mortgage Insurance?
Private mortgage insurance (PMI) is what lenders use to protect themselves from risky borrowers. If you put down less than 20 percent, you will probably have to pay PMI every month as part of your mortgage payment. As your down payment decreases, PMI rates go up.
Get quotes from at least 3 different lenders so you can to learn what kind of rates to expect. Click here to request a call from a Mortgage Consultant at Motto Mortgage Complete, one of our preferred partners.
Make sure to ask how long you will need to pay PMI. Some loans, such as those backed by the Federal Housing Administration, will require you to pay PMI for the life of the loan. Other products will allow you to cancel PMI after you have paid enough towards the principal balance.
The purchase of your home is most likely going to be the largest and most important purchase of your life. Getting out there and looking at real estate might be fun and exciting, but you don’t want to get your heart set on a house only to find out that you won’t be able to qualify for it.
The process to buy a home includes gaining pre-approval which can cut through the mystery and give you an idea of the price range you need to be looking in. It saves time for you, the lender and the seller.
Let’s explore what the process involves for each party.
You’ll want to sit down with your potential lender before you shop to purchase a house and have them analyze your entire financial history and abilities so that they can give you a tentative approval for a certain amount of money.
They will present you with a letter that states how much money they are willing to commit to financing you for the purchase of a home.
The real estate market is very competitive, so having the advantage of a pre-approval letter can make all the difference in getting the home you want and need quickly.
As a buyer, it is critical that you provide the lender(s) with all of the documentation they need to give you a true and accurate assessment of your financial abilities to pay a mortgage. They’ll need things like your tax returns, life insurance policies, stocks and bonds and existing real estate that you have successfully paid off.
The pre-approval amounts or aka the amount of money that you’re pre-approved to spend will be dependent on your ability to pay and the payment history that you have.
It’s also important to know the difference between a “Pre-Qualification” and a “Pre-Approval”.
A Pre-Qualification is generally a quick assessment of your ability to jump into the real estate market. The Pre-Approval letter however is a much more in-depth and accurate assessment and will show exactly what house price you can actually afford with your current budget.
Importance to Seller
A seller doesn’t want to waste a lot of time showing a home or having to do paperwork that simply falls by the wayside if a potential buyer cannot score a mortgage. Their time is valuable and they need to know that the potential buyers (YOU) are serious and have the income needed to purchase a home.
How a Real Estate Agent Can Help
Once the baseline of pre-approval is complete, your agent can bring the right buyers and sellers together. The real estate agent can put the right budget with the most affordable properties in that price range. They work much like the conductor of an orchestra.
The great thing is that this process of being able to know ahead of time the price range to look in saves time, money and frustration. It is just as unpleasant for the agent to learn that a buyer doesn’t qualify as it is for the potential buyer.
Realistically, the experienced and savvy real estate agent listing the home you want to put an offer on will immediately distinguish the difference between Pre-Quals and Pre-Approvals included with their offers.
In other words, if you want the best chance of the listing agent choosing your offer, in the case that there are multiple offers on the home, which is very likely for the Houston market, you need to be sure you get a Pre-Approval letter and not the Pre-Qualification letter.
Housing Needs vs Wants
Congratulations, you have decided to buy a home. You’ve made a great decision. But you may be asking yourself, “How do I know what is right for my family?”. Here’s what you want to consider:
1.) Your Home should Fit the way you live or WANT to live. Space and features for the entire family should be considered. If it’s just you, you get to choose for yourself then and that’s wonderful too!
2.) Make a list of your priorities. Should your home be close to a particular School? Do you want to live near work? Do you want a pool? Single story or Two-Story? Garage?
3.) How large should the home be? Does the lot size matter?
As the old real estate saying goes, the only thing that matters is “location, location, location” but it’s important for you to know that fair housing laws prohibit your real estate agent from guiding you towards or away from a particular neighborhood.
You are best to do your own research on the general areas based on what’s important to you.
Your agent can probably get you a zip code map and you could begin there. In the greater Houston metropolitan area, there are a lot of zip codes to look at.
You may want to consider areas by average home sold price range so you know where you are able or have the desire to shop.
Learn About Schools
When you are in the process to buy a home, and you have school age children, you might want to pick a neighborhood based on which school it is zoned for. The house address itself is specifically zoned for a particular set of schools and school district.
Although a real estate agent is required to list these schools in the MLS when they place a home on the market, they aren’t always up to date.
We suggest you double check the official district zoning websites before you make an offer on a home if the school is important to you. Your agent can also verify this for you.
How Can I Keep Track of all the Homes I See?
- Use your phone to take pictures of your favorite areas. When you get home, catalog the pictures by address so you can quickly review and decide which home you make like to make an offer on.
- Make Notes on what you like and don’t like about each house. If you have family members along with you, allow them to weigh in.
- Score each house on a scale 1-5 or 1-10 and rate it based on the appearance and features and how well it fits your needs. Allow the additional family members to place their rating.
- Make a note of any items that you need your Realtor® to go back and check on after the tour is complete.
Finish with this simple question: “Is this a house I would make an offer on?”. By the way, if you ask yourself that question first, you can get in and out of houses much quicker. You are not obligated to view the entire home.
Home Shopping Tips
You can help yourself save time and energy by narrowing down the homes you tour to only homes that meet all of your requirements.
- Have all decision makers on the tour
- Be prepared for things to keep the kids busy on the tour so you can focus on notes and questions
- Bring a digital camera and take pictures of each home or better yet, capture video. Your smartphone is great for this. Your designated agent would be happy to follow along and record for you so you can take notes.
- Have a pen/pencil and notepad to make notes. You will forget. It’s important to note LIKES and DISLIKES for each home.
- Departing each home, Rank the home on a 1-10 scale on how likely you would be to write a compelling offer
- During the hot months, frozen bottles of water are a great idea for the trip. Some homes will not have power or air conditioning
- Don’t wear shoes that you are worried about scuffing.
- Be prepared to write an offer. There is not much sense in touring homes when you are not prepared to buy, as those homes are certain to not be available at a later date. If we have done our job, as your real estate agent, you are prepared, have selected strong candidates, have your financing, have a comfortable knowledge of the process and you are ready to buy.
Make an Offer
Sometimes, the house you end up buying may be one of the very first ones you visit and other times you may see 10-20 houses before you find “the one”.
One thing we do know is that you’ll know when you’ve found the one and that’s when the real work starts; preparing to submit an offer.
If you love the house, most likely other buyers love it as well and then that means you have competition. This is very true in the hot Houston real estate market.
Considering this, in order to improve your chances of getting the house, your offer needs to be as strong as possible. Here is a look at what makes up an offer and some things to consider as you work with your real estate agent to draw up your contract.
Understanding an Offer
Unless you are acting as your own real estate agent, you shouldn’t have to be the one doing any paperwork. Still, it’s important for buyers to understand the sorts of terms and contingencies a typical offer contains.
In addition to the basics–like the address of the home and your financing details–the agreement will lay out the sale price, a target closing date, the amount of earnest money you will be required to put up, and any other contingencies that you are asking for.
Choosing a Price
Most people are most concerned about the sales price and with good reason but it’s important to remember there is much more to an offer than just the sales price.
First-time buyers often have trouble deciding how much money to offer on a home, especially in hot markets where offers usually come in above-asking price instead of below.
Remember that the housing market determines how much a property is worth, so your agent should do an analysis on similar homes that have recently sold in the area in order to help you come up with a reasonable offer price.
You may also decide to make a lowball offer just to see how flexible the seller might be, but you need to be careful not to offend the seller by making an offer that they feel is way too low.
While price is usually the most influential factor when a seller decides to accept or reject an offer, there are other terms and contingencies that may impact negotiations. Almost all real estate professionals suggest that you insist upon a home inspection, for instance, so that you have the ability to back out of the purchase if you find out the property has problems that aren’t obvious to the naked eye.
You may also want to write contingencies based on your ability to secure financing or sell your current house (not an issue for first-time buyers). Something as seemingly arbitrary as your chosen closing date might make a seller more likely to accept your offer–especially if they have already bought a new property and are anxious to move out.
As a general rule, you should choose your offer terms carefully based on the specifics of the home you are considering.
Make sure to find a balance between making your offer as appealing as possible and protecting yourself from any potential issues.
Sealing the Deal
The final step once you have come up with an offer you’re happy with is presenting it to the seller. Negotiations can often feel like a game of telephone as your agent communicates with the listing agent, and then the listing agent communicates with the seller.
You have the right to back out of your offer for any reason up until it is accepted. If the seller comes back with a counteroffer, you also have the choice to either accept the agreement or write another counteroffer yourself. Once both parties agree on an offer, you will both be bound by a contract, and you may not be able to change your mind without losing some or all of your earnest money.
When you have finally sealed the deal, the home will officially be “under contract” as you await your chosen closing date. Barring any unforeseen issues, a signed contract essentially means that you have bought yourself a house, so you can congratulate yourself on finally reaching the end of a long process.
What’s Included with the House?
Disputes often arise in home sales when buyers and sellers go into a deal with different understandings about what property will be included in the sale. While the law provides some guidelines, it isn’t always clear and there’s no guarantee that the other side will be aware of it or follow it.
The best course of action is to include each specific item you care about in writing — anything can be bought or sold even if it might not legally be part of the home purchase to begin with. Below are the general practices with regard to various items to use as a starting point in negotiations.
Generally, the rule is that permanently attached appliances stay and freestanding appliances go. Permanently attached means built into the home such as a range, cabinet-mounted microwave, or dishwasher. Freestanding items include refrigerators, washers, and dryers no matter how conveniently they fit into a space specially designed for that type of appliance.
If you are impressed by a home with high-quality appliances, be sure that they are specifically included to avoid them being switched with cheaper appliances. On the other hand, if you want something out, have that included to avoid the time and expense of having to dispose of it yourself.
Air Conditioning and Heating Systems
Air conditioning and heating systems follow the general rule of other appliances. Permanently installed central or ductless systems stay with the house, but window-mounted units go. In addition to the usual precautions with appliances, be sure to determine the age of the system.
Older systems may need to be replaced or need new ductwork that can be very expensive. Newer systems may still be under a transferrable warranty that may cover repairs for years.
Lights and Ceiling Fans
What is and isn’t permanently attached becomes a grayer area with lights and ceiling fans. They may be attached overhead, but they can and often are quickly removed. This is especially true of chandeliers, other decorative lighting, or top-of-the-line ceiling fans.
While they probably should be included along with the light bulbs inside, be sure to include them in the contract to avoid unpleasant surprises.
Window coverings usually seem like they should be included, at least to buyers, because they are almost always custom-fitted to that home’s windows. However, blinds, curtains, and curtain rods are commonly removed by sellers. Curtains might be reasonably removed because they can often fit various sized windows and are bought to match the furniture.
The removal of curtain rods or blinds, however, leaves empty holes in the wall, so they are more commonly included.
Decorations and Furniture
Decorations and furniture are almost never included no matter how well they might fit the space. This includes mirrors, bookshelves, and mounted art. If a buyer sees an item that they think just makes the room, they can always ask the seller. The seller might want to leave it because it is hard to move or won’t fit their new home, or might be willing to part with it for a price.
Traditionally, electronics were never included in a home sale unless specifically added as a bargaining chip. With wall-mounted TVs, built-in stereo systems, and more complex home entertainment systems becoming more common, buyers have increasingly argued that they should have been left when the seller took them.
Electronics might be bargained for, but they should never be assumed to be automatically included in the contract.
Homes with large yards often have play equipment, above-ground pools, sheds, dog houses, or other structures that aren’t part of the home. The fact that they are usually prefabricated and dropped off with a truck often makes them seem like they are removable no matter how well they are attached into the ground. In some cases, a buyer might want an item removed while the seller was planning to leave it behind.
These items are usually large enough that whether they will remain should be included in the listing, but never make any assumptions if the listing doesn’t explicitly say yes or no.
Earnest Money 101
The earnest money deposit is money that is placed into an escrow account. It is sort of like a security deposit. It informs the seller that you are a serious buyer.
The funds will be applied towards the closing of your transaction. This is required in all real estate contracts. If you don’t have at least one percent of the sales price to offer as an earnest deposit, you should wait on placing any offers until you have the funds available.
If you are making an offer in a competitive market, you may want to increase your earnest deposit to make your offer stronger than the other offers.
The earnest money deposit is placed into the escrow account within a few days of an accepted offer so you need to make sure you have the funds available for immediate withdrawal.
If you decide to cancel the contract while you are in escrow, there is a chance that the seller may be entitled to your deposit. Make sure you read the contract thoroughly so you will know what to expect.
Know this, even if you are within your full rights to cancel the transaction and receive your earnest money back, in some states like Texas, the seller has the right to hold it up during a dispute over the earnest money. When you place your earnest money check in escrow, there is no guarantee of a quick return should you decide not to by the home for any reason.
Ask your REALTOR® about your state laws.
Also, be sure to read your counter offer clearly. It’s not unheard of for a seller to ask the money to “go hard” after a certain point. That would mean they receive the earnest money in full before closing.
Your earnest money should not be taken lightly.
Earnest defined: resulting from or showing sincere and intense conviction. If you don’t intend to buy, don’t put earnest money on the table.
What You Need To Know About Escrow
One of the most confusing processes for the uninitiated to go through can be buying a home. At times it may seem that people are speaking a different language than they have ever heard before. This situation too often leaves a home buyer having to take on blind faith that the brokers, attorneys, escrow agents, inspectors and mortgage agents know what they are doing and acting in the buyers best interest.
RE/MAX Real Estate Associates doesn’t want their clients to ever feel like they are in the dark.
When Do You Enter Escrow
The escrow or closing process actually begins once the buyer and the seller have agreed on a price and all the conditions for the sale. At the same time that the sales agreement is signed your real estate agent will collect an agreed upon percentage of the sale price from you and deposit it into an escrow account with an escrow agent.
This known as earnest money and as the name implies it is to show that you are earnest in your desire to buy the property. Think of it as a deposit.
What is an Escrow/Title Agent
An escrow agent is a neutral third party who actually handles all of the funds and documents associated with the buying and selling of the property. Not being a party to the sale, in any way, their function is to make sure that all parts of the sale are executed in an equitable and legal manner. Like a referee or umpire the make sure the rules are followed and that everyone plays fair.
The Home Appraisal
As the home buyer, you will probably be requesting an appraisal. If you are getting a loan to buy your house, an appraisal will be part of the process. This is a professional appraiser’s estimated value. The appraiser will use recent properties that have sold in the area to help determine the value of the home you choose.
The appraiser will also consider the condition of your home, age, size and so forth in determining the value.
If the house is appraised high, your agent may suggest you make a lower offer with the attached appraisal to qualify for your loan. In some cases, the seller may still hold to their original asking price and ask you to pay the difference in cash.
It is not likely to receive a loan amount for higher than the appraised value of the home for purchase.
Most residential purchase agreements are based on the appraisal and are negotiated at that time if there is a need to so-so. For many, this can be a nerve-wracking moment in the process.
The home appraisal process includes the following:
- A complete walkthrough of the house to get an idea of the overall condition and room count.
- Documentation of the entire condition of the property, both inside and out.
- The quality of construction and modernization of the home.
- An evaluation of the value of the house.
- Information on the house, including square footage, and the condition of the garage, carport, or other peripheral properties.
- Other specific attributes of the home that might add to its market value.
Home Appraiser Credentials
The typical home appraiser has a state license or certification in home appraisal processes from an accredited school or real estate training. This means that they are highly qualified to make an assessment of the final market value of the house. This figure is highly influential to the buyer in communicating how much the home is worth and in determining how much they are willing to pay.
It is important to note here that an appraiser is NOT an inspector.
For this reason, he or she cannot do structural assessments, termite checks, under the floor evaluations, or any of the other things the home inspection team can do.
This is why it is important to have both a pre-home inspection and a pre-home appraisal completed prior to listing your house for sale.
Get a Home Inspection
Before purchasing a home in Texas, a buyer usually turns to a home inspector to receive a qualified, unbiased account of the state of the property.
A home inspection is a noninvasive, limited visual inspection of a home. It identifies the components of the home that are unsafe or not meeting performance expectations.
The purpose of the inspection is to evaluate the home and enable the potential buyer to make an educated decision regarding its purchase.
A home inspection is pretty much standard in today’s Texas real estate market and highly recommended. It enables the buyer to know exactly what they are buying and in-turn can be a great source of anxiety for a seller that is unprepared.
The inspection is generally carried out by a professional home inspector that is trained and certified in home inspections.
In Texas, home inspectors receive their certification and regulation through the Texas Real Estate Commission (TREC).
What Do Buyers Need to Know?
A thorough home inspection can take several hours and will reveal problems that may go unnoticed in an initial walkthrough. Because buying a home can be an emotionally charged experience, a realistic evaluation of the home is a crucial part of determining the wisdom of the purchase. The home inspection gives the buyer an accurate, unbiased view of what problems to expect and what issues must be addressed before moving into the home.
The home inspection includes the evaluation of many components, including:
the heating and central air conditioning systems, electrical systems, plumbing, the roof, visible insulation, the attic, floors, walls, ceilings, windows, doors, foundation, and any other visible structure.
Many inspectors also offer additional services, including radon testing, water quality testing and energy audits.
It is important to note that the home inspection does not ensure protection against future problems. A furnace may pass a home inspection, only to break six months later.
In addition to this, a home inspection does not reveal the value of the home.
The sole purpose of the home inspection is to ensure that the buyer knows what they are buying.
Once the home inspection is complete, the buyer should evaluate whatever issues the inspection brought to light. As soon as possible, the buyer should make a list of the issues he or she believes the seller needs to address before closing on the property and present that list to their Real Estate Agent.
All repair requests should be requested in writing and must be agreed upon by all parties.
No house is perfect, and just because a home inspection turns up problems, does not mean the house is an unwise purchase. If large repairs are necessary, further negotiations may be required.
An issue that will require a costly repair, such as a cracked foundation or a roof that needs to be replaced, can result in further negotiations. The buyer may present the seller with an addendum, requesting that they fix the problems before the sale.
The seller may counter by agreeing to fix some of the problems or cover a portion of the expense of the repairs.
Your RE/MAX agent can assist you in determining how to proceed with further negotiations, as attempting to save money may result in the loss of the property.
The best way to avoid an ugly situation is to have an inspection done before you actually put your home on the market with your Real Estate Agent or as soon as you do. The inspector can reveal to you privately what might come up during a home inspection. You can repair these items in advance to be better prepared when the buyer makes their offer.
In Texas, it can be either way. Typically though, the buyer pays for their own home inspection. It is not uncommon to see buyers waiving home inspections when purchasing distressed properties since the homes will be sold ‘As Is’ quite often. A good Real Estate Agent would suggest that you have the inspection anyway.
During the Due Diligence process, you would be able to choose not to buy the home due to the condition. Better to know in advance what you are buying whenever possible.
The Final Walk-Through
When you’re buying a home, there are so many things to make sure that you do. You have to hire a real estate agent, find the perfect home, make an offer, and get a mortgage loan along with a multitude of other to-do’s. Once you’ve finished all these things and the home is nearly yours, it’s important to do a final walk through.
Before any closing documents are signed or you move any of your personal belongings in, this is the final step in a home purchase. These have to be done between a week and 48 before closing to ensure the house is what you expect as-is.
A final walk-through is different from all of the earlier viewings because it is the buyer’s last chance to go through the house and make sure that it is in the condition that your contract specified. It allows to you make sure any requested repairs or changes have been made accordingly, and to make sure that the seller did not cause any additional damage when moving out.
Occasionally, a hasty seller or a reluctant tenant can damage the house while moving, leave a mess or leave behind some of their belongings that you don’t want. You also need to confirm that any appliances or other items that you negotiated for have been not been accidentally moved.
The walkthrough is the best way and in most cases, your last chance to make sure your house is the way you want it before it becomes yours.
The walkthrough should occur close to the closing date, and preferably during daylight hours so that you can see everything in bright, natural light.
Make sure that you also bring a flashlight for any tight spaces, closets, attics or basement areas.
Make sure your real estate agent is present (our agents always attend final walkthroughs) and bring a copy of your contract to review as you look through all the details in your home.
This will help remind you of everything that you and the seller agreed upon while you drafted up the final contract. It’s important because usually it has been weeks since you last saw the house and you may forget a few things.
Once you do the final walk through and sign the final closing papers, you adopt every aspect of the home as-is and you can no longer hold the seller accountable.
Make sure that no matter how excited you are about your new home, that you take the time to examine every detail. Check every room and the outside property because once your new home exhilaration wears off, you’re stuck with everything – good or bad.
When to do the final walk-through?
Usually, you want to schedule your walk through as close to the final closing as you can so that you see your new home at the last minute as possible. That way you can lessen the chance of any damage occurring before you sign on the house.
In the Houston real estate market, for example, it’s most common to do a walk through 24 hours before closing.
While typically for a walkthrough, later is better, if your contract states repairs that the seller is supposed to make, you should schedule two walkthroughs. That way you can review the changes and still have time for any necessary negotiations or additional repairs if you are not satisfied.
Don’t be afraid to be vocal about your concerns if something appears to not meet the conditions of your contract. Communication is vital between buyers, sellers and real estate agents to make sure everyone is happy with the settlement.
Closing on Your Home
Here is where you will pay your final fees and sign all documents. In Texas, you can assume about 30-45 days from escrow to close if you are getting a loan.
In the state of Texas, you don’t get the keys to your new home until everything is signed, recorded and the funds have been deposited
Usually, the title company handling the transaction will release the keys to your agent so that they can get you your keys once the home closing has been recorded and the funds deposited.
Can I buy a property without a Realtor®?
There are for sale by owner home listings in the market. You can deal directly with the seller. This being said, using a buyers agent in Texas is generally paid for by the seller for you. It’s to your advantage to have your own solid representation through this process.
Can I buy a home without a down payment?
It’s possible. It’s more probable that you will find a loan program with a low downpayment. Talking to a lender about today’s loan programs costs you nothing.
Can I buy a home with bad credit or no credit?
This one is going to be more challenging, but there are ways! Definitely get in contact with a lender that can get you on the right track to raising your credit score to the minimum requirements.
I’m buying my first home. Will I qualify?
It’s not as hard you might think. Your credit score + financial status will be the deciding factors. You’ll need a credit score in the 600’s and just 2 months of paystubs.
Is it smart to be buying AS-IS property?
‘AS IS’ essentially means that the seller doesn’t want to or can’t afford to make any repairs. This was common in foreclosures and short sales and is coming back for homes considering “tear-downs” or flip opportunities.
What’s important to note though is that it doesn’t mean you can’t have a home inspection during the due diligence or option period – which you should.
It also doesn’t mean that the seller doesn’t have to provide a seller’s disclosure which is a document to inform you of any known issues with the house.