Home Buying Tips

Information about Buying a Home

Table of Contents

Shopping for a Home: Things to Look for When House Hunting
Mortgage 101: Finding the Right Loan
Things to Avoid When Buying a Home: 10 Home Buying Mistakes
About Home Inspections: Why to Inspect Before Buying

Shopping for a Home: Things to Look for When House Hunting
When searching for the perfect home, there are many factors to consider. The decisions you make in the home buying process will determine which home you will eventually buy. Because buying a home is a process of elimination, not selection, deciding which things are the most important to you before starting to look at homes will not only save you time, but it will also ensure that you make your purchase decision based on criteria set forth ahead of time, not pure emotion.

So, what factors are there to consider as you narrow your search and begin the process of elimination? Here are some criteria to consider as you draft your Wish List:

Neighborhood
First, start by asking yourself, "What kind of neighborhood do I see myself living in?" Do you prefer a city setting, a suburban enviroment, or would you prefer to live in a small town? What kind of things do you enjoy doing on a daily basis? Would you like to be able to walk down the street to get a cup of coffee in the morning? Is being in close proximity to parks and recreation a big deal to you?

Once you've decided what things you'd like your neighborhood to consist of, it's always a good idea to research the neighborhood profile. Population density and the amount of nearby commercial developement can have an impact on the level of traffic, for example.

When selecting the right neighborhood for you and your family, some other ways to determine whether you've found the right place are to check out the neighborhood at different times of the day or weeks to see who your neighbors may be. Also, take a look at how well-maintained the properties are in that these factors will play a role in the long-range values of the homes in a neighborhood.

Quality of Schools
Take a look at the subject neighborhood's school system. Average test scores, percentage of college-bound students and national merit scholars as well as student-to-teacher ratio are often used to measure the quality of schools.

Property Features and Amenities
If price range were not an issue, we all would love to buy our "dream home." Unfortunately , this isn't always practical, so having a clear idea what is needed vs. what is wanted is a wise way to approach your home search. Do you need the 4 bedrooms, 2 car garage and 3000 square feet with the full finished basement? Keep in mind, having more space than you really need also means that you're going to have higher property taxes, more utility expenses, and more space to furnish and upkeep.

Define what things you really need to have, and then decide what things you'd like to have. Again, because selecting a home is a process of elimination, you'll want to find all of what you need, and if in the process you find a property that also has some of what you want for little or no added cost, then it could make sense to purchase that home. When deciding what property features and amenities you're looking for, here are some things to consider:

Bedrooms and Bathrooms
Decide how many bedrooms you're going to need, and search for homes with at least that. If you find a home with a bonus bedroom, you may be able to utilize the space as a craft studio, home office, guest room or study. How many bedrooms do you need? Consider the busiest times of the day: when everyone is getting ready to go to work or for bed, are 1.5 baths going to cut it, or should you be looking for a home with 2 bedrooms?

Storage Space, Closet Space
How much storage space will you need? Do you have a large wardrobe? Do you need extrac space for all or your sesonal decor, or for out-of season clothing? Larger bedrooms may provide the option to add storage space if it's lacking, but having the space you need already there can often times be the most cost-effective scenario.

Lighting (Natural and Artificial)
When you're looking at homes, take into consideration the natural lighting that it affords. Where does the sun set and rise? Is there enough sunlight in the rooms you'll most likely be speding your time during the day in? Will the sun "beam in" at you while you're trying to sleep in on a Sunday morning? If you plan to plant a garden in the back yard, will there be enough sunlight to sustain it?

Electricity may solve some of your natural lighting objections: How well is the home's lighting system set up to offset or compensate for the lack of natural light in certain rooms? Certain rooms require ample lighting, regardless or the amount of sunlight it may see during the day. For example, having recessed lighting, under cabinet lighting and accent lighting in the kitchen makes it practical to work in and can make it a focal point of the home.

If the right lighting does not exist, but everything else about the home suits your needs, you'll have to consider what can be done after your purchase to resolve these issues.

Finishes and Upgrades
Details such as crown molding, faux painting, fireplaces, cabinets hardware and upgraded flooring can completely transform a space and make it look far more luxurious than it may have without such appointments.

As you search for a home, decide whether it's necessary to have these upgrades already completed (a good idea if you don't have the time or mechanical skills to install them yourself - though, you'll generally pay a premium to hae such upgrades already done) or whether it doesn't matter to you either way. If a home looks "bar bones and outdated", think about what low-dollar improvements you can make to upgrade the appearance and feel of the home. Sometimes, small upgrades can go a long way!

The Kitchen
If the kitchen is the heart of your home, don't settle for a home that has a kitchen (or kitchen space) that will not suit your needs. Remodeling a kitchen can cost more than any other home to upgrade. If your taste is very unique, you might need to do this anyway, but be sure that there is the physical space to accommodate your perfect kitchen. Appliances are very easily replaced, and relatively inexpensive, so don't worry if the 1970's avocado range is still there. Instead, take a close look at the cabinetry, sotrage space, countertops and flooring: Will it all need to be ripped out, or could a facelift transform the space for you?


Curb Appeal
First impressions are everything, and with so many different architectural styles to choose from, select one that defines your personality. How do you see yourself spending spare time once you own a home? If you would like to landscape and have a garden, a condo or townhouse may not be the best property for you. Likewise, if you travel a lot and want to kick your shoes off at the end of the day and relax, a 2000 square foot Cape Cod on 1/2 acre lot is probably what you're looking for.

Beyond property style, evaluate the home's exterior. How does the rod look? Are the trees pruned away from the gutters? Has the home been well-taken care of, or can you expect to spend most of your time and money fixing it?

Taking all of these factors into account as you search for your home will help you make the most logical selection for your individual needs. Rely on your Realtor to help you gain some objective perspective on the properties you look at - there's a perfect place for everyone, and with a little bit of research on your own and some professional guidance during your home search, you'll be sure to find the place that is right for you!

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Mortgage 101: Finding the Right Loan
One of the first steps in the home buying process is to evaluate what you can afford to buy and determine which loan option is best going to suit your needs. Without getting a pre-approval, you won't know what price range you should be looking in, how much money you'll need to purchase, or what your mortgage payment could be in that price range. In addition, a mortgage pre-approval will be needed once you find a home that you want to make an offer on, because home sellers will not consider an offer with a contingency to obtain financing without one.



Mortgage Options: Fixed vs. ARM, Interest Only and Reverse Mortgages

Fixed Rate Mortgage
In most cases, a fixed rate mortgage is going to be the best option. This locks in an interest rate for the life of the loan, so your rate will never change. Property taxes and homeowners insurance are the only items that would cause your monthly payment to increase when you have a fixed rate mortgage.

Adjustable Rate Mortgage (ARM)
An Adjustable rate mortgage offers a low initial interest rate, which means lower monthly payments. However, the ARM will adjust once the initial payment option period is over (the payment option period varies, but it is often after a period of 3,5 or 10 years). As the interest rates rise, so will your payment. Most ARM's do have a cap, which means that the rate cannot rise above a certain percentage.

Interest Only Payment
Interest only payments will lower your monthly payment amount, but you will not make any principal reduction to the loan balance unless you pay more than the scheduled amount. It does add greater flexibility to your payment options, but the interest only payment option generally runs out after a certain period of time. Many loans with an interest only option also include an adjustable rate (Interest Only Arm).

Interest only loans and ARM loans may make sense to someone who plans to hold a property for a shorter period of time, say 3-5 years. In such a scenario, a fixed mortgage would provide very little principal reduction in a short period of time, so the lower payment may have more advantages.

Reverse Mortgage
Available only to persons over the age of 62 who have enough equity in an existing home (refinance), the lender will make monthly payments to the borrower for as long as the borrower lives in the home. The prinicpal balance increases over time.

FHA and VA Loans: An Overview

VA Loans
This is a government backed loan that is available to veterans who have served in the U.S. Armed Services and, in some cases, to spouses of deceased veterans. The requirements and guidelines vary depending on the number of years of service and whether the discharge was honorable or dishonorable.

With a VA loan, the borrower does not need a down payment and is able to finance the VA funding fee, which also varies depending on certain criteria. The VA loan is one of the only 100% financing products still available today. The loan is backed by the Department of Veterans Affairs, but is funded by a conventional lender.

FHA Loans
An FHA loan is a loan that is insured against by default by the FHA. In other words, FHA (Federal Housing Authority) will guarantee that a lender won't have to write off a loan if the borrower defaults. Instead, FHA will payoff the loan. Because of this, lenders are willing to lend to a higher percentage of the purchase price.

Who Can Get an FHA Loan?
There are no income limits with the FHA loan, but there are limits on the amount you can borrow. In the Southeast PA Region, the FHA loan limit was $417,000 as of December, 2010. If you needed a loan that exceeded this amount, you would need to look at Conventional loans as another option.

To qualify for an FHA loan, you need to meet certain debt-to-income ratios. Each program will vary, but some allow debt-to-income ratios up to 50%. Decent credit is important as well, and credit history plays more of a role in qualification than credit score, but as of December, 2010 the minimum FICO score requirement is 640.

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Things to Avoid When Buying a Home: 10 Home Buying Mistakes
When preparing to buy a home, there are many ways to approach the process. Having said that, finding the most logical path and following it to a successful purchase will help you avoid mistakes, many of which can be very costly. If you avoid these common pitfalls, it will save you time, money and unnecessary stress along the way. Below you’ll find a list of the 10 home buying mistakes that are often made by buyers (unintentionally in most cases) that you should avoid, and some tips on how to avoid making these mistakes.

MISTAKE #1: Making an offer on a home without being qualified

HERE’S HOW TO AVOID IT:
Pre-qualification will make your life easier – so take the time to talk with a lender. Their specific questions in regard to your income, debt, etc., will help you define a price range that you can afford. It’s one of the most important steps on the path to home ownership.

MISTAKE #2: Not having a home inspection.

HERE’S HOW TO AVOID IT:
Trying to save money can end up costing you in the long run. A qualified home inspector will detect issues that you may have overlooked. When making an offer, be sure that you include an Inspection Contingency Clause as a term to purchase – this will give you the opportunity to inspect the home and locate any issues before you move ahead with your purchase.

MISTAKE #3: Limiting your search to Open Houses, ads, or the Internet.

HERE’S HOW TO AVOID IT:
Many homes that you see on the Internet or in magazines have already been sold. Your best course of action is to contact a Realtor. They have up-to-date information, much of which is unavailable to the general public. They’re the best resource to help you find the home you want, and hiring a Realtor to help you with your search and to represent you in your transaction doesn’t cost you extra – in fact, having a Buyer’s Agent can save you time and money.

MISTAKE #4: Choosing a Realtor who is not committed to forming a strong business relationship with you.

HERE’S HOW TO AVOID IT:
Making a connection with the right Realtor is crucial. Choose a professional who is dedicated to serving your needs – before, during, and after the sale. Ask for client testimonials: any Realtor who is proud of their track record and the feedback from clients who have already bought or sold with them will have this information at their fingertips for your review. Don’t assume that all Realtors are the same, and take your time to find the right one before you start shopping.

MISTAKE #5: Thinking that there is only one perfect house out there

HERE’S HOW TO AVOID IT:
Buying a home is a process of elimination, not selection. New properties arrive on the market daily, so be open to all possibilities. Ask your Realtor for a Comprehensive Market Analysis (or CMA). This compares similar homes that have recently sold or are still for sale.

MISTAKE #6: Not considering long-term needs

HERE’S HOW TO AVOID IT:
It’s important to think ahead. Will your home suit your needs for 3-5 years? How about in 5-10 years?

MISTAKE #7: Not examining insurance issues

HERE’S HOW TO AVOID IT:
Purchase adequate insurance. Advice from an insurance agent can provide you with answers to any concerns you may have. The cheapest policy may not always be the best, so make sure you have the right coverages.

MISTAKE #8: Not purchasing a home protection plan.

HERE’S HOW TO AVOID IT:
This is essentially a mini-insurance policy that generally lasts for one year after the close of escrow (AKA settlement). It usually covers basic repairs that you may encounter and can be purchased for a nominal fee. Also called a Home Warranty, many plans are available for $400-600/year. This can be a wise investment, particularly in the first years of home ownership, as it will cover incidental repairs.

MISTAKE #9: Not knowing the total costs involved.

HERE’S HOW TO AVOID IT:
Early in the buying process (before you begin to look at homes), ask your Realtor or Lender for an estimate of closing costs. Title company fees, insurance fees, transfer taxes, and costs for home inspections should all be considered and accounted for. Knowing what you will need to have available before you begin will save you a lot of hassle and stress once you’ve located the home that will suit your needs.

MISTAKE #10: Not following through on due diligence.

HERE’S HOW TO AVOID IT:
Make a list of any concerns you have relating to issues such as crime rates, schools, nearby power lines, neighbors, environmental conditions, etc. Ask the important questions and do your research before you make an offer. Be diligent so that you can be confident in your purchase.

Diligence during your transaction is also imperative to a successful home purchase: Your contract to purchase will have deadlines, and you want to be sure that you’ve completed inspections in time, made your mortgage application by the due date, and submitted any additional escrow deposits in time. This is another reason that selecting the right Realtor is important: they will remind you of these important deadlines and make sure that everything is being completed in a timely manner.

PICKING THE RIGHT HOME:

To make the home selection process easier, bring a camera along to document each home that you visit. Start each tour with a shot of the address so that you can easily identify each home later. Take notes during your visit – record notable features, architectural and design elements. List what changes you would make and what details really stand out. You especially want to write down any first impressions you have of each home.

Pay attention to the home’s surroundings. Generally, avoid the most upgraded home on the block. Is it in a friendly neighborhood? Will parking be an issue? Is it a good area to walk your dog or have an outdoor get together? How is the school district?

Visit homes that you were interested in a few days later at a different time of day. You may notice some nuances that you didn’t notice on your first visit.

About Home Inspections: Why to Inspect Before Buying
Buying a home is probably the single largest financial transaction that most people make in their life. Having a complete understanding of what you’re paying for is important, and one of the ways to do this is to perform a home inspection as a contingency to purchase the property. Most agreements of sale will include inspection clauses (In Pennsylvania, for example, the PAR Agreement of Sale includes a paragraph that specifically addresses inspection contingencies. The buyer will have the option to elect or waive a number of inspection contingencies – I’ll outline these later) that provide the buyer in the contract with the option to inspect within a certain timeframe as contingency to purchase.

When Should You Inspect?

Whether you’re buying a fixer-upper for below market value or paying top dollar for a fully renovated home, you should have a home inspection. A good home inspector will look at things that you haven’t and help you identify latent issues, if they exist. Before you even make an offer, you’ll probably be aware of some issues or material defects that exist, based on visual evidence or information provided to you in the Seller’s Disclosure Statement.

Rediscovery of these issues and defects are not the reason to inspect – rather, having everything evaluated from the rooftop to the basement floor so that you have a clear understanding of the way each system works, what to do to properly maintain the home, and understanding life expectancies of the various components of your home are the real benefits of investing in a home inspection. Consider your inspection report your personalized “Owner’s Manual”: when you buy a car, you get a maintenance schedule and owner’s manual – each home is unique, and so your inspection report will provide you with your owner’s manual and maintenance schedule for your new home.

Another reason to have a home inspection is to verify that you’re purchasing the home in the condition that you perceived it to be. In other words, what if the roof is going to need to be replaced in 2-3 years? Is that something that you took into account when you made your offer, or does it have an impact on the value of the home and the price you’re willing to pay? Did you know that the electrical panel needs to be replaced right away? A home inspection can provide you with valuable information about the home’s condition, giving you the opportunity to renegotiate the terms of your agreement with the seller. You might ask for certain items to be repaired, or for a credit to repair the items after settlement. If there is a substantial repair (say, structural issues or the need to replace the siding or heating system) you might even adjust the purchase price if you’ve negotiated an “As-Is” sale (which simply means that the seller may be unwilling or unable to make any repairs before settlement).

Types of Inspection Contingencies

General Home Inspection: A complete overview and evaluation of the property’s structure and mechanical components. The items which are evaluated during a general home inspection are as follows:

• Roofing
• Framing and Structure
• Chimney
• Electrical System and Fixtures
• Heating and Air Conditioning System
• Plumbing System and Fixtures
• Foundation and Basement
• Flooring, Wallboard
• Major Appliances (Washer, Dryer, Refrigerator is generally excluded from evaluation)
  

Environmental Inspections: Ancillary inspection(s), sometimes performed by the same inspector that performs a general home inspection.

• Radon
• Lead-Based Paint: Present in some homes built before 1978 – if you are buying a pre-1978 constructed home, your Realtor should provide you with a copy of the EPA’s Guide to Lead Based Paint.
• Asbestos: There are different types of asbestos, some create more hazardous conditions than others (i.e. asbestos tile floors and siding are common in older homes, they generally do not present the same hazard that asbestos insulation on old heating pipes or ductwork can).
• Mold: There are many different types of mold, and each person’s allergy to the different types of mold can vary. Testing may be advisable if there is mold discovered during your home inspection or during your own inspection(s) of the property when you looked at it.
  

• Wood Destroying Insects (Termites, Other Pests): A termite cert is often required by lenders, so if you’re uncertain whether or not to pay for this inspection, ask your lender to see what they will require.
• Sewer or Septic System
• Water or Well System
• Property Boundaries: In Pennsylvania, you can elect to have the property surveyed as a contingency to purchase. You may elect this option in a case where the property boundary is unclear, or in a case where you want to verify whether or not you may be able to add other structures or an in-ground pool at a later date.
  

Hiring the Right Home Inspector

Just as there are good and bad lenders, Realtors, and attorneys, not all home inspectors are as knowledgeable and professional as the very best in the business. Selecting the right home inspector is as important as deciding to have your new home inspected in the first place. If you’ve already established a solid working relationship with your Realtor, chances are they’ve taken the time to recommend you to other reputable service professionals, such as a lender. There’s a good chance that they know a great home inspector who will thoroughly examine the home you’re considering purchasing and recommend you to other inspectors (i.e. termite and radon) if they are not certified and licensed to perform these inspections themselves. Reputable Realtors will demand qualified inspectors because they want their buyers to be informed. An inexperienced agent may recommend an inferior inspector because they don’t want the inspection to “blow up” their deal.

Once you’ve found a home inspector that you are considering hiring, here are some questions to ask and some information to ask for upfront so that you can verify you’re hiring the right home inspector:

Ask for a sample inspection report: Take a look at the product that you’re paying for. You’ll be attending the home inspection in most cases, but the inspection report is your written record of the inspection. Make sure it is thorough, legible and easy to reference if you ever need to.

Don’t hire inspectors who recommend contractors or perform repairs: Home inspectors are in the business of inspecting homes. If they offer to make repairs or to recommend you to contractors who make repairs, they could be creating a conflict of interest.

Ask about the cost for re-inspection: A home inspection isn’t a “Pass or Fail” thing. Every home has defects. There’s a good chance that you’re going to need to make some repairs. If you and the seller reach an agreement that the seller will complete certain repairs, it’s a good idea to have the house re-inspected. What will the home inspector charge you to do this? Usually a fraction of the cost of the first inspection ,find out what this will cost and factor it into your costs to be safe.

Ask for credentials and certifications: Any professional home inspector will provide you with this information without your asking anyway. Find out what inspection associations they belong to, and ask them what was required of them to obtain certifications from those organizations.

Ask how long the inspection will take: It’s a good idea for you to personally attend your inspection. Depending on the size of the home, the inspection could take 2-3 hours, sometimes longer if there are additional structures (like detached garages or a carriage house).

Be Sure to Meet Your Contractual Deadline

Most of the time, the home inspection contingency clause in a purchase agreement is an elective clause, meaning that you do not have to perform the inspections to complete your contractual obligations. However, if you do not perform the elected inspections by the contingency deadline, you’ve waived the right to terminate the agreement under that clause, and cancelling the contract because of defects discovered during inspections could put your earnest money deposit (or escrow deposit) at stake.

Your Realtor should outline all of your contract deadlines for you once you have reached an agreement with the seller and assist you with the various deadlines.

Questions to Ask a Real Estate Agent: How to Interview an Agent.
Whether buying or selling a home, it's wise to spend some time interviewing the agent that you're considering hiring for a job. Just as you will be sizing up your potential agent to see if they'll be a good fit, the real estate agent will likely be interviewing you, too. If the agent you're interviewing doesn't ask you questions and probe you for motivation, be wary. You wouldn't work with just any agent, and good agents are just as selective about their clients, too.

Here are some good questions to ask the agent you're interviewing. The very best in the business will start to shine through, and you'll know whether you've found the right agent. Not only will you feel comfortable with their personality, you'll also know if you've found a professional who has a proven track record, knowledge of the local market, and who will represent your best interests in your transaction.

What is your average list-to-sale price ratio? How does it compare to the market average?
Simply put, list-to-sales price ratio is where the best listing agents can put numbers to their claims about being the best. A competent listing agent should have a track record of negotiating sales prices that are very close to list prices. Listing agents should have a higher list-to-sale price ratio (the closer to 100% the better).

Conversely, when buying a home, evidence of an agent's ability to negotiate on your behalf is in their list-to-sales price ratio in transactions where they represented the buyer in the transaction (the lower the better). If they're working with a lot of buyers, they will have this data at their fingertips and will be proud to share the statistics with you.

Can you provide me with references?
References or testimonials from past clients are where the "rubber meets the road" and separates a professional agent from a novice. Everyone has references, and a agent with testimonials worth reading will have the name and phone number for the client who provided it. You won't find names and phone numbers published everywhere, but when you ask the agent for the name or number, they'll happily provide it to you.

If you're in search of references, here are some things to ask:
• Ask to see references
• Ask if any of the references are related to the agent.
• Ask if you can call the references with any additional questions.

How long have you been in the business?
Real estate transactions are the largest transactions most people will ever make. An agent with more experience will have more knowledge than a brand new agent. This shouldn't be the only deciding factor for you, but if you find and agent who's been in the business for more than 5 years and can readily provide you all of the information mentioned earlier, you're on the right path. However, there are agents who have been in the business for 20 years who repeat their first year over and over. Other 20 year agents learn something new every day, evolve with the business and get better each year.

What is your marketing plan or strategy for my needs?

If you're selling a home, here are the questions you should ask:
• How will you sell my home? Can you share the details?
• What media will you use to market my home (internet, newspaper, open houses
direct mail)?
• Will you show me a sample flyer?
• How do you market online?

If you're buying a home, here are the questions you should ask:
• How will you search for my new home?
• How many homes can I expect to see before I find a home I want to buy?
• Will I be competing against other buyers?
• What are the advantages to working with an agent when buying a home?
• How are you paid? (Typically, the seller will pay the commission for themselves
and for the buyer).


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