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Understanding the Process for a Successful Home Purchase
By: Alice Moore, SugarSpringsRealty.com, Re/MAX River Haven
Winning Strategies for a Happy Outcome
Plan Ahead
While buying a home is an exciting emotional experience, it can be stressful if you don’t have a plan. Taking a personal audit and listing your expectations can go a long way to an easy purchase.
Your agent, Alice Moore, has been through this with nearly a thousand clients. She is here to assist you in making a winning offer and advise you on price, terms, and any contingencies. Alice is on your team. Purchasing a home is a collaboration. Using her experience, knowledge and strength, will remove barriers and get you more easily and quickly into your new home.
You will make the final decision of what is included in your offer. Only you know your personal financial goals and limitations, lifestyle, and commitments. This is where your personal audit is important. Make a list of your financial plans including your contributions to retirement, your vacations budgets, lifestyle expenses, and rainy-day funds. You want to know your top limit for your offer, and make that a line in the sand that you will not cross.
A second list should be the list of “must have” items in your new home.
- Top price
- Type of property,
- Lakefront
- In the woods
- On a golf course
- In a subdivision
- City center
- Yard size and what it will accommodate
- Playground
- Garden
- Pool
- Changes to the home
- Paint color
- Façade – siding, brick
If there is a POA/HOA (Property Owners Association/Home Owners Association) are your goals congruent with their rules? This may include home colors, pets, out buildings.
This is a Business Decision
Buying a home is an emotional event, but remember it is a business transaction. It involves a business contract. Invest some time in reviewing sample contracts prior to looking at houses. Become familiar with the jargon used in real estate contracts so that you understand and are ready to make an offer when you find your dream home. Remember an offer is a contract (if accepted). Alice has offer forms specific to the State of Michigan and can make the offer happen quickly.
Establish Your Price
There is always a listing price. That is the price that the seller wants. Think of the listing price as the seller’s opening offer. You are free to make an offer that includes any terms that you want, and the price you are willing to pay.
There are numerous influences that can affect pricing and your negotiating position. Has the home been on the market an unusually long period of time? What is the current market condition? Are homes moving quickly? Is there an excess or shortage of inventory? Real estate is very sensitive to the supply/demand curve. If the home has been on the market for quite some time without offers, the seller may be more willing to move on price. If the seller has one or more offers, you may have to increase your bid. This is where having a real estate agent like Alice Moore makes a big difference. Her knowledge and experience can guide you through the decision making process.
Alice Moore will assist you in ascertaining if the seller’s listing price is reasonable. She will utilize her tools in identifying comparable prices in the current market of houses recently sold in the neighborhood you are considering.
Decide on a Down Payment
A down payment is usually required in order to get a mortgage. Typically, for conventional loans, the down payment is 20% of the purchase price. At 20% you can avoid the additional cost of private mortgage insurance, a policy that protects the lender in case of default.
For many, and depending on the price of the home, a 20% down payment isn’t feasible, and sometimes is not required. According to the National Association of Realtors®, in 2021 the average down payment was 13%. For first time buyers in 2021 the average down payment was 7%.
To make the buying process go smoothly, work with your lender in advance of your home search. To get a sense of monthly payment costs, use an online mortgage calculator before meeting with a lender.
In Michigan there are a number of down payment assistance programs available to help you. This can provide a substantial saving to you over the life of your loan. There are four main types of down payment assistance programs available in Michigan:
1. Grants: Gifted money that never has to be repaid
2. Loans: Second mortgages that are paid monthly along with your primary mortgage
3. Deferred loans: Second mortgages with deferred payments that only have to be paid when you move, sell, or refinance
4. Forgivable loans: Second mortgages that are forgiven over a set number of years (often five, but maybe up to 15 or 20). These only need to be repaid if you move, sell, or refinance too early
Be Taken Seriously
Demonstrate to the seller that you are a serious buyer, make a deposit. An earnest money deposit (EMD) is the amount of money that you include with your offer. If your offer is accepted by the seller, at closing your earnest money will be applied to your down payment. Be aware that if you attempt to backout of the purchase, you may forfeit your deposit to the seller.
A typical EMD is between 1% and 3% of the selling price. If inventory is tight and homes are selling quickly, you might consider putting down a higher EMD to convince the seller that you are the buyer of choice.
Title companies provide a couple of important services in real estate transactions. The service of which most people are aware, is checking to make sure the seller’s title to the property is free of liens and defects and that the property can be transferred with encumbrance to you. The second service is for the EMD to be placed in escrow, through the title company. If the deal falls apart, the title company will disperse the escrowed funds according to the terms spelled out in the purchase agreement (sales contract).
What are Your Contingency Plans
Quite often offers for real estate have contingencies attached. These items must be completed or met prior to the transaction being able to be completed. If they have not been met, or met in a specified time frame (another contingency provision), the buyer can walk away from the deal with their EMD returned.
Contingencies can provide some safety and comfort to the buyer, but can also make the sale less appealing to the seller. Discuss your options with your agent, Alice Moore.
Typical contingencies are:
- Home Inspection – the buyer has a specific date by which to have an inspection completed. If problems are found with the home the buyer can negotiate terms or that repairs be made. Alice Moore can be a great help here in helping you decide to negotiate a lower price or insist on repairs being completed.
- Financing – buyers have a specific time period to get a loan that meets the needs of the mortgage
- Appraisal – the lender hires a certified appraiser to compute the fair market value of the home to insure that the value is high enough to be sufficient collateral on the mortgage.
- Clear Title – the title company selected by the buyer confirms that the seller has clear title and is the sole owner of the property and can legally transfer ownership to the buyer.
- Sale of Current Home – the transaction is contingent upon the sale of the buyer’s present home
The Devil is in the Details
Read the contract, including the fine print. Your sales contract will state important details about the home or property that you are buying. The information will include:
- Tax ID
- Address
- Utilities
- Public Water or Well
- Naturel Gas, Propane or Electric Heat
- Personal Property and Fixtures included in the sale
- Lighting Fixtures
- Freestanding Kitchen Island
- Shower Curtain Rod (yep, that has happened)
- Window Treatments
- Appliances
- Kitchen
- Laundry
Personal property can also be a point of negotiation. The seller should provide the buyer a list before the offer is made.
Set a Date
Usually the closing (settlement) period is set for 30-60 days from the date the sales contract is signed. This is not set in stone and can vary based on the time frame negotiated. Prior to closing you will have a three-day time frame to review the Closing Disclosure (CD), a form that states your final loan terms and closing costs. The time frame set for settlement is typically used to complete the mortgage approval and title search. The date of the closing can only be changed by mutual agreement, both parties signing an addendum to the sales contract.
Your sales contract is required to include a date to settle. This is a confirmation of when the sales transactions will be completed. Failure to close on time may require the party who cause the delay to pay the other compensation at a rate predetermined in the contract.
Be Prepared for a Counteroffer
The buyer can choose to accept or decline your offer, or make a counteroffer which could change terms, price, or contingencies. You can than counter back, accept their changes, or walk away.
Contact Alice Moore for assistance in finding and purchasing your next home.