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In 2015, entrepreneur and lifestyle blogger Geri Hirsch made two big life decisions: She got married and, shortly before tying the knot, she and her now-husband, Darin, bought a house.
Right off the bat, Geri learned a big lesson about the home-buying process: patience. She, Darin and, occasionally, her realtor, toured more than 90 homes all over Los Angeles before landing on the right one — a 1927 Spanish-style fixer-upper with stunning views of the ocean and the city. "It was a very long process, because we really didn't want to settle," Geri says. The couple lived in the house while embarking on substantial renovations, including overhauling the kitchen and bathrooms.
On the other end of the spectrum, Heather Mitchell, a single, New York City-based lawyer, made a quick, but calculated, home-buying decision: She stumbled upon a gem of an apartment after seeing just a few during a weekend neighborhood walk with her mother and brother. "I fell in love with it right away," she says of the two-bedroom she bought in 2020, in the midst of a pandemic. "It was a unique opportunity within a co-op building and has great views of the Brooklyn Bridge and the Freedom Tower."
As Geri and Heather can attest, the home-buying experience can be vastly different based on your location, financial situation and other factors. But the basic steps, as we've detailed below, remain the same. One of the best first moves is finding a good realtor — they can walk you through the process, give you the inside scoop on the neighborhood and provide loads of other information that will give you the foundation you need to make smart decisions. To that end, we consulted with San Francisco-based real estate broker Tracy McLaughlin, New Jersey realtor Jaime Richter of Allison Ziefert Real Estate Group and Kyla DeMarzio, senior vice president of mortgage lending at Guaranteed Rate. Their insights will help transform you from home-wanter to homeowner.
First, understand your finances.
The first step to becoming a homeowner is having a clear picture of your financial situation, which will help you determine a realistic down payment, which ranges between 10% to 20% for most people, and how high of a mortgage payment you can afford. As a rule of thumb, according to Experian, your mortgage payment shouldn’t be more than 28% of your monthly income. That said, consider your credit score (740 or higher is excellent), monthly income — including commissions and bonuses — savings and debt, whether it’s student loans, outstanding credit card bills or car payments, to figure out what works well for your budget. Your realtor can also review possible mortgage payment scenarios, including homeowner's insurance and property taxes, so that you know exactly what to expect before making any final decisions on a home.
Next, it's time to get pre-approved.
After you know more about what you can afford, you're ready to begin the process of getting pre-approved for a mortgage. It’s imperative to research mortgage lenders — a well-regarded mortgage broker or bank — to find the right one for you. You can go by word of mouth or even ask your realtor for a recommendation. “A mortgage lender thinks about the client’s comfort level,” says DeMarzio. “I might be able to get somebody a $1 million mortgage, but that doesn't mean they want a $7,000 a month payment. It's about having that conversation and supporting the client — and not just in their pre-approval process. It's discussing not just what they'll qualify for, but where their comfort ranges. That's when the realtor and lender work hand-in-hand to form an alliance of resources throughout the process until they get under contract.”
As you look for a mortgage lender, prepare to become an open book about your finances. You’ll have to provide pay stubs, statements for your savings, checking, retirement and investment accounts and recent tax returns.
In Heather's case, she had to share financial information on her mortgage application as well as to the co-op board to get her co-op application approved. "I was surprised by the amount of financial information I had to provide and how many checkpoints there were," she says.
Geri, who bought a house in L.A. with her husband, stresses that this part of the process is key to making a real estate purchase without any major hiccups. “Get all your ducks in a row on the finance side so that you're completely ready to go once you walk into your dream home,” she says.
You’ll also have to act fast once you’re pre-approved. If you provide all of the requested financial information in a timely manner, you can get pre-approved fairly quickly; it can happen as soon as a week. However, your pre-approval letter will only be valid for about 30-90 days, depending on your area of interest. You’ll have to re-apply if you don’t find a home during this time, which DeMarzio says actually doesn’t hurt your credit score as is often believed to be the case. “You're allowed to run your credit two to three times a year for various purposes, and it should have absolutely no impact on your credit,” she says.
In states where a real estate lawyer is required at closing, this is also a good time to start a relationship with one.
Approved? Let the house hunting begin!
Potential buyers get excited about this next step in the home buying process, but it pays to proceed with caution. Don't ignore the fact that the COVID-19 pandemic continues to impact the housing market. "With limited inventory in most markets around the U.S., homes are selling fast with numerous offers and with some over asking price," says David Mele, president of Homes.com. Real estate brokerage Redfin just released new data, revealing that nearly 40% of the homes in the U.S. are selling above the asking price.
With this in mind, envision your life in a new neighborhood. Be diligent about researching and getting a real feel for what it might be like to live in your desired neighborhood. Do you want an area that offers lots of activities for kids? Is a walkable neighborhood important to you? “Find an agent who is familiar with the exact area you want to live in, because they're going to know the market, pricing and competition levels,” says Richter. “Outside of that, a local agent will be able to give you additional resources that you might not know about. For instance, if you're moving to New Jersey from Manhattan and still need to commute, you're going to want to know the best towns to live in for commuting. If you’re moving from Brooklyn and restaurants are really important to you, work with someone who can guide you.”
Once you've connected with a realtor to view listings, Geri recommends making a list of your non-negotiables as well. "We knew we needed to have three bedrooms, because we wanted to grow into the home and have kids, so we narrowed down our search from there," she says. Along with the number of bedrooms, think about other features you might want like a sizable backyard that’s perfect for entertaining, a multi-car garage, finished basement or a move-in ready property that doesn’t require many renovations.
Homes.com even found that a growing number of buyers who have shifted to working remotely are searching with this in mind. "According to our recent survey, home feature preferences have shifted substantially with 78% of real estate professionals citing client requests for home offices as the number one change followed by larger square footage (57%), outdoor recreational spaces such as pools, hot tubs and decks (45%) and upgraded kitchens (44%)," says Mele. In other words, setting specific parameters can streamline your search and make it feel less overwhelming.
Once you've found your dream home, make an offer.
Be strategic when you find the perfect home. "Right now, we're in an environment where sellers want to know that somebody loves their house," says McLaughlin. That's why she recommends including a personal letter to the seller with family photos to give them a glimpse into your life and why you're the best fit for their property.
Hirsch also urges potential buyers to take their research to the next level. "It's really helpful if you could understand the motivation as a seller," she says. "Any time we would go to see a house, we would try to probe to get some information." An example Hirsch shared is thinking about a seller's motive for putting their property up for sale. If they've already found another home, which is contingent on selling their current property, that means they likely need the money to close on their new home purchase. "If you know that, you can make an offer that may be more desirable to them just by being a quicker close," Hirsch says.
Don't forget about the inspection.
Your realtor, family and friends can suggest a credible inspector, who is skilled in examining everything from a property's roof and foundation to its plumbing and electrical systems. The inspection can cost up to $1,500 based on the home’s value. "Home inspections not only reveal the condition of the building and what's happening environmentally around it, but it also tells how safe families are going to be once they move in," McLaughlin says. "They're not a place to save money."
You also must be willing to walk away from a property if the inspection uncovers major problems that surpass your budget. “If there are deficiencies or items in need of repair, the buyer has a few options: they can ask for a credit to fix some of those items on their own, ask the seller to fix them, deal with it when they close, or kill the contract at that point,” DeMarzio says.
It's closing time.
Congratulations, you've made it to the final step of the home buying process! Once you and the seller settle on a closing date, your agents, mortgage lender, lawyers and title agency will confirm the appropriate time frame considering their obligations. Remain calm. Get through your final walk-through to ensure you're 100% happy with the home and be prepared to sign plenty of documents before getting the keys to your new abode.
Be ready to handle closing costs, too, which is “typically between 2% to 5 % of the home’s actual sale price — not the loan amount,” says DeMarzio.
And considering the pandemic, there’s the possibility of handling this step virtually, like Heather did. "The seller's agent gave me the keys, and I was by myself in the apartment just walking through," Heather says. "I also signed all of my paperwork remotely. I never met my mortgage banker or the seller in person and had one meeting with my attorney very early in January 2020."
While the goal, of course, is for your closing to go as smoothly as Heather's did, there can be hiccups that delay this process. One major one? “The number one thing that delays clients from getting their mortgage on time is failing to get the mortgage company the requested items,” DeMarzio says. “The most successful transactions are those where the client chooses a lender that they trust and act quickly to get the lender what they need.” If your credit score or employment situation changed, this can cause your mortgage to fall through.
A title search could also reveal a lien on the property you’re interested in purchasing, which means that you can’t proceed with the purchase until this has been resolved.
If all goes well, you find the experience to be worth it in the end. "What kept me motivated throughout the whole thing was knowing that at the end of the process, I would have an apartment that I could call my own,” Heather says.
The road to home ownership is full of challenges and excitement. If you're willing to practice patience, have an open mind and research to find the right investment for you, you can end up living in the home you've always wanted.
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