You've gone step-by-step so far in your home buying journey -- gotten pre-approved for a mortgage, weighed your needs versus wants, and spent time house hunting. Finally you have found the home you want to buy.
You're now ready for the final steps that will lead you to the front door of your new home!
Step 1
Evaluate the Price
• Work with your agent to agree upon a competitive price dependent on current market conditions.
• Don't just accept the asking price. Many homes are overpriced initially so you need to validate the price.
• Use comps or a list of comparable sales of homes similar to yours in the neighborhood or building. Calculate the difference between the asking prices and final sale prices to get a feel for market conditions. Also look at those final sales prices to get an average of the current market price for your type of home.
• Keep in mind some neighborhoods may have a dual price structure of "normal" sales and those that are "distressed" due to foreclosures and short sales.
• Closely compare your home to the others that recently sold to see if your home has any valued-added features that might make the price go up OR lacks something that would bring the price down.
• Consider all variables -- Has this home sat on the market a while or has it just been listed and may sell quickly? Is it more of a buyers' market or sellers' in this neighborhood?
• Find out about competing bids since these will affect your own offer.
• Determine your walk-away price so you know your own price ceiling if the sellers continue to counter bid. However, never put limits on your first offer if you know you are more than willing to put up more to get the house. You need wiggle room to negotiate.
Step 2
Make an Offer
• If you make an offer under the asking price, make sure you back it up so the sellers don't view it as just a "lowball" offer. Show them current comps or indicate any valid issues that may decrease the home's value.
• Keep your offer simple with little stipulations if possible. This makes it easier for the seller to accept your offer and can help seal the deal quickly. As a first-time buyer, you won't have to deal with another home to sell, so that's a plus!
• On the other hand, be flexible when taking into account any stipulations by the seller. If you can accommodate the seller, do so if possible. For example, they may want to rent back from you for a month until they can move out of the home.
• Remember you have more leverage if you're in a buyers' market than in a sellers' market. Be wise in how you use this leverage!
• Be cordial and not critical of the home. Sellers can be sentimental and may select buyers for more personal reasons than just price. Present yourself well and your agent can pass along any information about yourself that may help the deal.
• Make your offer contingent upon the findings of a professional home inspection. You'll want to be able to renegotiate or back out if major defects are found.
• Offer to pay all or most of the closing costs if possible to increase your chances of being chosen.
• Always include your pre-approval letter for a mortgage and put up a reasonable amount for your earnest money. You want to show the sellers you are serious and capable financially to buy this home.
Step Three
Closing the Deal
• Once you reach a mutually acceptable price, the seller's agent will draw up an "offer to purchase" that includes an estimated closing date (usually 45 to 60 days from the acceptance).
• Review the document carefully with your lawyer or agent to make sure it is contingent on you getting a mortgage, a home inspection, and a final walk thru 24 hours before closing.
• Make a good-faith deposit of 1% to 10% of purchase price in an escrow account.
• Move quickly to secure your mortgage and expect to have another credit check and a home appraisal for this process. Also get your homeowner's insurance policy in place.
• Low appraisals can sometimes kill deals so be prepared to back up your case or get an independent appraisal. Sometimes lenders may hire appraisers not familiar with a particular market. So don't just accept a low appraisal!
• Hire a professional home inspector and be present that day so you can learn a lot about your new home and how it functions. If any defects are found, you can either ask the seller to fix the problem or deduct the repair cost from the final price. If the seller refuses to do either but you have the contingency, you can walk away without any penalty.
• Review carefully the closing fees on the final HUD Settlement Form that your lender will send you two days before closing. It will include a good faith estimate of the fees expected at closing. According to the law, the final costs must fall within 10% of this figure on the actual day.
• Your lender may require you to have mortgage insurance or PMI so it's protected against non-payment should you default on your loan. PMI is often required by lenders on loans with less than 20% down because of the increased default risk on these loans.
• Stay calm and make sure you understand what you are signing that day since there's a huge stack of documents to go over. Your agent should be present to help you through this day.
As you can see, the final steps can be exciting but also stressful as you get closer to owning your first home. It's probably going to be the most expensive investment you've ever made so I'm always here to help you every step of the way.
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