October is a busy month for real estate. The supply of available homes generally expands in the fall, as sellers get back into the game after taking the summer off, and buyers who may have been only casually curious get serious and try to seal a deal before the year comes to an end.
If you’re a buyer in the Bay Area or the Lake Tahoe/Truckee region, you’d do well to act fast to make your dream a reality in 2015. Need an incentive? It’s likely that the superlow interest rates of recent years will soon be a memory, and just a 1 percent rise in interest rates could add $100,000 or more to your mortgage payments.
Buying a home is one the most important transactions of your lifetime, and it’s smart to have a strategy. Follow these basic steps for success:
1. Get prequalified for a mortgage: Ask a lender to assess your credit-worthiness and eligibility for a home loan before you formally apply. By evaluating your household income, your savings, and your existing debt, a lender can tell you “how much house” you can afford. Although obtaining prequalification does not guarantee getting a mortgage on the home you hope to buy, it can strengthen your negotiating position. A seller who is confident in your ability to finance the purchase of a home is likely to seriously consider your offer.
2. Seek the help of a real estate professional: While it is certainly possible to search for homes on your own by scanning websites and print listings, you can place yourself at an advantage by enlisting the services of a professional who has in-depth and up-to-date knowledge of the communities and real estate markets you are considering. He or she can easily locate neighborhoods and homes that fall within your price range and satisfy many of your other requirements as well. A professional can also schedule opportunities for you to view and tour homes.
3. Find the right home for you: Once a lender has prequalified you by calculating the maximum mortgage you can afford, the next step is to look for and find the right home for you and your family that is within your price range.
4. Make an offer on a home: Once you are poised to make a bid, your real estate professional will represent you in drafting a reasonable offer and presenting it to the seller’s agent. Your offer should take into consideration the age and condition of the home, the cost to make any repairs, the desirability of the home’s location, how long it has been on the market, and whether the seller appears motivated to move the property quickly, among other factors. Remember that your offer is legally binding.
5. Apply for a mortgage: Once you have a signed contract on a home, it’s time to apply for a mortgage. Remember that you still must formally apply for a mortgage even if you have already been prequalified. Also keep in mind that you are not obligated to apply for a loan with the same lender that prequalified you. It’s a good idea to retain an attorney; applying for a mortgage and purchasing a home are complex legal transactions.
6. Get a home inspection: A home inspection protects your interests. Hiring a licensed, independent inspector to visually examine the home you hope to buy will provide you with information that you and your real estate professional will need as you negotiate the terms and conditions of the contract. Some buyers and sellers agree to share the cost of any needed repairs.
7. Close on your home: The closing is the last step in the process of buying your home. “Closing” refers to the transaction during which you close your deal with the seller to buy a home at the same time that you close your deal with your lender to borrow a loan. Note that new federal rules take effect tomorrow, Oct. 3, that aim to simplify the borrowing process for consumers. For more on the new rules, read a recent article by Pacific Union CEO Mark A. McLaughlin. The New York Times also has a report on the new rules.
(Image: Flickr/James Gaither)