The Home Buying Process
Buying a home does not need to be a perilous event. However, since it typically is one of, if not THE, most significant purchases most of us will make, it is natural to worry a bit. The tips below are designed to give you guidance, and at the same time, offer you reassurance.
1. Commit to stay "home"
It used to be that you could buy a home and turn around and sell it two or three years later and make a profit. But today, our lives and the real estate market are different. So, if you cannot commit to remaining in a home for at least three years, then home ownership is probably not for you. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner - even in a rising real estate market.
2. Meet with a lender and pay attention to your credit.
Most of us will not elect to pay cash for a new home; so, in all likelihood, you will need to get a mortgage to buy a home. Two key components in your ability to obtain a mortgage are income/debt ratio and credit rating. First, lenders do not want you to be ”house poor,” so most will require that your mortgage payment (including tax and insurance escrows) does not exceed 26 percent of your gross monthly income. So, don’t buy a new car or furniture just before you start your home buying expedition! Secondly, you must make sure your credit history is as clean as possible. A few months before you start home hunting, get copies of your credit report and make sure the facts are correct, and work with a lender and/or a reputable credit counseling service to fix any problems you
In addition, the lender, after reviewing your credit and income/debt situation, will be able to provide you with a ”pre-approval” letter which is often a requirement to be included with a home purchase offer. Getting pre- approved will put you in a better position to make a serious offer when you find the right home. Do not confuse “pre-approval” with “pre-qualification,” which is based on a cursory review of your finances. “Pre-approval” from a lender is based on your actual income, debt and credit history
3. Have a reasonable expectations on what you can buy.
Listen to the lender you consultwith in #2 above! If the lender gives you a price range, it is best to look at homes that do not exceed their suggested price range by more than 5 percent. Additionally, listen to the real estate
agent you are planning to work with. They are familiar with current market conditions and can be the best source of knowledge with this aspect of the home buying experience.
4. Get a professional real estate licensee to help you
Even though the Internet gives buyers unprecedented access to home listings, most home buyers are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will represent only your interests in the home buying process. If you do not elect to sign a buyer agency agreement, however, the Georgia Real Estate Commission is very clear that the agent is prohibited from giving you advice on what terms to include with your offer or the price to offer on a piece of property. Without a signed buyer agency agreement, the Real Estate Commission only allows a real estate agent to provide ministerial services and include language in an offer that you construct.
5. Do your homework before bidding.
Your initial offer should be based on the sales trend of similar homes in the neighborhood. Before making your offer, consider sales of similar homes in the last three months. Once again, your professional real estate agent will be able to help you with this if you have signed a buyer agency agreement with them.
6. Keep your emotions in check.
Again, this is where a good, professional real estate agent, whom you have “hired” to be your buyer agent, will come in handy! While buying and selling can be an emotional roller-coaster, you need to not get so swept up in the transaction that you lose reasonable thought. Stay calm!
7. Hire a home inspector
Every home has a few blemishes. It is a home inspector’s mission to find them. It is when you can still say, after reviewing an inspector’s report on your dream home, “I love it,” that you know this is the home for you! You should hire a home inspector who is recommended by friends and/or your buyer agent, preferably an engineer with experience in doing home inspections in the area where you are buying.
8. Other inspections
Have the home inspected for termites and other wood destroying organisms, mold, lead-based paint and radon. Oftentimes your home inspector can detect the existence, or possible existence, of these issues. Should there be a concern, it is best to call in an expert in the field.
Concerning termites and other wood destroying organisms, a licensed pest control company can inspect the home and issue you an official “Georgia Wood Infestation Report.” If the seller does not have a transferrable termite bond to offer you, the termite inspection company can also issue you a bond to protect your home from the likely event of damage in the future. A current “retreatment bond” will ensure that the termite inspection company will return to the property to retreat it should damage be found. A current “retreatment and repair bond” will ensure that the termite inspection company will return to the property to retreat it should damage be found AND repair any damage, as well. While the repair and retreatment bond may cost more initially, it may save you thousands in the long run.
Concerning lead-based paint, it is advisable to read the EPA’s “Protect Yourself from Lead in Your Home” brochure they publish. Your buyer agent can provide you with a copy.
9. Obtain an appraisal and survey on the property
Your lender will require a home appraisal so they can be satisfied the home is worth the price you've agreed to pay. But if you are not obtaining a mortgage, you need to take the responsibility to order an appraisal! Additionally, it is advisable to obtain a survey of the land during your Due Diligence Period so you are certain where the property lines are located and whether or not there are any encroachments or easements on your property, and if any component of your dream home encroaches on a neighboring property. Encroachments can be expensive to rectify!
10. Buy Owner's Title Insurance.
An Owner’s Title Insurance policy will protect you if a pre-existing condition that affects title was not detected prior to the closing, or is created as a result of the closing. Things like forgery on a previously recorded deed cannot be detected by a simple title check...yet can cause you to have to give up your title to your dream home! The closing attorney will issue you a title policy only if requested by you and/or your buyer agent. It is advised that when you
ask the attorney to issue you title insurance that you ask for an “enhanced’ title policy.
Think about this: if you get a mortgage, the lender makes you buy them a title insurance policy which provides them protection from previously undetected problems with the title into the future. The lender’s policy offers you no protection, however, so why would you not get a title policy to protect your interest? You pay for your title insurance policy only once-- at the closing.
11. Review the HUD-1 Settlement Statement (Closing Statement) prior to the closing.
Lenders are supposed to provide you with a HUD-1 Closing Statement 24 hours prior to the closing of your home. Remind the lender and the closing attorney of this requirement! By obtaining the HUD-1 in advance, you will be able to review and challenge any charges that appear to be out of place, prior to the actual closing. This saves you time and aggravation and enables you to wire the correct amount of funds needed to purchase your home in a timely fashion.
Protect Yourself When Buying a Home
This brochure was prepared courtesy of the Georgia Association of REALTORS® to help buyers with the home buying process. The recommendations herein are general in nature and are not intended to be exhaustive. Some of the recommendations may not apply to specific properties. Buyers are encouraged to consult with experts and professionals of their own choosing to ensure that they are protected in buying a home.
There are few things in life as exciting as buying a home. However, since homes are one of the largest purchases most of us will ever make, buyers should take reasonable steps to protect themselves in the home buying process. This brochure contains some general suggestions on how buyers can do this.
Read and keep a copy of any signed contract. A purchase and sale agreement is a legally binding contract. It should be read in its entirety by the buyer before it is signed to ensure that it reflects the business agreement of the parties. Verbal promises not included in the contract are generally unenforceable. Buyers should comply with all time deadlines in a contract since missing a deadline can leave the buyer in breach of contract. Getting an early start on arranging such things as inspections and financing is the best way for buyers to avoid missing deadlines. The buyer should also keep a complete copy of any contract that he or she has signed in the event a dispute arises regarding the authenticity of the contract.
Have the home inspected by a professional home inspector. Home inspectors help buyers evaluate the condition of the home based upon one or more visual inspections of the property. Most homes have at least a few items that will need to be repaired and/or replaced. A professional home inspector can assist in identifying these items by performing an inspection of the property. Requests for repairs are normally received more favorably by sellers when the need for the repairs has been documented in the report of a professional home inspector. Many home inspectors are members of professional associations that, among other things, require their members to perform a standardized inspection of the property. Buyers are encouraged to ask inspectors about their qualifications and expertise in inspecting homes before selecting an inspector.
Inspect the neighborhood in which the home is located.
The neighborhood in which a home is located can be as important as the home itself. Buyers should familiarize themselves with the neighborhood in which the homes they are considering buying are located to determine if there are any objectionable conditions nearby. If buyers go far enough away from any home, they will eventually discover some neighborhood condition that they wish were not there. What those conditions are and how far away they need to be from a house before they are no longer a concern is a decision that only the buyer can make. For example, a nearby grocery store may be a convenience for some buyers and a disruptive commercial use for others. Buyers can also contact local governmental planning officials to determine what changes, if any, are anticipated in a neighborhood over time.
Have the home inspected for termites and other wood destroying organisms and obtain an official Georgia Wood Infestation Report that can only be prepared by a licensed pest control company. Buyers should have the home they are buying inspected by a licensed Georgia pest control company for evidence of termites and other wood destroying organisms (including powder post beetles, wood boring beetles, dry wood termites and wood decay fungi). The inspection should be done even if the home has a transferable termite warranty since these warranties normally contain exclusions. As a result, buyers can understand risks they may be assuming in this area by having an inspection performed. Obtaining an official Georgia Wood Infestation Report will identify the areas in the house where there is evidence of both active and previous infestation from termites and other wood destroying organisms. Buyers should also review any termite warranty being transferred by the seller to determine what is covered and the cost of maintaining the warranty. Some termite warranties cover both retreatment and repair while others are limited only to re-treatment.
Thoroughly investigate the property. There are many other tests and studies buyers can do in deciding whether to purchase a property. These include, for example, a radon test to determine if the home has elevated levels of radon, mold tests to determine if the property has high levels of certain kinds of dangerous mold, well water tests when the property is served by well water and septic system inspections when the property is served by a septic system.
Homes should also be tested for lead-based paint. Normally, this is only an issue in homes built prior to 1978 (since after this time lead-based paint sales were prohibited). Ingestion of lead-based paint chips or particles can cause lead poisoning, a serious health condition, particularly in children. Buyers of older homes should read the EPA brochure entitled “Protect Yourself from Lead in Your Home”. Renovators of older homes should read the EPA’s Renovate Right brochure and other related materials.
Many factors can affect the value of a property and the ability of an owner to use and enjoy it. These include, for example, the school district in which the property is located, whether the property is subject to flooding, the availability and cost of property insurance, whether the property is subject to recorded covenants and the nature of those covenants, the governmental jurisdiction in which the property is located and whether the property is on a historic registry or in a special tax or zoning district. Websites exist to determine if a home was used to illegally manufacture methamphetamine (which generates environmental contaminants) and whether registered sex offenders reside in the neighborhood. Before buying a home, buyers are encouraged to use reasonable diligence to investigate the properties they are buying for issues of special concern to them.
Get a survey of the property. Buyers are encouraged to get surveys of the properties they are considering buying so that they know where the exact boundary lines of the properties are located. Buyers should request that the survey identify the location of any easements of record, whether there are encroachments onto or off of the property and whether the property is in a floodplain. Surveys are not normally done on the sale of condominium units. However, a buyer can review the condominium plat to see the location of the property that is a part of the condominium.
Make sure that an undeveloped lot can be developed. In most parts of Georgia, lots cannot be developed for residential purposes unless they are properly zoned, have access to a public road and are served by water and sewer. If there is no ability to connect the lot to a public sewer, the buyer should verify that the lot can accommodate a septic system. This is done by having a licensed engineer perform a percolation test and evaluate whether the lot is sufficiently large for a septic tank and field to be installed. Similarly, if the lot is serviced by a well or private water system, the buyer should arrange to have the water tested to confirm that it is safe for drinking. Meeting with the local government department which issues building permits is a great way to get information about whether and how a vacant lot can be developed.
Buy an Owner’s Title Insurance Policy. An owner’s title insurance policy protects the buyer if a pre-existing title problem is discovered after the closing. Normally, a title insurance policy is purchased and issued at the closing by the closing attorney. A title problem can be as simple as a neighbor claiming to own a small portion of your property based upon a disputed fence line. However, it can also be a serious problem, such as a forged deed, where you could lose the title to your property. Mortgage lenders require the buyer to pay for title insurance covering the lender’s interest in the property. However, in a world where there is an increasing amount of identity theft and the forging of documents, title insurance covering the owner is also recommended. There are different types of title insurance policies offered in Georgia. The most comprehensive are sometimes referred to as “enhanced title policies” and in some cases, they protect buyers from title claims arising even after the closing date. Since the premium for title insurance is paid only once, it is recommended that buyers obtain the comprehensive policy.
Consider Purchasing a Home Warranty. Georgia law does not require the seller of either a new or existing home to provide the buyer with a home warranty. If the seller is not offering a warranty, buyers can purchase a limited warranty on both new and existing homes as a part of the purchase of the home. Buyers should review the terms of any warranty that is offered or purchased to understand what it covers and excludes and how to lay a claim.
Be Careful to Avoid Scams. Scams designed to separate people from their money are on the rise. After a buyer has received instructions from the closing attorney as to where to wire funds, buyers should be highly suspect of any subsequent wiring instructions, particularly if they are different from the original instructions. In many cases, these subsequent wiring instructions are false and could result in the buyer wiring money to fraudsters. Buyers should contact the closing attorney to verify the correct wiring instructions.
Be Careful to Avoid Needless Expenses. Some companies who can appear to the untrained eye to be conducting official government business also charge fees to obtain a recorded or certified copy of the deed. This is an unnecessary expense since the closing attorney normally provides a recorded copy of the deed to the buyer as part of the closing. However, it can take up to a month or two for the closing attorney to get the recorded deed back from the courthouse.
Choose a REALTOR®. Not all licensed real estate salespersons (or brokers) are REALTORS®. REALTORS® agree to abide by a Code of Ethics in their dealings with buyers and sellers. REALTORS® are members of the National Association of REALTORS® and participate in a local Board of REALTORS®. REALTORS® typically have valuable knowledge regarding the price at which other homes in a neighborhood sold, how to negotiate various terms in a purchase and sale agreement and the features of different homes. REALTORS® can also provide buyers with and help them fill out a pre-printed purchase and sale agreement form. REALTORS® routinely work with and, upon request, can provide buyers with the names of attorneys, mortgage lenders, home inspectors, termite companies and persons providing other services relating to real estate transactions. Therefore, when buyers need help in finding the right home, they should always choose a REALTOR® first!
Protect Yourself When Buying a Home to be Constructed
This brochure was prepared courtesy of the Georgia Association of REALTORS® to help buyers with the new construction home buying process. The recommendations herein are general in nature and are not intended to be exhaustive. Some of the recommendations may not apply to specific properties. Buyers are encouraged to consult with experts and professionals of their own choosing to ensure that they are protected in buying a newly constructed house.
Having a new home built is a dream come true for most home buyers. It is a chance for the buyer to have input into the design of the house, select building materials and finishes that are just what the buyer wants and end up with a home that uniquely reflects the buyer’s tastes and personality. While the process can be fun and exciting, there are some steps the buyer should take to be protected.
Be Specific in Describing the Work that will go into Building the Home. Most disputes between builders and buyers result from the contract not being specific enough in describing the scope of work that is to be performed by the builder and the type and quality of materials and fixtures to be used. So, for example, if the contract does not include plans and specifications showing that there will be crown molding in the various rooms in the house, the buyers should not expect crown molding. Buyers should follow the general rule that if an item is not included in the plans and specifications, the buyer is not entitled to the item. Therefore, plans and specifications should be very thorough. Buyers should also not assume that fixtures and finishes in a model house will necessarily be included in the house to be built for the buyer unless this is specifically stated in the contract. Insisting on detailed plans and specifications is probably the most important way a buyer can protect himself or herself in a new construction contract.
Check Builder’s References. As with all professionals, some builders have better reputations than others. Checking builder references is a good way to determine how other buyers who are now living in houses built by the builder view the builder’s work. Buyers are also encouraged to go see some homes constructed by the builder. This is a good way for buyers to evaluate the builder’s attention to detail and quality. Ask other buyers how easy the builder was to work with when changes in the work need to be made (referred to as “change orders”), whether the builder met time deadlines and how well the builder addressed punch list and warranty issues. These are all good predictors of whether the buyer will or will not have a good experience with a particular builder.
Get Your Financing Together. Few builders will construct a new home for a buyer until the buyer has arranged financing to purchase the home (unless the buyer is paying cash). Normally, the builder will give the buyer a short period of time to verify that he or she has the financial ability to purchase the property. After this time period is over, the purchase contract is no longer subject to a financing contingency. This means that if the buyer’s financial status changes and the buyer can no longer afford to buy the house when it is completed, the buyer will be in breach of contract and will likely lose his or her earnest money and other construction deposits if the buyer does not close. While this may seem harsh to some buyers, not buying the home can cause significant financial hardship to the builder since the builder’s money is tied up in the house until it can be sold to someone else.
Know Who is Holding Earnest Money and Construction Deposits. Who holds earnest money and/or construction deposits is usually a matter of negotiation between the builder and the buyer. Builders often want control of earnest money and construction deposits to make it easier to access in the event the buyer defaults. Builders will also often use construction deposits to build the house. Buyers sometimes want a Broker to hold the earnest money since such funds will be held in the broker’s trust account. Satisfying both the builder and the buyer in these negotiations is not always easy. If the builder goes out of business before the house is finished (as sometimes happens in a real estate downturn), buyer deposits will often be lost. However, builders will not generally make upgrades or modifications to houses without being paid up front for such improvements (since they may reflect the buyer’s unique tastes and may make the house more difficult to market). As a result, most buyers have to accept some risk with regards to these deposits. This is another reason to investigate the background of the builder.
Have Realistic Expectations Regarding the Closing Date. Having a new home built for the buyer can be subject to conditions, such as bad weather, that are beyond the control of the builder. As a result, most real estate contracts give the builder the right to extend the closing date due to unforeseen circumstances. Buyers should have realistic expectations regarding the possible need to extend the closing date. If the buyer needs to be in the property by a particular date, this should be negotiated into the contract. The buyer should also regularly communicate with the builder as the house is being built to confirm that there are no circumstances which may result in the closing date being delayed.
Read any Declaration of Covenants Applicable to the Community. Most new subdivision homes are now located in communities where all property owners are subject to a Declaration of Covenants, Conditions, and Restrictions (often referred to as a “Declaration”) that, among other things, obligates owners to be a member of and pay assessments to a homeowner’s association. The Declaration also typically includes restrictions regarding how owners may use their properties. Buyers in these communities should read the Declaration to confirm they understand their financial obligations relative to any homeowners’ association and are comfortable with the nature and scope of the use restrictions. For example, it is common for such restrictions to require approval by the homeowners association of all exterior changes made by the owner to the home and lot, whether the property can be used for business purposes, the number of pets an owner can have, how a property must be maintained and whether or not it can be leased.
Understand What Warranties Come with the Home. In Georgia, developers are not legally obligated to provide buyers with a home warranty. Therefore, it is important for buyers to ask their builders about whether a warranty is being provided and to incorporate it into the purchase and sale agreement. Some warranties are provided directly by the builder while others are provided by independent warranty companies. Some warranties include detailed information about what is and is not a defect. Others require that very specific procedures be followed in order to file a warranty claim. Knowing what the warranty provides is the best way to avoid surprises down the road.
Read All Builder Disclosures Carefully. In many new construction purchase and sale contracts, the builder will disclose conditions in the property and neighborhood of which the buyer may be unaware. So, for example, the builder might disclose that there is a nearby quarry, the view from the buyer’s lot may change over time, homes in later phases of the subdivision may not be as large as the homes presently being built or that the schools serving the subdivision may change due to redistricting. In many cases, the disclosures are of things buyers could easily have discovered had they exercised due diligence prior to signing the contract. Buyers should read all such disclosures so that they better understand what and where they are buying and because they are presumed to have read and understood everything that is in the purchase and sale agreement regardless of whether or not they actually did. Buyers should also do their own investigations of the broader community to ensure that they are aware of any objectionable conditions.