HOME BUYER’S GUIDE
Table of Contents
PART 1: IS BUYING THE RIGHT PATH FOR YOU?
PART 2: BUILDING YOUR TEAM
PART 3:
UNDERSTANDING THE BUDGET CONVERSATION
PART 4: THE SEARCH IS ON!
PART 5: WRITING AN OFFER
PART 6: DUE DILIGENCE
PART 7: FINAL THOUGHTS
PART 1: IS BUYING THE RIGHT PATH FOR YOU?
For many people, homeownership is a major step toward achieving the American dream, which is one of many reasons why buying a house is not only a financial decision, but an emotional one. If you’re thinking about buying your first home, there are several questions you should ask yourself to determine if you’re ready:
- Are my life and income at a stable place?
- Do I plan to be in the area for at least five years?
- Am I able to handle the potential cost of surprise maintenance issues in addition to my regular mortgage payments?
- Can I afford the house that I want in the area that I want?
Whether the answers to these questions all point to “YES!” or you’re unsure what your answers mean, don’t hesitate to reach out to us. We can help guide you through your decision. Over the years, several of our clients decided they weren’t quite ready, but after a little time and financial planning, they were able to come back to us and become happy homeowners.
The traditional worries that come along with a big financial decision, such as purchasing a home, are valid, but there are many benefits that come along with homeownership. For one, homeownership is an automatic boost to your investment portfolio, and any tax advisor will tell you that being a homeowner can be helpful when April 15 th rolls around! On a more personal level, homeownership gives you the freedom to be creative as you define your space and style. Ultimately, the stability and sense of pride that you get from owning your home will lead you closer to the American dream.
PART 2: BUILDING YOUR TEAM
A quality buyer’s agent is imperative to your success of becoming a homeowner. Once they help you find the perfect house, you will rely on your agent to put together an offer that will rise above the competition and get the house under contract at the right price.
Once you’re under contract, your agent will handle loads of legal documents, contract-mandated time constraints, contractors of every nature. . . the list goes on and on.
In layman’s terms, a good buyer’s agent is like the quarterback of the football team: the quarterback leads the team, watching over all of the other players’ movements, avoiding trouble spots on the field, and directs the whole team to a win.
Here are some specific ways a buyer’s agent can help you:
1. We have access to homes for sale not only in the MLS (Multiple Listing Service) and other search platforms, but oftentimes we know of homes that will soon be for sale but haven’t entered the market. And speaking of access, an agent has the keys to get you into the homes you want to see!
2. Buying a house is typically a very emotional process for buyers. However, a buyer’s agent won’t have the same emotional attachments to a house, so we’re able to help our clients filter out the purely emotional reactions, and keep them on track.
3. Charlotte has hundreds of neighborhoods, and the value of each one can vary dramatically. The prices of our in-town areas can swing wildly apart from one another, even from one side of the street to the other. Two neighboring homes can vary more than $100/square foot, and the average buyer may have no idea why. We can help explain why.
4. What if problems are discovered during your home inspection? Turn to your agent: we have experience with pretty much every kind of contractor, and part of our role is to coordinate with those contractors and get an expert opinion.
5. Speaking of vendors, you can call on us if you need a lender, closing attorney, home inspector, movers, etc. We will point you to a trusted professional to get the job done well.
6. Per North Carolina real estate law, unless you enter into an exclusive buyer agency agreement, any real estate agent that you meet with to talk about a house actually represents the seller . This can be mind-boggling to think about, but it demonstrates that you, as the buyer, REALLY need your own advocate that works in your best interests.
PART 3: UNDERSTANDING THE BUDGET CONVERSATION
Once you start the financial conversations of homeownership, you may feel like you need a finance degree to fully comprehend everything. That’s why it’s important to meet with a lender who will take the time to explain the details to you in terms that you can actually understand.
One of the basics that you’ll need to understand is PITI, which are the four components of a mortgage payment. Traditionally, lenders will want to make sure that the total of your PITI payments is 28% or less of your gross monthly income.
PITI broken down looks like this:
P=Principal
This is the amount of your loan. Usually, in the beginning of your loan, your principal payment will be pretty low, as most of your monthly payment will go towards interest (this is what is helpful on April 15th). Paying down the principal of your loan is what will reduce your overall loan, and will increase the equity in your home.
I=Interest
Lenders will charge you a percentage amount for borrowing money to buy a home, known as interest. As noted above, the first few years of your mortgage payments will go significantly towards paying interest, but that will lessen over time. A fixed-rate mortgage means that your interest rate will remain the same throughout the life of the loan. An adjustable-rate mortgage means that your interest rate will change periodically throughout the life of the loan.
T=Taxes
These are property taxes that you will pay to the city and county that your house is located in. Property taxes can vary a great deal, so it’s always good to find out what an individual house’s taxes are while you are house hunting. Keep in mind, though, that these can always change year to year. Most often, your lender will escrow your property taxes, and will pay the tax bill on your behalf.
I=Insurance
Insurance is your property/homeowners’ insurance (also sometimes referred to as “hazard” insurance). Homeowners’ insurance can cover a huge range of issues, including your possessions or if you incur health-related expenses if someone is hurt on your property. Another kind of insurance may be private mortgage insurance (PMI). Typically, if you put down less than 20% on your home, then your lender will require monthly PMI, which protects the lender if you stop making payments.
PART 3: CONTINUED. . .
A knowledgeable lender will be a huge asset to you throughout your home-buying process, even before you start touring homes. You may be able to piece together a rough estimate as to what you believe your budget can be, but talking to a lender will provide a lot of insight to your numbers. Lenders can tailor loan programs to you specifically while taking into account your credit score and possible interest rates. Some of the general loan programs include:
Conventional Loans
Conventional loans are the most popular financing option for buyers because they tend to be the least restrictive. Depending on the specific lender, you could be required to put a down payment of around 10-20%, but it could be as low as 3%. As we mentioned earlier, a down payment of less than 20% will require PMI, so the most you can put down is advantageous to you. The down payment amount can even affect your interest rate and final loan costs.
FHA Loans
FHA loans are mortgages that are insured by the US Federal Housing Administration, and are made for low to moderate income buyers, because they require lower down payments and credit scores than the typical conventional loan. FHA loan limits vary from county to county around the country. FHA loans are for primary residence occupancy only, and the home must meet certain minimum standards to be approved for funding via FHA loan.
VA Loans
VA loans are available to active duty or retired military personnel, and are guaranteed by the US Department of Veterans Affairs. The program was designed to help military personnel be able to afford to purchase a home without needing a down payment, and does not charge a PMI.
Mortgage Broker vs. Lender
We’ve referred to “lender” quite a bit in this section, but we wanted to take the time to explain the difference between a mortgage broker and a lender, because you can choose to work with either. A lender is the financial institution that actually lends you the money -- think banks like Wells Fargo or Bank of America. A mortgage broker is more of a matchmaker. When you work with a broker, they review all of your financials and then pair you with a lender based on a best match scenario.
Whether you choose a broker or lender, you’ll want to work with someone that you can actually talk to, because you’ll be in close contact with them for at least 30 days or more. You want someone that is available around the clock, since we often find THE house in the evenings or during the weekend. It’s ideal to work with a local lender because they understand the neighborhood values and work with appraisers who know our markets. . . plus, they’re sure to be in your time zone! We know a number of great brokers and lenders, so if you need some suggestions, please just ask, and we’ll get you in touch.
PART 4: THE SEARCH IS ON!
Now that your team of experts is behind you, it’s time to find the house! We’ll need to carve out some time to sit down together and craft a list of your must-haves, what you can live without, and what neighborhoods you’d like to be in. Along the way, we will ask questions to help you fine-tune that list.
Plenty of people will begin their house search on internet platforms like Zillow or Redfin, which are actually fed by our MLS system, the mother of all listing data. We can set you up with an MLS search that includes your specific criteria, and you’ll receive daily notifications of the latest houses to enter the market. We’ll review your search results daily to ensure we’re all on the same page. We’ll also work off market, either asking past clients or networking with other agents to find out if there are any houses under the radar that might work for you.
PART 5: WRITING AN OFFER
The North Carolina Offer to Purchase and Contract currently has 13 pages of important details, and you should read all of them before going under contract. However, there are a handful of items that you’ll really focus on when you’re ready to write an offer. Think only the purchase price is important and negotiable? Think again! Important items include:
Purchase Price: What you’re willing to pay for the house is important, so it’s worth mentioning again in this list!
Due Diligence Fee and Due Diligence Period: North Carolina allows for a period called “Due Diligence,” which is when the buyer works to discover all of the unknowns of the home purchase. In order to keep the seller on board with this time period, the buyer will offer a Due Diligence Fee that is paid directly to the seller, and is non-refundable. Because Due Diligence (DD) is such an important time, we will discuss it in more detail later (so keep reading).
Earnest Money Deposit: The Earnest Money Deposit (EMD) is a payment made to demonstrate the buyer’s “good faith” to buy the seller’s property. The EMD is held in an escrow account, and on the day of closing, it is attributed to the buyer’s down payment. If you terminate your contract before the end of your DD period, the EMD will be refunded to you.
Personal Property: When you’re viewing a home, you might decide that you love the curtains in the master bedroom, or the swing set in the backyard. Technically, those are owned by the seller and do not automatically stay in the house when you buy it. Only items affixed to the property will convey with the purchase, such as curtain rods or blinds, so if you decide you cannot have the house without the curtains, then you need to ask for them up front in the “Personal Property” section of the contract.
Closing Costs: Also known as “buyer expenses,” closing costs are an amount of money that the buyer will need to pay on the day of closing, and may be paid for by the seller. These expenses can include things like inspection costs, attorney fees, lender fees, insurance fees. . . the list goes on!
Settlement Date: The settlement date is when both buyer and seller come together to sign all of the paperwork and make the sale official. Once all of paperwork is signed, and the transfer of title is switched from seller to buyer via the county’s Registrar of Deeds, the transaction is officially “closed.” At that point, you’re finally a new homeowner!
You can include a host of other addenda to the contract, but the above list is a pretty good starting point. Are you wondering what a “typical” number or amount should look like for any of the above? Always remember, everything is negotiable, and many of these will vary, depending on how competitive your situation is. Be sure to think through all of the terms you offer to a seller, because once they are agreed upon, you will be bound by them. This highlights another great reason why you need a knowledgeable buyer’s agent working for you.
PART 6: DUE DILIGENCE
Let’s get back to Due Diligence (DD) for a minute since it is so important. . .
North Carolina is a Caveat Emptor state, meaning “let the buyer beware.” This is why your due diligence period is integral to your buying process. As we mentioned previously, the buyer will offer the seller an agreed upon sum of money in order to investigate the property, and all that comes with the process. What’s this really for? Per the contract, as a buyer in North Carolina, you have the right to terminate the contract with no extra penalty during the due diligence period. This is especially helpful if your loan details don’t work out the way you planned or you find out the house is somehow not what you wanted during your inspections. (Keep in mind: the seller can never choose to terminate the contract during the contract period).
The typical things a buyer needs to complete during the DD period include, but are not limited to: a variety of home inspections and any repair negotiations; an appraisal; loan approval; and survey. Are you starting to panic, thinking of all the things that need to be done during this time? On average, the DD period is around the 15-21 day range, which should be more than enough time when you choose to work with a solid buyer’s agent and lender/broker.
PART 7: FINAL THOUGHTS
You haven’t called us yet? Just kidding! But, really. . .
There are a lot of decisions to be made that can cost YOU a LOT of money. We understand that this is likely the largest financial decision you’ll make, and we feel confident that we can guide you towards making the right one. We have helped hundreds of clients like you, and our insight is exceptional.
When you’re ready, we would love to get together over coffee and walk you through the process, and of course, answer any more questions you might have.
Genevieve Williams OWNER/BROKER, REALTOR ®
P 704.323.9127
E GW@gwclt.com
Bailey Ralls Lee BROKER, REALTOR ®
P 336.402.3480
E Bailey@gwclt.com