The Guidebook
For Buyers
A collection of how-tos,
checklists, and worksheets
to help buyers understand what to expect
during the real estate purchasing experience.
Contents
A collection of how-tos, checklists, and worksheets to help buyers understand
what to expect during the real estate purchasing experience.
The Basics
Buyer
What
to Know | 7
Reasons to Own A Home page
3
What
to Know | 7
Reasons to Work With a REALTOR® page
4
Questions
to Ask | When
Choosing a REALTOR® page
5
Vocabulary
| Agency & Agency
Relationships page 6
How
to | Prepare
for House-Hunting page
7
How
to | Prepare
to Buy a Home page
8
Worksheet
| Track
Your Budget page
9
What
to Know | About
Credit Scores page
10
How
to | Improve
Your Credit page
11
How
to | Prepare
to Finance a Home page
13
Vocabulary
| Loans
& Lending Terms page
14
Questions
to Ask | When
Choosing a Lender page
15
How
to | Finance
a Home Creatively page
16
The Property
Buyer
Worksheet
| Define
Your Dream Home page
17
Questions
to Ask | About
the Neighborhood page
18
Questions
to Ask |
When Considering a Condo or HOA page
19
Questions
to Ask | The
Condo Board page
20
Questions
to Ask | When
Choosing a Home Inspector page
21
What
to Know | About
the Home Inspection page
22
What
to Know | About
Home Hazards page
23
Vocabulary
| Green
Home Terms page
24
What to Know | About the Appraisal Process page
25
Questions
to Ask | About
Property Tax page
26
The Transaction
Buyer
Worksheet
| Service Provider Contacts page 27
Checklist
| Your
Mortgage Application page
28
Questions
to Ask | Before
Making a Short Sale Offer page
29
Checklist
| Your
Short-Sale Purchase Team page
30
How
to | Buy
In a Tight Market page
31
What
to Know | About
Homeowner’s Insurance page
32
How to | Lower Homeowner’s Insurance Costs page
33
What
to Know | About
Title Insurance page
34
Worksheet
| Track
Closing Costs page
35
Vocabulary
| Transaction Documents page 36
Checklist
| Your
Final Walk-Through page
37
The Move
How
to | Prepare
for the Move page
38
How
to | Pack
Like a Pro page
39
How
to | Move
With Pets page
40
Checklist
| For
New Owners page
41
THE
BASICS | BUYER
WHAT TO KNOW
7
Reasons to Own A Home
1.
Tax
benefits.
The U.S. Tax Code lets you deduct the
interest you pay on your mortgage, your property taxes, and some of the costs
involved in buying a home.
2.
Appreciation.
Historically, real estate has had a long-term, stable growth in value. In fact,
median single-family existing-home sale prices have increased on average 5.2
percent each year from 1972 through 2014, according to the National Association
of REALTORS®. The recent housing crisis
has caused some to question the long-term value of real estate, but even in the
most recent 10 years, which included quite a few very bad years for housing,
values are still up 7.0 percent on a cumulative basis. In addition, the number
of U.S. households is expected to rise 10 to15 percent over the next decade,
creating continued high demand for housing.
3.
Equity.
Money paid for rent is money that you’ll never see again, but mortgage payments
let you build equity ownership interest in your home.
4.
Savings.
Building equity in your home is a ready-made savings plan. And when you sell,
you can generally take up to $250,000 ($500,000 for a married couple) as gain
without owing any federal income tax.
5.
Predictability.
Unlike rent, your fixed-rate mortgage payments don’t rise over the years so
your housing costs may actually decline as you own the
home longer. However, keep in mind that property taxes and insurance costs will
likely increase.
6.
Freedom.
The home is yours. You can decorate any
way you want and choose the types of upgrades and new amenities that appeal to
your lifestyle.
7.
Stability.
Remaining in one neighborhood for several years allows you and your family time
to build long-lasting relationships within the community. It also offers
children the benefit of educational and social continuity.
THE
BASICS | BUYER
WHAT
TO KNOW
7
Reasons to Work With a REALTOR®
REALTORS® aren’t just agents. They’re professional members of
the National Association of REALTORS® and subscribe to its strict code of ethics.
This is the REALTOR® difference for home buyers:
1.
Ethical
treatment.
Every REALTOR® must adhere to a strict code of ethics, which is based on
professionalism and protection of the public. As a REALTOR®’s client, you can
expect honest and ethical treatment in all transaction-related matters. The
first obligation is to you, the client.
2.
An
expert guide.
Buying a home usually requires dozens of forms, reports, disclosures, and other
technical documents. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes. Also, there’s a lot of jargon involved, so you want to work with a professional who can speak the language.
3.
Objective
information and opinions.
REALTORS® can provide local information on utilities, zoning, schools, and
more. They also have objective information about each property. REALTORs® can
use that data to help you determine if the property has what you need. By
understanding both your needs and search area, they can also point out
neighborhoods you don’t know much about but that might suit your needs better
than you’d thought.
4.
Expanded
search power.
Sometimes properties are available but not actively advertised. A REALTOR® can
help you find opportunities not listed on home search sites and can help you
avoid out-of-date listings that might be showing up as available online but are
no longer on the market.
5.
Negotiation
knowledge.
There are many factors up for discussion in a deal. A REALTOR® will look at
every angle from your perspective, including crafting a purchase agreement that
allows enough time for you to complete inspections and investigations of the
property before you are bound to complete the purchase.
6.
Up-to-date
experience.
Most people buy only a few homes in their lifetime, usually with quite a few
years in between each purchase. Even if you’ve done it before, laws and
regulations change. REALTORS® handle hundreds of transactions over the course
of their career.
7.
Your
rock during emotional moments.
A home is so much more than four walls and a roof. And for most people,
property represents the biggest purchase they’ll ever make. Having a concerned,
but objective, third party helps you stay focused on the issues most important
to you.
THE BASICS |
BUYER
QUESTIONS TO ASK
When
Choosing a REALTOR®
How long have you been in residential real estate? Is it your
full-time job?
Like most professions, experience is no guarantee of skill. But much of real
estate is learned on the job.
Do you have any designations or certifications?
Real estate professionals have to take additional
specialized training in order to obtain these distinctions. Designations and
certifications help define the special skills that an agent can apply to your particular real estate needs. One designation buyers should look for is the ABR®, or Accredited Buyer’s
Representative.
What’s your business philosophy?
While there’s no right answer to this question, the response will help you
assess what’s important to the agent and determine how closely the agent’s
goals and business emphasis mesh with your own.
How many buyers did you and your real estate brokerage represent
last year?
This will tell you how much experience they have and how up-to-date
they are on the local market.
What’s the average variation between your initial offers and
final sales price?
This is one indication of a REALTOR®’s
pricing and negotiating skills.
Will you represent me exclusively, or might you choose to
represent the seller as well?
While it’s usually legal to represent both parties in a transaction, your
REALTOR® should be able to explain his or her philosophy on client obligations
and agency relationships.
Can you recommend service providers who can help me obtain a
mortgage, make home repairs, and so on?
Practitioners should be able to recommend more than one provider and let you
know if they have any special relationship with any of the providers.
How will you keep me informed about the progress of my
transaction?
The best answer here is a question. A real estate agent who pays close
attention to the way you prefer to communicate and responds accordingly will
make for the smoothest transaction.
Could you please give me the contact information of your three
most recent clients?
Ask their former customers if they would use the agent again in the future.
THE
BASICS | BUYER
VOCABULARY
Agency
& Agency Relationships
The term “agency” is used in real
estate to help determine what legal responsibilities your real estate professional
owes to you and other parties in the transaction.
The buyer’s representative (also known as a buyer’s agent) is hired
by prospective buyers and works in the buyer’s best interest throughout the
transaction. The buyer can pay the agent directly through a negotiated fee, or
the buyer’s rep may be paid by the seller or through a commission split with
the seller’s agent.
The seller’s representative (also known as a listing agent or
seller’s agent) is hired by and represents the seller. All fiduciary duties are
owed to the seller, meaning this person’s job is to get the best price and
terms for the seller. The agency relationship usually is created by a signed listing
contract.
A subagent owes the same fiduciary duties to the agent’s
customer as the agent does. Subagency usually arises when a cooperating sales
associate from another brokerage, who is not the buyer’s agent, shows property
to a buyer. The subagent works with the buyer to show the property but owes
fiduciary duties to the listing broker and the seller. Although a subagent
cannot assist the buyer in any way that would be detrimental to the seller, a
buyer customer can expect to be treated honestly by the subagent.
A disclosed dual agent represents both the buyer and the seller
in the same real estate transaction. In such relationships, dual agents owe
limited fiduciary duties to both buyer and seller clients. Because of the
potential for conflicts of interest in a dual-agency relationship, all parties must
give their informed consent. Disclosed dual agency is legal in most states, but
often requires written consent from all parties.
Designated agents (also called appointed agents) are
chosen by a managing broker to act as an exclusive agent of the seller or buyer.
This allows the brokerage to avoid problems arising from dual-agency
relationships for licensees at the brokerage. The designated agents give their
clients full representation, with all of the attendant
fiduciary duties.
A transaction broker (sometimes referred to as a facilitator)
is permitted in states where nonagency relationships are allowed. These
relationships vary considerably from state to state. Generally, the duties owed
to the consumer in a nonagency relationship are less than the complete,
traditional fiduciary duties of an agency relationship.
THE
BASICS | BUYER
HOW TO
Prepare
for House-Hunting
Know that there’s no “right” time to buy.
If you find the perfect home now, don’t risk losing it because you’re trying to
guess where the housing market and interest rates are going. Those factors usually
don’t change fast enough to make a difference in an individual home’s price.
Don’t ask for too many opinions.
It’s natural to want reassurance for
such a big decision, but too many ideas from too many people will make it much
harder to make a decision. Focus on the wants and
needs of the people who will actually be living in the
home.
Accept that no house is ever perfect.
If it’s in the right location, the yard may be a bit smaller than you had
hoped. The kitchen may be perfect, but the roof needs repair. Make a list of
your top priorities and focus in on things that are
most important to you. Let the minor ones go. Also, accept that a little
buyer’s remorse is inevitable and will most likely pass.
Don’t try to be a killer negotiator.
Negotiation is definitely a part of the real estate process,
but trying to “win” by getting an extra-low price or refusing to budge
may cost you the home you love.
Remember your home doesn’t exist in a vacuum.
Don’t get so caught up in the physical aspects of the house itself that you
forget about important issues such as noise level, access to amenities, and
other aspects that also have a big impact on your quality of life.
Plan ahead.
Don’t wait until you’ve found a home to get approved for a mortgage,
investigate insurance, or consider a moving schedule. Being prepared will make
your bid more attractive to sellers.
Choose a home first because you love it; then think about
appreciation.
A home is still considered a great investment, but its most important role is
as a comfortable, safe place to live.
THE
BASICS | BUYER
HOW TO
Prepare
to Buy a Home
Talk to mortgage brokers.
Many first-time home buyers don’t take
the time to get prequalified. They also often don’t take the time to shop
around to find the best mortgage for their particular
situation. It’s important to ask plenty of questions and make sure you
understand the home loan process completely.
Be ready to move.
This is especially true in markets with a low inventory of homes for sale. It’s
very common for home buyers to miss out on the first home they wish to purchase
because they don’t act quickly enough. By the time they’ve made their decision,
they may find that someone else has already purchased the house.
Find a trusted partner.
It’s absolutely vital
that you find a real estate professional who understands your goals and who is
ready and able to guide you through the home buying process.
Make a good offer.
Remember that your offer is very
unlikely to be the only one on the table. Do what you can to ensure it’s appealing
to a seller.
Factor maintenance and repair costs into your buying budget.
Even brand-new homes will require some work. Don’t leave yourself short and let
your home deteriorate.
Think ahead.
It’s easy to get wrapped up in your
present needs, but you should also think about reselling the home before you
buy. The average first-time buyer expects to stay in a home for around 10
years, according to the National Association of REALTORS®’ 2013 Profile of Home
Buyers and Sellers.
Develop your home/neighborhood wish list.
Prioritize these items from most important to least.
Select where you want to live. Compile
a list of three or four neighborhoods you’d like to live in, taking
into account nearby schools, recreational facilities, area expansion
plans, and safety.
THE
BASICS | BUYER
WORKSHEET
Track
Your Budget
The first step in getting yourself in financial shape to buy a
home is to know exactly how much money comes in and how much goes out. Use this
worksheet to list your income and expenses below.
|
Income |
|
Expenses |
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Total Take-Home Pay |
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Total Rent/Mortgage |
|
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Child |
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Child Support/Alimony |
|
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Pension/Social |
|
Health Insurance |
|
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Disability/Other |
|
Life Insurance |
|
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Interest/Dividends |
|
Other Insurance |
|
|
Other |
|
Vehicle Insurance |
|
|
|
|
Vehicle Payments |
|
|
|
|
Vehicle Upkeep |
|
|
|
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Other Loans |
|
|
|
|
Utilities |
|
|
|
|
Credit Card Payments |
|
|
|
|
Savings/Pension Payment |
|
|
|
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Groceries |
|
|
|
|
Clothes/Personal Care |
|
|
|
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Medical/Dental/Prescriptions |
|
|
|
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Household Goods |
|
|
|
|
Child |
|
|
|
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Education |
|
|
|
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Charitable Donations |
|
|
|
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Eating Out |
|
|
|
|
Entertainment |
|
|
Total Income: |
|
Total Expenses: |
|
Remaining Income After Expenses (subtract total income from
total expenses): _______________________
THE
BASICS | BUYER
WHAT TO KNOW
About
Credit Scores
Credit scores range between 200 and 850, with scores above 620
considered desirable for obtaining a mortgage. The following factors affect
your score:
Your payment history.
Did you pay your credit card bills on time? Bankruptcy filing, liens, and collection activity also affect your history.
How much you owe and where.
If you owe a great deal of money on numerous accounts, it can indicate that you
are overextended. However, spreading debt among several accounts can help you
avoid approaching the maximum on any individual credit line.
The length of your credit history.
In general, the longer an account has been open, the better.
How much new credit you have.
New credit—whether in the form of installment
plans or new credit cards—is considered more risky,
even if you pay down the debt promptly.
The types of credit you use.
Generally, it’s desirable to have more than one type of credit—such as installment
loans, credit cards, and a mortgage.
THE
BASICS | BUYER
HOW TO
Improve
Your Credit
Credit scores play a big role in determining whether you’ll
qualify for a loan and what your loan terms will be. So, keep your credit score
high by doing the following:
Check for errors in your credit report.
Thanks to an act of Congress, you can download one free credit report each year
at annualcreditreport.com. If you find any errors, correct them immediately.
Pay down credit card bills.
If possible, pay off the entire balance every month. Transferring credit card
debt from one card to another could lower your score.
Don’t charge your credit cards to the max.
Pay down as much as you can every month.
Wait 12 months after credit difficulties to apply for a
mortgage.
You’re penalized less severely for problems after a year.
Don’t order items for your new home on credit.
Wait until after your home loan is approved to charge appliances and furniture,
as that will add to your debt.
Don’t open new credit card accounts.
If you’re applying for a mortgage, having too much available credit can lower
your score.
Shop for mortgage rates all at once.
Having too many credit applications can lower your score. However, multiple
inquiries about your credit score from the same type of lender are counted as
one if submitted over a short period of time.
Avoid finance companies.
Even if you pay off their loan on time, the interest is high
and it may be considered a sign of poor credit management.
THE
BASICS | BUYER
HOW TO
Prepare
to Finance a Home
Develop a budget: Use
receipts and your banking transaction history to create a budget that reflects
your actual habits over the last several months. This approach will better
factor in unexpected expenses alongside more predictable costs such as utility
bills and groceries. You’ll probably spot ways to save, whether it’s cutting out
a Starbucks run or eating dinner at home more often.
Reduce debt: Lenders generally
look for a debt load of no more than 36 percent of income. This figure includes
your mortgage, which typically ranges between 25 and 28 percent of your net
household income. So you need to get monthly payments
on the rest of your installment debt—car loans, student loans, and revolving
balances on credit cards — down to between 8 and 10 percent of your net monthly
income.
Increase your income: Now’s
the time to ask for a raise! If that’s not an option, you may want to consider
taking on a second job to get your income at a level high enough to qualify for
the home you want.
Save for a down payment: Designate
a certain amount of money to put away in your savings account each month.
Although it’s possible to get a mortgage with less than 5 percent down, you can
usually get a better rate if you put down more. Aim for 20 percent of the
purchase price.
Keep your job: While
you don’t need to be in the same job forever to qualify for a home loan, having
a job for less than two years may mean you have to pay a higher interest rate.
Establish a good credit history: Get a credit card and make all your bill payments on time. Pay
off entire balances as promptly as possible. Also,
obtain a copy of your credit report, which includes a
history of your credit, bad debts, and late payments. Ensure that it’s accurate and correct any
errors immediately.
Keep saving: Even
if you have enough money to qualify for a mortgage and cover your down payment,
you will also need to factor in closing costs, which can average between 2 and
7 percent of the home price, and incidentals such as the cost of hiring a home
inspector.
Decide what kind of mortgage you can
afford: Generally, you want to look for homes valued between two and
three times your gross income, but a financing professional can help determine
the size of loan for which you’ll qualify. Find out what kind of mortgage (30-year
or 15-year? Fixed or adjustable rate?) is best for you. Also, gather the
documentation a lender will need to preapprove you for a loan, such as W-2s,
pay stub copies, account numbers, and copies of two to four months of bank or
credit union statements. Don’t forget property taxes, insurance, maintenance,
utilities, and association fees, if applicable.
Seek down payment help: Check with your state and local government to find out whether
you qualify for special mortgage or down payment assistance programs. If you
have an IRA account, you can use the money you’ve saved to buy your first home
without paying a penalty for early withdrawal.
THE BASICS
| BUYER
VOCABULARY
Loans
& Lending Terms
Term.
Mortgages are generally available at 15-, 20-, or 30-year terms. In general,
the longer the term, the lower the monthly payment. However, shorter terms mean
you pay less interest over the life of the loan.
Fixed vs. adjustable interest rates.
A fixed rate allows you to lock in a low interest rate as
long as you hold the mortgage and, in general, is a good choice if
interest rates are low. An adjustable-rate mortgage (ARM) usually offers a
lower rate that will rise as market rates increase. ARMs usually have a limit
as to how much and how frequently the interest rate can be increased. These
types of mortgages are a good choice when fixed interest rates are high or if
you expect your income to grow significantly in the coming years.
Non-traditional mortgages.
Also sometimes called “exotic,” these
mortgage types were common in the run-up to the housing crisis, and often
featured loans with low initial payments that increase over time.
Balloon mortgage.
This is a form of non-traditional financing where your interest rate will be
very low for a short period of time—often three to seven years. Payments
usually only cover interest so the principal owed is
not reduced. This type of loan may be a good choice if you think you will sell
your home at a large profit in a few years.
Government-backed loans.
These loans are sponsored by agencies such as the Federal Housing
Administration or the Department of Veterans Affairs. They offer special terms,
including reduced interest rates to qualified buyers. VA Loans are open to
veterans, reservists, active-duty personnel, and surviving spouses and are one
of the only options available for zero down payment loans. FHA loans are open
to anyone, and while they do require a down payment, it can be as low as 3.5
percent. Drawbacks include a slower loan process and—for FHA loans—the need to
pay mortgage insurance.
However…
As the housing market shifts, so do lending practices. A mortgage broker—an
independent professional who acts as an intermediary between you and lending
institutions—may be able to help you find a better rate than you can on your
own. Also, be sure to shop around; slight variations in interest rates, loan
amounts, and terms can significantly affect your monthly payment.
THE
BASICS | BUYER
QUESTIONS TO ASK
When
Choosing a Lender
Loan terms, rates, and products can vary significantly from
one company to the next. When shopping around, these are a few things you
should ask about.
General questions:
What are the most popular mortgages you offer? Why are they so
popular?
Are your rates, terms, fees, and closing costs negotiable?
Do you offer discounts for inspections, home ownership classes,
or automatic payment set-up?
Will I have to buy private mortgage insurance? If so, how much
will it cost, and how long will it be required?
What escrow requirements do you have?
What kind of bill-pay options do you offer?
Loan-specific questions:
What would be included in my mortgage payment (homeowners insurance, property taxes, etc.)?
Which type of mortgage plan would you recommend for my
situation?
Who will service this loan—your bank or another company?
How long will the rate on this loan be in a lock-in period? Will
I be able to obtain a lower rate if the market rate drops during this period?
How long will the loan approval process take?
How long will it take to close the loan?
Are there any charges or penalties for prepaying this loan?
How much will I be paying total over
the life of this loan?
THE
BASICS | BUYER
HOW TO
Finance
a Home, Creatively
Investigate local, state, and national down payment assistance
programs.
These programs give qualified applicants loans or grants to cover all or part
of your required down payment. National programs include the Nehemiah program, Getdownpayment.com,
and the American Dream Down Payment Fund from the Department of Housing and
Urban Development.
Explore
seller financing.
In some cases, sellers may be willing to finance all or part of the purchase
price of the home and let you repay them gradually, just as you would do with a
mortgage. A similar option is the assumable mortgage, where a home buyer takes
over the seller’s existing loan (with bank approval). This can be especially
helpful when interest rates are on the rise.
Ask your family for help.
Perhaps a family member will loan you money for the down payment or act as a
cosigner for the mortgage. Lenders often like to have a cosigner if you have minimal
credit history.
Consider a shared-appreciation or shared-equity arrangement.
Under this agreement, your family, friends, or even a third party may buy a
portion of the home and share in any appreciation when the home is sold. The
owner-occupant usually pays the mortgage, property taxes, and maintenance
costs, but all the investors’ names are usually on the mortgage.
Lease with the option to buy.
Renting the home for a year or more will give you the chance to save more
toward your down payment. And in many cases, owners will apply some of the
rental amount toward the purchase price.
Consider a short-term second mortgage.
If you can qualify for a short-term second mortgage, this would give you money
to make a larger down payment. This may be possible if you’re in good financial
standing, with a strong income and little debt. Such arrangements may also help
you avoid jumbo loan restrictions and/or minimize the amount of private
mortgage insurance you have to pay.
THE
PROPERTY | BUYER
WORKSHEET
Define
Your Dream Home
Write in your preferences
and rate them: 3 = Vital, 2
= Very Important, 1 = Neutral,
0 = Not important
|
LOCATION |
PREFERENCES |
RATE |
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Neighborhood |
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School district |
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Near public |
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Near airport |
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Near expressway |
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Near shopping |
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Great views |
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TYPE |
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Single-family / condo |
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Minimum / maximum |
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Willingness to |
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Architectural style |
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Open floor plan |
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SIZE & MAKEUP |
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Minimum # of bedrooms |
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Minimum # of bathrooms |
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Eat-in kitchen |
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Family room |
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Formal dining room |
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Formal living room |
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Garage (number of cars) |
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Outdoor space (size/use) |
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Laundry room |
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AMENITIES |
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Wood floors / |
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Heating / cooling |
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Fireplace |
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Pool |
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Other special needs/preferences: |
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THE
PROPERTY | BUYER
QUESTIONS TO ASK
About
the Neighborhood
Where you live should reflect your lifestyle. These questions
will help you find the best community for you.
Is it close to my favorite spots?
Make a list of activities you engage in and stores you visit frequently. See
how far you would have to travel from each neighborhood you’re considering to engage in your most common activities.
Is it safe?
Contact the police department to obtain neighborhood crime statistics. Consider
not only the number of crimes but also the type and trend. (Is crime going up
or down?). Pay attention to see where in the neighborhood the crime is
happening.
Is it economically stable?
Check with your local economic development office to see if household income
and property values in the neighborhood are stable or rising. What is the ratio
of owner-occupied homes to rentals? Apartments don’t necessarily diminish value, but they indicate a more transient
population. Are there vacant businesses or homes that have been on the market
for months? Check news sources to find out if new development
is planned.
Is it a good investment?
Ask a local REALTOR® about price appreciation in the neighborhood. Although
past performance is no guarantee of future results, this information may give
you a sense of how a home’s value might grow. A REALTOR ® also may be able to
tell you about planned developments or other changes coming to the neighborhood
— such as a new school or highway — that might affect its value.
Do I like what I see?
Once you’ve narrowed your focus to two or three neighborhoods, go and get a
feel for what it might be like to live there. Take notes:
Are homes tidy and well maintained? Are streets bustling
or quiet? How does it feel? Pick a pleasant day if you can, and chat with
people working or playing outside.
What’s the school district like?
This is especially important if you have children, but it also can affect
resale value. The local school district can probably provide information on
test scores, class size, the percentage of students who attend college, and
special enrichment programs. If you have school-age children, visit schools in
neighborhoods you’re considering.
THE
PROPERTY | BUYER
QUESTIONS TO ASK
When
Considering a Condo or HOA
Condominiums,
townhomes, and properties located
within a homeowner association offer certain perks, but it’s important to consider
them in your decision process.
How much storage is available?
Some properties include storage lockers, but there may not be attics or
basements to hold extra belongings.
How’s the outdoor space?
Your yard may be smaller than you’d find in a traditional single-family home, so if you like to garden
or entertain outdoors, this may not be a good fit. But if you dread yard work, it
may be the perfect option.
Are amenities important?
Many properties offer swimming pools, fitness centers, and other facilities that would
cost much more in a single-family setting.
Who handles maintenance and security?
Property managers often hire
professionals to care for common areas
and perform in-unit repairs. Keyed entries and doormen may regulate access to
your home when you’re not there (good news if you travel).
Are there required reserve funds and association fees? How much
are they?
Although fees generally help pay for amenities and provide savings for future
repairs, the HOA or condo board determines these fees, and you’ll have to pay
them even if you’re not in favor of the improvements.
What are the association rules?
Although you have a vote on future changes, association rules can dictate how
you use your property. Some condos prohibit home-based businesses; others
prohibit pets or don’t allow owners to rent out their units. Read the
covenants, restrictions, and bylaws carefully before you make an offer.
What’s the average vacancy rate?
It’s never too early to be thinking
about resale. The ease of selling your unit may depend on what else is for sale
in your building, since units are similar.
How many units are owned by investors?
Some lenders require a certain
percentage of the building to be owner-occupied and may not be able to offer
you financing if the ratio is too low.
Can I meet other residents before making an offer?
You will share space and
decision-making duties with your neighbors when part of a homeowner
association, so it’s important to make sure you can work together. If possible,
try to meet your closest prospective neighbors before you decide on a place.
THE
PROPERTY | BUYER
QUESTIONS TO ASK
The
Condo Board
Before you purchase a condo, you should have an attorney review
property documents for you. However, you should
contact the board yourself ahead of time. You’ll learn how responsive and
organized its members
are and be alerted to potential problems.
How many units are owner-occupied?
Generally, the higher the percentage of owner-occupied units, the easier the
condo will be to resell.
What covenants, bylaws, and restrictions govern the property?
Carefully read the bylaws to determine if you can abide by them. Also, find out
if there are grandfather provisions that allow current owners more rights than
you would have as a new owner, such as the ability to rent out your unit.
How much does the association keep in reserve?
Ask how the money is being invested.
Are association assessments keeping pace with the annual rate of
inflation?
Smart boards raise assessments a reasonable percentage each year to build
reserves for funding future repairs.
What does the assessment cover?
Ask specifically about common-area maintenance, recreational facilities, trash
collection, and snow removal (if applicable).
What special assessments have been mandated in the past five
years, and how much of that was the responsibility of individual owners?
Some special assessments are unavoidable. But repeated, expensive assessments
could be a red flag about building conditions or fiscal policy.
What’s the turnover rate?
This will tell you if residents are generally happy with the building.
Is the condo building in litigation?
Obviously, this is never a good sign.
If the builders or owners are involved in a lawsuit, reserves can be depleted
quickly to pay legal fees.
What other projects has the developer built?
Try to visit one, and ask residents about their
perceptions. Also, request an engineer’s report if the building has been
converted from another use.
Are multiple associations involved in
the property?
In very large developments, umbrella associations also may require separate
assessments.
THE
PROPERTY | BUYER
QUESTIONS TO ASK
When
Choosing a Home Inspector
Do you belong to a professional association?
There are many associations for home inspectors, but some groups confer
questionable credentials or certifications in return for nothing more than a
fee. Make sure the association your home inspector names is
a reputable, nonprofit trade organization.
Will your report meet all state requirements?
Also, make sure the organization complies
with a well-recognized standard of practice and code of ethics, such as those
adopted by the American Society of Home Inspectors or the National Association
of Home Inspectors.
How experienced are you?
Ask inspectors how long they’ve been working in the field and how many
inspections they’ve completed. Also ask for customer referrals. New inspectors
may be highly qualified, but they should describe their training and indicate whether
they work with a more experienced partner.
How do you keep your expertise up to date?
Inspectors’ commitment to continuing training
is a good measure of their professionalism and service. Advanced knowledge is
especially important with older homes or those with unique elements requiring
additional or updated training.
Do you focus on residential inspection?
Home inspection is very different from inspecting commercial buildings or a
construction site. Ask whether the inspector has experience with your type of
property or feature. The inspector should be able to provide sample inspection
reports for a similar property. If they recommend further evaluation from
outside contractors on multiple issues, it may indicate they’re not comfortable
with their own knowledge level.
Do you offer to do repairs or improvements?
Some state laws and trade associations allow the inspector to provide repair
work on problems uncovered during the inspection. However, other states and
associations forbid it as a conflict of interest.
How long will the inspection take?
On average, an inspector working alone inspects a typical single-family house
in two to three hours; anything less may not be thorough.
How much?
Costs range from $300 to $500 but can vary dramatically depending on your
region, the size and age of the house, and the scope of services. Be wary of
deals that seem too good to be true.
Will I be able to attend the inspection?
The answer should be yes. A home inspection is a valuable educational
opportunity for the buyer and a refusal should raise a red flag.
THE
PROPERTY | BUYER
WHAT TO KNOW
About
the Home Inspection
Some items should always be examined.
Structure
The home’s “skeleton” should be able to stand up to weather, gravity, and the
earth that surrounds it. Structural components include items such as the
foundation and the framing.
Exterior
The inspector should look at sidewalks,
driveways, steps, windows, doors, siding, trim, and surface drainage. They
should also examine any attached porches, decks, and balconies.
Roofing
A good inspector will provide very
important information about your roof, including its age, roof draining
systems, buckled shingles, and loose gutters and downspouts. They should also
inform you of the condition of any skylights and chimneys as well as the
potential for pooling water.
Plumbing
They should thoroughly examine the
water supply and drainage systems, water heating equipment, and fuel storage
systems. Drainage pumps and sump pumps also fall under this category. Poor
water pressure, banging pipes, rust spots, or corrosion can indicate larger problems.
Electrical
You should be informed of the condition
of service entrance wires, service panels, breakers
and fuses, and disconnects. Also take note of the number of outlets in each
room.
Heating and air conditioning
The home’s vents, flues, and chimneys should be inspected. The inspector should
be able to tell you the water heater’s age, its energy rating, and whether the
size is adequate for the house. They should also describe and inspect all the central air and
through-wall cooling equipment.
Interiors
Your inspector should take a close look
at walls, ceilings and floors; steps, stairways, and
railings; countertops and cabinets; and garage systems. These areas can reveal
leaks, insect damage, rot, construction defects, and more.
Ventilation/insulation
Inspectors should check for adequate
insulation and ventilation in the attic and in unfinished areas such as crawl spaces.
Insulation should be appropriate for the climate. Without proper ventilation, excess
moisture can lead to mold and water damage.
Fireplaces
They’re charming, but fireplaces can be
dangerous if they’re not properly installed. Inspectors should examine the vent
and flue, and describe solid fuel-burning appliances.
THE
PROPERTY | BUYER
WHAT TO KNOW
About
Home Hazards
Radon
A colorless, odorless gas that can seep into your home from the ground, radon is
often referred to as the second most common cause of lung cancer behind smoking.
What to look for: Basements or any area with protrusions into the ground offer
entry points for radon. The Environmental Protection Agency publishes a map of
high-prevalence areas. A radon test can determine if high levels are present.
Asbestos
A fibrous material once popular as fire-resistant insulation, asbestos was
banned in 1985. However, it’s often found in the building materials, floor
tiles, roof coverings, and siding of older. If disturbed or damaged, it can
enter the air and cause severe illness.
What to look for: Homes built prior to 1985 are at risk of having asbestos in
their construction materials. Home owners should be
careful when remodeling because disturbing insulation and other materials may
cause the asbestos to become airborne.
Lead
This toxic metal used in home products for decades can contribute to several
health problems, especially among children. Exposure can occur from
deteriorating lead-based paint, pipes, or lead-contaminated dust or soil.
What to look for: Homes built prior to 1978 may have lead present. Look for
peeling paint and check old pipes. To get a HUD-insured loan, buyers must show
a certificate that their older home is lead-safe.
Other hazardous products
Stockpiles of hazardous household items — such as paint solvents, pesticides,
fertilizers, or motor oils — can create a dangerous situation if not properly
stored. They can easily spark fires and can cause illness or even death if ingested,
even in small amounts.
What to look for: Check all the corners, crawl spaces, garages, or garden sheds
in the home. If these products are found, make sure you ask for their removal
and get a disposal certificate prior to closing.
Groundwater contamination
When hazardous chemicals are disposed of improperly, they can seep through the
soil and enter water supplies. A leaking underground oil tank or septic system
can contribute to this.
What to look for: Homes near light industrial areas or facilities may be at risk,
as are areas once used for industry that are now residential.
THE PROPERTY |
BUYER
VOCABULARY
Green
Home Terms
Whether you’re building the home of your dreams or looking for
an existing unit, there’s a lot of data involved in finding the right environmentally
friendly dwelling. Here’s a breakdown of the different certification systems
for energy-efficient homes.
RESNET
The Residential Energy Services Network
is a not-for-profit corporation that develops industry-wide standards and rules
for energy efficiency ratings and certification systems for buildings. In
addition to overseeing the HERS index (see below), RESNET certifies contractors
of all types, including builders, roofing and siding professionals, and
remodeling contractors.
HERS index
The Home Energy Rating System is an
index measuring a home’s energy efficiency. An average home built to current
industry standards for energy efficiency will have an index of 100. A lower
score indicates higher levels of efficiency (for example, a home with a score
of 70 is using 30 percent less energy than the average
home). The opposite is true with homes that score higher than 100. This index
is overseen by RESNET.
LEED
The United States Green Building Council is the agency that bestows Leadership in Energy and Environmental
Design certifications on environmentally friendly buildings and projects.
The highest certification a building can earn is “LEED platinum.” Projects earn
points based on numerous categories such as indoor air quality and water
efficiency. More points add up to a higher certification level.
Energy Star
The Energy Star program is overseen by the U.S. Environmental Protection
Agency. Products such as refrigerators, light bulbs, and furnaces can earn Energy
Star certifications. Separately, homes can be Energy Star–certified through an
independent inspection.
Indoor airPLUS:
This program is also administered by the EPA. Homes that go above and beyond
the Energy Star requirements by incorporating additional features to combat
moisture, mold, pests, and pollutants can earn this label.
National Green Building Certification
Overseen by the National Association of Home Builders, this program helps
residential building professionals develop and build sustainable projects.
Buildings can earn bronze, silver, gold, or emerald certifications. At the
Emerald level — which is the highest certification a project can earn — a
building “must incorporate energy savings of 60 percent or more.”
THE PROPERTY |
BUYER
WHAT TO KNOW
About
the Appraisal Process
Once you are
under contract, your lender will send out an appraiser to make sure the purchase
price is in line with the property’s value.
Appraisals help guide mortgage terms.
The
appraised value of a home is an important factor in the loan underwriting
process. Although lenders may use the sale price to determine the amount of the
mortgage they will offer, they generally only do so when the property is sold
for less than the appraisal amount. Also, the loan-to-value ratio is based on
the appraised value and helps lenders figure out how much money may be borrowed
to purchase the property and under what terms. If the LTV is high, the lender
is more likely to require the borrower to purchase private mortgage insurance.
Appraised value is not a concrete number.
Appraisals provide a professional opinion of value, but they aren’t an exact
science. Appraisals may differ quite a bit depending on when they’re done and
who’s doing them. Also,
changes in market conditions can dramatically alter appraised
value.
Appraised value doesn’t represent the whole picture of home
prices.
There are special considerations that appraised value doesn’t take into account, such as the need to sell rapidly.
Appraisers use data from the recent past.
Appraisals
are often considered somewhat backward looking, because they use sold data from
comparable properties (often nicknamed “comps”) to help come up with a
reasonable price.
There are uses for appraised value outside of the purchase
process.
For
buying purposes, appraisals are usually used to determine market value or factor
into the pricing equation. But other appraisals are used to determine insurance
value, replacement value, and assessed value for property tax purposes.
THE PROPERTY |
BUYER
QUESTIONS TO ASK
About
Property Tax
It’s natural for the sale price of a home to loom large in your
mind. But don’t forget to look at what your property tax bill might be.
What is the assessed value of the property?
Assessed value is generally less than market value. A
recent copy of the seller’s tax bill will help you determine this information.
How often are properties reassessed in this area?
In general, this will happen annually, but properties in areas of slower growth
may be reassessed less often.
When was the last reassessment done on this property?
Most significant tax increases on an individual property can be linked to when that
property was last reassessed.
Will the sale of the property trigger a tax increase?
Depending upon where you live, the assessed value of a property may increase
based on the amount you pay for it. And in some areas, such as California,
taxes aren’t allowed to increase until the property in question is resold.
Is the tax bill comparable to other properties in the area?
If not, it might be possible to appeal the assessment and lower the rate.
Does the current tax bill reflect any special exemptions for
which I might not qualify?
For example, many tax districts offer reductions to those individuals 65 and older.
THE
TRANSACTION | BUYER
WORKSHEET
Service
Provider Contacts
You won’t
necessarily need all these professionals, but your REALTOR® can help you
assemble a list.
|
|
Name |
Contact Info |
|
REALTOR® |
|
|
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ADVISERS |
|
|
|
Real estate |
|
|
|
Appraiser |
|
|
|
Tax adviser |
|
|
|
INSPECTORS |
|
|
|
Home inspector |
|
|
|
Termite |
|
|
|
Flood plain |
|
|
|
Radon inspector |
|
|
|
Zoning inspector |
|
|
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Lead paint |
|
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Occupancy permit |
|
|
|
OTHER SERVICES |
|
|
|
Survey company |
|
|
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Title company |
|
|
|
Insurance consultant |
|
|
|
Mortgage loan |
|
|
|
Moving company |
|
|
|
Relocation |
|
|
|
Electrician |
|
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Remodeling |
|
|
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Other |
|
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|
|
THE
TRANSACTION | BUYER
CHECKLIST
Your
Mortgage Application
Every lender requires
documents as part of the process of approving a mortgage loan. Here are
documents you’re generally required to provide..
¨
W-2 Tax returns — or business tax returns if you’re self-employed — for the
last two or three years for every person signing the loan.
¨
At least one pay stub for each person signing the loan.
¨
Account numbers of all your credit cards and the amounts for any outstanding
balances.
¨
Two to four months of bank or credit
union statements for both checking
and savings accounts.
¨
Lender, loan number, and amount owed on installment loans, such as student loans and car loans.
¨
Addresses where you’ve lived for the last five to seven years, with names
of landlords if appropriate.
¨
Brokerage account statements for two to four months, as well as a list of any other major
assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage
account.
¨
Your most recent 401(k) or other retirement account statement.
¨
Documentation to verify additional
income, such as child support or a
pension.
THE
TRANSACTION | BUYER
QUESTIONS TO ASK
Before
Making a Short Sale Offer
If a home is being sold for less than what the current owner
owes on the property—and the seller does not have other funds to make up the
difference at closing—the sale is considered a short sale.
A short sale is different from a foreclosure, which is when the
seller’s lender has taken title of the home and is selling it directly. Home owners often try to accomplish a short sale in order to
avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Answering
these questions will help you determine if a short sale is a good fit for you.
Are you very patient?
Even after you come to agreement with the seller to
buy a short-sale property, the seller’s lender (or lenders, if there is more
than one mortgage) still has to approve the sale. When
there is only one mortgage, lender approval typically takes about two months.
If there is more than one mortgage with different lenders, it can take four
months or longer. If you make an offer tremendously lower than the fair market
value of the home, the lender could make a counteroffer, which will lengthen
the process.
Is your financing in order?
Lenders like cash offers. But even if you can’t pay cash, it’s important to
show you’re well qualified. If you’re preapproved, have a large down payment,
and can close at any time, your offer will be viewed more favorably than that
of a buyer whose financing is less secure.
Do you have any contingencies?
Lenders like flexible terms. If you must sell a home before you can close, or
you need to be in your new home by a certain time, a short sale may not be for
you. Also, you will most likely be asked to take the property “as is.” Lenders
are already taking a loss on the property and may not agree to requests for
repair credits.
Can you take rejection?
Even when a lender approves a short sale, it could require that the sellers
sign a promissory note to repay the deficient amount of the loan, which may not
be acceptable to some financially strapped sellers. Lenders also
can change any of the terms of the contract that you’ve already
negotiated, which may not be agreeable to you.
THE
TRANSACTION | BUYER
CHECKLIST
Your
Short Sale Purchase Team
If you’re serious about purchasing a short-sale property, it’s
important for you to have expert assistance. Here are some people you’ll want by
your side:
¨ Experienced real estate attorney. A real estate attorney who’s knowledgeable about the short-sale
process will increase your chances getting an approved
contract. The attorney will also be indispensible if
you want any provisions or specialized language written into the purchase
contract.
¨ Qualified real estate professional. You may have close friends or relatives in real estate, but they
aren’t truly knowledgeable about short sales, they may hurt your chances of a
successful closing. Interview a few practitioners and ask them how many buyers
they’ve represented in a short sale and, of those, how
many have successfully closed. A qualified real estate professional will help
you find short-sale listings, negotiate the purchase, and have smooth
communications with the lender. You might also seek out pros who have the Short
Sales and Foreclosure Resource (SFR®) certification, which generally identifies
REALTORS® who have learned the skills needed to help buyers and sellers of
distressed properties.
¨ Title officer. It’s a good idea to have a title officer do an initial title
search on a short-sale property to examine all the liens
attached to the property. If there are multiple lien holders (second or third
mortgage/lines of credit, real estate tax lien,
mechanic’s lien, homeowners association lien, etc.),
it’s much tougher to get the contract to the closing table. Any of the lien
holders could put a kink in the process even after you’ve waited months for
lender approval. If you don’t know a title officer, your real estate attorney
or real estate professional should be able to recommend a few.
The risks of a short sale are
considerable. But if you have the time, patience, and iron will to see it
through, a short sale can be a win-win for you and the sellers.
THE
TRANSACTION | BUYER
HOW TO
Buy
in a Tight Market
Increase your chances of getting your dream house in a
competitive housing market.
Get prequalified for a mortgage.
You’ll be able to make a firm commitment to buy and your offer will be more
desirable to the seller.
Stay in close contact with your real estate agent.
Your agent will be on the lookout for the newest listings that meet your
criteria. Be ready to see a house as soon as it goes on the market — if it’s a
great home, it will go fast.
Scout out new listings yourself.
Browse sources such as realtor.com and local real estate listing sites. Set up
alerts for the neighborhoods and characteristics you’re looking for. Drive
through your target neighborhoods, and if you see a home you like for-sale, send
the address and listing agent’s name to your agent, who can schedule a showing
for you.
Be ready to make a decision.
Spend plenty of time in advance deciding what you can afford and must have in a
home so you won’t hesitate when you have the chance to
make an offer.
Bid competitively.
Your first inclination may be to start out offering something less than the
absolute highest price you can afford, but if you go too low in a tight market,
you will likely lose out.
Keep contingencies to a minimum.
Restrictions such as needing to sell your home before you move can make your
offer unappealing. Remember that, if the market is tight, you’ll probably be
able to sell your house rapidly. You can also talk to your lender about getting
a bridge loan to cover both mortgages for a short period.
But don’t get caught in a buying frenzy.
Just because there’s competition for a home doesn’t mean you should buy it. And
even though you want to make your offer attractive, don’t neglect inspections
that help ensure the house is a sound investment.
THE TRANSACTION | BUYER
WHAT TO KNOW
About
Homeowners Insurance
A homeowners insurance policy will protect you against certain
losses and damage to your new home and is generally required by lenders prior
to closing. Some lenders will collect the money you owe for homeowners
insurance as part of your monthly mortgage payment and place it in an escrow
account, paying the insurer on your behalf when the bill is due.
Coverage exclusions:
Most insurance policies do not cover flood or earthquake damage as a standard
item. You may need to buy these types of coverage separately.
Dollar limitations on claims:
Even if you are covered for a risk, there may be a limit on how much the
insurer will pay. For example, many policies limit the amount paid for stolen
jewelry unless items are insured separately.
Replacement cost:
If your home is destroyed, you’ll
receive money to replace it only to the maximum of your coverage, so be sure
your insurance is sufficient. This means that if your home is insured for
$150,000 and it costs $180,000 to replace it, you’ll still receive only $150,000.
Actual cash value:
If you choose not to replace your home when it’s destroyed, you’ll receive
replacement cost minus the depreciation. This is what’s referred to as actual
cash value.
Your liability:
Generally, your homeowner’s insurance covers your liability for accidents that
happen to other people on your property, including medical care, court costs,
and awards by the court. However, there is usually an upper limit to the amount
of coverage provided. Be sure that amount is sufficient, especially if you have
significant assets.
THE TRANSACITON | BUYER
HOW TO
Lower
Homeowners Insurance Costs
The first step is to shop around; quotes on the same home can
vary significantly from company to company.
Review the Comprehensive Loss Underwriting Exchange report.
CLUE reports detail the property’s claims history for the last five years,
which insurers may use to deny coverage. Make the sale contingent on a home
inspection to ensure that problems identified in the CLUE report have been resolved.
Seek insurance coverage as soon as your offer is approved.
You must obtain insurance in order to buy your home.
And you don’t want to find out at closing time that the insurer has denied you
coverage.
Maintain good credit.
Insurers often use credit-based insurance scores to determine premiums.
Buy your homeowner’s and auto policies from the same company.
Companies will often offer a bundling discount. But make sure the discount
really yields the lowest price.
Raise your deductible.
If you can afford to pay more toward a loss that occurs, your premiums will be
lower. Also, avoid making claims for losses of less than $1,000.
Ask about other discounts.
For example, retirees who tend to be home more than full-time workers may
qualify for a discount on theft insurance. You also may be able to obtain
discounts for having smoke detectors, a security system, and high-quality
locks.
Seek group discounts.
If you belong to any associations or alumni organizations, check to see if they
offer deals on coverage.
Conduct an annual review.
Take a look at your policy limits and the value of
your home and possessions every year. Some items depreciate and may not need as
much coverage.
Investigate a government-backed insurance plan.
In some high-risk areas, the federal or state government may back plans to
lower rates. Ask your agent what’s available.
Insure your house for the correct amount.
Remember, you’re covering replacement cost, not market
value.
THE TRANSACTION | BUYER
WHAT TO KNOW
About
Title Insurance
Title insurance protects your ownership right to your home, both
from fraudulent claims against your ownership and from mistakes made in earlier
sales, such as misspellings of a person’s name or an inaccurate description of
the property. In some states it is customary for the seller to purchase the
policy on your behalf.
Your mortgage lender will require it.
Title insurance protects the lender (and the secondary markets to which they
sell loans) from defects in the title to your home—which could include mistakes
made in the local property office, forged documents, and claims from unknown
parties. It ensures the validity and enforceability of the mortgage document.
The amount of the policy is equal to the amount of your mortgage at its
inception. The fee is typically a one-time payment rolled into closing costs.
There are two different policies to consider purchasing.
The first policy, the one your lender will require, protects the lenders investment. You may also purchase an owner’s policy
that provides coverage up to the purchase price of the home you are buying.
You have the right to choose your provider.
You can shop around for a lower insurance premium rate at a wide variety of sites
online. You should first request quotes from a few companies and then reach out
and speak to them. Ask about hidden fees and charges that could make one quote
seem more attractive than another. Also, find out if you’re eligible for any
discounts. Discounts are sometimes available if the home has been bought within
only a few years since the last purchase as not as much work is required to
check the title. You can also ask your lender or real estate professional for advice
or help with getting quotes. Make sure the title insurance company you choose
has a favorable Financial Stability Rating with Demotech
Inc.
Even new construction needs coverage.
Even if your home is brand-new, the land isn’t. There may be claims to the land or liens that were placed during construction
that could negatively impact your title.
THE
TRANSACTION | BUYER
WORKSHEET
Track
Closing Costs
Be prepared
and know who’s responsible for the variety of fees and expenses at the closing
table.
|
|
BUYER COST |
SELLER COST |
OTHER |
|
Down payment |
|
|
|
|
Loan origination |
|
|
|
|
Points paid to receive |
|
|
|
|
Home inspection |
|
|
|
|
Appraisal |
|
|
|
|
Credit report |
|
|
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Mortgage insurance |
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Escrow for homeowner’s |
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Property tax escrow (if paid as part of |
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Deed recording |
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Title insurance policy |
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Land survey |
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Notary fees |
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Home Warranty |
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Proration** for your (such as utility bills |
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*Lenders keep funds for taxes and insurance in escrow accounts
as they are paid with the mortgage, then pay the insurance or taxes for you.
** Because such costs are usually paid on either a monthly or a
yearly basis, you might have to pay a bill for services used by the sellers
before they moved. Proration is a way to even out bills sellers may have paid
in advance, or that you may later pay for services they used.
THE
TRANSACTION | BUYER
VOCABULARY
Transaction
Documents
When you walk away from the closing table with a big stack of
papers, know what to file away for future reference.
Loan estimate
Your lender is required to provide you with this three-page document within
three business days of receiving your loan application. It will show estimates
for your interest rate, monthly payment, closing costs, taxes, and insurance.
You’ll also learn how your interest rate and payments could change in the
future, and whether you’ll incur penalties for paying off the loan early
(called "prepayment penalty") or increases to the mortgage loan
balance even if payments are made on time (known as "negative amortization").
Closing disclosure
Your lender is required to send this
five-page form—which includes final loan terms, projected monthly payments, and
closing costs—three business days before your closing. This window gives you
time to compare the final terms to those in the Loan Estimate (see above), and
to ask the lender any questions before the transaction is finalized.
Mortgage and note
These spell out the legal terms of your mortgage obligation and the
agreed-upon repayment terms.
Deed
This document officially transfers
ownership of the property. In a cash deal, it goes to you, but otherwise you
won’t get the deed until you pay off the mortgage.
Affidavits
These are binding statements by either
party. For example, the sellers will often sign an affidavit stating that they
haven’t incurred any liens on the property.
Riders
This word describes any amendments to
the sales contract that affect your rights. For example, the sellers may arrange
to retain occupancy for a specified period after closing but agree to pay rent
to the buyers during that period.
Insurance policies
These documents provide a record and
proof of your coverage, be they insuring the title or the property itself.
Homeowners insurance documents will generally be your responsibility, while
proof of title insurance will be given to you at the closing table.
THE
TRANSACTION | BUYER
CHECKLIST
Your
Final Walk-Through
Closing time is hectic, but you should always make time for a
final walk-through to make sure
that your home is in the same condition you expected it would be. Here’s a
detailed list of
what to check for on your final walk-through.
¨
Basement, attic, and
every room,
closet, and crawl space have been checked.
¨
Requested repairs
have been made.
¨
Copies of paid bills
and warranties are in hand.
¨
No major, unexpected
changes have been made to the property since last viewed.
¨
All items included
in the sale price—draperies, lighting fixtures, etc.—are still on site.
¨
Screens and storm
windows are in place or stored onsite.
¨
All appliances are
operating (dishwasher, washer/dryer, oven, etc.).
¨
Intercom, doorbell,
and alarm are operational.
¨
Hot water heater is working.
¨
Heating and air
conditioning systems are working.
¨
No plants or shrubs
have been removed from the yard.
¨
Garage door opener
and other remotes are available.
¨
Instruction books
and warranties on appliances and fixtures are available.
¨
All debris and personal
items of the sellers have been removed.
THE
MOVE
CHECKLIST
Prepare
for Your Move
¨
Update
your mailing address at usps.com or
fill out a change-of-address form at your local post office.
¨
Change
your address with important service providers,
such as your bank(s), credit companies, magazine subscriptions, and others.
¨
Create
a list of people who will need your new address.
Whether you plan on sending formal change-of-address notices in the mail or
just e-mailing the family members, friends, and colleagues who should be
informed, a list will ensure no one gets left out.
¨
Contact
utility companies.
Make sure they’re aware of your move date, and arrange for service at your new home if the
service provider will remain the same.
¨
Check
insurance coverage.
The insurance your moving company provides will
generally only cover the items they transport for you. Ensure you have coverage
for any items you’ll be moving yourself.
¨
Unplug,
disassemble, and clean out appliances.
This will make them
easier to pack, move, and plug in at your new place.
¨
Check
with the condo board or HOA about any
restrictions on using the elevator or particular exits
or entrances for moving, if applicable
¨
Pack
an “Open First” box.
Include items
you’ll need most, such as toilet paper, soap, trash bags, chargers, box
cutters, scissors, hammer, screwdriver, pens and paper, cups and plates, water,
snacks, towels, and basic toiletries.
If you’re moving a long distance:
¨
Obtain
copies of important records from your
doctor, dentist, pharmacy, veterinarian, and children’s schools.
¨
E-mail
a copy of your driving route to a family
member or friend.
¨
Empty
your safe deposit box.
THE
MOVE
HOW TO
Pack
Like a Pro
Plan ahead. Develop a master to-do list so you won’t forget something
critical heading into moving day. This will also help you create an estimate of
moving time and costs.
Discard items you no longer want or need. Ask yourself how frequently you use an item and how you’d feel
if you no longer had it. Sort unwanted items into “garage sale,” “donate,” and “recycle”
piles.
Pack similar items together. It will make your life easier when it’s time to unpack.
Decide what you want to move on your own. Precious items such as family photos, valuable breakables, or
must-haves during the move should probably stay with you. Pack a moving day bag
with a small first-aid kit, snacks, and other items you may need before
unpacking your “Open First” box.
Know what your movers will take. Many movers won’t take plants or liquids. Check with them about
other items so you can plan to pack them yourself.
Put heavy items in small boxes. Try to keep the weight of each box under 50 pounds.
Don’t overpack boxes.
It increases the likelihood that items inside the box will break.
Wrap fragile items separately. Pad bottoms and sides of boxes and, if necessary, purchase
bubble-wrap or other packing materials from moving stores. Secure plants in
boxes with air holes.
Label every box on all sides. You never know how they’ll be stacked. Also, use color-coded
labels to indicate which room each box should go in, coordinating with a color-coded
floor plan for the movers.
Keep moving documents together in a file, either in your moving
day bag or online. Include vital contact
information, the driver’s name, the van’s license plate, and the company’s
number.
Print out a map and directions for movers and helpers. Make several copies, and highlight the
route. Include your cell phone number on the map.
Back up computer files on the cloud. Alternatively, you can keep a physical backup on an external
hard drive offsite.
Inspect each box and piece of furniture as soon as it arrives. Ahead of time, ensure your moving company has a relatively
painless process for reporting damages.
THE
MOVE
HOW TO
Move
With Pets
Update your pet’s tag with your new address.
Make sure your pet’s collar is sturdy and correctly sized. The tag should also include
your mobile number and e-mail address so that you can be reached during the
move.
Request veterinary records.
Ask your current vet to send your pet’s medical history directly to the new vet.
Have their contact information handy in case of emergency or if the new vet has
questions.
Keep a week’s worth of food and medication with you.
You may want to ask for an extra prescription refill before you move. Take the
same precaution with special therapeutic foods.
Seclude them from chaos.
Keep your pet in a safe, quiet room on moving day with a clear sign posted on
the door. There are many light, collapsible travel crates available, but ensure
it is well ventilated and sturdy enough for stress-chewers. Also, introduce
your pet to the crate before the trip.
Prepare a pet first aid kit.
Include your vet’s phone number, gauze to wrap wounds or to muzzle your pet,
adhesive tape for use on bandages, nonstick bandages, towels, cotton swabs,
antibiotic ointment (without pain relief medication), and 3% hydrogen peroxide.
Play it safe in the car.
Use a crate or carrier in the car, securing it with a seat belt. Never leave
your pet in the bed of a truck, the storage area of a moving van, or alone in a
parked vehicle. If you’re staying overnight, find pet-friendly lodging
beforehand and have kitty litter or plastic bags on hand.
Get ready for takeoff.
When traveling by air, check with the airline about pet requirements or
restrictions and whether you must purchase a special airline crate that fits
under the seat in front of you.
Prep your new home.
Set up one room with everything your pet will need: food, water, medications,
bed, litter box, scratch post, and toys. Keep windows and doors closed when
your pet is unsupervised, and beware of small spaces
where nervous pets may hide. If your old home is nearby, give the new home owners or neighbors your phone number and a photo of
your pet, in case your pet tries to return.
Learn about local health concerns and
laws in your new area.
If you’re moving to a new country, contact the Agriculture Department or
embassy of the country to obtain specific information on special documents,
quarantine, or costs related to bringing your pet into the country.
THE
MOVE
CHECKLIST
For
the New Owners
Before the property changes
hands, consult this list to make sure these items are transferred with the
house.
¨ Owner’s manuals and warranties for any appliances left in the house.
¨ Garage door opener(s).
¨ Extra set of house keys.
¨ Other keys. Think
beyond the front doors; do you have any cabinets or lockers built into the home
that require keys?
¨ A list of local service providers, such as the best dry cleaner, yard service, plumber, and so
on. You’re not just helping the new owners, but also the local businesses
you’re leaving behind.
¨ Code to the security alarm and
phone number of the monitoring service if not discontinued.
¨ Smart home device access. Any
devices listed as fixtures need to be reset for the new homeowner. Make sure
your account information and usage data are wiped from the device so that they
may use it. Check with your device’s manufacture to find
out how to do this.
¨ Numbers to the local utility companies.
This can be especially helpful to owners who may not yet have easy access to
the Internet in the new home.
¨ Contact info for the condo board or
home ownership association, if
applicable.
