UNDERSTAND YOUR FINANCIAL REALITIES
Developing and sticking to a budget before you start looking at homes is crucial. To start, plan on spending no more than one-third of your gross collective monthly income on your new home. There are tons of free mortgage calculators online, here’s a simple one.
Down payment requirements vary depending on the loan product, but for a conventional 30-year loan, expect to put down anywhere from 5-20%. The higher the downpayment, the lower the interest rate. Also, any down payment that’s less than 20%, will require private mortgage insurance (PMI)--insurance the lender uses to protect their loan. PMI can be expensive. You can calculate a rough estimate here.
FIND A LENDER & GET PRE-APPROVED
Working with a lender you trust is SO important. Not only is this person going to have access to your sensitive financial information, but they’re also going to tell you how much you can/should spend on the biggest financing investment of your life. Choose wisely. Lucky for me, I’ve found the best in the business, and I’m happy to share him (just email me)!
In addition to firmly setting a budget, a pre-approval letter is an essential part of the home search process. In Chicago’s market, no half-way informed seller will entertain an offer from a buyer without a pre-approval letter. Consider it a prerequisite to the home search process. To obtain pre-approval, your lender will require:
- Two most recent Pay Stubs
- 2014 and 2013 W2's, 1099's and Federal Income Tax Returns
- Most recent bank statement for checking, savings and money market (all pages)
- Most recent retirement and investments statements
- If you are expecting a gift from family, what gift-amount are you expecting to receive
KNOW WHERE YOU WANT TO LIVE, THEN START SEARCHING
Now the fun part begins?! If you’ve always known where you want to live, then skip this section. For the rest of us, this part can seem impossible. This is exactly why I started Neighborhooding.
It may seem counter intuitive, but figuring out which neighborhood, block, street or side of the tracks feels like home should be the first step to finding a home. Why? Two reasons: First, once you’ve narrowed down your location as tightly as possible, and a home meeting your criteria becomes available in that area, what might have been a super stressful decision, is made easy! If you do the up-front work, you will go into the decision confident and excited.
Second, forcing yourself to be as specific as possible will get your wheels turning. In the midst of a home search isn’t the time to research local schools, crime, grocery stores, parks and public transit. All of these factors are part of the puzzle of what it means to live in one neighborhood over the other. Peruse the pages of my In the Hood section, talk to friends, and get out there and walk. If you’re considering a neighborhood you haven’t spent much time in, make a goal of spending at least one full day in the area per week for at least a month.
MAKE AN OFFER!
My clients know that I don’t mess around when it comes to making offers. I don’t low ball, ] “test the market,” or submit offers wondering if I’m insulting sellers. Here’s why: what happens to the client who only wants a house only as much as a low ball offer, and then they get the house? When my clients find a house they love, I always say: “I want you to want this house so badly you can taste it. If that’s not how you feel, this isn’t the house.”
What we end up with is an offer grounded in the market (we will agree on 3-5 comps that support our offer), that we can defend, and that gets the deal done. Sure, we’ll negotiate with the other side, but there’s no higher ground when negotiating than a foundation of rationality. Negotiations can be as fast as a few hours, or as long as a few days. When submitting an offer, I always include:
-Multi-Board Residential Real Estate Contract 6.0
-Pre-approval letter (if applicable)
-Signed disclosures (if applicable)
-Scan of initial earnest money check (if applicable)
-MLS property listing
FROM CONTRACT TO CLOSE
If you’re obtaining a mortgage, count on at least 40 days between your accepted offer and closing. Within those 40 days, there are a few key dates:
1. Home inspection and attorney review: Inspections (which cost anywhere between $200-$800 depending on the property’s size and must take place within the first five days of the contract), take only a few hours, and cover nearly every nook and cranny of a home. Any issues the inspector uncovers are negotiated for either replacement or repair or as a closing credit as part of the attorney review period.
Finding an experienced real estate attorney is crucial since a lot of the contract is reopened for negotiation during this time. I work with a few I trust implicitly and recommend to my clients. Once both sides are in agreement, a final letter is signed by both the buyer and seller’s attorneys, concluding attorney review.
2. Mortgage contingency: Your lender is now preparing your loan. This date is a field in the contract, but is typically ~30 days after acceptance. During this time, you will provide your lender with tons of additional financial paperwork.
3. Final walk through and closing: The final walk through is typically the morning of closing, and allows the buyer to survey the property one last time to ensure that all is as it was during the inspection. The property should be broom swept and empty. At closing, the buyer’s lender, attorneys for both sides and brokers for both sides will be present, typically at the buyer’s title company’s office. The attorney reviews 100s of pages of paperwork with the buyers to sign, and usually after 2-3 hours, the closing is complete.
First time home buyer? I'd love to help you!