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Homebuyer's Toolkit
You Want to Buy a Home
It’s a big decision and there’s a lot to learn, but you’ve decided to buy a home.
This comprehensive, quick-reference guide provides the information and tools
you need to help you find a home that’s right for you. As you follow these ten
steps, gather information and complete the worksheets, you will chart a
personalized map that will help you find, purchase, and finance a home that
meets your needs and preferences.
10 Steps to Choosing and Purchasing Your Home
1. Find a Qualified Buyer’s Representative
2. Assess Your Credit and Finances
3. Assess Your Wants and Needs
4. Shop for a Home
5. Negotiate Terms
6. Obtain a Mortgage
7. Prepare for the Close (Transfer Ownership)
8. Close
9. Move
10. Celebrate
1
FIND A QUALIFIED
BUYER’S REPRESENTATIVE
How often do you purchase real estate? Once, twice, three times in your lifetime? So
you can hardly be expected to know all the ins and outs of such a major transaction
complicated by so many details. In most transactions, sellers are represented by a listing
agent who minds these details and their client’s best interests. As a buyer, don’t you also
want complete and fair representation in your real estate transaction? Real estate buyer’s
representatives are responsible for protecting the best interests of their clients—buyers
like you—and can guide you through every step of the process. So the first step, and
perhaps the most important, is finding your buyer’s representative.
What is a Buyer’s Representative?
Defined most simply, a buyer’s representative (or buyer’s agent) is an advocate for the
buyer—not the seller—in a real estate transaction. Real estate laws and regulations vary
from state to state, but buyer’s representatives usually owe full fiduciary (legal) duties,
including loyalty and confidentiality, to their buyer-clients and keep their best interests in
mind through the entire transaction.
In some states, consumer protection legislation has been enacted that defines the
assumed relationship between a buyer and a real estate agent as that of client and
buyer’s representative. Regardless, to ensure that you are working with a buyer’s
representative, the two of you should sign a written buyer representation agreement
that defines your buyer’s representative’s responsibilities and obligations, and yours also.
Consult with your local REALTOR ® Association or state real estate regulatory agency for
the agency laws that govern your state.
Why Should I Use a Buyer’s Representative?
The two most important reasons to use a buyer’s representative are protection and
efficiency.
Most likely, the seller of whatever property you buy will be represented by a listing agent
who can provide expertise throughout the transaction. Don’t you want the same kind of
service as a buyer? A buyer’s representative can provide you with the expertise you need
through the entire transaction.
According to NAR research, buyers who work with a buyer’s representative also find
their homes quicker, while viewing more properties in their search, than buyers who do
not engage a buyer’s representative
2
ASSESS YOUR CREDIT
AND FINANCES
Determine Your Credit Status
Because any lender you apply to for a mortgage will verify your credit history, it’s wise to
check your own credit rating in the beginning of your home search, even if you’re sure
you have an excellent credit record. There may be blemishes in your credit history that
you don’t know about. Identifying and resolving any credit problems to improve your
credit rating will provide benefits, such as preferred rates from lenders and home
insurers.Acquiring a copy of your credit report is simple.
The Fair Credit Reporting Act allows consumers to obtain one free credit report from
each of the three major reporting bureaus every 12 months. To obtain a report visit:
www.annualcreditreport.com—the only authorized source for consumers to access their
annual credit report online for free. Or, call 877-322-8228.
The three major credit bureaus:
Pre-qualification vs. Pre-approval
Typically you will first pre-qualify for a mortgage, then get pre-approved before you have
found the specific home you wish to purchase. What is the difference?
Pre-qualification: An informal determination by a lender or mortgage broker stating
the amount of the mortgage you can afford.
Pre-approval: A guarantee in writing by a lender to grant you a loan up to a specified
amount.
There are two advantages of being pre-approved for a loan as early as possible in your
home-buying process:
Equifax
www.equifax.com
Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
800-685-1111
Experian
(formerly TRW)
National Consumer
Assistance Center
www.experian.com
P.O. Box 949
Allen,TX 75013-0949
888-EXPERIAN
(888-397-3742)
Trans Union
Corporation
www.transunion.com
Customer Disclosure
Center
P.O. Box 390
Springfield, PA 19064-0390
800-888-4213
3
ASSESS YOUR WANTS
AND NEEDS
This exercise will help your buyer’s representative identify specific homes to show you.
If you have other needs and/or desires, be sure to list these and discuss them with your
buyer’s representative.
Home Feature Prioritizing Tool
Ideal Price___________________________________________
# of Bedrooms—Minimum_______________________________
# of Bathrooms—Minimum ______________________________
Garage—# of Cars ____________________________________
Lot Size ____________________________________________
Age of House ________________________________________
Square Feet of House __________________________________
Style of House________________________________________
Number of Floors _____________________________________
Type of Neighborhood__________________________________
Determining What You Need Versus Want
Rate the features below on a scale of 0 to 10, with 0 being those things you absolutely
don’t want and 10 being those things you must have.
Eat-In Kitchen 0 1 2 3 4 5 6 7 8 9 1 0
Separate Dining Room 0 1 2 3 4 5 6 7 8 9 1 0
Fireplace 0 1 2 3 4 5 6 7 8 9 1 0
Family Room 0 1 2 3 4 5 6 7 8 9 1 0
Finished Basement 0 1 2 3 4 5 6 7 8 9 1 0
Homeowner Association 0 1 2 3 4 5 6 7 8 9 1 0
Amenities (security gate, 0 1 2 3 4 5 6 7 8 9 1 0
community pool, tennis courts)
Pool/Spa 0 1 2 3 4 5 6 7 8 9 1 0
Patio/Porch 0 1 2 3 4 5 6 7 8 9 1 0
Yard 0 1 2 3 4 5 6 7 8 9 1 0
View 0 1 2 3 4 5 6 7 8 9 1 0
On the next page is a blank form for you to fill in other features that you may want in
your home and rate their importance.
4
SHOP FOR A HOME
Big Choices That Will Make a Big Difference
The decisions you make in the home-buying process will determine the neighborhood
and home where you will live—and the financial terms by which you will pay for your
home. But with so many neighborhoods and all the homes on the market in each one,
narrowing your choices can be a harrowing task, especially if you’re not familiar with the
area. Your buyer’s representative can be invaluable, helping you find resources to learn
what you need to know to make informed decisions.
Note: Under Federal Fair Housing Laws it is unlawful for a real estate professional to
engage in conduct that is discriminatory on the basis of race, religion, color, national origin,
sex, handicap, or familial status. A real estate professional should never steer you towards
or away from a particular neighborhood if the homes there fit your needs and are within
your range of affordability.
Factors to Consider When Evaluating a Neighborhood
Spending time in a neighborhood can tell you a lot about it, but not everything; you also
need to do some research. Depending on your particular needs and preferences, some
factors will be more important than others, but things to consider include:
Neighborhood Profile: Research neighborhood aspects such as population density
and the level of commercial development. Ask yourself “What kind of neighborhood do
I want to live in?” City? Suburban? Small town? Rural?
Household Data: Take into account family type, average household income, and
homeowner education level and occupation.
Crime Rate: Crime is an unfortunate reality we must all deal with. Probably no
neighborhood is totally immune from the risk of crime, but by researching the incidence
of reported crime in the neighborhoods you are considering, you can make an educated
decision about where you live.
Quality of Schools: Base your evaluation on school performance, as determined by
average test scores, spending per student, and the percentage of college-bound students
and national merit scholars.
Amenities: What features you want in a neighborhood will be determined by the
lifestyle you lead. Amenities to consider include proximity to: schools, place of
employment, shopping, transportation, parks and recreation, restaurants and nightlife,
cultural institutions, and natural resources, such as state parks.
5
NEGOTIATE TERMS
Making the Best Deal: Why Making the Deal is a Big Deal
Once you’ve found the home you want to place an offer on, the next step is reaching
an agreement with the owner about the price, how and when you can buy it.
Throughout this process, there are many important considerations that can impact your
finances, tax situation, and legal obligations. When you consider that you will live with
the decisions you make about these issues—perhaps for a long time—just how big a
deal your home purchase is becomes obvious.
Your buyer’s representative can help you navigate the way through much of the
transaction process, but may also advise you to consult legal and tax experts.
Negotiating
Assess your negotiating position prior to making an offer. Here are some basic rules to
help you.
You are in a strong bargaining position (the seller will look favorably on your offer) if:
n You are an all-cash buyer.
n You are pre-approved for a mortgage.
n You do not have a house you need to sell, or other contingency that must be met,
before you can purchase the home.
With these factors in your favor, you may be able to negotiate a reduction on the listed
price. On the other hand, in a “hot” seller’s market, if your “perfect” home comes on
the market, you may want to offer the list price (or more) to beat out other offers.
It may also be helpful to find out why the house is being sold and if the seller is under
pressure to close a deal quickly. Consider that:
n Every month a vacant house remains unsold represents considerable added
expense for the seller.
n If the sellers are divorcing, they may just want to close quickly.
n An estate sale often yields a bargain in return for a promptly closed transaction.
6
OBTAIN A MORTGAGE
Selecting a Lender
When selecting a lender, your goal is to obtain a mortgage loan with terms that are most
favorable to your situation. In order to find the best home loan for you, contact several
lenders to discuss the mortgages they offer, their rates, closing costs, and other fees. If
you have a mortgage now, contact that institution. Mortgage loans are available from
many sources, including:
n Mortgage companies
n Savings and loan associations
n Banks
n Credit unions
Rates and Duration
Two of the biggest choices you’ll make in determining your mortgage are the interest
rate and duration. Combined with the amount you borrow, they will largely determine
the amount of your monthly payment. The interest rate is the percentage of the loan
amount you are charged to borrow the money; the higher the rate the more you pay.
Mortgage rates change, subject to various economic factors. To be more certain of what
they pay, most buyers “lock” their rate when they apply for their mortgage. A lock
means that the rate in the approved application will be valid for a set period of time—
during which the deal must be closed—regardless of what market interest rates are at
the time of closing. With fixed-rate mortgages, usually 15- or 30-year, you are charged
the same percentage over the life of the mortgage.The rate changes in an Adjustable-
Rate Mortgage, or ARM, after a set number of years.
Closing Costs and the Truth in Lending Statement
There are other costs associated with a mortgage.They might include an appraisal and
“points,” a fee based on the amount of the loan. Depending on the amount of your down
payment, you may also be required to carry mortgage insurance, a policy that pays your
mortgage if you are unable to. So that you can see all that you’re paying for the home
over the length of the mortgage, you will be given a Truth in Lending Statement, which is
a federally-required good-faith estimate of all the costs associated with your mortgage
and the purchase of your home.
Applying for a Loan
At this stage, you may have already made an offer on a house, decided what type of
mortgage you want, and selected a lender. The next step is to fill out a loan application.
Your buyer’s representative and lender together can help you understand
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PREPARE FOR THE CLOSE
Homeowners Insurance
The financial institution providing your mortgage will demand that the home you are
purchasing is insured, so you must obtain homeowners insurance before closing and
provide proof of the policy. Allow plenty of lead time before closing to find
homeowners insurance. Costs and coverage can vary, so obtain at least three quotes
from different companies. When evaluating the policies to find the right one for you,
consider questions such as:
n What is covered?
n What is not covered?
n How much will the insurance cost?
n Are discounts available for such things as smoke detectors and fire alarms, burglar
alarms, non-smoking owners, combined auto and home policies, higher deductibles?
n What is the deductible?
n Is the home in an area prone to hurricanes where wind insurance may be a
separate policy?
n Is the home in a flood zone where separate flood insurance is required?
Note: Some personal items such as expensive jewelry or valuable collectibles may not
be covered in standard homeowners policies. When getting your quotes, include an
inventory of your possessions to see if riders are required to cover these items.
To determine eligibility and premiums, insurers are increasingly investigating an
applicant’s claims history. Past claims made on the property to be insured are also a
factor in determining coverage and premiums. Some insurers also examine the
applicant’s credit report.
Complete a Home Inspection
REBAC recommends that you have the home you want to purchase professionally
inspected—even if it’s new construction—to identify potential expenses that might not
be immediately detectable during your viewings of the home. (Imagine finding out that
you need a new roof or furnace the day after you move into your home.) Schedule an
inspection with a qualified home inspector within the time specified in the inspection
contingency of the purchase contract. Your buyer’s representative should be able to
assist you in identifying a number of inspectors to choose from.
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8
CLOSE
The actual and legal transfer of ownership is called the closing, or settlement. Possession
is usually transferred at closing too, but not always. For various reasons, the seller may
request to close the sale yet retain possession, renting the property from the buyer until
the seller vacates the property and possession is transferred.
Who attends the closing? Usually:
n You, the buyer
n The seller
n The closing agent, the title insurance representative, and the escrow agent. One
person may fill all these roles, coordinating the settlement of the documents,
recording them, disbursing funds, and handling the details of the closing.
n The real estate agents
n Your attorney
n The seller’s attorney
Steps in the Closing Process
There are a number of steps that must take place between the time you and the seller
sign the contract and attend the closing meeting. It can take several weeks, in fact, to
complete these steps—six to eight weeks is not uncommon.
q Setting the Closing Date
Part of the contract negotiations, when the closing takes place is decided by the
buyers and sellers, providing ample time for the preparation of the legal documents
for both the transfer of title and for the mortgage. You need to provide time for your
mortgage to be approved and to sign the lender’s letter of commitment. The closing
must take place before the mortgage interest rate lock expires, but remember that
you will also need to complete the home inspection and acquire homeowners
insurance in addition, perhaps, to other duties.
q Reviewing the Documents
Ask for the documents before the actual closing and read them carefully. It might be a
good idea to ask your attorney and your buyer’s representative to review them with
you.This will help you understand the documents before you sign them.
q Understanding the Closing Costs
Closing costs can include many different expenses and can add up to a sizeable
amount of money. Be prepared. Know exactly what your closing costs are and how
much you will be expected to pay at the closing meeting. These amounts will be
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9
MOVE
Plan and Prepare
You found your home, the contract has been signed, and the closing date set. Now, it’s
time to prepare for moving day. You should, however, begin planning for it well in
advance. You might find that moving is the biggest job of all. But whether you are moving
immediately after closing or have the luxury of extra time after closing, whether you are
moving across town or across the country, planning and preparation are essential.
Making a Plan
Making a moving plan prior to closing will be one of the most beneficial things you do
for yourself. By developing an outline of moving costs, making a moving checklist
(example on page 27) and investigating moving companies, you can eliminate or at least
reduce many of the surprises and hassles that moving often entails.
Costs, Insurance, Packing, and Income Tax
One of the greatest surprises to first-time and even repeat buyers is the variety of
expenses associated with moving. They include everything from packing materials and
utility hookups to insurance for your valuables and the actual cost of the movers, or truck
rental. When selecting a moving company, ask friends and family if they have any
recommendations. Call at least two companies for estimates, which should be cost- and
obligation-free. You can expect professional movers to come to your home, discuss your
move in detail and provide many recent referrals. Check their referrals, especially if you
didn’t find the mover through a personal recommendation. Before selecting your mover,
confirm that the company is insured, thereby providing at least some coverage for your
belongings. Three of the most common forms of insurance coverage are basic liability,
declared value protection or actual cash value, and replacement value. You may need to
buy more coverage or specialized coverage for certain items such as antiques and works
of fine art. Contact your homeowners insurance company to see if your policy also
covers moving.
If your move is job-related, many of your moving expenses may qualify as income tax
deductions. Consult a tax professional for details.
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APPENDICES
Homebuyer’s Glossary
ABR ® Accredited Buyer’s Representative. A designation held solely by REALTORS® who
have met the educational and practical requirements demonstrating skills and knowledge
to represent homebuyers. Awarded by the Real Estate Buyer’s Agent Council (REBAC).
adjustable-rate mortgage (ARM) A mortgage with an interest rate that changes,
based on a specific index, after a predetermined number of years.
agency Any relationship in which one party (agent) acts for or represents another
under the authority of the latter.
amortization schedule A timetable showing the amount of each mortgage
payment applied to interest and principal and the remaining balance after payment is
made.
annual percentage rate (APR) The cost of a mortgage stated as a yearly rate;
includes such items as interest, mortgage, and loan origination fee (points).
appraisal A qualified appraiser’s written analysis of the estimated value of a property.
biweekly payment mortgage A mortgage requiring payments every two weeks
rather than the standard monthly payment.The benefit for the borrower is a substantial
savings in interest over the life of the loan.
broker A person who, for a commission or a fee, brings parties together and assists in
negotiating contracts between them.
capital gains The profit obtained from the sale of an asset, such as real estate.
certificate of title A statement provided by a title company or attorney stating that
the title to real estate is legally held by the current owner.
closing A meeting at which a sale of a property is finalized.
closing costs Expenses incidental to a sale of real estate, such as loan fees, title fees,
appraisal fees, etc.
collateral An asset (such as a car or a home) that guarantees the repayment of a
loan.
commission The fee charged by a broker for providing services related to a real
estate transaction, such as marketing the property (for the seller), finding a property (for
the buyer), and negotiating a purchase contract.
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