Buying a House in 2012 and Beyond: A To Do List

for sale signThanks to the crashing economy buying a house in 2012 can get you great interest rates, but at a cost to a lot of preparation and documentation.  Don’t get me wrong, this is a good thing….as long as you’re not trying to cover things up.  I remember when I bought my house in 2005, I’m pretty sure from offer to closing it took about 3 days.  Ok, maybe it was a week, but it was VERY fast and not very much to do on my end.  The only people I ever recall dealing with was my broker and realtor.  I don’t even recall a lawyer being present, except for maybe perhaps at the time of recording the deed?  My mind is a little faded on that memory.

2012 was a different story.  My fiance and I purchased a house and the game has definitely changed.  So here’s what we did to make the process go smooth for everyone involved and the closing happen as soon as possible.

***I am not a Financial Analyst.  This is a just a laymen’s list.  Any recommendations from me are not advertisements but the resources we used that we had experience with.  These resources are in Massachusetts.  If you are in the area their contact information can be found in their pertaining section and also at the bottom of the post. Happy house hunting!

(Additional note to reader:  This article is almost 10 months in the making. Interest rates have since gone up but the buying situation is still the same. )

PREPARATION:

FIGURE OUT YOUR BUDGET.  Include in this budget cost of the mortgage, property taxes, home/condo insurance, utilities, personal expenses (credit cards, car payments, savings, and misc), money available for a down payment and closing costs*.  All of this information will tell you how much house you can afford without breaking the bank and still leave you money to take care of the things you need for the house, yourself, and those little emergencies in between.

*Closing costs can consists of any or all of the following and can be up front costs deducted at the closing or paid at closing: Offer (up front), Loan fee (at closing), Title fees (at closing), Home Inspection (up front), Appraisal (up front), etc.

While you are figuring out your budget also start to research areas that you want to live in.  Technology makes it much easier with online real estate sites, like Zillow and Trulia, where you can look at available houses online and in the comfort of your own home.  They give you ideas regarding price range of houses that you like and current and past property taxes.  Make sure that these work within your budget.

Remember to think of online house hunting like internet dating.  The house may look good in the pictures, but it may not look the same when you go to see it and take in to consideration the actual layout of the house.  This is important because you can not get the feel of the flow of the house from the pictures. The surroundings around the house and the neighborhood are also important.

During our online search we found a house that looked GREAT in pictures.  So great I wanted to put in an offer right away to secure it, real sight unseen.   Luckily, there was an open house that weekend and my fiancee suggested we go take a look at it first.  Whew! Good thing we did.  The bedrooms were smaller than the pictures suggested and the layout of the house was very weird.  From the front door there was the living room that was open plan to the kitchen, but it felt weird because the living room was so small.  And even less appealing to us was right across the street from this seemingly nice house were two very ugly blocks of apartment buildings.

FIND A GOOD BUYER’S AGENT. Once you have narrowed the areas down to the ones that you like, find yourself a good Buyer’s Agent.  This is very important, because they are the ones who are going to show you all of the houses you want to see, negotiate for you with the Seller’s Agent, and get you into the house of your choice as many times as they can. Find someone that you get along with and has the time for you.  Although Yelp and Angie’s List (I never used AL due to the subscription, but heard that they’re good) can give you some ideas of a good agent, get recommendations from friends, co workers, or family members.  They are your best resources rather than winging it online.

Through a family recommendation we went with Prestige Realty.  Sammi Ng, was our Buyer’s Agent, and her co worker, Devin Wong, was like a co-Buyer’s Agent.  Both recommended we see the house we bought.  Sammi and Devin were VERY accomodating.  If we had a 100 houses we wanted to see, they would make sure we saw them all even if it was late into the evening. One of them was always available to show us a place if we needed it. They were quick to respond to emails and/or texts.  If we had any questions, they would either answer it or find the answer for us.  And we got down to the process of purchasing our house, both were very good at going to the house and making sure everything on the punchlist was taken care of.  From what I understand they even took a lower fee to secure us the home.  Sammi and Devin were there to the very end.

A good Buyer’s Agent, like Sammi and Devin, should have your interests in mind.  They find out from you what kind of house you are looking for (and there are sooo many types! Capes, ranches, colonials, garrisons, contemporaries, etc), minimum square footage, how many bedrooms, bathrooms, and minimum price range. Also they need to know what extras you are looking for and/or cannot do without ie: garage, pool, studio space, waterfront, near shopping or highways, etc and will make recommendations based on your requirements or provide comparable houses that have most of what you are looking for.  They should also put you on the Multiple Listing Service (MLS) site with those criteria.

The MLS site is THE real time listings of all available houses with your requirements.  My agent added us to it and we received emails at least once a day showing what properties were added, whether an offer has been put in, links showing the house with pictures and property details.  Zillow and Trulia are very similar to the MLS site, but may be a day or two behind.  They can give a good general idea of what is currently on offer.

Use the MLS site and Google Maps to your advantage. If you like the pictures of the house, map it in Satellite mode and see where it is.  Zoom in, do Street View, check out the surrounding neighborhood, neighbor’s houses, streets.  Is it where you like? Anything seem off, do you really want to live near a cemetery or school? Those kinds of things.  Then make a list of houses that seem to have passed all of your online prerequisites.  Then ask your agent to get you in to see them as soon as it fits your schedule.  Be efficient with your choices as well.  For instance if you like Areas A, B and C and they are all 20 minutes apart from each other.  Go look at all the houses in A first, then B etc.

When we were looking and our agent couldn’t get us in right away, I’d map out all destinations on Google Maps onto one map, then we’d drive out to the area and start with all the houses that were south side then work our way up to the north side to check out the houses and neighborhoods.  A trip like that usually whittles down the house list further.

Prepare yourself to look at a lot of houses.  I mean a LOOOT of houses.  Playing voyeur and looking into other people’s homes and seeing how you can make it your own can be fun, but when it takes a long time, ‘kissing a lot of frogs before you find your prince’ can be exhausting.  If it stops being fun, take a break.  It’s ok.  There are always going to be new houses cropping up.  If you missed out on one, sure thing there’s going to be another down the pipeline.  I want you to be patient, but ready to make that offer once you’ve found something you like.

FINANCIAL DOCUMENTATION.  Next get your documentation ducks in order.  This will save you ALOT of time in the future and make the process go smooth for your lender and insurance agents when you start asking for quotes.  Make sure you’re ready to be 110% fully transparent.  If you try to hide financial information or not give the lender documentation that they ask  for, no matter HOW ridiculous it sounds, you are just going to make it less likely that the lender will let you borrow their money and make the process take longer.

Documents you will need to scan and save as PDFs to email as needed:

Current three years of tax returns

Most current two months worth of paystubs

Most recent credit reports and scores from all three credit bureaus.*

Current two months of bank statements**

Detailed list of the house and surroundings for the insurance companies.  I used this Home Insurance Questionnaire Blank.

*In regards to your credit history and scores, what you find on the internet may not compare with the FICO score information that the lender pulls on their side (silly, I know), but at least it gives you an idea of where you stand. Find a site that will give all three reports and scores at once.  We went with CreditCheck Total.  You pay $1 and if you call to cancel within the 7 day trial period you won’t get charged the additional monthly fee of $29.95.

Review your credit history, any negatives the lender WILL ask about.  So be prepared to answer the questions of why, for example, a payment was late 30 days.

**Review your bank statements.  Be prepared to explain any deposits worth $1,000 or more and provide the documentation for these.  For example, I collect $1,500 rent from my condo.  I had to show copies of the deposited checks front and back.  Your bank can provide these to you, just make sure you have the bank stamp and sign any documentation they give you.  Providing dates and amounts to your bank representative makes it easier for them to get you the information that you need.  (Thanks Shirley at Sovereign Bank Dedham!)

PRE-APPROVAL:

While you are looking at these houses you need to find a lender who will give you a Pre-Approval.  Like the Buyer’s Agent you want someone who you feel will work with you and communicate everything that they needed in a timely fashion.  Your documentation prep work will facilitate things going smoothly with your potential lender.

If you can get contact email addresses of potential lenders you can email them all of your documentation for review.  They will come back to you with a quote based on all of your information.  Make sure you stress with them the importance that they DO NOT run your credit report until you have chosen them as your lender.  You have provided a current credit report with scores for them for their review.  I say this because any pulls on your credit report can reflect negatively on your getting a loan especially if you are having a bunch of lenders provide you with a quote.

Email them your tax returns, pay stubs, and credit reports.  Give them the purchase price, address, what your deposit is and any other information they may ask for.  Within a day or two you should receive a quote with the interest rate and annual percentage rate (I find this rate more important) and your monthly payment.

Also, it would be VERY wise to ask how long it takes for the lender to close.  Most of the big banks may take from 45 to 75 days to close, may be even more. So be sure to ask.

We checked with all of the big banks in town: my bank, Sovereign Bank, after many emails with the mortgage rep she still couldn’t spell my name right when it was typed in the email, I just couldn’t go with someone who couldn’t pay attention to even that detail.   TD Banknorth, their rates weren’t any different.  Citizen’s, the rep took a week to get back to me.  I don’t want to wait for information.

We decided to go with Bank of America.  Our rep Tracy was always on it.  Whenever we needed a Pre-Approval she would get it to us within the hour.  But if took until the next day, she quickly apologized for the delay.  She was very good at explaining every detail as to how she came up with the pre-Approval numbers and answered any questions that we had.

THE OFFER:

So you’ve prepped your budget, you know what you can afford, you got your kick ass Buyer’s Agent who’s ready to go bulldog for you, you’ve looked at what feels like a million houses, now you’ve finally found the house you’re looking for! Congratulations on making it past hurdle #1.

If you’re lucky, the house you are interested in may not have a lot of potential buyers. This means less competition for you.  However, when looking in a desirable neighborhood, like near a big city, real estate competition goes up, especially if it’s a decent looking place.  Before making your offer, see how long it’s been on the market.  The longer it’s been listed, the higher possibility for the Seller to agree to a lower than asking price.    I prefer not to have the pressure/stress to fight for my house.  Others like the competition.

COMPARE HOUSES NEAR YOU. When you’ve found the home you want to put the offer in for ask your agent for what they call Comparables (or Comps for short).  These are houses that are similar to the house you want in the same area.  Again, the online websites come in handy for finding Comparables.  I used Trulia to get basic ideas for the house and the pictures were easier to navigate through, but Zillow was good mostly for it’s convenience of finding out houses in a neighborhood and the public record of when it was sold for, dates of sale, changes in prices, and amounts of property taxes per year.  With all of that information you can make an educated guess as to what the MAX price is that you’re willing to pay for that house. Remember, stay in budget.  It’s easy to get caught up in the negotiating process, especially if it’s a house that you like so be aware of your budget and try not to stray too far away from it or you’ll end being tight with money and not being able to enjoy your house.

INITIAL OFFER: Put in a lower offer than your max.  That way you have room to negotiate.  You never know if the Seller’s is desperate to sell and you sale pending signmight get it at the price you asked for.  Lucky you! :)

Once the initial offer has been agreed upon that’s when the real fun begins.  The end is still far away, but you’re one step closer.  At this point, you complete the Offer to Purchase and write a check for the Offer Deposit (range between $500-$1,000).  The deposit means you’re serious about this house.  The Offer to Purchase shows the Purchase Price and breaks down the numbers for the Offer Deposit, Purchase and Sale Deposit, and Final Balance due at Signing .  This also gives the dates of when the Seller needs to accept your offer by, when the Purchase and Sale needs to be signed, and when the Closing shall be.  Be sure to have it written in this agreement that your offer is “subject to inspection, financing, Sellers obtaining Certificate of Occupancy”.  This means that you can retract your offer if any of these are not met to your satisfaction.  It’s your out.

HOME INSPECTION

Now you have 10 days to order a home inspection.  The home inspection is another up front cost.  Depending on the inspector it could range between $400- $1,000.  Again, get recommendations from people you know. Shop around, ask how much they cost and have a check ready on the date of inspection.  A good home inspector will find things that you wouldn’t normally think of, even in a newly constructed home.  Don’t be fooled by the pretty paint job and the shiny appliances.  New Construction can and will have issues too. (Our punchlist on our new construction was 2 pages long!)

The home inspection is very important because this prepares you for renegotiating the price of the house and/or putting together your punchlist of things you want done before closing.

Our home inspector, Tony Buzzota, from T&G Home Inspections, was recommended to me by my old boss.  Tony was very thorough.  He turned on all of the faucets, ran the thermostat, flushed the toilets, etc. After his inspection we got a tour of every inch of the house and what he found.  He pointed out the good, the bad, and the very bad.  His insight was worth the inspection fee.

He recommended a radon test.  I also recommend that you do a radon test.

Quick lesson about radon: radon is everywhere. It comes from the soil and seeps into your house. You can’t smell or see it and in large doses can cause lung cancer.  There are Environmental Protection Agency, EPA, “normal” levels.  Basically, “the average indoor radon level is estimated to be about 1.3 pCi/L, and about 0.4 pCi/L of radon is normally found in the outside air.”  Anything above 4 pCi/L indoors you should look into getting a radon mitigation system.  These systems can bring levels down to <1 pCi/L.   To learn more about radon in your home, click here.

The test that we used we bought from Tony for $30 since he had them available right there.  However, you can get a radon test at your nearest hardware store for the same price.  It was two vials filled with black pellets that we put in the basement.  They needed to be placed raised up from the floor and in the middle of the room, and placed four inches apart (the packaging box is good for this).  The room where the testing vials are in need to have all the windows and doors closed for 48 hours.  So put a sign on the doors that a radon test is being done so no one can screw up your results.  After 48 hours, the vials go in the packaging box and shipped to the lab.  Keep the serial numbers because in a few days time you should have access to the results online from the lab.  Ours was a whopping 11.7 pCi/L!!  Lung cancer here we come! LOL

This was a big deal in regards to the negotiating process.  We had our Buyer’s Agent inform the Seller’s  Agent and the Sellers called on a quote for a radon mitigation system.  With this quote they offered to pay for a portion of the closing costs.  We also did some calls and roughly came up with the same numbers so we agreed.

Lesson here: If the Seller offers you something off of a proposal, make sure you take the time to do your own research if this is a fair price, and negotiate as necessary.  Our advice: Get three numbers to compare.

The cost of the home inspection is required on the day of the inspection. So be ready to write a check once it’s done.  Between 3-5 business days later, as time is of the essence, you should receive a full report of the inspector’s findings.  Your Buyer’s Agent will forward to the Seller’s Agent for the Sellers to review.  This gives them an idea of what to expect at the negotiation for the final purchase price.

One house we had an accepted offer on got as far as this step.  When we discussed the possibility of deducting money to completely overhaul the roof (I mean a flat roof…in New England…that was 4 inches thick and had joists 3 feet apart is asking for a total collapse soon) the Seller said ‘No.’ So we backed out of the deal.  It’s too bad because we really liked the house, but what the asking price was, and the work that would have to be put into it, and the Seller not budging on the price, just didn’t make it worth it for us in the long run.  Lesson:  Make sure you know what you’re getting into and if you’re uncomfortable with any of it at any point be comfortable to say no and back away.

PUNCHLIST:

The punchlist is basically any thing that seems defective in either workmanship or craftsmanship that you’d like taken care of before you sign the dotted lines.  This can be making sure a light switch works, holes in the walls are patched and painted, furnace is working properly, kitchen cabinets properly aligned, etc.    After Tony left, Sammi had us go through the house again from top to bottom looking for additional things that needed fixing or repair outside of what Tony had already mentioned.  These got added to the punchlist and reviewed by the Sellers.

PURCHASE and SALE AGREEMENT:

At this point, the Sellers have reviewed the inspection report and your punchlist and may come back to you with a lower offer and/or agreements of what they will or will not do with your punchlist, and/or concessions towards closing costs.  You are also armed with more information about the house, so you can either accept, counter, or reject their offer until both parties come to an agreement or decide to part ways.

If you decide to part ways, then you’re back at Step 1 or if you’re so exhausted by the process at this point (and this isn’t even half as exhausting as the process that follows if you do accept) then give yourself a break.

If you decide the the offer is good and within your budget, congratulations again on making it past the next hurdle!  At this point you have a choice of getting your own lawyer or using the bank’s lawyer for the legal stuff.  For obvious reasons, you don’t want to use the Seller’s lawyer.  This avoids any conflict of interest.  By using the same lawyer as the bank, you will save money on lawyer’s fees. We chose to go with the one lawyer.  If you’re lucky enough to have a lawyer in the family who is more than happy to review the documents for you as well, all the better.  (Thanks Cousin Yiyi!)

Once you’ve decided on the lawyer, they will go over lots of legal stuff and review each section of the Purchase and Sale Agreement, or as the cool kids say the P&S, and answer any questions you may have.  The P&S lays out how much you’ve agreed to purchase the home for, whom you’re purchasing from, how much you’ve already put down for your deposit (this is the initial offer deposit), and how much more you’ll need for your deposit once you sign the P&S.  Once this has been done you can sign the Purchase and Sale Agreement and return it to your Agent who will pass it on to the Sellers to sign.

PRE-CLOSING 3-RING CIRCUS:

Okay so here’s the 3-ring circus act for the next steps.  These are not necessarily steps, but more like parallel paths that you need to compile simultaneously.  You’ve got your documentation from your preparation, now you need to spread the seeds around and see what quotes you get back.

While the Seller is taking care of your punchlist you need to choose your lender and gather quotes for the Home or Condo Insurance, and Flood Insurance (if needed)

Choosing a Mortgage Lender:
You’ve received multiple quotes from lenders for your pre-approval.  Now who do you choose to write your mortgage?  We already know that whoever writes our mortgage may possibly sell it off after.  Fine by us, as long as the initial groundwork is laid out properly.  What was most important to us is who can close within a reasonable amount of time. We would like to move in as soon as we are able, but we weren’t willing to wait 45-75 days.  Unfortunately, even though we loved the customer service from Tracy of Bank of America, we heard that their closings take up to 75 days so we had to go with someone else.

We ended up being recommended to New American Mortgage, NOT to be confused with New American Funding a different mortgage company.  New American Mortgage’s mission statement was “clear to close in seven days”.  Uh, sign us up please!  Joe Correia, was our Loan Mortgage Officer, and he was great!  On the first day he was on the phone with us for 4 hours…after hours!  He went through the process and completed our loan application over the phone.  I sent him all of the documentation that I had prepared previously which helped the process go along smoothly. (At that time he also informed us that there are no such thing anymore as First Time Homebuyer rates.)

Home or Condo Insurance, and Flood Insurance:   Again get referrals from people you know.  If you are near the water, it is going to be even tougher for you to find coverage.  Hurricane Sandy in October 2012 did not help. You will also need to consider getting flood insurance if your house lands in a flood zone.  Don’t even try to interpret the public version of flood maps that you find on the internet.  It’s not very easy.  Get about 5 quotes from insurance agents, especially in your area.  If you can, make sure the Dwelling coverage covers what you will be borrowing from the mortgage company to give a semi apples-to-apples comparison.

If your house has hurricane wind-rated windows for 120mph (yeah I didn’t know about those either) Metlife will give you a fantastic rate!  Our windows were not, so we could not get Metlife coverage.

We ended up getting Homeowner’s Insurance through Narragansett Bay.

Once you have chosen the insurance companies who will write your Home/Condo and/or Flood insurance, you will need to forward the quote documentation to your lawyer so that they can put the information into the final contract and adjust the final numbers for the closing documents.

FINAL WALKTHROUGH:

You are getting closer to the end of the tunnel.  A few days prior to closing you will head back to the house and go over the list and make sure everything that was agreed to be taken care of, has been.  If the list is complete, get your writing hand ready.  You are ready for Closing!

CLOSING:

Finally, the day you have been waiting for.  You get your house YAY! But less money in your bank, boo.  Everyone should be there: Lawyer, Seller, Seller’s Agent, you and your agent.  However, there are incidences (like ours) where a side is unable to make it to the table so the signing was done on separate days.

Your lawyer will go over EACH and EVERY page of the documents.  This thing is about an inch thick and there are at least three copies!  You will be initializing and/or signing each and everyone of those pages of each and every copy.  If you have any questions as they go through it ask before you sign. Once the documents are signed and initialed, the final balance check will written over and marked as paid.  Keys are then handed over to you and CONGRATULATIONS!! You are now a homeowner and living in the house you wanted!

I hope this article helped.  Good luck with your new home!

 

sold sign

 Contact information if your are in the Massachusetts/New England area:

Buyer’s Agent: Sammi Ng or Devin Wong; Prestige Realty Pros; 147 Beach St  Quincy, MA 02170          (617) 328-8882  prestigerealtypros@gmail.com

Home Inspector: Tony Buzzota, T &G Home Inspections; 54 Pearl St  Melrose, MA 02176     (781) 665-8292  tghis@comcast.net

Home Mortgage Lender:  Joseph Correia; New American Mortgage; joseph.correia@newamerican.com or joseph.correia@movementmortgage.com

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