Growing up on a farm, I recall the days of sitting on our porch swing and looking out across the peaceful pasture nearby. The warm breeze swayed the golden leaves of the cottonwood trees, dragonflies lingered on flowering blooms, and barn swallows danced in the evening air. There were no worries, nothing at all to rush around for.
For many years now, my spouse and I have dreamed of buying a stretch of land to recreate that tranquil setting. Until we can invest in an alluring acreage, we’re learning more about what goes into purchasing real estate and the many important details involved in the home buying process.
If you’re also dreaming of buying a home, follow along with these key points for homebuyers.
Many moons ago, I recall looking for my first apartment. To estimate what I could afford in rent, my father recommended I divide my monthly take-home pay by three (one third of my monthly income). Knowing that number was the maximum I could afford, I set my budget for a rental well underneath that price.
According to the budgeting tips shared in our ebook, Finding Your New Home, if you’re thinking about buying a house, you’ll need to sit down and figure out how far you can stretch your paycheck each month.
Beyond your monthly mortgage payment, other expenses include:
- Homeowners insurance
- Property taxes
- Homeowners’ Association (HOA) dues
- Landscaping/Pool maintenance/Pest control services.
If your mortgage is not a VA Loan and you didn’t happen to have 20% for a down payment, there could be a fee for Private Mortgage Insurance (PMI)
Much like the "1/3 rule" with renting, when you’re planning to buy a home, you’ll want to live within your means. Adjust your budget so you can easily afford your home loan payment and whatever other expenses come along. The easier it is to pay your important bills, the less worry and stress you’ll have in your day-to-day life.
Review Your Finances
If you’re using your monthly rent as a gauge for what you can comfortably cover with a house payment, you most likely have a good grasp on your finances. Before you set out on a house hunt, check in with your bank, credit union or lending institution.
As suggested in What to Know About Your Finances Before Buying a Home, you’ll need to:
With a conditional commitment for an exact loan amount, a statement of pre-approval will define your house hunting price range. Even with pre-approval, there’s no guarantee you’ll actually get a home loan. Pre-approval simply means if you clear the underwriting process, there’s a strong chance you’ll qualify for a mortgage.
Find a Real Estate Professional
It’s helpful to find an expert in the real estate field that understands the challenges of military life. When looking for a military-friendly real estate professional, keep a couple of things in mind.
- When looking for a buyer’s agent, browse through the listings in MilitaryByOwner’s business directory. Find out more about an agent by reading their online reviews.
- It’s a good idea to check the references that an agent shares with you. Buying a home is a big deal! You’ll want to hear from other military families about their home buying experiences with this person.
- Consider a Military Relocation Professional, an agent who’s gone through specialized training for working with military families.
The goal is to find an experienced agent that you’ll feel comfortable working with. You’ll need to be completely open and honest about what you are looking for with a home. Hopefully, you and your agent will develop a friendly rapport. After all, you are inviting this person to guide you along your path towards homeownership.
Place an Offer
Let’s say the stars have aligned and you’ve found a home that fits your budget and your needs! With your buyer’s agent at your side, you’ll want to make an offer. When you present your formal purchase offer to the home seller, it may not be initially accepted. Never fear! Your agent will know how to proceed and negotiations will begin.
Additionally, the free downloadable ebook, Making an Offer & Closing On Your New Home offers insight on appealing to the seller with the perfect dollar amount and ideal closing terms.
Present an Earnest Deposit
When the seller accepts your offer, a real estate contract is signed. At this point, usually a buyer fronts a certain amount of money called an earnest deposit, which will be placed into an escrow account. This good faith money can be returned to you if there’s an issue with financing the mortgage or if the home does not pass inspection.
Review Disclosures and Arrange for Inspections
Your agent will be your guide as you navigate through the appraisal, disclosures, and inspections that lead towards final approval from your lender. During this timeframe, you’ll have the opportunity to analyze a variety of documents, such as flood maps, geological surveys, and private property ordinances.
This phase of the process is not super exciting! But it’s an essential part of your real estate transaction. If the seller is aware of any major problems with the property, then they must make note of this on their disclosure statement. You’ll want to proceed with caution if their disclosure includes big ticket improvements that are needed, such as:
- Electrical issues
- Water damage
- Foundation concerns.
If this is the case, you as the buyer have the option to cancel the deal. Your escrow deposit would be returned to you and you could walk away. However, if you’re still interested in the home, your agent can help you renegotiate the terms to have the seller resolve the outstanding issues or reduce the sales price.
For reassurance that this home is a worthwhile investment, you’ll need to arrange for a home inspection. You’ll want to know that the nooks and crannies of this dwelling are as pleasing as the charming curb appeal. Your agent will have a professional in mind to inspect the residence. If there’s anything that doesn’t correlate with the seller’s disclosure statement, this is another opportunity for you to either cancel the deal or renegotiate the terms of the sale.
Final Loan Approval
The lending institution has the final say in whether it will agree to release funds for a mortgage. The lender must confirm a couple of things:
- Your ability to make timely payments.
- The appraisal value of the property.
These are two items that will make or break your potential home purchase.
Over the course of several weeks, the lender has been delving into your financial profile to ensure you’ll be accountable for a home loan. Even if you have a statement of pre-approval, a lender will want to investigate further to protect their end of the deal. Before loaning you any sum of money, the lender will need to be certain that you can comfortably cover your monthly mortgage payment. While your finances are in review, it’s in your best interest to hold off on making any major purchases or going on a large shopping trip. By limiting your spending, you can keep your debt-to-income ratio intact.
In order to gain a sense of what the home you are buying is worth, the lender will set up an appraisal inspection and compare the property to other houses on the market. This will clarify if the sale price meets the value of the property. Of course, you or the seller are allowed to contest this appraisal if you feel the assessment is incorrect.
A day or two before the scheduled closing date, you and your agent will take a final tour of the property. With this walkthrough, you’ll be taking an inventory of what is included with the home, which could be the appliances, the window treatments, or whatever else you’ve defined.
From the inside to the outside, take note of the overall condition of the house and compare it to what you’ve included in your contract. If any detail has been overlooked, your agent will address those concerns with the seller’s agent. If everything around the house meets the terms of the contract, you can give your approval and the home buying process moves towards closing.
Keep in mind, before you state your approval that the home meets the standards of the contract, this is your last chance to opt out of this purchase. Most likely, you are more than ready to move forward to the closing!
Prepare for Closing
With the mobile nature of this military lifestyle, it’s good to know that your closing appointment can occur wherever you may be located. Perhaps you meet at an office in the presence of an attorney? Maybe you gather with a notary around the kitchen table in your home? You can decide what works out best for your current situation. You’ll need to present the following.
- Photo ID: Either your driver’s license or current passport.
- Down payment: This may be in the form of cashier's check, certified check, or wired money. Prior to your appointment, you’ll be told exact amount.
- Proof of home insurance: A receipt showing you’ve paid the home insurance policy.
- Final purchase and sales contract: Your copy of the paperwork.
Congratulations! You’re a Homeowner!
When you’ve paid the lender, read through the documents, and signed more papers than you care to think of, it’s a wrap! Once the notary signs and seals the final paperwork, those precious house keys will rest in your hand for the first time.
It’s time to celebrate! You are now a homeowner.
By Mary Ann Eckberg