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Old 09-02-2004, 11:14 AM   #1 (permalink)
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NoSoup's Guide to Buying a Property: The Basics

Well, one resource I have used for looking for properties is www.realtor.com Also, check with friends/family to find a good real estate agent.

As far as the steps in purchasing a home -

This step is optional, though recommended. I would suggest you first get preapproved for a mortgage. Make sure that you are comfortable with the payment. It will give you a starting point to begin your search. Another huge advantage of being pre-approved is it grants you additional bargaining power when it comes to putting in the offer on the home that you want to buy.


The next step would be deciding on the type of property you would like to buy. Keep in mind, however, that you should plan on living there a minimum of two years. The reason being, if you live there at least two years, you are not required to pay capital gains tax on owner occupied property if there is a "profit" when you sell it, unless you make a profit of several hundred thousand dollars.

_____________________

Single Family Homes

Pros

-Generally Appreciates the fastest of all residential properties
-Generally Depreciates slower than other residential properties
-Usually the easiest and quickest type of property to sell
-Provides the most privacy
-Gives you the freedom to do as you see fit with the home (ie decorating, painting, re-modeling, ect)

Cons
-You must pay all maintenence required
-You are required to do all the work as far as lawn care, snow removal, ect.

Townhouse/Condo

Pros
-Little to no maintenece work (ie lawn care) required
-Usually costs less than a single family home

Cons
-Usually Appreciates slower than all other residential properties
-Usually Depreciates faster than all other properties
-Less Privacy than a single family home
-Far more difficult to sell than a single family home
-Depending on the condo/townhouse, residents/owners may need to meet specified criteria to own/move in
-Usually an association fee required, potentially very expensive

Two Family Homes (ie Duplex)

Pros
-May gain more equity/income as a result of having a rental
-Fairly easy to sell
-Generally considered a good investment (as is most real estate)

Cons
-Potentially having the other side vacant, with no additional income to supplement the mortgage payment
-Maintenece nearly doubles (furnaces, water heaters, ect)
-Not as private as a single family home
-Renters, and all the headaches that come with 'em
_____________________

Once you have decided on the type of property to purchase, contact a local real estate agent. I would suggest speaking with family/friends to recommend one. If you feel you are not getting the service you are entitled to, don't be afraid to switch or find another one to work with you. Once you have found a specific property you are interested in, you must put in an offer to purchase.

The Offer to Purchase

Basically, this is a legally binding document that states the conditions of the home sale. If the conditions are met by both parties, you are required to purchase the home. Make sure that anything that comes with the home (dishwasher, stove, swingset, ect) is stated clearly in the offer to purchase. This is a rather lengthy document where everything is negotiated. The terms of sale, closing date, items included, and most importantly the price.

Make sure you leave yourself several "outs" - remember, if all provisions are met on this document, you are required to buy this house. These "outs" are called contingencies. Some examples of contingincies that you may want to put on it would be "Contingent of Financing 100% of the purchase price at 5.875% or less" and "Contingent on a home inspection by a non-affiliated third party with results acceptable to the buyer"... ect. Your real estate agent should discuss this with you in greater detail. If all contingencies are not met, you still have the choice to go ahead and purchase it. For instance, if you are offered 100% financing at 6.25%, you can choose to purchase the home anyway.

In many (if not most) situations, the offer is not accepted. If it isn't, there are two possible outcomes. They can either reject your offer or counter-offer. Once you recieve the counter offer, you can either accept it, reject it, or counter again. It goes on and on until you reach an agreement.

When making your offer, there are several factors that you should know about. First of all, you should ask how long the property has been on the market, or up for sale. The longer the time, the more "motivated" that buyer is likely to be, meaning they are willing to negotiate a bit more than someone who is not motivated. Also, you should let them know that you are pre-approved. I have seen in many occasions two similar offers come in, but the buyers will take the slightly-lower offer with the people that have been pre-approved just to avoid the loan process going sour down the road.

If the sellers are hell-bent on getting a certain price, you still may be able to negotiate. Your pride (and the sellers) will affect the deal alot. You feel better knowing that you got X amount of dollars off the price. The seller will feel good knowing that they held their guns, or only lowered it a bit. If they won't drop the price any lower, counter offer with it contingent on closing costs of your loan, or have them throw in the riding lawnmore and weed-eater, or whatever else your heart desires. It is not uncommon for the seller to refuse to lower the price of the home by $1000 dollars, but then accept the offer having to pay $1000-$3000 extra in closing costs.

The Mortgage

Basically, once you have an accepted offer, you'll need to speak with your friendly neighborhood loan officer. Ask him what options you have, and what your estimated payment will be. Make sure that you are not decieved by the loan payment, and that he includes estimated taxes an insurance on it.

The total mortgage payment consists of
Principle and Interest - The actual funds going to pay on the loan, reducing principle and paying accrued interest
Taxes - The annual taxes of the property divivded by 12. If the property taxes are $2400 a year, add in an extra $200 a month to your payment.
Insurance - Homeowners insurance, that is. This is the insurance that covers you in case of fire, robbery, ect. Take the annual premium and divide by 12 to find this amount.
Private Mortgage Insurance - This is bad stuff. It is likely you will have to pay it if you are taking out a 100% loan. Basically, this is insurance that covers the lending institution in case of default. It generally is not tax deductible, like interest, so it is very similar to throwing money out the window - with the exception of people below finding it, you are handing it to an insurance company. There are ways to get around paying this, such as an 80/20 loan or an 80/15/5, but your loan officer will advise you on what you can qualify for. Under most convential guidelines, the owner is required to pay private mortgage insurance if the loan to value ratio is over 80%. The loan to value ratio is figured out by taking the loan amount divided by the appraised value of the home. [On a side note, you're mortgage payment will include taxes and insurance only if you choose to escrow. However, it is best, even if you don't, to calculate them into the payment so you know what you'll need to save each month]

Be wary of what you pay for closing costs. If you feel like they are way too much, they probably are. There certainly are a variety of costs when preparing a loan, but sometimes they are unreasonable. If you are unsure, feel free to either PM me or check around with local banks.

Once you have the loan program picked out and you all set to go with them, generally title insurance an appraisal are in order. Once those are recieved, providing there is nothing wrong with them, the loan will continue.

Just to kinda keep up with the pattern I have set, I'll define these terms as well...

Appraisal - Basically, an estimated value of your home, usually arrived at by comparing your home to other similar homes that have recently sold.

Title Insurance - An insurance that basically protects all involved. The title company guarentees that there aren't any hidden liens on the property. This is important, if the seller had a debt go bad and a lien was filed on the home before it was sold, and he neglected to pay it off or notify the buyer (and somehow it slipped through the cracks) the company with a judgement against the house could claim it, sell the home, and use the money to get paid for the amount of the lien.

The Closing

Once everything is all set, The Buyers, Sellers, and usually the loan officer as well as realtor will schedule a closing. This is where you'll sign a mountain of paperwork and take title to the home. Once signed, everything will be complete, you'll have a mortgage, and the title will be in your name.

__________________________

The process generally depends on how long it takes to find a home, but once you have an accepted offer I would imagine that the loan process should most certainly be done within a month, providing that the seller is willing to move out ASAP.

What you should look for in a home depends on you. What are you planning on doing with this home? Living in it for an extended period of time? Hoping to resell it for a quick profit in a couple years?

If the latter applies, you want to look for things that will appeal to others, not just you. Sure, you might think that puke-green and flower patterned siding is cute, but unless you plan on replacing it, it will be difficult to sell. From my experience, if you are looking to purchase a home to resell with as little as hassle as possible, try and find a home (single family) with a rectangular lot, modern carpeting that is NOT white, rather "plain" decorating (ie no elaborate banisters) and preferrably a ranch, but definately not a bi or tri-level. Basically, just try and find a house that would appeal to the largest number of potential buyers.
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Last edited by NoSoup; 09-02-2004 at 01:37 PM..
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Old 09-02-2004, 11:15 AM   #2 (permalink)
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awesome!!!!!!!!! THANK YOU!!!

this is great for me to help explain to my friends who are just now getting into the real estate game.
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Old 09-02-2004, 11:21 AM   #3 (permalink)
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Cynthetiq, you are hilarious.

1 Minute after I post this, you've already read it... lol.

Thanks man - I hope it makes life a bit easier for you
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Last edited by NoSoup; 09-02-2004 at 11:24 AM..
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Old 09-02-2004, 01:29 PM   #4 (permalink)
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Excellent guide!

I would add one more con to the condo/townhouse. The condo association fees that are common.

In CA, I considered buying a condo that would have cost me $1200 dollars a month, but the added $400 dollars a month they wanted for the association fees put it out of reach.

- Noel
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Old 09-02-2004, 01:38 PM   #5 (permalink)
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Quote:
Originally Posted by Nomi
Excellent guide!

I would add one more con to the condo/townhouse. The condo association fees that are common.

In CA, I considered buying a condo that would have cost me $1200 dollars a month, but the added $400 dollars a month they wanted for the association fees put it out of reach.

- Noel
Thanks, will do
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Old 09-29-2004, 09:09 AM   #6 (permalink)
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This is really good. We are about to start buying our first home, and I'm sure your guide will come in handy.

Thanks!
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Old 11-23-2004, 08:46 PM   #7 (permalink)
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I am definitely printing this guide for my archives. Thank you very much from a newbie.
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Old 11-28-2004, 01:18 AM   #8 (permalink)
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Thank you Mr. NoSoup for sharing your valuable information. Your guide is well thought out and well-written. Have you considered perhaps expanding it and publishing? I hate to see your talent linger.

Thanks again for your useful guide.

Cheers.
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Old 11-28-2004, 10:36 AM   #9 (permalink)
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Quote:
Originally Posted by jorgelito
Thank you Mr. NoSoup for sharing your valuable information. Your guide is well thought out and well-written. Have you considered perhaps expanding it and publishing? I hate to see your talent linger.

Thanks again for your useful guide.

Cheers.
Lol, actually, I had never considered that....

Maybe it is something I should consider. Thanks for the idea!
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Old 11-28-2004, 09:02 PM   #10 (permalink)
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Thank you for the guide. Being somebody that has lived in apartments in all his life, I have no idea on what goes into buying a house. This sheds some light on the subject
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Old 05-28-2008, 01:06 PM   #11 (permalink)
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holy moly! how did I miss this? so question: so getting qualified with 0 down and having to pay the Private Mortgage Insurance, is this a bad thing? I dont recall if they added this on. I was pre-approved over the phone by my local bank. I think i will want to stop on by to see this all in writing.
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Old 05-28-2008, 02:20 PM   #12 (permalink)
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One important thing I think you've left out of your guide is earnest money as part of the offer.
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Old 05-28-2008, 03:20 PM   #13 (permalink)
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Quote:
Originally Posted by blktour
holy moly! how did I miss this? so question: so getting qualified with 0 down and having to pay the Private Mortgage Insurance, is this a bad thing? I dont recall if they added this on. I was pre-approved over the phone by my local bank. I think i will want to stop on by to see this all in writing.

It was buried in the back >=)

Getting qualified with zero down and having to pay private mortgage insurance isn't inherantly bad, per se, but it would be better to not have to pay it, as it is an insurance that doesn't benefit you at all. It really depends on if you feel that it's worth the cost of PMI to own your own home.

Another option would be to put money down, of course (20% to avoid PMI) or get an 80/20 mortgage, where you have a first mortgage for 80% of the purchase price and a 2nd mortgage for the remaining 20% - still getting you in for no money down, but avoiding the cost of PMI.

Quote:
Originally Posted by onesnowyowl
One important thing I think you've left out of your guide is earnest money as part of the offer.
Absolutely.

For what it's worth, earnest money is money that you basically put towards the purchase of the house at the time of the offer to prove to the current owners that you're serious about the offer.

A word of caution - if the deal goes south, you don't get you money back. Because of this, I would recommend putting down the least amount of earnest money possible - sometimes as little as $100.00.
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Last edited by NoSoup; 05-28-2008 at 03:34 PM.. Reason: Automerged Doublepost
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Old 06-09-2008, 06:12 AM   #14 (permalink)
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there are bargains all over the USA right now, one can find REO properties at almost 50% of the value from their ridiculously inflated price and sometimes even cheaper. The best part about it is that sometimes it's just enough to be able to get a home for $100/sq ft or even less. Unlike most foreclosures, you can see the state of the property before you make an offer. This gives you the ability to see just how much "get ready" money you'll need to bring the house back to a move in state. For some properties, it's just the cost of painting, others it is paint, appliances, landscaping, repairing holes, doors, and carpeting.

We are hoping to own our 3rd property if our offer is accepted.
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Old 06-09-2008, 06:55 AM   #15 (permalink)
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Quote:
Originally Posted by NoSoup

For what it's worth, earnest money is money that you basically put towards the purchase of the house at the time of the offer to prove to the current owners that you're serious about the offer.

A word of caution - if the deal goes south, you don't get you money back. Because of this, I would recommend putting down the least amount of earnest money possible - sometimes as little as $100.00.
That's not always true. It depends on why the deal didn't go through. If the SELLER backs out, or if the house doesn't pass inspection or something like that then you WILL get your earnest money back. If you (as the BUYER) back out, or the loan doesn't go through then you may not get your earnest money back (that's why it's a good idea to get qualified BEFORE making an offer).

If you don't put enough money down as earnest a lot of people won't take you seriously and may reject your offer ... so it's a judgment call. I usually think of it as money going toward the down-payment anyway.

With regard to PMI ... I hate it, but it's the "cost" of buying a house without a 20% down-payment. I usually go with the lesser of two evils ... can I get a 20/80 loan and if so, what will the interest be on the 20% part? If it's MORE than PMI then I would go with PMI and a 100% loan. If interest is LESS than PMI then go for the 20/80 (if you and the house qualify for it). It depends on your credit score, the property itself (multi-family homes usually DON'T qualify for 20/80) and other factors such as if the mortgage broker or bank are in a good mood or not.

Last edited by vanblah; 06-09-2008 at 07:00 AM..
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Old 06-09-2008, 06:58 AM   #16 (permalink)
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Quote:
Originally Posted by vanblah
That's not always true. It depends on why the deal didn't go through. If the SELLER backs out, or if the house doesn't pass inspection or something like that then you WILL get your earnest money back. If you (as the BUYER) back out, or the loan doesn't go through then you may not get your earnest money back (that's why it's a good idea to get qualified BEFORE making an offer).

If you don't put enough money down as earnest a lot of people won't take you seriously and may reject your offer ... so it's a judgment call.
that's very true. Another time you can back out and get your EMD back is if the house/condo has a CC&R, convenants, conditions, and restrictions ala HomeOwners Association that says you cannot paint your house a certain color, can't rent, can't own dogs of particular size, etc.

Sometimes a realtor can help you figure out how much EMD is based on previous deals.

In this recent transaction it is $2,500. We didn't have a checkbook handy but a photocopy of our bank statement was enough to start the process. We'll overnight a check to them once they require it to move the process forward.
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Last edited by Cynthetiq; 06-09-2008 at 07:03 AM..
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