Buying a house can seem like a daunting task, especially in California where competition is stiff for desirable homes and areas. But with the right information and guidance, it can be a fairly smooth process. Here are some initial steps—and best practices—to help make your journey successful.
Build your team
Yes, we’ve heard it all before: Teamwork makes the dream work. But nowhere is this truer than when buying a home.
“House hunting and surfing the web is often the first thing most homebuyers do when they’re looking at purchasing a residence,” says SVP, Area Retail Mortgage Production Manager JR Younathan, for California Bank & Trust. “The truth is, they would be far better served building a team that consists of a mortgage lending professional, Realtor, financial advisor or counselor, and a life coach—or, as I like to call them, a sage.”
Younathan says it’s important to have someone you can discuss your financial goals with. “If it’s someone you trust and who can provide wisdom, you should definitely talk through your aspirations to get some feedback. This person is sometimes the most important part of your team.”
Assess your finances
Buying a home is one of the biggest financial decisions you’ll make in your lifetime. Before you schedule even just one open house, make sure your finances are in order.
First things first, determine how much house you can afford. Look at your budget. Review your bank statements. Track your spending habits. Once you have a better picture of your overall financial situation, decide on how much you want to allocate toward a monthly home payment, which includes principal, interest, tax and insurance.
To make the process even more efficient, get prequalified and preapproved for a mortgage loan. The type of mortgage you choose affects what you’ll need to qualify for the loan, including the required down payment. The main types of mortgage include conventional, FHA VA, jumbo and renovation loans with the option to choose between a fixed rate or adjustable rate.
Begin the hunt
You built the right team, have your finances in order, and are pre-approved for a mortgage loan. It’s now time to go on the hunt. The house hunt, that is.
“When looking for a home, make a list of non-negotiables,” says Younathan. “Things like certain schools, not adjoining a major street or highway, distance from family or friends, affordable markets, etc. Also, try to not get stuck on the small stuff like faucets, paint color, and anything that could be changed with a little elbow grease and $1,000 or less.”
Younathan suggests helping your Realtor with the search. “Most buyers’ agents will give you access to a shared portal where you can search the MLS and choose your favorites. Then they’ll see what you like and start setting up house tours.”
Also, put the power of social media in your house hunting arsenal. “Use social media to let family and friends know you’re house hunting,” says Younathan. “This might give you an opportunity to get into contract on a home that the rest of the buying world hasn’t even seen.
Make an offer
You’ve finally found the perfect home and it’s time to submit an offer. During this process, rely on your Realtor to provide you with such information as comparable sales in the area and insight on the sellers (i.e., how motivated they are to sell). Your Realtor will also assist you with submitting an offer letter, which includes such details as the price you’re willing to pay for the home and a deadline for the seller to respond.
“Some hot markets might ask you to release contingencies (timeline requirements for inspections, appraisals and closing),” says Younathan. “My advice is to speak with your Realtor and make sure you understand your offer agreement. The California Department of Real Estate is constantly revising the language and structure of the residential purchase agreement to make sure it’s easily understandable.”
Lastly, Younathan says it’s vital that your Realtor and lender are in communication. “If your lender sees anything that could be of concern, they can advise how to structure the offer to make sure you’re well positioned for financing, as well.”
Open escrow
Once your offer has been accepted, you may think it’s smooth sailing from here. There’s actually more work to be done, particularly ironing out inspections, appraisals and loan conditions. “At this point, the main item is the inspection,” Younathan explains. “An inspection runs between $350 to $500, but don’t skip out on this. It will be more important than an appraisal, which determines the value of the home—not the nitty gritty of what’s lurking inside.” Depending on the complexity of your finances and your credit, your lender might make a few trips into underwriting and request documents a few times over, Younathan adds. “Be patient, diligent and responsive. This will allow the lender to stay on track in meeting the closing date.”
Understand the costs of homeownership
Buying a home is more than a down payment and a mortgage loan. There are additional costs, including those associated with moving, setting up utility services, buying new furniture and household necessities, and home insurance. “Plan to set aside a few extra dollars for the items you’ll need when you move in,” advises Younathan, adding that home insurance is also an ongoing cost you need to consider.
“Make sure the first-year payment is included in your closing. You can also choose to have your property taxes and insurance either included in your payment or paid on your own. Know your selection and be ready for those expenses when they come due.”