- The Washington Times - Friday, November 1, 2002

When astronauts take off into space, their anticipation rises as each part of their countdown passes. For home buyers, the countdown ends not in outer space but rooted solidly on the ground in a house of their own.

At a certain point in most people's lives, daydreaming about owning a home reaches a new level of intensity, leading the consumer to get serious about buying property. The process of buying a home can take a few months or even a year or more depending on the financial situation of the buyer and the availability of suitable homes. No matter the length of time needed for each part of the process, the steps taken remain the same.

The countdown to buying a home begins in the preparation stage.

10. Take a home-buying class.

"If you haven't owned a home before or it has been some time, taking a class about homeownership is essential," says Anne Gwaltney, manager of the Virginia Housing Development Authority's (VHDA) Homeownership Education Program. "A class will give you an overview of the economics of buying a house, tell you what questions you need to ask of everyone involved in the process, and explain what you need to know and what you need to do first. The problem most people have is that they choose to look at houses before they do anything else to prepare themselves to actually buy one."

9. Get your finances in order and meet with a lender. Obtain preapproval or develop a plan to clean up credit and finances for future approval.

"Potential buyers need to go first to a lender and obtain preapproval for a mortgage," says Ed Crowley, a Realtor with Long & Foster in Bethesda. "A lender will need a day or so to verify some financial information, such as a credit report and an income check. If there's a credit problem, the severity of that issue will determine the time frame of how long it will take to be able to obtain preapproval."

"There are two reasons to go to a lender as the first step [toward solving credit questions]. One, if there are buyer issues such as a lack of cash or a credit problem, then the buyer will know after consulting with a lender what needs to be done to correct these issues and can set up a game plan," Mr. Crowley says. "Two, no seller in this market will accept a contract from a buyer who does not have preapproval for a loan. Buyers must have a letter to show his stripes before writing an offer for a home."

Potential home buyers often start by looking at homes to see what they might like, but this can lead to heartache for those financially unprepared.

"Buyers who start out by looking at $100,000 homes when they can only afford an $80,000 [house] will never be satisfied with their ultimate home purchase," Miss Gwaltney says.

According to Miss Gwaltney, "Consumers should ideally track their cash flow and get a grip on their personal finances even before they go to a lender so they can determine their comfort level with a monthly mortgage payment.

"They need to think in terms of not only the mortgage payment, which includes principal and interest, but also the taxes and insurance payments which will be paid monthly," Miss Gwaltney says. "Buyers should look at their credit report and find out if there are any difficulties there. If there are mistakes, they should start the process of correcting those mistakes. If there are unpaid, past-due balances, they should make arrangements to pay them."

Once the lender has made the preapproval for a loan, consumers would be wise to realize that the amount of the loan is not necessarily what they should spend.

"That personal comfort level is so important for people to understand," Miss Gwaltney says. "Just because a bank will loan you $100,000 doesn't mean you should be willing to take out a loan of that amount. A great way for people to determine how much they want to spend is to determine the difference between their current monthly rent and an estimated monthly principal, interest, taxes and insurance payment [PITI] for a house. If they can start saving that difference for four to six months, they are really ready to buy a house at that expense level."

8. Interview buyer's agents and select one.

"Several months before they think they might be really ready to buy a house, buyers should have consultations or interviews with several buyer's agents who have been referred to them by friends, neighbors and colleagues," says Sharyn Goldman, a Realtor with Long & Foster in Bethesda. "It doesn't cost any extra to meet with agents and explore who you want to work with. Buying a house should be fun. Buyers should be really careful to pick someone they are very comfortable with, because they have to reveal their dreams, hopes and finances to this agent."

Miss Gwaltney says, "It's important for buyers to understand the agent's role in buying and selling property and to choose a buyer broker who will represent the buyer and only the buyer. A buyer agent will give advice to the buyers, help them find the appropriate home, assist them in making an offer and represent them during the negotiation process. Buyers need to understand that they are the boss and that they need to be satisfied with the work of their agent and of their lender."

Once a buyer agent is chosen, the buyer and the Realtor will sign a buyer-broker agreement that commits the agent to working for that client. The buyer-broker fee is normally paid as part of the commission earned at settlement by the Realtors involved in a real estate transaction.

7. The Realtor should go over all papers associated with buying a home. Make certain the proper financial preparation is taking place.

"At the first meeting with a new client, the buyers and their agents usually just spend time getting to know each other and going over the buyer brokerage agreement," Ms.Goldman says. "At the second meeting, it's important to make sure the buyer has already been to a lender and obtained preapproval. If not, the agent should recommend lenders to the buyer and make sure that preapproval takes place. At the third meeting, Realtors should go over the standard home-buying contract so that buyers will know what to expect when they are ready to make an offer."

Besides understanding the contract, buyers should continue with their financial preparation, saving additional money if possible, paying all their bills on time, and having relatives send gift money if they have offered it.

"If you are going to get a gift from a relative, it's better to get it early so it becomes what is known as 'seasoned money,'" Ms. Goldman says. "If it arrives too close to settlement, then it will need an explanatory gift note as to where it comes from, making it clear it will not need to be paid back."

6. Begin narrowing the choice of neighborhoods and home styles to choose the best home in the right price range.

"Once a buyer has chosen to work with me, I start what I call the 'global approach' to buying, identifying several areas in which the buyer might want to live," Ms. Goldman says. "It's best to take time looking at neighborhoods and getting to know their texture, keeping in mind the price range of the buyer. Then I set up a system to e-mail them information about homes that are in the right area, in the buyer's price range and the type of house they want.

"Even if the buyer isn't ready to start making an offer, it's important for him or her to become as educated as possible," she says. "Once the buyers have decided they are ready to buy and have established a timeline of when they would like to move, I start getting in touch and working with them on a daily basis."

Mr. Crowley views the initial search for a home as part of an educational process.

"We work together to put together a program for the computer with what the buyers want and don't want in a home," Mr. Crowley says. "Then we start a daily search for houses which meet their criteria. Often the criteria will change over time, and the buyer's 'must-haves' will come to the surface. The Realtor needs to meet the clients' needs and needs to know the comfort level of the clients and what they are looking for. Agents need to march to their client's drummer."

"When it's time to start looking at homes, buyers should be as specific as they can be about how much they are willing to spend and what they want in a home," Miss Gwaltney says. "The more specific they are, the easier it is for a Realtor to work with them."

5. Make an offer that includes an earnest money deposit. The seller will accept, reject or make a counteroffer to which the buyer must respond.

Buyers need to be prepared to pay a deposit when they make an offer, a sum that can be determined with the help of a Realtor. This deposit will become part of the down payment for the home if the contract goes to settlement and will be returned to the buyer if the contract is not accepted.

"One more reason buyers should work with a buyer's agent is that an experienced agent can let you know what is a reasonable offer," Miss Gwaltney says. "Buyers should make an offer with the Realtor's assistance in determining whether the offer should be above or below or at the listing price, a decision which depends on knowledge of the market."

Besides deciding on the price offered, buyers and their representatives need to determine whether their offer is contingent on a home inspection and when the settlement will be.

"A good agent will be in communication with the listing agent so that the offer can be based on a knowledge of what the seller wants," Mr. Crowley says. "For instance, the settlement date is often determined by the seller. If the seller cannot sell their home until December 1 but the buyer needs to move by September 1, then the buyers' agent would be doing a good job to smoke out that information ahead of time."

Sometimes the offer can be written to reflect the flexibility of the buyer to accommodate the moving needs of the seller.

4. Once a contract is ratified, the buyer should have home inspections, including radon and termite inspections, conducted as specified by the contract. The lender will arrange for an appraisal of the property.

"The buyer should plan to attend the home inspection, which gives an idea of the structure and systems of the home which they will need to maintain," Miss Gwaltney says.

The buyer's agent can recommend a home inspector and radon and termite inspectors, but buyers should also talk to other inspectors recommended by friends, neighbors or colleagues to compare price and advice. It is important to make sure the inspections take place within the time frame established by the contract.

3. Arrange for homeowner's insurance and a settlement attorney.

The buyer's agent can recommend companies for the settlement and for homeowner's insurance, but once again a buyer can also choose to investigate recommendations from their friends and neighbors.

"The time period between the contract ratification and the settlement date involves several activities for the buyers and their agent," Ms. Goldman says. "They will need to arrange for the inspections and the settlement attorney and make sure the termite inspection is done within 30 days or less of the settlement date."

According to Mr. Crowley, "Buyers should shop around for a title company for the settlement and for their homeowner's insurance. A one-year homeowner's insurance policy will need to be paid for at settlement."

Additional issues to stay on top of include making sure that if gift money is to be received it has been deposited in time, that all contingencies in the contract have been removed.

"If the property is part of a homeowner's association or condominium, the documents of the association, known as the 'resale package,' must be received from the seller within 15 days of the contract ratification," Mr. Crowley says. "The law states that there is a complete right of recision [by the buyer] after the review of the documents."

2. Transfer utilities; arrange for movers and contractors, if needed.

"Buyers need to contact all the utility companies for their new home and change the billing to their names as of the settlement date," Ms. Goldman says. "Also important is to arrange for movers. Ideally, buyers should contact several companies and get two or three estimates as soon as the settlement date is established, and then they can confirm again once they have chosen the right company."

If work needs to be done on a property before the new owners move in, the buyers should also obtain recommendations on contractors from their Realtor and their friends. Contractors can be difficult to find on short notice, so buyers should try to set a tentative work schedule once estimates have been given.

"If there are cosmetic things the buyers would like to do to the house, their Realtor can ask the seller if it's all right to have it done before they move in," Ms. Goldman says. "Sometimes, sellers will be willing to let contractors into the house before settlement."

1. Schedule a final walk-through and prepare for settlement day.

"Usually scheduled for a day or two before the closing date, the final walk-through is an opportunity for the buyers to make sure everything in the home is in the condition it was when they made their offer," Miss Gwaltney says. "Any window treatments and light fixtures which were written into the contract as conveying to the new owner should be in place, and any requested repairs should have been completed before settlement."

As long as the condition of the home during the walk-through is acceptable, buyers and sellers and their representatives are ready to meet for the final financial settlement and the transfer of the keys.

"Realtors usually provide their buyers with a letter to prepare them for settlement day," Ms. Goldman says. "Hopefully, the buyers have already seen samples of the papers they will be signing at earlier meetings with their Realtor. Basically, buyers need to be sure they have a picture identification, certified funds for the estimated settlement cost made out to the settlement attorney, and proof of a one-year, paid-up homeowner's insurance policy."

According to Mr. Crowley, "Usually, the buyers will have seen a copy of the HUD-1 settlement sheet in advance, but that is not always possible. Sometimes the lender will do the packet at the last minute. Mostly, buyers just need to be sure they have the certified check for the appropriate amount, which is the amount of the agreed-upon purchase price of the home minus the mortgage amount, minus the earnest money deposit given with the contract offer, minus any other credits, plus the settlement costs. Buyers should bring their regular checkbook for any miscellaneous expenses or discrepancies in the estimated settlement costs."

The keys are handed over, and the new owners can proceed with their moving-day plans.

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