For most people, buying a home is the single biggest financial transaction they'll make in a lifetime. Before diving in, it's helpful to understand the basic steps that take people from browsing on Zillow to the closing table:
- Determining your criteria.
Do you envision yourself in an urban condo or a suburban single-family home? Is close proximity to a train station vitally important? Maybe you have a dog and so a fenced-in yard is a must-have. Schools, commute times, and close shopping / dining options can be important considerations as well. Whatever your situation, sketching out a rough framework for your "dream" scenario is a great first step in the home buying process. Your list does not need to be perfect - in fact it will almost certainly evolve as you explore financing options and see properties in-person - but purposely thinking about and discussing these variables sets the stage for a smooth journey.
- Connecting with a buyer's agent.
Every journey needs a guide, and in this process your guide is your buyer's agent. A buyer's agent is your advocate during the home buying process, negotiating on your behalf and ensuring that you are protected as much as possible every step of the way. In the beginning, a good buyer's agent can help clarify the details of your target home, and discuss why certain features, towns or neighborhoods may or may not work well for your specific situation. As the process moves along you'll learn that every home purchase presents certain risks (either with the home itself or with the particular offer that you are making), so a good buyer's agent will clearly explain the risks and implications of each decision made. He or she should also be a walking rolodex of trusted contacts for any situation that arises: recommending great lenders, home inspectors, real estate attorneys, insurance agents, movers, contractors, etc., whenever needed. But we really feel that the most important thing a buyer's agent provides is confidence. Buying a home is an important and expensive decision. The comfort of knowing that you are making the right decision is invaluable, which is what a good agent provides. (Check out Why Use a Buyer's Agent for more info.)
So, this is the time to meet with a potential agent and decide if he or she is good match. You'll want someone who is knowledgable, competent, responsive, and honest. (And being honest, by the way, might mean telling you what you need to hear instead of what you want to hear! It's better to know that a certain goal is unrealistic from the outset, instead of learning the hard way five months later.)
- Pre-approval process.
What is a pre-approval letter? A pre-approval letter is a document provided by a lender stating that the lender is tentatively willing to lend you a certain amount of money. You provide a lender the basic details of your financial situation (your income, your debts, how much money you have in savings, etc) and the lender gives you a letter which essentially states "based on the information that you provided, we are confident you would qualify for a loan up to X amount of dollars." Obtaining a pre-approval letter is relatively quick and easy, and it is a wise step at this juncture for two reasons. First, by confirming the the loan amount that you would likely qualify for, you now know which home prices are realistic for you. (As a side note, just because a lender will lend you a certain amount of money definitely doesn't mean that you should automatically max this out. You'll want to be aware of the monthly mortgage payments for different loan amounts - based on your down payment amount, the interest rate, etc - to make sure you're comfortable with it.) Once you have your pre-approval letter, you can have a more informed discussion with your buyer's agent about which towns and areas are feasible for your situation based on average home prices. Secondly, when it comes time to make an offer on a particular home, you'll need a pre-approval as part of the offer package anyways. You may have to submit an offer quickly, so it's much better to have this document ready to go instead of scrambling last-minute.
As you probably know, there are a variety of loan options with different down payment requirements, interest rates, and terms. Your lender will discuss different financing options to help determine which loan suits you best.
- Viewing homes.
After the parameters of your target home are sketched out, your agent can plug you into the "Multiple Listing Service" (MLS) which functions as the central database for properties for sale in Massachusetts. Your agent will assign you a specific search criteria, allowing you to browse all available homes within your exact parameters. You'll also receive a daily email with details for any new listings which is a great way to stay on top of the inventory. You may have already started browsing available homes on websites such as Zillow.com and Realtor.com. It's helpful to note that the information these websites provide is pulled directly from the MLS database. In other words, your agent is able to connect you directly to the source of property information in Massachusetts. You'll view the changing availability of homes in real time and will always have the most up-to-date information possible.
In addition to providing MLS access, your agent will often have the inside-scoop on potential off-market opportunities (i.e., homes that are available for purchase but not advertised publicly). Your buyer's agent talks to property owners and other real estate agents every single day, so at any given time he or she may have inside knowledge about a homeowner that plans on listing their house in the future (but would consider an offer now), or wants to sell but doesn't want to list their home publicly for privacy reasons. Whether the home is "officially" on the market, a "For-Sale-By-Owner", or an off-market opportunity, your buyer's agent can always help as your guide and advocate.
When a home is first listed for sale, there are often weekend open houses for easy public viewings. Buyers don't typically need their agent to accompany thm for these showings, although there is usually a sign-in sheet to indicate which agent you're working with. For homes that aren't hosting upcoming open houses, your buyer's agent will communicate with the seller's agent to coordinate a showing based on your schedule (which, believe or not, can be a tricky undertaking in itself!). Your buyer's agent will likely accompany you during these non-open-house viewings.
- Making an offer.
When a suitable house is identified, your buyer's agent will explain current market conditions and advise what a competitive offer might look like. In addition to the price, there are several other parts of the offer which can be modified and negotiated (the closing date, deposit amounts, financing contingencies, inspection contingencies, etc). If there are negotiations with the seller, your agent will advise the implications of every potential change to the offer - why certain concessions might be worth making, and why you should stay firm on others.
If a seller accepts your offer - based on the price, terms, and timeline that you set forth - then the house is now "held" for you and the seller is not actively procuring offers from other buyers. At this time you'll put down a (relatively) small deposit: usually $1000 - $5000.
- Connecting with a real estate attorney / due diligence.
Now that your offer is accepted, there is a small window of time to gather information on the property and conduct some due diligence before you are more formally committed to the purchase. A few things happen simultaneously. First, your offer may have had an "inspection contingency" which allows a licensed home-inspector to visit the home and report on his or her findings (and allows you to back out of the deal without penalty if serious issues are found). Now is the time to schedule this visit. Second, you'll connect with a real estate attorney who will collaborate with the seller's attorney to draft a "purchase and sale" agreement (more on this document below).
Depending on the home, your agent may recommend and/or conduct other research during this due-diligence window. If you're buying a condominium, for example, you and your agent might discuss the building's rules and regulations, review the condo association's financial documents, etc.
- Signing the purchase and sale.