Welcome to Your FREE Buyer's Guide

                                                                                                                                                         Ryan Rutter

Preface:

There's a lot that goes into the purchase of a home. Many buyers can be overwhelmed with the process and don't know where to start. This guide will help you have an understanding of what the process looks like from start to finish and how to conquer any unknowns when purchasing a home. From financing, to negotiations, to inspections, all the way to closing, there are a lot of moving pieces, but by the end of this guide, you should have a firm grip on what the home buying process looks like and how to approach it with peace!

When following this guide, realize that everyone’s finances and circumstances are different (including what they want in a home and are willing to sacrifice for it), which means you will have to approach these steps according to your own circumstances. By the end of this guide, you should be able to understand how to evaluate your specific situation and the steps necessary to address any hurdles that might come up along the way. 

The first step in this guide is Choosing a Real Estate Agent, so let's get started!

Choosing a Real Estate Agent

Choosing a real estate professional is where the home buying process begins! The best part is, in most cases, THE SELLER PAYS THE BUYER'S AGENT'S COMMISSION, WHICH MAKES THEIR SERVICES FREE to you, the buyer! A real estate agent can help guide you through each step of the home buying process that follows and if desired, offer you advice along the way (I'll cover "advice" later). By working with a real estate professional who knows the ins and outs of the real estate industry, you should not only end up with a great home, but you should also walk away with a great experience. Not all agents are created equal and the choosing of your agent can impact the quality and service of your home buying experience. You must understand that all real estate agents are independent contractors, which means they own and run their own business according to what they deem best. 

Keeping this in mind, know that there are agents that do this for a living and are committed to serving their customers and clients as a real estate professional, while others may only help a couple people a year and don't exercise their "real estate muscles" regularly. I'm not saying "Aunt Betty", who only helps one person a year in real estate, isn't great! I'm just saying she might not have a full glimpse of the market conditions, a quality team of professionals behind her that she interacts with regularly or have a system in place to make sure every part of your purchase goes smoothly. On the flipside, you don't want an agent that's so busy, your schedules never line up to see property or you feel like just a number in a transaction!

To aide you in your search for an agent, I'm supplying a list of questions we use when interviewing agents for friends and family out-of-state. If this process is too overwhelming, know that we'd be happy to interview agents for you and find a great fit!

Here are a few questions you might ask a real estate agent to gauge their competence and availability:

• How long have you lived in the area? What areas do you service? (are they familiar with the area)
• How long have you been working in real estate? (are they familiar with the business)
• How many transactions last year? How many were buyers vs sellers? (are they familiar with both)
• Are you part of a team or are you a single agent? (will you be working with them or with their team)
• Do you have an assistant? (will you be communicating with them or their assistant)
• What is your scheduled off time? What is your policy for working hours? (what's their availability)
• Do you do it full time? (are they available, do they know the market, and this impacts quality of service)
• Do you work as a buyer’s agent or just as a transaction broker? (I'll explain this one below)
• How many ACTIVE buyers are you currently working with? (this and next question will help gauge availability)
• How many current listings do you have? (this and last question will help gauge availability)
• Are you familiar with the VA purchasing process (if applicable)? (do they know how the VA process differs)

Asking these questions are the key to getting a full picture of a real estate agent's scope of expertise, availability, and professionalism. Notice I didn't ask "What company/brokerage do you work for?" Remember, that's because each agent is an independent contractor and whatever company holds their license isn't indicative of the way they run their business. However, one question I did ask was, do they work as a "transaction broker" or "buyer's agent"? 

To get the FULL FEDUCIARY BENEFITS of a real estate agent, you would want to enter into a "Buyer Agency" agreement with them. This should entail a document that contractually binds you to the agent and their services for a certain length of time (typically 6 months and most agency agreements allow you to back out, if you desire). By entering into "agency", agents are allowed to provide you with ADVICE during the purchase of your home. If there is no agency agreement, the role assumed by the agent is a "transaction broker", which not only relieves the agent from certain fiduciary duties, but also PROHIBITS them from giving you advice throughout the purchase, which could leave you making uneducated decisions if you aren't familiar with the home buying process. Some agents will not enter into agency with their buyers, affectively relieving them of certain duties and liability. 

Choosing an agent is THE MOST IMPORTANT STEP because they're the ones who should be effortlessly guiding you through the home buying process with numerous resources available to help you overcome any obstacles you face along the way. They will "hold your hand" throughout the process, be ready, willing, and able to answer any of your questions, and ensure you are making the best/most educated decision possible in every aspect of your purchase. They should be responsive, knowledgeable, and professional throughout the process and ensure they are doing everything within their power to help you have an AMAZING and STRESS-FREE EXPERIENCE!

Choosing a lender

If you have chosen a great real estate agent, the process of choosing a lender will be even easier because they can draw from past experiences. Typically, a good real estate agent has worked with a variety of different lenders in a variety of different circumstances, so they can provide you with a list of their approved lenders with proven track records of getting buyers from searching for their dream home, to closing on it! If you have been given a list of lenders, realize that you can still shop around and search for your own. I would highly recommend having some reference of success for the lender, because the last thing you want is to miss out on a house/lose thousands of dollars in earnest money due to a lender delayed closing or find out that your loan is falling through right before close (and yes, this happens)!

A good lender will coach you on the loan process, educate you on what you can expect financially, show you your estimated closing costs, and guide you so you don't make any serious mistakes throughout the home buying process that could cost you thousands and even change your ability to purchase a home. Lenders should be responsive, punctual, professional, and have a proven track record of success! 

To aide you in your search for a lender, here's a quick video on how to shop and compare lenders:

So, to summarize the video:

• Compare Interest Rates
• Compare Estimated Closing Costs
• Compare Availability 
• Compare Track Record of Success
  

There are several things to consider when choosing a lender, which is why I made the video above! Remember, your lender is working for YOU! If they are not responsive and available to answer your questions, you might want to reconsider your choice. YOU MUST UNDERSTAND THAT YOU CAN'T JUST CHANGE LENDERS ONCE YOU'RE UNDER CONTRACT WITH A HOUSE! There are several timelines to be met and if you change lenders, you could miss those timelines, risking the loss of the home and potentially your earnest money. That being said, do your due diligence prior to getting under contract so you make it to close with ease!

Preapproval vs. Prequalification

When you and your agent submit an offer on a home you will want a preapproval letter or prequalification letter to accompany the offer. These letters should only take 1 day or less to provide and a preapproval letter is better than a prequalification letter! A prequalification letter is merely a statement from a lender stating they should be able to lend you a certain amount based on your self-reported financial information. A preapproval letter is a statement from a lender stating they should be able to lend you a certain amount based on your financial information that has been verified by the lender. 

So, if a seller receives two similar offers, know that the offer with a preapproval letter will be more appealing. By providing your lender with some basic information about your income, savings, and debt, he or she can assist you in getting pre-approved. The lender will then go over your financing options, what monthly payment amount you can afford, and what you can expect for down payment requirements and closing costs. I would never recommend purchasing at the top of your preapproval amount.

MORTGAGE TYPES, MONTHLY PAYMENTS, & CLOSING COSTS

When it comes to buying a home, most buyer's questions revolve around the costs incurred and the mortgage process. Naturally so! After closing on your home, you are financially, contractually, and legally obligated to make payments every month or you could face losing your home! This terrifies many people, but understand if you've been paying rent for several years, you are paying a mortgage every month... it's just not yours! There is a time and a place to rent (mostly revolving around short-term living conditions), but if you're going to be somewhere for a few years or more, you should consider purchasing to recapture the money you're investing in housing every month. 

When purchasing, there are several different types of mortgages. Here are a few definitions before we compare:

• Private Mortgage Insurance (PMI) - This is extra money a borrower is charged every month to mitigate the risk of defaulting on their loan. In other words, the mortgage company is charging you extra money (which doesn't go towards paying off your house) to pay for an insurance policy to cover themselves in case you don't make your payment.
• Home Equity - is the value, share, or amount of ownership you have in your home. For example, if you put 3% down on a $100,000 home, you have 3% or $3000 worth of equity. 
• Down Payment - is the amount you have to pay in order to obtain a certain loan. For example, if the down payment is 3.5% on a $100,000 home, you would need $3,500 for the down payment. THIS IS NOT TO BE CONFUSED WITH CLOSING COSTS! Closing costs will include and extend beyond your down payment!
• Principal Balance - is the amount left on your loan. This does not include interest. Your monthly mortgage payment goes towards both principal and interest on the loan. *** PRO TIP - If you make extra payments towards your principal balance, not only will you pay off your home earlier, but you can also save THOUSANDS of dollars in interest that would have been charged!

Now that we've got that out of the way, here are a few of the most common mortgage types:

• "Conventional" loans typically require a minimum of 3% down payment ($3k for every $100K in purchase price), a higher credit score to qualify, and their rates are usually slightly higher than other loan types. The MAJOR BENEFIT OF CONVENTIONAL LOANS is that after reaching 20% equity (e.g. you own 20% of the value of your home by paying $20k of your loan off on a $100k home) the PMI payment can drop off, effectively making your payment less every month! THE MAJOR DRAWBACK OF CONVENTION LOANS is that they typically have a slightly higher interest rate compared to other loan types. 
• FHA loans typically require a minimum of 3.5% down payment ($3.5k for every $100K in purchase price), allow buyers to qualify with a lower credit score than conventional loans, and their rates are usually slightly lower than conventional loans. The MAJOR BENEFITS OF FHA LOANS is that buyers with lower credit scores have a better chance at qualifying for a loan and obtaining lower interest rates for affordability. The MAJOR DRAWBACK OF FHA LOANS is that typically (and I'll talk about this more below) PMI never drops off throughout the course of the loan and requires a slightly higher minimum down payment than conventional loans. FHA loans also have a maximum loan limit on purchase price based on the local market's home values.
• USDA loans typically require a minimum of 0% down payment and are meant to aid people purchasing in more rural areas. The MAJOR BENEFIT OF USDA LOANS is the 0% down payment and they usually have better interest rates than conventional loans. The MAJOR DRAWBACKS OF USDA LOANS is that PMI never drops off and you might have to live further away from civilization than you were planning. Also, if a seller obtains two offers that are identical, and one buyer has a USDA loan and the other has a Conventional loan, they might be inclined to go with the conventional buyer if they're afraid the USDA buyer doesn't have any money to make the deal work (due to the 0% down). You can go to the USDA website to check for eligible areas that qualify for this loan type. 
• VA loans typically are the BEST FINANCIALLY OF ALL LOAN TYPES because if you qualify, they can offer as little as a 0% down payment, NO PMI, and typically have the lowest interest rates of all loan types!  The MAJOR DRAWBACK OF VA LOANS is that the VA appraisal process is stricter than appraisals for other loan types. So, if a seller obtains two identical offers and one buyer has a VA loan and the other is Conventional, they might be inclined to go with the conventional buyer if they're afraid of what repairs might be requested as a result of the VA appraisal. VA loans are also known for taking longer because they have to go through the VA and require a VA certified appraiser.  VA loans also have a cap based upon the veteran's eligibility/entitlement.

   

I would say that these are the MOST COMMON loan types, but sometimes banks will have abnormal, limited-time loan packages available that differ slightly. In fact, one time, a lender was running a conventional loan with 0% down. Another time, a different lender ran an FHA loan package, allowing the PMI to drop off after reaching 20% equity. That being said, there are other products out there that come and go, but these are the most common.

Mortgage Calculator/ Monthly Payments

Estimating Your Closing Costs

These are ESTIMATED closing costs at a few different price points. It shows an ESTIMATED amount that will be due at closing. Remember, the numbers for down payment, lender fees, insurance costs, tax cost, etc. inputted in this document are GENERAL figures! Insurance premiums can vary greatly depending upon home age, square footage, location, finishes, and any certificates awarded for build quality (bronze, silver, gold fortifications). For more exact figures, obtain insurance quotes and contact your lender to discuss their fees. The down payment in this example (below) is 3% of the purchase price.

The Do's and Don'ts When Buying a Home

I've heard too many homebuying horror stories when people make it to closing, just to find out they won't be buying a house that day and possibly months or years to come! It all boils down to this... DON'T MAKE ANY FINANCIAL CHANGES/LARGE PURCHASES WITHOUT CONSULTING WITH YOUR LENDER! When buying a home, DO NOT do these things or consult your lender before doing them:

Improving Your Credit

If you are like many people, you might want to improve your credit score and get financially "fit" prior to purchasing. THE FIRST THING YOU SHOULD DO IS CHECK WITH A LENDER TO VERIFY YOUR CREDIT SCORE AND SEE WHAT CHANGES WILL MAKE THE BIGGEST IMPACT! ALWAYS CHECK WITH YOUR LENDER BEFORE MAKING ANY FINANCIAL CHANGES, INCLUDING THE THINGS IN THIS LIST! Factors that can affect your credit are:

• Payment History - How you manage your accounts and whether you do or do not pay the entire installment amount on time every month. Ensure you pay the full installment 💯 owed on each of your accounts on time, every month.
• Too much debt – How much you owe 💸 vs. how much available credit you use. Try to keep credit utilization to less than 30 percent of your limit. For example, if you have a credit card or a store account with a limit of $1,000, try to maintain the amount owing balance at under $300. 
• New Credit & Hard Pulls - Applying for new lines of credit will usually lead to a "hard" inquiry, which can negatively affect your credit score. Try to limit how often you apply for new accounts.
• Credit Age - Opening a new line of credit can decrease the average age or length of your credit history. Keeping old accounts open that have been paid off, even if you're no longer using them, will help maintain the length of your credit history.⏳
• Credit Mix - Credit mix refers to having a variety of account types, including credit cards, student loans, and mortgages🏠. Maintaining variety, along with a solid payment history, can suggest to lenders that you understand the fundamentals of credit.
  

Credit scores range from 200 to above 850. Scores below 620 are considered "risky"😬; 720 and over are "excellent"😊! 

Homebuying Process

The Search

After you have chosen an agent and been preapproved by a lender, your agent should setup personalized property notifications matching your home search criteria on the local multiple listing service (MLS). The most common information sought is price, # of beds, # of baths, location, and possibly square footage. When setting up your search, keep in mind that if properties don't match your criteria, they won't come up. For example, if you say 4+ bedroom homes and a 3 bedroom home with a bonus room comes up that would be perfect, you will not be notified. I always encourage people to be flexible on their search criteria so they don't miss out on the perfect property.

In the prior example, a solution might be to lower the bedroom count to 3 and increase the minimum square footage. Even though you have one search setup, you should also utilize other resources that have listings that might not be on the MLS, such as homes that are for sale by owner. In most instances, owners selling on their own are still willing to pay your agent's commission. Talk with your agent about homes you see in other resources and they can educate you on why they might not have shown up in your MLS feed and communicate with the owner for you. Once you have a list of properties you like, it's time to get viewing!

Choosing the Home 

For some buyers, choosing a home can be an emotional process. An agent can assist you in this process by offering objective information about each property. From local community information like schools and zoning to home-specific details like condition and amenities, an agent can help you obtain the resources you need to find exactly what you’re looking for. It sounds cliche', but "when you know... you know!" It's one thing to set basic guidelines for a search, but when you walk into a home and you can envision yourself and the people you love there, that's how you know you've found it!

Making an offer

Once you’ve found the home of your dreams, an agent can research recent comparable sales of similar homes in the area to help determine a fair purchase price. Knowing the market really comes into play here, because your offers will be completely different in a declining market vs. a competitive one. Based on the comparable sales, as well as other factors such as condition, updates, etc. an agent can then help you structure an offer and negotiate to get the best deal possible. 

Under Contract 

After you have an accepted offer, you are officially under contract. If everything goes well, you will close in 30-45 days! You should have several contingencies built into your purchase agreement such as inspection, financing, insurance costs, survey, etc. that can give you a way out if you discover the property isn't what you thought it was. This period is called your due diligence period. Alabama is a caveat emptor state, which means "buyer beware". A seller is not obligated to disclose any material fact about their property, unless can affect the health or safety of a potential buyer. That being said, it is SUPER IMPORTANT for buyers to get every inspection they desire prior to purchasing a property. 

The first things you will do once getting an accepted offer:

Deliver your preapproval letter (if it wasn't submitted with the offer),  order desired inspections (general, A/C, asbestos, lead-based paint, structural, radon gas, etc.), and get homeowner and flood insurance quotes. A good agent will give you a task sheet with timelines that need to be met and help hold you accountable throughout the process. Here's what that might look like:

Closing

If all goes well and you're still in love with the home, it's almost time for closing! Your agent should coordinate the closing with your lender and the title company of your choice. The title company will be gathering information from you and your lender prior to closing, that way when you show up to closing, all you will need is your driver's license and a pen! Prior to closing you will need to ask your agent whether the title company will need your closing costs wired or if a cashier's check will work. Typically, if the amount is above a certain threshold, they will require a wire. 

 After Close

Congratulations!!! At this point you're ready to get settled and move in! If you have a good agent, even though the home buying process is complete, know that you can contact them with any questions that pop up regarding your home. We are here to help you before, during, and after you find your dream home. Here are a few overlooked tasks that you might want to consider after closing:

• Update your address on all online accounts
• Update your address with your banks, doctors, employers, schools, etc.
• Consider changing the locks on your new home (you don't know who might have an old key)
• Update your address with USPS
• Make sure you transferred the utilities
• Claim your homestead exemption

Congratulations!

I hope that this guide was super helpful for you and if you have any questions, please feel free to reach out and ask for help! There are a variety of things that are not covered in this guide, such as how to structure your offer, what happens at an inspection, how to negotiate the best deal, how to compete against multiple offers, how to know which agents to interview, how do you request repairs, etc. For these and many other topics, please reach out or consult your agent for their expertise! Happy home searching and we look forward to speaking with you soon! Peace and God bless!

                                                                                                             Sincerely,
                                                                                                                     Ryan Rutter