REAL ESTATE FOR NEWBIES
By Van Alan Hill, Realtor*
*Van Alan Hill is a Realtor with 17 years of experience who works at Century 21 Glover Town & Country in Clarksville, Arkansas
Many young people and others who have had little or no experience selling or buying real estate have many misconceptions about how the business works. Some simply have no idea at all where to start when considering buying a house, for example.
If you are new to the real estate world and want to see about buying a house there are a few things that you need to know upfront. For starters you need to know what order to do things in so that you make the most efficient use of your time and your agent’s time.
Step #1, go to a bank or mortgage company to try to get “pre-qualified” for a loan. What does that mean? It means that you go to the bank, ask for a loan officer, and tell them that you want to see about getting a loan to buy a house. For starters they will want to run your credit to see what your credit score is. Credit scores must be no less than a certain number to qualify for a home loan. If your credit score is good enough then they will move to the next step which is to basically use information that you provide to determine your “debt to income ratio.” The idea there is for the loan officer to determine what your monthly income is and what your monthly bills are. Your debt cannot exceed a certain percentage of your income. If you are good there then they will take steps to determine how much money you could borrow at maximum to still be in the acceptable debt to income ratio.
That is how you determine what price range of a house that you can afford. If the banker says, “Yes, your credit score is good and yes, your debt to income ratio is low” then they may go on to say that you could borrow up to, for instance, $100,000.00 and still be within an acceptable debt to income ratio. Now that just says what the bank is willing to loan you based on information that they have learned via running your credit and via “what you told them” about your income and bills. That is called “pre-qualification.”
Actual loan qualification is something else altogether. It is based on you providing proof that what you stated as your income and expenses are true and that gets verified. I got a little ahead of myself here though. Between prequalification and actual qualification is the process of finding a place to buy and getting it under contract. How do you do that? Well, generally the buyers will do a little internet research to see what houses are available in the area in which they are looking. When they find a place or places that they would like to see the inside of they choose a real estate agency and particular agent to use as their representative. Then they start looking at houses with their real estate agent. When they find one that they like they have their agents fill out an offer on the property as whatever price they decide to offer. If that offer is accepted then back to the bank with the signed Offer & Acceptance contract, as it is called.
That is the point at which the bank will require some money from you to cover the cost of an appraisal of what you are trying to buy. They will order that appraisal through a randomly chosen licensed appraiser. As long as the property appraises for at least the purchase price then you are in good shape. If it appraises for less then more down money will be required by you or the deal is a bust.
Assuming all is well with the appraisal and all of your income and expenses are verified as you previously stated them, then the loan will eventually get approved and the closing will be set up. At some point before closing you will have to have lined up an insurance company to insure the housie you are buying because banks require insurance to cover their loan in the event the house burns down or is destroyed by a tornado or whatever.
Well, that is the home buying experience in a nutshell. If you have questions contact a local real estate agent. They will happily answer your questions and try to help you.
For the record, you generally don’t have to pay an agent anything upfront, at least not in this area. The agent makes their commission off the seller’s side of the transaction at closing so the agent has a huge incentive to do what they can to make the deal work. If the deal doesn’t close, the agent doesn’t get paid. Real estate is a pure commission business for 99% of the licensed agents.
Good luck and happy house-hunting!