HOUSTON HOME BUYER PROCESS
Buying a home in Houston doesn’t have to be a complicated or stressful process. Follow these simple steps, and you’ll be taking it easy in your new home in no time at all.
Getting pre-approved for financing is the first step that the Houston first-time home buyer must follow. It’s actually very simple. Contact a bank or mortgage broker to get the process started.
Where do you find a mortgage lender?
Talk to your Realtor (we may know one of two of those), friend or family member for a referral. You want someone that you can trust to provide expert advice and great customer service. Most lenders are able to offer comparable interest rates and loan programs. In my opinion, it’s better to go with a lender that you know will give personal and professional customer service versus one that has a fancy brand name.
So how does the process work?
All you need to do is complete a loan application which can be done over the phone or online in about 5 minutes. Your loan officer will ask you questions about your income, assets, and credit scores. Most loan officers will actually request copies of your W2s, paystubs, tax returns, and bank statements just to make sure that everything adds up with your application. The loan officer should be able to get back to you within 24 hours of your application to tell you where you stand.
So why is getting pre-approved so important?
First, you need to know that you can get a loan to purchase in the price range that you are expecting to buy. Sellers are not willing to enter into a sales contract with a buyer unless that have the confidence that the buyer has the funds and/or the ability to get a loan. Second, this process will help you establish your budget. It doesn’t make sense to look at $500,000 homes if you can only get approved up to $300,000. Third, your loan officer will be able to review all of the loan programs that are available to you that you might not even know about. For example, some lenders offer special financing programs for doctors, attorneys, and CPAs.
SET A BUDGET
Once your lender has confirmed your pre-approval and you have reviewed your loan program options, the next step is to set a budget. Even though your lender may be able to approve you for a sales price up to $600,000, you need to decide on a realistic price range based on the amount of cash you are willing to bring to closing and your monthly payment comfort zone.
Cash at Closing
In addition to your down payment required by the loan program you have selected, you will be required to pay your portion at the closing costs at closing. Your loan officer should be able to give you a good estimate, but you should figure on at least $3,000-$6,000. If hanging on to your cash is a priority, ask your Realtor about structuring potential offers to include a seller contribution towards closing costs. Most loan programs will allow up to a 3% seller contribution. In most cases, this amount will cover all of the closing costs and will allow the buyer to come to closing with just the down payment.
In addition to your mortgage principal and interest payment, you will need to factor in the following monthly payments.
Home Owners Insurance – You will pay for your first year of coverage at closing and you will need to factor in 1/12 of your annual premium in your monthly budget. For example, if you annual premium is $1,500, your monthly budget consideration will be $125.00.
Property Taxes – These taxes are due every year by the end of January. In the inner loop of Houston, property taxes without exemptions average about 2.75% of the appraised value. Go to www.hcad.org to research the property tax amount for a particular property. For owner occupied properties, you can apply for a homestead exemption which will reduce the taxable value by about 20%.
HOA Dues – These are common for town home and condominium developments and will vary from property to property. Ask your Realtor about these dues once you start looking at homes.
Utilities – As a home owner, you will be responsible for electricity, water, gas, telephone, internet, cable, etc.
Home Maintenance – It’s always a good idea to factor in something for home maintenance which can include lawn care and maid service. This will vary depending on the age of the home and the updates. Talk to your Realtor to get their opinion on what a reasonable amount should be.
PICK A NEIGHBORHOOD(S)
Now that your budget is set, working with your Realtor to determine the right neighborhoods is the next step. Your Realtor should have an intimate knowledge of the neighborhoods that fit within your budget. It doesn’t make sense to look at homes in River Oaks if your budget is $300,000. Houston offers an abundance of neighborhood and lifestyle options. These range from urban to suburban, single family homes to highrise living. The property type that you are interested in may also help your Realtor determine a good neighborhood fit. For example, if you are only interested in recently constructed town homes, it doesn’t make sense to look in Oak Forest. Rice Military may be a better fit for this search.
If you are not familiar with very many neighborhoods, you should start out with a fairly broad search which could include a half dozen neighborhoods. As you start to view properties online and in person, you may be able to narrow down your search a bit.
SET-UP A CUSTOM HOME SEARCH
Your budget is set and locations have been identified, now your Realtor has the information he/she needs to setup your custom home search portal. Your Realtor should ask you questions on the following items to complete your custom search:
- Type of Property (single family home, town home, condo, etc.)
- # of Bedrooms
- # of Bathrooms
- Minimum SF
- Age of the home
- Architectural Style
- Yard/Green Space Requirements
- Number of Garage Spaces
- Finish Preferences
Your Realtor will compile this information into a custom search which will give you access to an online portal to view properties. This portal will include the property description, details, photos, and map. You can categorize and make comments on the individual properties. This feedback will help your Realtor identify the top prospects in your search.
Once you’ve had some time to view the properties online, the next step will be to view them in person.
CHECK OUT SOME HOMES
So you’ve had some time to review the properties in your custom search and you are ready to get out and look at some homes. It’s good practice to pick out 4-6 properties per showing outing. This amount will help you remember the details about each home. If you try to schedule too many properties, all of the homes start to run together and it becomes more difficult to identify the things that you like.
When it comes to viewing properties in person, it’s best to prioritize each one using the following method.
You’ve heard the cliche. We don’t have to repeat it here. Location should be one of your first considerations. Not only does the home need to be in the right neighborhood that fits your search and lifestyle, it needs to be in the right location within that neighborhood. Houston does not have zoning, which means that homes can be next door to a commercial property or a property type that may not be desirable. Your Realtor should be able to provide expert advice when it comes to picking homes in the right location. Location is important because it can impact your quality of life, but it’s also important to consider location for resale. A home that is in a good location will sale much quicker and for a higher price than one that is poorly located.
Second: Floor Plan
After you have determined that the homes you are viewing are in the right locations, your second consideration should be the floor plan. Although it is possible to modify a home’s floor plan, these renovations can be costly and time consuming. Ideally, the homes that you identify as your favorites will have a floor plan that meets your needs and will have a positive impact at resale. Your Realtor can provide advice when it comes to identifying good floor plans.
Finishes are important, but they should not take priority over location and floor plan. A home’s finishes are the easiest thing to change and can often be done while you live in the home. If you don’t have the funds or time to update or change finishes in the near-term, it’s a good idea to focus on homes that have existing finishes that are move-in ready. Your Realtor should be able to refer you to contractors that can estimate how much it may cost to update your favorite home’s finishes.
MAKING AN OFFER
So you’ve found the perfect home and you’re ready to take the next step and make an offer. At this point in the process, your Realtor will provide the critical market knowledge and experience to help you determine the home’s value and a fair offer.
What does an offer look like and how does it work?
It’s actually pretty simple. In Texas we use a standard eight page contract form that has been developed by the Texas Real Estate Commission. Your Realtor will use this contract, any required contract addendums, and your pre-approval letter. Here’s a few things that will be included in your offer:
- Sales price
- Financing (yes or no?)
- Earnest Money
- Title Company
- Close Date
- Seller Paid Closing Costs
- Option Period
As Realtors, developing an effective negotiating strategy is one of the most important functions we perform. At Norhill, we take pride in our skills. We like to negotiate and we like nothing more than advocating for you through the process.
GETTING TO CLOSING
Now that your offer has been accepted, your Realtor’s job is over, right? Wrong. Finding your new home and negotiating the sales contract is just part of the process. Your Realtor will help you manage all of the steps to ensure a smooth transaction and closing. Here’s a brief summary of the things that your Realtor should help you with after your contract is executed.
Scheduling your Home Inspection
The first thing your Realtor will help with is scheduling your home inspection. This will take place immediately after the contract is executed so that you have enough time to negotiate with the seller on repairs while under the terms of your option period. Your inspector will inspect the entire property and will deliver a detailed inspection report.
Proceed with Financing
Once you have settled your repair negotiations with the seller and you’ve made the decision to move forward, the next step is to get rolling with your loan approval. Your lender will order an appraisal that they will use to confirm the home’s value. They will also request all of the loan documentation that they’ll need to complete your file. This may include bank statements, W2s, tax returns, pay stubs, etc. You will want to give your lender as much time as possible to underwrite your file, so being prompt with satisfying your lender’s requests is important. You will also need to shop around for Home Owner’s insurance during this time. Your Realtor will help you coordinate this process to ensure that everyone is on track for closing.
Setting up Your Utilities
It’s a good idea to start working on setting up your new utility accounts for your home about 2 weeks prior to closing. This will include electricity, water, gas, cable, internet, phone, etc. For more information on this, check out this link Setting up Your Utilities in Houston.
Once your lender has issued final loan approval, they will order your loan documents and deliver them to the title company. The title company will draw up the final settlement statement which will detail all of the closing costs and will give you your final dollar amount that you will need to bring to closing. Your funds will need to be in the form of a cashier’s check or you can setup a wire transfer from your bank to the title company. You also need to make sure that your lender funds your loan on the day of closing so that you can walk away with the keys to your new home.
Congratulations, you are now officially a home owner and there’s a few things you will need to do.
First, you’ll want to change the locks on your new home. There’s no way to know how many keys may be floating around. Any local locksmith should be able to change your locks in a couple of hours.
Second, you’ll need to setup your mortgage payment. Typically, your first payment will be due the second month after you close. For example, if you close on June 15, your first payment will be due August 1. Your lender will mail you information about setting up a payment plan prior to your first payment. Third, you’ll need to file for your homestead exemption with your county. This exemption will reduce your home’s taxable value by around 20%. You can you go your county’s appraisal district website to download the form. You can only apply for this exemption after Jan. 1.