REALTORS® recommend that buyers get pre-approved prior to initiating the mortgage process to determine the best type of mortgage for you and avoid rushing into a mortgage decision. Pre-approval is an official agreement by the lender specifying the exact amount for which you‘ve been approved. In order to get pre-approved, you‘ll meet with a loan officer who‘ll review your credit history and often suggest a mortgage type that fits your situation. This process requires supplying the lender with various financial documents. By receiving pre-approval before making an "offer to purchase", you‘ll demonstrate your serious intentions and financial ability to the buyer.

Pre-approval is not to be confused with pre-qualification, however. Pre-qualification provides an informal means to find out how much you may be able to borrow. Before setting your price range for how much you can spend on a new home, you may want to pre-qualify for a mortgage. You can be pre-qualified over the phone by answering a few questions about your income, long-term debt and the amount of your downpayment. Getting pre-qualified gives you a ballpark figure of the amount you may have available to spend on a home.

Downpayments and Financial Assistance

Even first-time buyers are usually aware that they‘ll be required to make a downpayment in order to secure a home. But what you may not have heard is that within the past decade, downpayment assistance programs have been developed that either lower the deposit dramatically or eliminate it altogether. Before making your downpayment, you‘ll want to investigate these programs to see if you qualify.

While low downpayments might seem attractive to cash-strapped buyers, keep in mind that the larger the downpayment, the smaller the mortgage loan -- thereby allowing you to develop equity quicker. You‘ll also want to consider that mortgages with less than a 20-percent downpayment usually require mortgage insurance. When determining the size of your downpayment, you may want to weigh the other costs involved, including closing costs and relocating expenses.

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Now that you've found the perfect home, it's time to get the deal rolling. You'll need to sign a residential purchase agreement, make an offer, possibly put down a deposit, conduct inspections and close the sale. If this all sounds overwhelming to you, don't worry; your REALTOR^® will guide you through each step.

Making An Offer/Residential Purchase Agreements and Buyer Representation Agreements

If you're ready to purchase the home, you must get all the details in writing. The offer begins with a written proposal spelling out your price and any stipulations regarding the purchase. If the seller has agreed to pay part of the closing costs, for example, that needs to be specified in the accepted offer. In addition, sometimes offers to purchase are contingent upon factors like the buyers' ability to obtain financing or the sellers finding housing within a certain time frame.

The residential purchase agreement contains the comprehensive terms of the deal, including sales price, deposit, closing date, disclosure requirements, inspections, and fees agreed upon by both parties. Other provisions also are included, such as the buyer's final inspection and the method by which all real estate taxes and other bills will be pro-rated between buyer and seller.

There are ways for buyers to look more appealing to a seller, thereby possibly gaining a negotiating edge. All-cash buyers and those already pre-approved for a mortgage have an advantage. In addition, sellers who are ready to move prefer buyers who don't have a present house to sell first.

An offer to purchase is often followed by a counteroffer by the seller, which can be countered again by the buyer. This is common practice as both sides attempt to negotiate an agreement that meets their individual needs.

Completing the residential purchase agreement is a complicated part of the transaction process that buyers shouldn't enter into without the assistance of a REALTOR^®. REALTORS^® have access to the standard forms needed and receive updates from their local, state and national associations on state and federal laws regulating agreements. REALTORS^® can either answer any questions you might have or refer you to the appropriate authority.

Buyers' Up-Front Fees

In conjunction with the residential purchase agreement, buyers are usually expected to put down a deposit at the beginning of the transaction. If the buyer completes the sale, this money will be credited toward the buyer's downpayment. If the buyer doesn't complete the sale for legal or contractual reasons, the money is typically returned. However, if the buyer doesn't complete the sale for other reasons, the seller may be entitled to keep the deposit. The U.S. Department of Housing and Urban Development (HUD) advises that deposits should be "substantial enough to demonstrate good faith," usually 1 to 5 percent of the purchase price. Often, buyers may put up to 20 percent down.

Because buyers frequently pay for most inspections, it may be a good idea to investigate the costs of the inspections you plan to obtain before an offer is made.

Home Inspections vs. Appraisals

Home inspections vary greatly. Some check the home's structure, construction and mechanical systems, and appliances, which may be transferred with the property. Although different inspectors look for and test different things and may not discover everything that is wrong with a property, obtaining inspections is the best way to become informed of necessary repairs or problems with the home. Be advised that inspectors do not assess the value of your home.

According to HUD, an inspector typically checks the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, ceilings, walls, floors, and roof.

In addition to being inspected, the home will undergo an appraisal by a trained professional. An appraisal is an opinion of the property's value used primarily to protect the lender's interest. In contrast to home inspections, appraisals are based on past sales data, the location of the home, the size of the lot and the condition of the home.

Your REALTOR® may recommend a qualified inspector or appraiser.

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