If you are reading this, it probably means that you are either a first time home buyer or perhaps an experienced home buyer that has not bought a home in the state of Georgia. If you are in either of these two situations then you will benefit by reading this simple home buyer’s guide.
Most first time buyers begin the process by looking online at sites like this to see what homes are for sale. While this can be entertaining, it can also be very frustrating if you get too far down the road and find that you either can’t or don’t want to buy anything. Therefore, the very first step you should take is to consult a lender. With a quick look at your credit situation, your income, and your other debts, you will be able to get a good idea of what you can qualify for. I am not a lender; but I can tell you from experience what most lenders are generally looking at when qualifying people. First and foremost, you will need to have a credit score of at least 580. It is much better if you have a significantly higher score; but there are programs that can get you a loan with as low as a 580 score. If your score is below 580 or if you have a relatively recent foreclosure or bankruptcy, you will likely find it very difficult if not impossible to obtain financing. Assuming your credit score is worthy, they will then look at your total monthly recurring debt payments including student loans and car loans, etc. They will likely allow you to borrow up to the point where the sum of all of your monthly payments does not exceed about 45% of your documentable monthly pre-tax income. That’s the basic formula. So, for example, if you earn $75,000 per year ($6,250 per month), 45% of that would be $2,812.50. So, most lenders would qualify you for a total monthly payment of up to about $2,800/month assuming you have no other debts. If you had a $400/month car payment, that would leave $2,400/month for your house payment including taxes, insurance, and HOA dues. It is still best to actually get prequalified by a lender but that will give you a ballpark idea of how it typically works.
Keep in mind that the days of stated income loans are gone and will not likely ever return; so if you are self employed or own corporations that lead to a financial loss on your taxes, you may run into trouble qualifying as banks are looking at your income AFTER expenses only as your documentable income level. Also, retired people who don’t have a lot of income can run into trouble qualifying these days for a similar reason. There are a lot of people who really should qualify; but due to these guidelines, certain types of situations are effectively being discriminated against by the lenders these days.
It is wise to have an agent represent you. A good agent will do much more than simply open lockboxes for you. They will advise you about the local market, share their experience with you regarding contract stipulations and walk you through the entire process. You should select an agent early on who will become your go-to person for everything related to the transaction. Don’t worry if you think it will be a while before you purchase something. Most agents understand that the home buying process is not instant and will be patient with you as you take time to go through the discovery process until you are actually ready to purchase something.
Your agent will work with you to develop a list of must have criteria and set up a computerized search with the parameters that best match what you are seeking. You will likely pick several properties that look interesting on paper and schedule an appointment to visit your favorite properties in person. It is possible that you may not like any of them and might even adjust your criteria a bit and repeat the process until you find the right one.
When you are ready to make an offer, your agent will research the property including a look at similar and nearby sales combined with a gut feeling about the seller’s situation and level of flexibility. This is where an experienced agent can add a lot of value to the transaction for you. Every property is different and having an agent who understands the local market and has good analytical skills will be invaluable at this phase. It’s very important to formulate your offer carefully. If you offer too much, you will overpay. Offer too little and, ironically, you may end up paying more for the home than if you make a reasonable but slightly aggressive offer. The reason is that a low ball offer will often trigger an emotional response from the seller rather than a rational response. An emotional seller who is insulted might shoot themselves in the foot by countering with an equally unrealistically high offer to you. When that happens, it’s a game of chicken and the only way you will get the home is if you admit you were bluffing and reveal to the seller that you are willing to pay significantly more than your original offer. I have seen it play out like that over and over. You will likely need to provide a check for about 1% of the purchase price as an earnest money deposit at the time of making your offer. This money will typically be held by one of the brokers involved in the transaction or in some cases the closing attorney.
Contract To Close
As soon as you have an accepted offer, you are now under contract. There is typically about a 30 day period from contract to closing. Closing is the day you actually finalize the sale by signing papers, paying for the home, and taking possession. During the contract to close period, you will give a copy of the contract to your lender and they will formally underwrite your loan. They will order an appraisal to make sure the purchase price is in line with the market value of the property. You will also likely perform a home inspection during this time. Typically, a contract in GA will give the buyer a certain number of days (typically 1-2 weeks) to do your inspections and tests. During this period which is called a due diligence period, the buyer can change their mind and get their deposit back if the contract is properly written to provide such a due diligence period. If there are items that come up during inspection, you will negotiate a resolution and if all goes well, you will meet at the closing attorneys office to settle the transaction.
In Georgia, there is typically only one attorney involved in a typical residential real estate transaction and that attorney typically represents the lender. Buyer and seller do not hire individual attorneys to represent them and negotiate the terms of their contract for them. This is one reason why it is very important to have a competent agent representing you because your agent will be using a boiler plate template but actually be drafting the paperwork that will be your final agreement with the sellers. In many other states, the real estate agents and brokers simply show the property and when it comes time to actually negotiate and solidify the deal, each side hires an attorney and they work it out between them. It’s important to not this significant difference in GA which places more responsibility on your agent and allows for much quicker settlement and closing timelines.