The largest investment most Americans ever make is in the purchase of their primary home. Buying a home can be a daunting experience. It can be a process fraught with emotion, both good and bad. It's not uncommon to feel fear, joy, frustration, excitement, worry and happiness practically simultaneously. But if you start with a road map, and know what to expect along the way, you'll probably find the home buying process a truly rewarding experience.

The Home Buying Process

Buying a home is a financial action. As such, no home search should really begin until finances have been put into proper order. Before you purchase a home you'll need to ask yourself a few important financial questions.

• How much cash do I have for a down payment?
• Do I have a dependable income?
• How is my credit score?

Down Payments and Mortgage Information

As far as down payments go, most home buyers put down somewhere in the vicinity of 3% to 20% of the sales price. The higher your down payment is, the lower your monthly mortgage payments will be.

Don't plan on borrowing your down payment. If you are expecting to get a conventional mortgage, the bank will expect the down payment to be your own money. They will often want to see the paper trail of where it came from. An FHA loan (more below) offers a little flexibility on this issue. With an FHA loan, you may be "gifted", or given an unsecured loan, for the down payment.

The size of your down payment is governed by several factors. The obvious first factor is how much cash you have on hand. The next is how good your credit is. The better your credit is, the less the bank will require you to offer as a down payment. Another factor governing the amount of your down payment is the type of loan you get.

Conventional mortgages are the most common type. These are usually 15 or 30 year loans with a fixed interest rate. If you get a conventional mortgage, the bank will usually require at least 10%, or as much as 20%, down. There are some programs that offer lower down payment options, but they often result in significantly higher interest rates. If you put down less than 20%, you'll be asked to carry Private Mortgage Insurance (PMI). This is insurance which protets the lender if you don't make your house payments. This will increase your monthly payment as well.

If you're a first time home buyer, you may qualify for an FHA loan. This is a loan made through the Federal Housing Administration. These are loans designed by the government to help low to moderate income home buyers purchase homes with smaller down payments (generally between 3% to 5%). Be advised that some sellers may not agree to an FHA loan, because they do require a little more red tape. The house can not be a "fixer-upper", it has to be in excellent shape to pass an FHA inspection.

If you're a veteran, you may qualify for a VA loan with no down payment requirements. Qualified veterans can receive loans of up to $203,000.00 with no down payment.

Another type of loan is an Adjustable Rate Mortgage (ARM). These mortgages carry an interest rate that changes to keep pace with current market rates. They usually have a lower introductory interest rate than conventional mortgages. These loans are usually best for buyers looking for short term home ownership. If you plan on staying put in your new home for awhile, you would porbably want to consider locking in a fixed interest rate with a conventional mortgage.

Therer are also Balloon Mortgages available. These are loans that offer a fixed rate for a limited amount of time, typically 5 to 7 years, followed by a "balloon payment" requiring full repayment of the entire loan balance. Balloon Mortgages usually offer attractive interest rates, but should only be considered by buyers planning to sell their home, refinance, or pay off their loan before the "balloon payment" comes due.

Credit Information

Once you know what type of down payment you'll be able to come up with, you'll need to deal with credit and mortgage pre-approval issues. In order to know what price range you should be looking in, you'll need to know how much you can realistically afford. The earlier you determine this information, the less concerned and frustrated you'll be down the line.

Everything begins with your credit report. This is the information your lender will be looking at to determine your credit worthiness. This is the information that will determine what types of loans and interest rates you'll have access to. Your first step should be to get a copy of your current credit report. You'll want to make certain there are no mistakes or inaccuracies within the report. You'll also want time to repair any problems you do find. If you have mediocre or bad credit you may want to consider contacting a consumer credit counselor for help.

Your next order of business should be to get pre-approved for a mortgage. At this point we run into an important distinction: pre-qualification vs. pre-approval.

Pre-qualification for a loan is based on unverified information provided by you. The lender will take this information you give them, conduct a fast calculation, and offer a "guesstimate" as to what amount of loan you might qualify for. This amount is not a guarantee.

Pre-Approval is what you are looking for. In the pre-approval process, the lender will verify your financial information and actually commit funds in your name for a specific loan type and amount. This can all be done by an experienced mortgage broker or lender in just a few minutes.

With a pre-approval in hand you will be empowered as a home buyer. You will know exactly what type of home you can afford. When you can prove you've already got financing in place it puts you in a better negotiating position with the seller. You also may be able to close the loan in about half the time of someone who is not pre-approved. You'll also be able to lock in an interest rate early, possibly saving you even more money.

Not sure where to start? Find My Fsbo has compiled a list of experienced mortgage brokers and lenders to choose from. Most of them will be able to find solutions for your regardless of your financial situation. There are options available for individuals of all financial circumstances. Low or no down payment? Less -than-stellar credit? Give them a try. You might be surprised at the options available. Visit our Service Providers resource for more information.

Find My FSBO also recommends all "For Sale By Owner" home buyers create a working relationship with an experienced real estate attorney before they begin their house hunt. The small additional fee you'll have to pay to have a real estate professional advise you on contracts will pay off big dividends in terms of peace of mind. Creating a working relationship with a real estate attorney is just as easy as visiting the Service Providers section of our website and calling a handful of attorneys until you find the best individual for your situation. Let them know your looking to purchase a "For Sale By Owner" home, and you'd like them to look over the contracts, present offers and/or represent you in the purchase. Find out what their fee schedules are for such duties ahead of time. Shop around.

Searching For a Home

This is where all your due diligence begins to pay off. It's time to go shopping for a home. With your pre-approval in hand, you can now confidently begin looking at, and putting in offers for, homes in your price range. Where do you begin?

• What are you looking for? Determine what type of house you'll be looking for by cross-referencing your needs with your wants until you achive a compromise. Isolate what features you realistically need in a house. Make these features your starting ground. Make a list of features you want to have in your next house...and keep a realistic picture of your financial situation in mind. Somewhere within all this information lies the parameters of your future home.
• Pick a location. Decide what cities, towns and/or neighborhoods you'd like to live in. What amenities do each offer...schools, entertainment, shopping, accessibility, job prospects, etc. The tighter you can narrow your focus, the more specific the quality of information you'll be able to gather on your target location.
• Research the market. Once you've narrowed down one, or more, target locations, learn everything you can about the homes in your price range that are for sale within them. Search the internet. Look through the classifieds. Read the Homes For Sale magazines. Drive through neighborhoods looking for signs. Attend open houses. Talk to neighbors. It's important to see the full array of what's available in your price range if you want to comparatively shop with confidence. A well-informed buyer will get the best deal.
• Get organized. Get a small notebook to take notes. Charge your digital camera to bring with you on your home search. Buy a map of the neighborhood and mark the location of homes you're serious about in relation to each other. Create a file at home where you can keep all your collected information (pictures, info-sheets, notes, map, etc.) in one place.
• Schedule Home Showings. When you come across homes that look like contenders, schedule showings. Bring your digital camera. The more homes you look at, the more they'll all begin to blur together. Do yourself a favor and take pictures of homes you want to put on your short list. Keep the pictures organized with your notes so you know which image corresponds with which address. That way you can compare details on individual homes after youve visited them.
• Compare Prices. It's important you purchase your next home at a fair price. If the home in question will not appraise for the asking price, your lender may not provide the financing for it. When you've isolated a few short list contenders, get a comparative market analysis (CMA) on each. If you're working with a realtor they'll do this for you. If you're buying a "For Sale By Owner" home, there are several ways to do it. One way is through a free property value website such as Zillow.com. While most of the figures at Zillow are in the ballpark, they're better just for the formation of a general price perspective. If you want more accurate numbers, you may want to consider using the Electronic Appraisal service we can connect you with.

Making an Offer

So, you've located the right home at the right price...now it's time to get serious. It's time to make an offer.

There are a few rules you should pay heed to when making an offer on a home:

• Put it in writing. Do not make a verbal offer. Do not accept a verbal counter offer from the seller. Make sure everything is in writing. If you've followed our advice and put the services of an experiencedreal estate attorney in your corner...this is where it will begin to pay off. Have your attorney present and receive all offers.
• Don't get emotional. It's very easy to get emotionally attached to individual homes. Emotions will result in you paying too much. Keep it rational. Determine what your top offer will be on any house ahead of time, and do not stray from it. Remember, buying a home is a financial action. If you pay too much today, you'll regret it tomorrow. Don't get into the mindset that one particular house is the only house for you. There are other houses out there, and there are new homes being added to the market every day. Stick to the script and you'll get the house you want at the price you need.
• Don't offer full asking price. Unless a home is being offered way below market value, don't ever offer the full asking price from the onset. The name of the game is negotiation. Make a reasonable offer and see what the sellers come back with.
• Protect yourself. If the seller accepts your offer, then it becomes a binding contract. Leave yourself some options to get out of the contract if problems arise. Have your attorney put in contingencies that will release you from the contract if you cannot obtain financing, cannot sell your existing home or if a home inspection turns up major repair issues which cannot be resolved by the seller. These are all standard contingencies in most Purchase and Sale agreements.
• Offer an earnest money deposit so the sellers take your offer seriously. This is a deposit, usually between 1% to 2% of the purchase price, which symbolizes your "earnestness" to purchase the property. The earnest money should be held by an attorney or title company in escrow. Do not give the money directly to the home owner. Once a deal is reached, the earnest money will be applied towards your down payment and/or closing costs.

Hire a Home Inspector

Once your offer has been accepted it's time to put your home buying experience on the fast track towards the closing table. Your next step will be to hire a licensed home inspector. Submitting your future home to a rigorous inspection will allow you to proceed with the sale confident that you won't be inheriting any invisible problems form the seller. Your inspector will determine what, if anything, is wrong with the house. They will advise you what needs to be fixed or replaced. Your Purchase and Sale agreement should specify who is responsible to pay for the inspection and who is responsible to pay for remedies to any problems the inspection might turn up. Your experienced real estate attorney will help you in this department. You should also have the home inspection contingency your attorney put in the Purchase and Sale agreement to fall back on should any major, unresolvable issues with the inspection arise.

Most competent home inspectors will study the entire structure with minute attention to detail. Typical features that will be focused on are the general condition of the structure, including all walls, flooring, windows, roof, exterior, and insulation. They will also check the plumbing and electrical systems, ensuring everything is up to code and in working order. They will check the integrity of any screened lanai. They will check your air-conditioning or heat-pump system. They will check all major appliances scheduled to be conveyed in the sale. They will look for evidence of termites, radon gas, asbestos and lead based paint...all unfavorable findings. If there is a pool, they will check the pool and all pool equipment (heater, filter, etc.).

When finished, the home inspector will prepare a formal report of their findings. All defects, major and minor, will be listed in itemized fashion. Be advised, some flaws will be found in every home. As the buyer, you must use common sense in analyzing the severity of any revealed flaws and how they impact your purchasing decision.

It can be helpful to be present for the home inspection. Good home inspectors will point out any potential problems, giving you a clearer vision of what's wrong. They will also give you tips on home maintenance and proper upkeep of any essential systems. This can be valuable information to a first time home buyer.

Usually a copy of the home inspectors report will go to both the buyers and the seller. Repair responsibilities should be governed by a pre-existing, agreed-upon clause in the purchase and sale contract. The seller may be responsible for performing repairs. In some situations a repair credit is given to the buyer, coming off the purchase price of the house. In other situations, the buyer may agree to take responsibilty for certain repairs. Make sure you have some kind of agreement in your purchase contract ahead of time. You'll be glad you did.

To find a local home inspector, visit our Service Providers directory.

Title Insurance

Your title company will do a title search on the subject property. This is to ensure the seller is the legal owner of the property and there are no liens, unpaid taxes or other claims to the property that would hinder transference to a new buyer. They will then issue a title insurance policy to you to protect you, or your lender, against any loss arising from disputes over ownership of the property. The cost for the title insurance policy will be included in your closing costs.

Home Appraisal

Your lender will hire a third party to conduct a home appraisal. Sometimes they offer you the choice of who conducts the appraisal from a list of pre-approved names. They want to make sure the house is worth the asking price, so they will be able to recoup their money should you ever fail to repay the loan. If the house doesn't appraise for the asking price, you may run into problems securing financing, unless you have a larger down payment. This is why you did your research and ordered a Comparative Market Analysis early on in the process. The lender will usually pay for the appraisal and pass on the cost to you during the closing.

Homeowners and Flood Insurance

You will need to procure a homeowners insurance policy. Your lender will not issue a loan until you have a policy in effect to insure the property they are loaning money for All policies differ, but this will protect you against, fire, weather related instances, some natural disasters and/or any other various damages which may occur to the property.

Many homes in southwest Florida are located in federally designated flood areas and, therefore, require a flood insurance policy. A standard flood insurance policy will cover flood related problems including structural damage, water heaters, air conditioners, floor surfaces (carpeting and tile) and flood debris cleanup. You can also buy a flood insurance policy to cover the contents of your home.

Additional Concerns

You will want to get in contact with utility companies to let them know your purchasing a house and will need accounts with them for running water and electricity after you close on the sale. Some of these companies may require deposits. You also may want to arrange for telephone and cable services to be arranged as well. If your house has a pool, get contact info for the current pool cleaning company. If the seller currently has a lawn or landscape service, also get contact information for them.

Find My FSBO will be happy to recommend several options for any of these new home needs you may have. Visit our Service Providers page for more information.

Home Warranty

If your seller is not offering a home warranty with your purchase of their home, you may want to consider purchasing one yourself. A home warranty is a service contract, usually for a renewable term of one year, which helps protect homeowners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear.

Visit our Home Warranty page for more information.

Final Walk Through

Before you get to the closing, you are usually allowed (per the terms of your Purchase and Sale agreement) the ability to walk through the property one last time. This is to ensure all agreed upon repairs have been completed and the home is still in the same condition it was in on the day you made your initial offer. Sometimes this happens in the few minutes before you head to the title company to begin the closing.

The Closing Process

So, you've finally gotten all the major hurdles behind you. All that's left now is to visit the closing table and sign an intimidating amount of papers under the direction of your title company and/or real estate attorney. The closing process is conducted by the escrow agent, an affiliate of the title company, and several functions are accomplished at it. A clean tiltle is transfered from the seller to the buyer, the lender finalizes the mortgage process, all costs of the home buying/selling procedure are paid off, the sellers mortgage is paid off and the seller receives any remaining equity.

The title company will contact you prior to the closing advising how much money you'll need to bring with you to the closing table. You'll normally be advised to bring these funds in the form of a cashiers check.

You did it!!!

Once the closing documents are all signed you'll usually be given the keys to you new home. You've earned them. Time to get moved in and enjoy all the benefits home ownership offers. Congratulations.