Buying a home in Charleston
step by step
Whether you are a first-time homebuyer or a home buying veteran that has not purchased a home in few years, purchasing a home in the Charleston, SC can be a relaxed, enjoyable process.
The home buying process is simple. Still, even with a simple process there are a few pitfalls to avoid and a few tricks to the trade. Preparation and research will not only save you time but could save you quite a bit of money.
Watch:HUD Video on home buying tips
1. The first step is to know what you can afford. You need to have a very clear picture of your financial situation - and a clear picture of your financial situation as seen by credit reporting companies. Caution: there are often errors in the reports produced by the credit bureaus. Be sure that you examine your credit report and clear up any errors that may exist prior to applying for a loan.
Step back and take an assessment of your financial situation. Generally, you can afford a home priced 2 to 3 times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees.
Look at your current spending and also look at what you anticipate your future spending to be. As you move through various stages of life, you will be making changes in your spending patterns. Don't forget about large upcoming expenses. Do you or will you:
- plan to enroll a child in college in the next few years
- plan on getting your masters degree, etc. - need to invest in continuing education
- need to replace an automobile
- need to make a major investment in your business
- anticipate a change in family support needs such as having a baby, having an elderly parent move in with you or even planning an adoption
These are just a few of the limitless possibilities that may impact your ability to pay your mortgage. How much you can afford and how much your lender says you can afford are rarely the same. Now more than ever, with today's unusual financial marketplace, having a clear picture of what you can afford is more than simply considering your ability to pay today. Assess your ability to pay tomorrow - and in the months and years ahead.
2. Banks have become increasingly careful about who they lend money to and how that money is lent. So, prior to making an offer, and even prior to beginning your home search, you really need to approach a lender and request a preapproval.
A preapproval is a written statement by a lender stating that they are ready and willing to stand behind you in issuing a loan. This preapproval not only serves to help you understand what you can afford, it has become nearly mandatory to provide a copy of a preapproval letter to sellers before they will accept an offer or provide a counteroffer. Sellers need to know that they are pulling their home off the market for the benefit of someone who can actually afford to purchase it. No one wants to take their home off the market only to find out the buyer was never in a position to purchase. Doing so could result in losing out on an opportunity to sell the home to other buyers. It might extend time on the market and even force the sellers to lower their asking price.
The preapproval process involves the bank considering your credit worthiness, income flow and expenses. Here are some considerations that you may not have thought of:
- It is important to ensure that your credit report is accurate prior to approaching the lender.
- Even how your income is reported will make a difference in how much a bank says you can afford (such as might be the case if own a subchapter S corporation and report yourself as an employee of that corporation). How much you actually have available to you to spend, and how much is reported as income on your taxes, may not be the same. The underwriters for the bank will be looking at your tax returns as a consider final approval.
- Once you have received a preapproval, do not make any major purchases prior to closing on your home. Changes in your financial position that occur after preapproval could negatively impact your likelihood of final approval. I've seen instances where individuals have made large financial commitments just before closing, such as purchasing significant home furnishings and major appliances, that resulted in the lender backing away from the deal and the buyers and sellers left in a precarious, if not impossible, situation.
2. The next step is to choose your lender. During the preapproval process you may have spoken to several lenders and you may have received a preapproval letter from one or more of those lenders. You are not under an obligation to work with a lender that provided a preapproval.
Lenders are different in many ways. Know whether or not you are working with a lender that is a direct lender or if you are working with a mortgage broker. Mortgage brokers are intermediaries that search for a mortgage for you through a long list of companies. Mortgage brokers are useful because they have a lot of different types of loans available.
Direct lenders may have fewer loans available but may be able to offer better rates. Other distinctions include whether or not you will be working with a local lender. Internet lenders are common as are major "distant" lenders, such as USAA. If you are looking for a lot of hands-on service, you may find a local lender to be more suitable. If you are the type of consumer that doesn't mind stripped-down service and is not put off by the impersonal, then Internet lenders or distant lenders might work fine for you. I encourage my clients to use local lenders - they usually provide a better overall experience and are cost competitive. Choosing the right lender is very important because that lender has everything to do with how smoothly the process will go.
3. The next thing you need to do is decide what you really want in a home. This seems so obvious but for many home buyers, this is a step in the process that is done in a haphazard, disorganized way which results in a lot of frustration and a lot of wasted time and energy. (see list at right of this page).
Next, narrow the scope of your search area. This is how it should go:
1. location - area of Charleston (Summerville, West Ashley, Hanahan, mt Plesant, Goose Creek, etc.)
2. location - neighborhood
3. location - lot (where within the neighborhood : cul-de-sac, corner, backing to woods, busy street, what is next door, etc)
Location should weigh very heavily in your decision-making. The perfect home in the wrong area never works well . Decide where you want to live - begin with the larger areas and moved to the specific areas.
I always suggest to buyers that they get down to within a 10 mile radius as a starting point and then narrow their search down to a few neighborhoods. While this seems rather simplistic, it is not the typical approach.
Many buyers today begin with the shotgun approach where they cast a huge net over a large area, focusing primarily on price as the initial refinement. Do not do this.
Price will be one of the most important factors by the time you're finished with your search but you should not begin your search with price. Why? In a large geographic area, such as where I live in Charleston South Carolina, most price points exist in most areas. For example, by selecting a $300,000 - $325,000 range as your first search criterion, you will find that homes in that price range exist across the greater Charleston region. The difference you will find is that the a $300,000 home in Mount Pleasant is quite different from a $300,000 home in North Charleston or in Summerville. Price alone does very little to help with the beginning of your search. Save it for later in the process.
Start by determining where you want to live within the Greater Charleston Area. If you don't know what town you want to live in, at least have your search narrowed down to a reasonable geographic area such as a 50 mile radius before you contact an agent for assistance.
Once you contact your agent, expect your agent to help you focus your search to an even smaller area. Optimally, as I mentioned above, a 10 mile radius is about as large as you really want to have to work with if at all possible.
Once you have picked the general area, then begin looking at individual neighborhoods. Next, begin screening homes within those neighborhoods. Obviously, you want to have a price range to work with but that price range should not be applied until you have narrowed to that 10 mile radius.
Once you know the area you want and you have chosen a few homes within that area to go see, ask your agent to put together an agenda. It's a good idea to keep your search to about 10 homes today. If you exceed that number, you may find that it becomes confusing for you - at least that's experience most buyers report. Take with you a digital camera, a notepad, and a map, as well as any information on listings which you may have that you have not already provided to your agent.
Today the information flows in two directions - between agents and buyers. You may have information that your agent does not. For example, you may have gone on a website and found a listing that you want to see that is not among the listings that your agent has suggested. Try to provide that information to your agent in advance; but, if you cannot, at least bring it with you.
4. Once you have identified a home that you want to make an offer on, step back and take an assessment of some important considerations including:
- Resale value - do you anticipate this area holding its value well? Neighborhoods usually progressed through cycles. Think about where the neighborhood is in its cycle of development. If the neighborhood is in a decline, you need to know that.
- Quality of construction and type of construction - is this a well-built home?
- Covenants and restrictions - to these meet your lifestyle and needs? Are they overly restrictive or not restrictive enough? Can you park in the street overnight? How many pets are allowed? Are boats permitted and, if so, how must they be stored?
- Age of appliances - when will the air-conditioning system need to be replaced?
- Maintenance and utility expenses anticipated for ownership - what is the cost of heating and cooling? How often will the exterior need to be painted?
5. Make the offer. When you're ready, work with your agent put together an offer. The factors that go into making a solid offer are numerous and can be complex. It's important that your offer is completely hammered out to your full satisfaction prior to presenting that offer to the seller. Once the offer is accepted by the seller, the terms are set in cannot be changed without mutual consent of the buyer and the seller.
- Be sure you understand what is included. What appliances come with a home? Is the chandelier in the dining room going to be left? How about the doghouse in the backyard or the play set - will those be left as well?
- Are there any issues with the home that need to be disclosed? If the seller has completed a seller disclosure, do you have any questions about items on the disclosure?
- When do you want to close on the home and take possession?
- How much are you going to offer? How much are you willing to negotiate on the price? Will the seller provide any concessions such as assistance with closing costs? Is the seller willing to accept any contingencies? (Contingencies can be tricky so be sure that you discuss with your agent the impact of various contingencies on the likelihood of offer acceptance).
6. Now that you have a contract to purchase a home, the next phase is to take the steps that move you to closing.
DO A HOME INSPECTION - ALWAYS.
The home inspection should be done by qualified, experienced home inspector. There are several good home inspectors in the Charleston area. Most home inspectors issue written reports - often with photographs or video to settlement - that detail potential concerns. Expect the report to be filled with details that may be a little unnerving.
Remember that a home inspector is there to find as much as possible. Reports are often long and frequently rattle buyers. Review the results of the inspection report carefully and determine if any of the items that have been documented need to be addressed by the seller prior to closing. I encourage buyers to request repairs that are reasonable.
Small issues of little consequence should not prevent you from purchasing a home even if the seller refuses to fix those items. Items that should prevent you from purchasing a home are items that the seller refuses to remedy that you expect will cost you an unreasonable amount of time and/or money to address (relative to the sales price) after you move in. If you are getting an amazing buy, you may decide to be more flexible.
Like with anything, keep this portion of the process in perspective. Virtually every home has defects. As you ask for repairs, consider what you would be willing to fix, at that price, if you were the one selling the home.
7. As you move to closing, anticipate some problems and you will not be disappointed. Most closings occur on time and with few glitches. Still, for buyer or seller, a small glitch can seem monumental.
The closing is a legal process that involves quite a few individuals - all of which are human. Most closings have a few bumps. Very seldom do these bumps really matter as they are almost always worked out quickly and smoothly.
As you approach the date of closing, most lenders will ask for additional financial information or updates from you prior to issuing a final approval of the loan. They will also order an appraisal of the property. The closing attorney will order a title search of the property to ensure the property is ready to be conveyed - clear of any defects to or encumbrances on the title.
In South Carolina, most closings involve a single attorney as a closing agent. Ask your agent for a suggestion for a closing attorney.
Most closings happen in less than two hours and many happen in under an hour. The attorney is there to answer questions and to work through each of the documents with you. Once you've completed the closing, you will receive a set of keys to your new home. Congratulations and welcome to Charleston!