Buying a Home

The largest purchase most people will ever make in their life is a purchase of a home.  Before making any
decisions, remember that above all else, a home is an investment so this decision is important.

Many of the same considerations for renting an apartment apply to buying a house.  However, with buying a
house, start with an understanding of how long you intend to stay in the house. If you intend to stay in the
house through the growing of your family, then the size becomes an issue and buying something larger may be
your best option.  If you intend to change houses as the need requires, then you can start with something
smaller and upgrade to something larger as the need presents itself.  However, consider also that over time,
your income should increase and provide more flexibility in the size of a home.

Many people consider the owning of a house to be a worthwhile goal because of the pride of ownership and the
ability to make changes on your own.  If the owning of a house is a worthwhile goal then whether old or new,
does it make a difference?  

Let's start with the beginning.  All houses are built from the ground up.  This is a simple step by step process
with lots of steps and requires working with local building officials to complete the inspections during the
process.  Although this is a project you can do yourself, most people don't have the construction knowledge to
complete the entire project, which leaves two other options:  purchase an existing house or purchase a new

Either option has merit and the choice between the options is a matter of personal preference.  One serious
consideration is the potential need for immediate minor repairs on an older house.  While some people are
comfortable with 'handyman' or 'do it yourself' projects, some people are not.  Many people purchase a new
house because they believe that they won't have to deal with these problems, however, over time, every house
will have problems that must be dealt with either by the owner or hired help.

When purchasing a house, a new house is normally purchased from a builder whereas the existing house is
normally purchased from the home owner through a Realtor.  Remember, like a car, as soon as anyone moves
into a brand new house, it is no longer new so the primary consideration is always going to be the quality of the
maintenance.  You can't assume that a house that is only 1 year old will be in better condition than a house that
is 30 years old.

As with a car, there are a number of considerations.  Unlike buying a car, a home purchase process can and
should require considerably more time since the ownership may last for decades instead of 1 or 2 years.  
Throughout the process, there are legal forms to sign, many of which are binding (designed to keep you from
backing out of the purchase).   Always understand your options when and if you change your mind.

Before beginning any search for a house, start with an understanding of your current financial position.  It is
worthwhile to go to a mortgage broker or your financial institution and get pre-approved for a mortgage.  The
pre-approval process starts with a review of your financial position based on current income and current
expenses / payments.  The pre-approval process will also take into account your credit rating to give you an
idea of the possible interest rate that you can get, resulting in a projected monthly payment.  It will also help to
establish the amount of money (cash on hand) you will need to bring into the purchase as a down payment to
satisfy the lender requirements.

      - Type: There are basically two primary types of houses:
              - Single Family Residence: This would be any residence where the owner is responsible for upkeep
and maintenance of property and landscape.  Normally, the home owner is responsible for both landscape
maintenance and the property maintenance.
              - Consolidated Residences: This would be any residence where the unit is a member of a group of
units where the exterior maintenance and landscaping are maintained by a management group for the units.  
The management group will establish the projected costs for the long term to insure the exterior property value
is maintained.  This type would include condos, townhouses and duplexes, to name a few.  With the additional
maintenance performed by the management group, each resident is required to pay monthly dues which can
be anywhere from $40 to $400 or more (in addition to the mortgage payment).

      - Price: The monthly mortgage payments must be within the range that you have established during the
budget development.  Also, when considering the monthly payment, make sure the lender estimates the escrow
payments to insure that you will not be surprised when the first payment comes due.

      - Location: This consideration has more to do with your convenience and commute time than anything
else.  Like an apartment, determine your personal traffic patterns and rank them so that those items that are
more important can influence the selection.  You can find a house in most parts of town, however, with a long
term commitment, make sure that there are no negatives with the location (garbage dump next door, rail road
tracks, etc).

      -         Size: The size of a house has a lot to do with several long term issues:
              -         How long will you be in the house?  
              -         Do you intend to raise a family in the house?
              -         Is the house intended as a status symbol?
              -         These issues are very important and should not be taken lightly.  If your intention is to move as
the need arises, then size becomes less important.  On the other hand, starting with a small house and
planning on adding an addition requires that you have the proper amount of open space around the house to
satisfy the legal restrictions and deed restrictions.  
                      -         Note that there is a difference between legal restrictions, deed restrictions and CC&Rs.  A
legal restriction is the required distance between the side of the house and the edge of the property or how the
property can be used.  Deed restrictions and CC&Rs are similar in that they are additional restrictions
implemented by the builder or developer.
              - Also, raising a family creates a need for additional space that may not be immediately known.  Small
(starter) houses are perhaps the least expensive but don't provide a lot of space.  As the size increases, so
does the price. However, the same price can get different sizes based on the location or the products used in
the house.
              - In those cases where children are involved, consideration must also be given to the school district
that serves the area.  Are quality schools provided?  How do the schools rank compared to other districts in the

      -         Safety: When you drive the area, do you feel secure?  What can be done to make the house more
secure?  This can be reflective of the lighting, openness, controlled access, and more.  With a long term
investment like a house, having security and safety becomes an important consideration.

      -         Comfort: Personal preference will tell you whether you approve of the flooring, the room layout, and
the styling.  The nice thing about a house is that you can make changes where desired.  If the floor plan isn't
quite what you had in mind, be sure that you can make the desired changes before committing to the purchase.

As with everything else, there are additional costs to be considered.
      -        Utilities:
              -         Electricity
              -         Gas
              -         Water
              -         Sewer
              -         Trash Disposal
              -         Telephone
              -         Cable
              -         Internet

      -         Maintenance: These costs need to be planned and money set aside.

      -         Home Owner Association Dues: The amount of the dues are disclosed in the sales agreements.  
These can be minimal or substantial, depending on the neighborhood.  

When a block of houses are built by a single home builder, this is often referred to as a subdivision and can
often have a special name to separate their group of houses from those of other subdivisions near by.  Home
Owner Associations are the local authority for a subdivision.  In other words, when the builder completes all the
houses in the subdivision, the builder will set up a governing body for the subdivision.  This governing body is
intended to help all the residents work together to keep the property values as high as possible.  This
governing group normally has the authority to issue notices to request the homeowner to correct 'infractions'.  
An infraction would be anything that would be considered as a potential negative impact to the property values.  
The Home Owner Associations have the legal right to place a restriction (lien) on your house for failure to
resolve infractions.  Most important, there are dues associated with a Home Owner Association, understand
what is covered and what services are provided.

This is something that can't be ignored because it will not take care of itself.  Home maintenance is not just
fixing all of the little problems but also taking care of the replacement issues.  Things can wear out with age and
newer options become available that will last longer and / or save money in the long term.  A prime example is
an air conditioning system that is more than 7 years old.  All appliances become more efficient as the models
improve.  You may be able to save money by replacing an A/C after 7 years because of the difference in
energy usage.

Start with replacement issues.  There are a number of books that can help put together a list of everything that
needs to be addressed, but to give you an idea would be replacing batteries in the smoke detectors and
changing the filters in the heating and cooling system.  When you own a home, the presentation or appearance
of the house is under your control, however, everything involved in the presentation needs to be maintained.  

When researching maintenance issues, spend some time understanding what the consequences are of failing
to perform the required maintenance.    Some Home Owners Associations require the landscape be maintained
and the exterior of the house maintained for proper appearance to insure that the neighborhood looks as
attractive as possible.

Starting with the house exterior, does the house have landscaping?  Landscaping can have all kinds of issues
that need to be managed.  Grass needs to be cut, plants need to be trimmed, debris and leaves need to be
raked.  Each of these items can either enhance the house appearance or, by being over grown or messy
looking, can detract from the house appearance.  The consequence of a messy yard can be a notice from the
Home Owner Association demanding resolution.

Then there is the wood trim on the house which is normally found around the roof and the doors or windows.  
The trim paint application can often provide character to the house appearance and, while it lasts for years, it
often can become faded and peel almost overnight if it is not inspected and updated as needed.  If the house
exterior is painted, then that is another maintenance issue and needs to be added into the mix.  Repainting the
exterior is not a simple task and can be expensive if you contract the work out to a painter.  The consequence
of failing to maintain the paint can be two fold: first, the Home Owner Association and the dreaded notice, and
second, the wood under the surface can rot, requiring more costly repairs.

The exterior of the house is also where the first level of 'pests' live.  Pest control can be everything from ants
and termites to roaches and rats.  Maintaining the house exterior can help control these pests while the flip side
is that maintaining the pest control will help insure that the house is not damaged by the pests, with the worst
being termites.  The consequence of failing to manage pests can be extensive, with almost everything requiring
significant repairs.  Not only do termites destroy the wood in the house, it is not abnormal for bees and wasps to
build nests in the walls when openings are left uncovered.  

Above everything is the roof.  Depending on how the roof is made and what it is made of will determine how
often it needs to be inspected and maintained.  An annual inspection should be performed to find problems
before any damage to the interior can occur.  Also, the roof should be cleaned of debris and dirt accumulations
as needed.  Roof repairs can be either expensive or cheap depending on when the problem is caught.  Most of
the time, the biggest cost is not the roof repairs, but instead the cost of repairing the damage to the interior
when water leaks into the house.  

This is a simple inspection of the exterior of the house.  Other items to consider are any mechanical devices on
the outside of the house, like a compressor for the A/C system.  Also, a number of landscape packages have
an irrigation system.  Everything needs to be maintained in some way and knowing the required maintenance
schedules is a good plan.

Let's move to the inside of the house and look around.  

Here is one of the cardinal rules about the interior of the house: uncontrolled water is a very bad thing.  While
the use of water in the house makes life comfortable, uncontrolled water can cause thousands of dollars in
damage through material breakdown, rot and mold.  There are a number of water sources and each one can
be a problem.  Let's start with plumbing.  The problems can start with a burst water pipe in the wall, which can
be quickly identified if everyone in the house knows that they should say something.  Secondly, after water is
used and runs down a drain, it can become the next possible problem.  All drains should be visually checked
once a month and this does not need to be complicated.  Just look for any signs of wetness or wood warping
under sinks or drain lines (note: there are alarms that can be placed under sinks reacting to wetness).  Water
leaking into the walls can cause rot or lead to mold and mildew.  Water leaking through the roof falls into the
same problem category.  Don't forget the water heater (is it gas or electric) and check the manufacturer's
recommendation for specific maintenance issues.  From the beginning, learn where the water shut off valves
are for each fixture and the main water line and make sure that you can turn off the water by yourself, if needed.

HVAC stands for heating, venting and air conditioning.  The item that requires constant attention is the
replacement of the air filters at the air handler / furnace and this should be done monthly.  On an annual basis,
you should have a professional come in and check the system.  Also, if you have both heating and air
conditioning, have a professional come in each time you prepare to switch systems.  The heating system can
be electric (most costly), natural gas or propane, heating fuel or coal.  Each type of system has it own special
set of needs and maintenance issues.  Work with the professional and learn what needs to be done for your
system; they are more than happy to help.  

This system can often be the least trouble, but when problems occur, watch out.  The main issue with electricity
is making sure that you do not try and pull more power out of a socket than the circuit was intended to support.  
Second big issue is electrical shorts but as long as you are not damaging the wiring, you should be okay, but if
you decide to change the wiring, either bring in a professional or learn electrical basics.

These are the things that are intended to make your life easier.  Washing machine and dryer, dishwasher,
stove, refrigerator, microwave or vacuum are all appliances that are nice to have around and, at the same time,
need to be checked on occasion to keep them in proper working order.  For each appliance, there are
manufacturer maintenance schedules.  Go around the house and make a list of all the major appliances, then
go through each user manual and make a note of the suggested maintenance items and the suggested

Just like the exterior, the paint on the interior needs to be maintained.  The nice thing is that the interior paint
normally does not require the same upkeep as the exterior and may last a lot longer, but the interior paint also
provides the greatest flexibility to make design changes.  The biggest concern about the interior paint is when a
small hole is left and repaired.  Getting a perfect color match is almost impossible and a mismatch is a lot easier
to see on the interior.

This is one of the curses of owning a house.  You always want to make it a little better.  Remodeling can mean
changing the flooring, the paint, the lighting fixtures, the bathroom or the kitchen.  If you want to do some
remodeling, start with smaller projects, give yourself enough time (twice or three times more than expected) and
then estimate and plan for the cost.  While bringing in a professional is always an option, the cost of a
professional can drive up the cost considerably.

This schedule should be developed and each item checked off as completed.  The easiest thing to do is to set
up a schedule on a spreadsheet program.  Remember, some items need to be checked monthly, quarterly,
twice a year or yearly.  Take each item and establish the frequency, then set up the calendar based on the
need.  Surprisingly, this function does not take a lot of time but making sure it is completed on schedule allows
you to catch a problem before anything serious happens.            

Equity is the difference between the current value of the house and the outstanding loans on the house.  
Here's where the previous concept of remodeling comes into play.  The equity can only go up by increasing the
value of the house or reducing the outstanding loan balance.  In most cases, remodeling a house will increase
the value; however, the cost of the remodel may exceed the increase in the value and this ratio needs to be
considered before starting any remodels.  Most houses increase in value over time, but this process can take
years and during these years, the property needs to be maintained to insure that the house stays in good

Of course, the first question is whether or not all this effort pays dividends.  The answer for most people is 'Yes'
and the benefits come in many forms.  Renting an apartment provides flexibility, but lacks permanence and rent
payments have no return in value.  Owning a home gives a feeling of stability and each mortgage payment is
an increase in equity as the loan balance drops.  Also, there is not an income tax deduction for rent payments
but there is a deduction for interest paid on your home.  Lastly, there are very few circumstances where a
house, properly maintained, did not go up in value over time.  As with everything else, this may not be right for
you, but deserves consideration.

If the discussion of the above items hasn’t completely discouraged you from buying a house, then let’s work
through the purchase process.  In truth, for the buyer, the process is very simple, but there is a lot of
paperwork.  Due to the differences, let’s look at the three primary options: building a house, buying an existing
house, and buying a new house.  Luckily, some of the later steps are relatively the same so those steps will be
covered later.

Since all three options will end in a mortgage for most people (unless you are paying cash), let’s discuss a
mortgage.  A mortgage is a rather common loan type.  Mortgages are normally set for 30 years, but it is
possible to get a 15 year loan (payments are higher but it is paid off faster).  Mortgages normally come in two
types: fixed or ARM (Adjustable Rate Mortgage).

      -        Fixed Loan: With a fixed loan, the interest rate is fixed for the entire length of the loan.  The
payments under a fixed loan are easy to budget and don’t shift over the life of the loan (changes in the escrow
amount can cause the total payment to change).  Because these interest rates are fixed, the starting interest
rate may be higher than the interest rate of an ARM.

      -        ARM: An Adjustable Rate Mortgage means that the interest rate can and probably will be adjusted
during the life of the loan.  Depending on the terms of the loan, the rate can be adjusted as often as once a
year.  Most of these loans have annual rate increase limits and overall loan rate increase limits, so the borrower
is somewhat protected.  However, be aware that in times of rate increases, the payments can jump significantly
if the rates shift upward.  ARMs may be offered with a low teaser rate for the first year, as an incentive.  
Lenders like to have loans with adjustable rates so they can keep the interest rate in line with the economy.
Since the lender wants to make sure the insurance and property taxes are paid, they establish the escrow
account described earlier.  Each payment includes a portion for the escrow and this portion is accumulated for
the required payments.  The lender should provide an annual escrow review and indicate whether the portion
for the escrow will go up, down or stay the same.

The mortgage is ‘originated’, meaning that the mortgage company performs all of the reviews needed to qualify
the borrower.  This means that the mortgage company collects a lot of information from you about your job,
checking account, other assets, and other debts with debt payments.  This process allows the lender to make
sure that the borrower will have the ability to make the payments based on the information presented.  At the
end of the process, the lender will run a credit report on the borrower and the available interest rates will
depend on the credit score (lower credit score equals higher interest rates).  Once the lender has agreed to
the loan amount and everyone has agreed to the interest rate, the loan is originated, meaning all of the
paperwork is prepared and the lender makes a commitment to provide the loan amount if the borrower signs all
of the agreements.  

From the earlier discussion, a mortgage loan is comprised of a time period, the loan principal balance and the
interest rate.  In the case of a mortgage, the loan principal balance seldom turns out exactly as expected.  
Assume that you purchase a house for $140,000 and you put $20,000 down, you assume that the loan
principal balance would start at $120,000.  In most cases, there are ‘points’, fees and charges (discussed
below) that are added into the closing numbers.  Unless you can pay for the extra charges with more cash, then
the mortgage loan balance is increased to cover the additional items.  You may end up with a loan balance of
$122,750 instead of $120,000.  Since you will be paying off the loan over 30 years, the additional amounts
become barely noticeable.  It is important to understand the points, fees, and charges.

There are number of minor fees and charges in the process, however, the biggest is referred to as the ‘points’.  
Points or Loan Discount: This is a percentage of the loan amount.  A point is one percent of the loan balance,
so 2 points would be 2% or one and a half points would be 1.5%.  Let’s assume that you are getting a fixed rate
loan, for 30 years.  Normally, there are options available where the rate goes down as the points goes up.  You
may see something like:
      1)        6.410%        with 0.000 points        and Fees $1,175
      2)        6.125%        with 1.000 points        and Fees $1,175
      3)        5.875%        with 2.000 points        and Fees $1,175
      4)        5.750%        with 2.125 points        and Fees $1,175

These are the choices available to you for interest rates.  Notice that as the interest rate goes down, the points
go up.  This is normal.  Consider the impact of each of the choices.  Assume that the loan amount starts at

      -        Under Option 1, the loan balance: $120,000 with monthly payment of $751.39
      -        Under Option 2, the loan balance: $121,200 with monthly payment of $736.42
      -        Under Option 3, the loan balance: $122,400 with monthly payment of $724.04
      -        Under Option 4, the loan balance: $122,550 with monthly payment of $715.17

So, which option should you choose?  The options are offered because each option offers a different return
based on the circumstances.   One way to review the options is to compare the money spent on the points with
the savings in the payment amounts over the time frame that you intend to have the loan.  Some people will buy
a house and live in it for 30 years and other people will live in a house for 2-3 years, planning on moving up
when the time is right.  If you live in the house for 30 years and save $36.22 (Option 1 payment less Option 4
payment) per month on the loan payment, then the total savings would be over $13,000 and the points paid up
front only increased the loan by $2,550.  However, if you live in the house for 2 years then the total savings
would only be $869, so spending the money on the points actually cost more even though you got a lower
interest rate.  Each option has a different payback period so that the points and savings can break even and
your situation can be  fitted into one of the options.

Appraisal: This is the charge that pays for an outside party to appraise the property (estimate the house’s
current market value) based on recent activity in the area.  The lender wants to make sure that the loan is
properly valued so he compares the price you are paying less the down payment to the loan balance.  The
better that you negotiated the purchase price, the better the appraisal will compare.

Documentation Fees or Processing Fees: There are various costs from multiple agencies associated with
preparing the paperwork, organizing the signing by all the parties, and the handling of the money.  Someone
has to pay this charge and the buyer is normally charged.

Recording Fees: Once the paperwork has been completed, the deeds and liens must be recorded with the
county recorder.  These are fees charged for processing the paperwork.

Property Title Insurance: This charge is for the insurance on the property title to protect you in case there is a
claim from someone else.  While this is very rare, if the claim is upheld, you would lose the property, so the
insurance protects you and the lender.

Escrow Funding: This is the initial amount needed to fund the escrow account.  The escrow account is used to
pay for the insurance and property taxes.  The escrow account is funded with monthly contributions included
with each mortgage payment.  The initial funding is intended to bring the balance to where it should be if you
had been making the escrow payments all year.

Pre-Payment Interest: This payment covers the mortgage loan interest that will accrue before the first mortgage
payment is made.  Often the first payment on a new mortgage is more than 30 days away so the interest from
the date of funding to the date of the first payment is collected in advance.

Needless to say, there are a number of other charges or fees that can be charged, however, this is a list of the
main items to review.  Part of the negotiation process when purchasing a house is who will pay for which fees
and charges, although there are some standard allocations.

The mortgage should be discussed with a potential lender before the selection process begins so that you can
be pre-approved for a specific loan amount.  This will give you an idea of the potential price that you can
afford.  Also, being pre-approved can provide some leverage when negotiating with the seller.

At the time of the closing, you will meet with the closing or escrow agent to complete the process.  If you are
paying cash, then there is almost nothing to sign, however, most people don’t pay cash.  While there will be
many documents to sign during the closing and mortgage process, most of them relate to the mortgage.  One
of the main documents is the Deed of Trust and this is the actual transfer of the property from the seller to the
buyer, making you legally responsible for the property.  The next important document is Loan Agreement, which
actually spells out the agreement terms and conditions. There are a number of other approvals, confirmations
and applications that go along with the loan agreement, however, the entire process can take less than 30
minutes.  Sometime during the closing process, you will be presenting the closing agent with cleared funds
(cashier’s check) for the amount needed to complete the closing.  

One of the documents that you will want to review in detail is the HUD Settlement Statement.  This is a
standardized form developed by the federal department of Housing and Urban Development.  This document
lists all of the prices, fees and charges that need to be identified.  This document shows the dollar amounts for
both parties including loan payoffs and final cash received and disbursed.  Read through this carefully and
make sure that it is what was agreed between the seller and the buyer.  It is acceptable to question each line
item that falls under the buyer side of the agreement if the dollar amount is out of line.  If you used a real estate
agent, they will also review the document in advance to identify potential concerns.

Once you have signed all the papers and provided the required cleared funds, then you are done.  You should
be told when and how the keys will be provided at this time.  While all of the paperwork has been completed,
technically, the transaction is not complete until the loan is funded, the seller is paid and the documents have
been recorded.

This is a scary prospect for most people.  To start at the beginning, you must locate a piece of property that will
suit your needs.  Normally, you will purchase the property and place a mortgage on the property.  There are a
number of options on the loan type but if you plan on building within 24 – 36 months, you can probably get a
loan package with interest only payments and a balloon payment at the end of the loan.  The balloon will be
paid off when you convert the finished house into a home mortgage.  If desired, you could pay off the land first,
eliminating one potential cash flow issue during construction.

The construction process can be time consuming and it never hurts to bring in a project superintendent to help
manage the construction process.  If you are a do-it-yourselfer, there are a number of jobs that you can
perform by yourself, reducing the overall labor costs.  This type of a construction process will require a
construction loan, with loan outlays occurring when certain portions of the work have been completed and
inspected.  Once the construction is complete and the house has been occupied, you would then convert the
construction loan into a standard mortgage.

This is the normal process for most people because the number of resold homes always exceeds the number of
new homes that are purchased each year.  This process can be exciting and stressful because you are looking
for a home to meet your desires and expectations, while trying to purchase the home for the best possible
price.  Bear in mind that the purchase of a home is normally an investment and you do not want to over spend
while getting the best value for the money.

There are several recommendations to remember when looking for a home but the most important is very
simple – never become emotionally attached to any house until you have a signed contract.  At any time, be
prepared and ready to walk away if the deal or the price does not meet your needs.  It is important to look at
each house and find the positives and negatives.  

Before starting the search, make a list of all the desired items.  How many bedrooms are needed?  Home many
bathrooms must be in the house?  Is the size and design of the kitchen a deal breaker?  How much yard do you
require?  Should the yard be fenced?  This is only a partial list and only you would know all the items that need
to be on your list.  This process can take hours, days or weeks.  Once the list is complete, rank the items.  
Which ones are deal breakers?  Which ones are negotiable? And which ones would be nice to have?  Every
house that you look at should be compared to the list.  You may not be able to find a house with 100%.  
For those people that are do-it–yourselfers, there is the option of buying a house at a lower price and
remodeling to bring it into line with your desires.  Remodeling can be expensive and time consuming but can
substantially increase the value of the home over the purchase price.

Once you have found a house, the negotiation begins.  Work with your Realtor to establish the price that you
want to offer.  Buying a house is a negotiation process between the price the seller wants and the price you are
willing to pay.  The seller wants the price as high as possible and you want the best deal possible.  Think
through the negatives and the items that need to be fixed and estimate the cost.  Adjust the seller’s price by
this amount and give yourself some leeway and make an offer.  

The process goes back and forth with offers and counter offers until either of the parties gives up or both
parties agree on a price and a set of conditions.  At this time, everyone agrees on a closing date and you have
a limited number of days to complete any conditions that are outstanding.  These conditions are critical and
provide you a means to resolve any problems discovered which were not evident during the initial house walk-
thru.  The conditions include a termite report and a house inspection.  The termite report is a formal inspection
by a pest professional that insures there is not unknown termite damage.  The house inspection is a complete
house inspection, testing all systems for identifiable problems, providing a report of the inspection and
concerns.  If something shows up as a concern on either report, you have the option of requesting the seller fix
all, some, or none of the problems prior to close.  The nice thing about an inspection report is the ability to
cancel the deal if the owner is unwilling to make the desired changes.

After all is said and done, you are now ready to start the final mortgage and closing process described above.

This process is different from buying an existing house from the perspective that you may have the option to
make changes to items in the house during the construction process.  You will start by agreeing to a price and
house style along with a projected closing date.  The contract locks you into the purchase because you must
provide a down payment; however, the price is also locked in protecting you.

Sometimes, you may be interested in buying a new house that has already been built but has never been sold.  
Builders often refer to these houses (built without an existing buyer) as speculative houses, in other words they
are speculating that someone will buy the house once it is complete.

Often the house has not been started when the contract is signed, and you have the chance to make changes
to the house.  Often the changes are minor because you have already selected a house model which has a
general layout that you like.  These changes are referred to as options and upgrades.  These can include
minor structural changes through the appearance of the kitchen to the color of the paint and flooring.  

The house will be built according to the choices you have made; however, it is not abnormal for the builder to
require some additional payments during the construction process.  Before the house is completed, you will
start the final mortgage and closing process described previously.

There is no way to provide a complete review of everything you need to know about selling a house.  The
process for selling a house is simple, but, as with most things, the simple things can be very complicated so
let's start with a quick overview.

First, you must have a house to sell.  

Second, you must prepare the house for presentation.  This step, while time consuming, can increase the final
selling price.  While the preparations could range from picking up the yard and putting everything away, to a
complete clean up and paint of the entire house.  Whatever effort you are willing to put in will normally reward

Third, establish the asking price.  This price is normally made up of two numbers, the amount you want and the
amount that you will ask.  Most buy and sell processes include a level of negotiation and your asking price
needs to be ready for a little negotiation.  Also bear in mind the price you paid.  If you get less than that price
plus any commissions, then you may lose money.  The price can be established by seeing what else has sold in
the area and for what price, then estimate your property value.  Often, what people think a property is worth
and what the market will pay are two entirely different amounts.  Another option (for around $250 - $500) is that
you can have an appraisal performed to give you a much better, objective opinion.

Fourth, establish how to sell the house.  Your choices are to sell it yourself or to engage a Realtor.  A Realtor
can provide value because the house can be listed in the local listing service that all Realtors work from.  This
service, provided by the realtor for the buyer and seller, is paid by the seller which is normally a 6%-7%
commission of the sales price.  Bear in mind that the Realtor works for you but is most interested in selling the
property as quickly as possible, hence, a lower price will sell faster, but this is your decision.

Fifth, discuss with the Realtor the entire process and be willing to accept advice from the Realtor on changing /
updating the presentation of your home.  

Sixth, be patient with the entire selling process: it normally doesn't happen overnight.  It is possible to wrap up
the entire process in two months or you could have the house listed for months.  Understand your motivation to
sell the house and take this motivation into consideration when pricing and negotiating the sale.

      -         Once the house is put on the market, there will be a need to 'show' the house to prospective buyers.
It is highly recommended that you not be in the house during these showings (also, be sure to remove any

      -         This is also the time to develop your alternate living arrangements.  If you are buying another house,
make sure you have something picked out and have gone through the financing pre-approval.

      -         When someone wants to make an offer, they will discuss the proposal with their Realtor and an
'Offer' is prepared.

      -         The offer is presented to your Realtor and you can either accept, reject or counter the offer.

      -         Accept means that you have both agreed on the price and the conditions.

      -         Reject means that you will not even entertain further discussion.

      -         Counter means that you have started the negotiation stage.  You will present an offer to sell at a
different price / conditions.  This process of back and forth countering can go on until either party accepts or
rejects a counter.  

      -         Once a price is established, the closing date is set (when the actual transfer of property will take
place).  Bear in mind that this process can happen quickly (30 – 45 days) or up to six months.  If the buyer
wants to wait six months, you may want to consider looking for another offer, especially if you made any price

Closing occurs at a mutually agreed place and both parties will come in at different times to sign the
paperwork.  Be out of the house and everything moved before you sign the closing documents because at this
point in time, you can't re-enter the property.
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