The rest of the
Step 6 -- Look for Termites
also require a certificate showing the home is free of termite infestation or
damage. The seller usually pays for the termite inspection.
7 -- Inspect Before You Buy
Before you go to closing,
are you sure you're not buying a lemon? Although buying an existing or "used"
home isn't quite on the level of buying a used car; it does require a thorough
inspection, more than simply kicking the tires. You simply can't afford NOT to
get a professional home inspection. Without one, nothing stands between you and
possible problems that could cost you thousands of dollars to repair.
very easy to overlook unseen conditions in all the excitement of finding your
dream home. But what you see is not always what you get-it's only the skin of
the home, the vital systems such as plumbing, heating, structural, and electrical
are not as obvious but just as important, perhaps more so. Ignore these systems
and you run the risk of a cracked foundation, leaky basement, deteriorating plumbing,
inefficient and malfunctioning cooling system or other defects that could come
back to haunt you.
far better to pay about $250 to $300 on a professional
home inspection than to gamble. Make sure that the sales contract includes
a protective clause that makes the final sale contingent on a home inspection.
A qualified inspector
will uncover any conditions that might cause you to reconsider the purchase.
8 -- Obtain Private Mortgage Insurance (PMI)
like everything has to be insured, whether you need it or not, but private
mortgage insurance is one of those costs that homebuyers just hate to pay.
PMI applies to you if you're buying a home with less than 20 percent down. Ironically,
it doesn't insure you the homebuyer for anything-it simply protects the lender
in case you default. PMI is one of your largest closing costs so be sure to keep
the costs down. There are two ways to pay for PMI, either monthly as part of your
mortgage payment, or by making a larger one-time premium payment. If you are only
planning to keep your home for a few years, or plan to refinance in that time,
the monthly plan is probably your best deal. If paying a lump-sum premium, consider
asking your lender to add the cost of PMI to your loan amount. Although your monthly
payment will go up to reflect the larger loan amount, you won't owe anything at
closing. "Financing" your PMI as part of your loan has the added advantage of
turning PMI into a tax-deductible expense. The premium itself isn't tax deductible,
but the interest you pay on the larger loan amount is.
9 -- Order an Appraisal
Why Is It Necessary?
to finalizing your loan, your lender will order an independent appraisal on the
home. The appraiser will inspect the property, compare it to comparable properties
in the neighborhood and determine its market value. An appraisal seems superfluous
to most homebuyers. After all that negotiating on the sales price and research,
why should there be any doubt about what the home is worth? In fact, it's not
unusual for the appraised value to exactly match the amount on your sales contract.
Appraisals are nonetheless critical to the lender's final decision because the
appraisal report is an independent estimate of the home's value, or collateral,
on which the entire loan is based. An appraisal ensures that the lender doesn't
loan more than the home is worth.
This is an important step because appraisals sometimes aren't ordered until a
week or so before closing. It can be disastrous if the appraised value fails to
match the contract price. It can put your loan in jeopardy and with so little
time left to renegotiate the price, threaten your sales contract. You'll need
to move quickly to overcome problems with the appraisal.
With a Low Appraisal
You may want to appeal for a re-appraisal
of the property. Your Realtor can assist you with providing comparable sales data
to counter the appraiser's data. If you make a good argument, the appraiser might
be willing to adjust his estimate. Just make sure you have a convincing case.
Or your lender might allow you to obtain a second appraisal. Of course, the risk
in or ordering a new appraisal is that it might come in too low. The other alternative,
if you think the appraiser was right the first time, is to renegotiate with the
seller to lower the price.
Step 10 -- Walk Through and
Your sales contract should have a contingency
allowing a final "Walk-Through" for you to examine your home the day before closing.
You need to inspect the house to make sure the owner finished moving out, and
left behind everything you agreed conveys as part of the sale. Check anything
covered in the contract such as light fixtures, appliances, built-in bookshelves,
drapes, or blinds to be sure they haven't been removed. Generally speaking, anything
that cannot be removed without damaging the home automatically conveys. Check
all lights, plumbing, and appliances to make sure they work properly. If anything
is damaged or missing, you have the right to delay the closing until the problems
Now You're Ready to Look at Costs
Costs, that is.
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