Perhaps you’ve been renting or have had experience with a condo (which is quite different), and despite the market's highs and lows have finally determined that no matter how flat the market is, owning a single family home is still way cheaper than renting in the long run.
How does the process of buying a house work? How is it different for first time buyers, and how are they protected?

Use your spacebar or your left and right arrow keys to navigate through the various steps.

  • Location, Location, Location
    Location, Location, Location
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    Many buyers coming from the city or relocation are unfamiliar with the various towns, what they each have to offer, and how each town's strengths and drawbacks can affect the price they pay as well as when they eventually sell.

    Since most buyers troll the web incessantly looking for homes, it's very easy for an inexperienced buyer to lose sight of where a house is as they're becoming infatuated with the house itself. This is a difficult habit to break because searching for a fabulous house is a lot easier than placing it in the context of where it is. a house that requires a two hour commute will have severe quality of life (and resale) challenges.

    Savvy buyers select the towns they want to live in first, then are disciplined enough to only look for house that
    best fits their needs and wants in those towns. This sounds like a compromise because it is. The reality is that unless a buyer has unlimited funds, compromises will be made and it's best to manage those as opposed to being blindsided by them further along the process.

    This simple first step will go a very long way toward avoiding surprises in the future.

    In many of our areas, the local market does not behave as the larger markets do. While there may be general downturns at times, desirable towns don't follow the general news reports.

    inventory of homes in a given town can vary from a big amount (a buyer’s market) to a very small amount (a seller’s market). Even in the same community there may be a glut of five bedroom houses (a buyer’s market) and very few three bedroom houses (a seller’s market).

    Regardless of what’s going on in the news, if a well priced, well appointed home in a good neighborhood comes on the market and there isn’t much inventory, people will clamor to it and it will behave as a seller’s market. Forget the Case-Schiller index, forget CNN; that house will get multiple offers.

    What makes a 'good neighborhood'?
  • What makes a good neighborhood?
    What makes a good neighborhood?
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    Although the concept of good neighborhood is often subjective, there are are four major criteria that most people use when determining what constitutes a good neighborhood:

    • Commute to Manhattan
    • Schools
    • Property Taxes
    • Average household income

    Having a direct train line to the city is very important to most buyers because not only is the commute shorter, it also means they don't need to transfer. Sorry, bus service is not regarded the same way. This can't be stressed enough even for buyers who don't need the city commute, as whoever they sell to likely will.

    Our communities are a favorite destination to raise families, so the quality of a school system can be a very important deciding factor for many buyers. Most of us are transplants from somewhere, then the city, and the concept of paying $25K a year for private school in the city (per child) is often a stiff motivator for a great public school.

    No one likes property taxes, and communities with lower taxes will be more desirable than properties where taxes are higher. Property taxes are often affected by what other revenue a community can get. They key is to find a great town with low taxes that doesn’t have a huge factory next door (yes, we have them).

    Lastly, neighborhoods that have a higher average income tend to update their homes more frequently, which raises everyone's property values.

    From a financial standpoint, the more check marks a given community gets has a huge impact on property values. If a community has only one of the four criteria, then you'll get a lot of house for less money. If a community has all four, you'll get less house for more money.

    That all said, it's way better to get all four checks and wind up with a smaller / older house than two or three out of four for the sake of more house.
  • Financing
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    At it most fundamental, buying a house is a financial transaction and part of making an offer is demonstrating to a seller that you are capable of following through with the purchase.

    It’s not realistic to expect a seller to take his or her house off the market on a stranger’s word, therefore all offers have to provide some measure of confidence. Houses are financed in two possible ways:

    • Your money
    • Your promise to pay back someone else’s money (a mortgage).
    Typically it’s a combination of both in that you provide a down payment (your money) and apply for a mortgage (use a lender’s money).

    All offers must include either a pre-approval letter or proof of funds.

    A pre approval letter is today a more formalized letter from your lender stating that they have gone over your finances and feel that you will be granted a mortgage. This used to be a perfunctory step that had no meaning, however lenders today are reluctant to rubber stamp a pre-approval out without doing their due diligence. This means that if you want to make an offer today, you may need to wait a few days before you can get a pre-approval, which can make the difference between your being able to make the offer or not. This can come as a disappointing surprise to buyers that have either no experience or who’s frame of reference were the halcyon days when things were done fast and loose.

    If you are fortunate enough to be able to pay for a house with your own cash, you will have to provide proof of funds. In some ways the bar is even higher in this case. If you have stocks worth a million dollars you don’t have the cash. If you have money in a foreign account, you don’t have the cash. Cash means you have the fluid funds available today.

    There is the utmost respect to anyone that has millions of dollars in the stock market or a foreign account, however it’s critical to understand how those assets are considered when making an offer.

    Wise buyers aren’t surprised by having their offers dismissed as not credible.
  • Be ready to act
    Be ready to act
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    When you are ready to begin your search, you won’t know whether it will take a while to find the right house, or if it will happen the very first day! Yes, it happens all the time.

    Many home buyers are caught by surprise because they fall into a sense of complacency that they’ll connect with their lender when they find the right home. The odds (and our experience) is that a good home is appreciated by more than one buyer.

    Scrambling to get finances in order while trying to write up an offer is an exercise in disappointment. The time to determine one’s financial comfort level / ability is not in the middle of a bidding process, where things can happen very quickly.

    In addition, knowing how much to offer requires in depth understanding of hyperlocal value. This is not something that can be comfortably assessed while scrambling to get an offer together.

    Most sellers will not treat an offer as legitimate unless all the proper paperwork is in place and completed correctly when the offer is due. In desirable areas, this can be
    hours, not days, or weeks.
  • Making The Offer
    Making The Offer
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    When a buyer has found the one, things will happen very quickly and the fully completed and signed contract with all the terms of the purchase, Signed Seller’s Disclosure (which means the buyer has reviewed it), Signed Lead Paint Disclosure, Earnest Deposit check and Pre-approval letter or proof of funds are completed generally within hours!

    The contract is written by your Realtor with the price and terms the buyer is offering. In New Jersey, an offer is a contract signed by the buyer. If the seller countersigns the contract, then it’s an accepted offer (more of that in the attorney review section). In New York, for example, offers are presented via letters of intent, which is completely different.

    The contract must not only include
    all the terms of the purchase, it must also include the financing, inspections, and closing schedule. Traditionally, offers include an earnest deposit. This is usually a check for a nominal amount (it can be as little as $50), however all these choices will telegraph to the seller how seriously to consider an offer.

    As an example, two different buyers want to make a $500,000 offer for a house from a seller that wishes to move quickly.

    Buyer 1:
    • Will be financing 80% (20% down payment).
    • Provides an earnest deposit check of $3,000.
    • Will provide $47,000 within ten days after attorney review ends (so far 10% of the purchase price).
    • Will provide $50,000 at closing (to come up with the 20% downpayment in total).
    • Will get a mortgage commitment within 30 days and close within 40 days.

    Buyer 2:
    • Will be financing 90% (10% down payment).
    • Provides an earnest deposit check for $100.
    • Will provide $22,000 within ten days after attorney review (so far 5% of the purchase price).
    • Will provide $25,000 at closing (to come up with the 10% down payment in total).
    • Will get a mortgage commitment within 45 days and close within 60 days.

    Both offers are legitimate, and both will yield the seller the same amount however most sellers will consider the first offer much more attractive. Terms matter!
  • Attorney Review?
    Attorney Review?
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    In New Jersey, all real estate contracts must be in writing, and allow for an attorney review period. This period is also called the ‘cooling off’ period or the right of rescission. This is a three day period where a party can change his or her mind.

    While it is not required to have an attorney, we strongly urge one be used! If a contract is signed by all parties, and three days go by, then the contract is considered legally binding (whether there was an attorney or not).

    Unless a buyer is specifically a real estate attorney in this area, an attorney should be used.

    In New Jersey, the attorney review period is three days, however the first thing an attorney will do is to stop the clock from ticking so the three day period is no longer in effect.

    During the review process an attorney can amend, cancel, or with his or her client’s permission, approve the contract.

    Only once the contract is approved by both parties, is attorney review concluded and the offer considered a contract. In fact, the properly is only marked as Under Contract in the MLS once it passes attorney review.

    Note that sellers can continue to receive offers from other buyers while you are in attorney review and neither the seller nor the buyer are committed to each other until the
    buyer and seller attorney agree. This is a very important safeguard for any buyer. If agreement cannot be reached, then any deposit monies are returned to the buyer.

    This is also a liability in that a buyer does not have a solid deal until attorney review is over!
  • The Loan Proper
    The Loan Proper
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    If the purchase is being financed, this is when the lender is notified that a property is under contract, which sets in motion the final loan approval process.

    This can take as little as a few days if all the preparatory steps have been taken properly or as much as 30-45 days if not. Typically this involves providing all manner of documentation to the lender in the form of pay stubs, tax records, etc.

    The contract will also contain a mortgage contingency so that if the lender denies the loan or cannot grant the loan within a specific period, the sale is nullified.

    The loan will go through various levels of approval and buyers may find themselves providing the same information in different forms at different times as the lender passes the application through it's internal processes.

    Only when the loan is approved by final underwriting, does the lender ‘commit’ to fund the purchase. This commitment date is the holy grail of the loan process and can be a stressful time for buyers if contractual or situational deadlines are looming (such as a lease ending, needing to move, etc).
  • Inspections
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    A critical aspect of purchasing a home is understanding it’s true condition. While no home is perfect (including new construction) and all homes require routine maintenance.

    This routine maintenance is the difference between low predictable costs over time as opposed to surprise big ticket items.

    The home inspection process provides a picture of the condition of the home, how it’s been maintained, and how to maintain it. There are many different types of heating and cooling systems, as an example. How does one prepare the system for the winter, the summer? The home inspection process provides much of this information.

    The home inspection process also helps identify the difference between cosmetic and material concerns.

    Home inspections generally include:

    Systems (heating, cooling, electrical, etc.)
    Structural (foundation, roof, exterior, etc)
    Environmental (Radon, Asbestos, underground oil tanks, etc).

    A home inspector is a licensed professional that typically adheres to ASHI (American Society of Home Inspectors).

    If the inspections reveal major issues with the house (all houses have minor issues) that the seller does not wish to address, the buyer can walk away from the purchase (and get all deposits back). In most cases, the buyer’s attorney will negotiate the needed repairs with the sellers attorney.
  • Getting Ready to Close
    Getting Ready to Close
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    Once inspections and any subsequent negotiations as a result of them are completed and all the paperwork required by the lender has been submitted, there is a period where the process proceeds on automatic until the commitment is received.

    The buyer’s real estate attorney will then order a title search. This is a search through all the required public records to make sure no one else has any claim on the property and that the seller can convey a clean title free of blemishes.

    This is to insure that when the sale is completed, no one can claim they own the house.

    Blemishes on a property’s title are sometimes not known by the seller. For example, whenever a contractor does work on a house, they will frequently make a ‘mechanic’s lien’. This means that if they don’t get paid for their work, they have a claim against the property. In this example, the seller pays the contractor in full and the contractor forgets to release the lien. This happens occasionally and the seller may have no knowledge there’s a lien against the property.

    The title search will reveal any such issues and the buyer’s attorney will then work to clear up these problems so that the buyer can be given a clear title. If a clear title cannot be conveyed, the buyer’s attorney will not permit the property to close.

    The buyer’s attorney will then receive a closing packet from the lender and prepare all the documents required to ‘complete’ the loan.

    Only once these steps can be taken can the closing be scheduled.
  • Getting Ready To Move
    Getting Ready To Move
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    There is a small corner of hell reserved for moving. We can paint a rosier picture of it if we need to. In reality moving is disruptive, all encompassing, and stressful.

    Preparing to move is the time when most buyers face the enormity of all the flotsam they’ve collected over the years. Should it all get packed or should some of it get thrown out? The worse case scenario is taking the time to pack something, paying to move it, unpacking it, then throwing it out.

    Moving costs are directly related to quantity moved. The less that can be moved, the better. Clutter is best dealt with before it’s packed. This can send many people into a tizzy.

    Movers are also generally busy (the good ones, anyway) so they need to be scheduled well in advance. Closing dates often change and many buyers won’t move the day they close, so this means the last few days, people will live out of a few boxes with everything else packed away.

    Another consideration in preparing to move involves canceling utilities and re-establishing them in the new home. Electricity, gas, and water can generally be scheduled a few days in advance however cable services (Internet) can take a week or two to schedule. For many people the concept of not having the web or TV for two weeks after they move can be a problem.
  • The Walk Through
    The Walk Through
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    When a seller moves out of a house, they must completely empty it of any personal belongings and leave it in broom swept condition. They must also deliver the house in the same condition as the house was during inspections (less any normal wear and tear).

    The walk through is an inspection that takes place generally the morning of the close. It’s best to have the walk through just before the closing as that’s the buyer’s last opportunity to inspect the home.

    The walk through is a mini inspection. All appliances and systems are cycled, the house is checked for any work that needed to be completed by the seller, and it’s the last opportunity to make sure the seller didn’t leave debris on the property.

    If there are any issues that come up during the walk through, the buyer’s attorney will negotiate a credit or withhold some money from the seller and hold it in escrow to effect repairs.
  • The Close
    The Close
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    The close is the actual transfer of title and generally takes place at the office of the buyer’s attorney. The close has two parts:

    • Completing the loan documents
    • Transferring the title

    If the purchase is being financed, the lender will have wired the funds to the buyer’s attorney’s trust account and sent the attorney their loan documents. These documents have to be signed by the buyers and the attorney is trusted by the lender to not release the funds to the seller until all the paperwork is properly signed. This usually takes anywhere between 45 minutes and two hours depending on how many questions the buyers might have.

    If the house is being paid cash, then this step is omitted as the funds have already been wired to the buyer’s attorney by the buyer.

    Once the funds have been wired into the attorney’s trust account and all paperwork completed (if financed), then the actual transfer or title occurs. This takes only a few minutes and is actually anti climactic after all that’s preceded it.

    Once that’s completed the buyers get their keys and they are no longer buyers, they are home owners!