What is Home Ownership?
Home ownership is the primary residence of an individual who possesses or obtains the title of a home. Potential homeowners consider buying a home at some point in their lives for two main reasons:
- To establish a permanent residence.
- To establish equity.
Home ownership real estate is typically available in residential areas consisting of houses, condominiums, and townhomes in both rural and urban neighborhoods. Many people gain first-hand experience in financial investing through home ownership. Through this process they learn how to build equity, tap into it through different transactions and save capital from no longer renting. Home ownership is a great first step into real estate investing because it serves personal interest and creates a strong foundation.
Home Ownership Example
Homes for sale are listed through real estate companies all over the web, in newspapers, magazines and in storefronts. A quick search of “homes for sale” with the desired zip code, will demonstrate just how easy it is to get started with this process.
A typical homeownership listing will include three main sections:
- An Overview
- Property Details
- Property History
The overview section will include the home’s price, number of bedrooms, number of bathrooms, square footage, and price per square foot. This is also where pictures of the home will be displayed along with facts regarding the location and date the structure was built. The property detail section will cover interior features such as room dimensions, full and half bathroom details, information on parking, heating/cooling, the lot, utilities, the neighborhood, and the listing itself (i.e. number of days the home has been on the market). The property history section will include information about when the property was listed, property taxes, price changes (if any), delisting information (if any), sold date, and sold price.
10 Steps of a Home Ownership Transaction
It is important to note that the real estate laws and restrictions where you live or intend to live can impact the progress of a home ownership transaction. Thus, the sooner you become familiar with the state and local laws where you intend to purchase a home, the better.
Step 1: ENSURE YOUR CREDIT IS IN GOOD STANDING
Your credit report history is like a financial report card. It is an assessment of your ability to consistently pay bills and/or pay back loans on time. Ultimately it indicates to a lender or bank how likely or unlikely you are to make good on the repayment of mortgage loan. A lender or bank can deny or approve mortgage loans, they can also assign high or low interest rates based on an applicant's credit history. So, be sure to conduct a thorough review of your credit report history.
Step 2: LEARN AS MUCH AS YOU CAN ABOUT THE MORTGAGE INDUSTRY
The mortgage loan process is lengthy, an requires extensive due diligence on both the buyer’s and lender’s behalf. If you are unfamiliar with the process, or if some time has passed since your last home buying experience, it never hurts to familiarize yourself with the different stages of purchasing a home. For the most part, all mortgage loans are carried out the same way, but keep in mind that certain lenders will have their own spin on the process. It never hurts to shop around and learn more.
Step 3: GET PRE-QUALIFIED OR PRE-APPROVED FOR A MORTGAGE
A pre-qualified or pre-approval letter from a lender or bank is an essential step in the home ownership process if you intend on receiving a mortgage loan. While there is a major difference between a pre-qualification letter and a pre-approval letter, obtaining either before shopping for a home signifies you as a serious prospect to lender and seller. A prequalification letter indicates that you have applied for a loan, your credit report has been checked, and the supporting documentation submitted has qualified you for the purchase a home at a predetermined price. A pre-approval letter indicates that you have completed a loan application, your credit report has been pulled, and employment and tax information has been verified. After thorough review of these items, you may be preapproved to purchase a home at a predetermined price.
Step 4: ESTABLISH YOUR NECESSITIES
Learning as much as you can about potential locations, price variances, and different home construction is crucial for determining your needs in a home ownership purchase. Knowing the market and being able to determine quality will position you for a good investment before you even start looking for homes.
Step 5: FINDING THE RIGHT REAL ESTATE AGENT
Real estate agents help facilitate home buying and selling transactions. It is their job to represent and assist you in negotiations as best they can. It is important to understand what their responsibilities are, and to hold them accountable throughout the home buying process. If you don’t feel that an agent has your best interest in mind or does not completely grasp your needs for a home, trust your gut and find a new agent that you feel confident working with.
Step 6: START SCHEDULING VIEWINGS
This is where you conduct all of your on-site analysis of the property. Once you receive a listing sheet from a real estate company or agent, it is your responsibility to study it. Compare as many listings as possible, and when on-site, observe all the factors ranging from the neighborhood, to the fine details of the block and actual property. Take as many notes as possible, and ask questions. This is the time to do it.
Step 7: SUBMIT AN OFFER
If you find a home that is in your price range, includes all the necessities you determined in Step 4, and meets your expectations from a neighborhood standard, you may be ready to make an offer. But before you do try to extend your research a step further by trying to answer the following questions:
- Why is the seller selling?
- What is the market like? Is it hot, cold, or neutral? Buyer’s or seller’s market?
- How much did the seller pay for the home?
- What are recent comparable sales in the area?
- What is the price per square foot?
- What is the home’s history?
Determining the answers to these questions can pin point any last-minute red flags, and help you form a strategy before you enter price negotiations once an offer is made. Keep in mind that depending on where you decide to make an offer, real estate laws will dictate how and when an offer can be made from a potential homebuyer.
Step 8: SCHEDULE A HOME INSPECTION
Home inspections are a crucial part of the home buying process. You want to make sure you aren’t buying a home that within the next couple years has issues with the piping, electric, roofing, foundation, etc.
Step 9: FOLLOW THE PROGRESS OF YOUR REAL ESTATE TRANSACTION
As your closing date nears, follow it closely. Last minute issues can occur at any time in this process. If you monitor the process of your real estate transaction daily, you position yourself to handle any unforeseen issues as they come up to keep your purchase on track.
Step 10: CLOSING
The closing is where ownership of the property is transferred to you. Many documents will be signed by the buyer, seller, title company, and each side’s attorney. It is important to keep all the records from your closing date filed for safe keeping. If you decide to sell the property you will want to review all the information from the buying process to prepare you for the selling process.
If you are new to investing and currently rent, home ownership is a great real estate investment to consider. Remember to be meticulous in your review of all information available to you, and follow the steps provided above as closely as you can. A good home ownership purchase can put you in an excellent financial position for the years to come. You’ll never regret working hard to identify a good real estate investment.