Think back to a time when you completed a long, complicated task. When you finished the last step, you probably had what Oprah refers to as an “Aha Moment,” that moment that you came to a realization or understanding of the situation.
Buying a home is kind of like that. It is a multi-stepped process that uses unfamiliar vocabulary. When you complete each step and sit through the closing process at a bank, you finally get it. The frustrating part is that now that you understand the process, the job is over. Once you know how to buy a home, you probably won’t be doing it again at least for a few years.
Before you drop in at an Open House, it is smart to first do a little bit of research on the process of home ownership. Check out the eight steps to buying a house in South Dakota.
Evaluate Your Current Financial Situation
Evaluating your finances isn’t fun, at least for most people. There are some people out there whose hearts beat a little faster every time a spreadsheet appears, but those people are outliers.
Most experts would tell you that you should be looking for a home that costs three to five times your yearly income. This number depends on your comfort level and your lifestyle. If you don’t want to give up your multiple trips to Europe each year, then you probably should look for a cheaper home.
Before you start the process, it would be wise to look at your credit report and your debt. Mortgage lenders are looking for a credit score of 620 or higher, even though some lenders will go below that amount.
Once you have determined your price range, look at the amount in your savings account. Ideally, you will have at least 20% of the home’s value saved up for the down payment. It’s not a deal breaker if you have less than that amount, but 20% is the ideal.
There are other financial considerations when buying a home. Now that you will have your very own lawn, you will need to either spend your time or money on lawn maintenance. Are you willing and able to do this?
Are you ready to take on the expense of a water heater that suddenly bites the dust?
Are you ready to spend your weekends staining your deck or your fence?
Up to now, you have been calling your landlord when the toilet doesn’t flush, or the garbage disposal doesn’t grind up the five pounds of potato peels you stuffed into it. Those headaches will be yours after you sign the papers at closing.
It also doesn’t make sense for you to go through the process of buying a home if you aren’t planning on staying in the area for several years. If you’re sure your job will be changing within the year, you might consider waiting to go through the home buying process.
Find a Great South Dakota Real Estate Agent
If this is your first time buying a house, work with a highly experienced buyer’s agent. At first, it may feel that the buyer’s agent is just a person who unlocks doors for you at your showings, but your relationship with these professionals will become extremely important as you progress in the process.
This person should show the pros and cons of each property as you walk through it. This person should be your negotiator to help you get the best price on the home. This professional should help you through the process, such as directing you to a good home inspector or detailing the costs you will be responsible for during the closing process.
Having a buyer’s agent shouldn’t cost you anything. Most of the time, the owner of the home pays the commission for the buyer’s agent. In fact, if you work with a Clever Partner Agent, you could qualify for a Home Buyers Rebate, which will give you $1,000 to put toward your closing costs.
Read Up on Local Real Estate Market Trends
You know enough about real estate to understand that timing is essential. Is it a buyer’s or seller’s market? When is the best time to buy a house in South Dakota?
Currently, the median home value in South Dakota is $188,600. Homes have gone up over the last year and are expected to rise by 2.7% in 2019.
It is challenging to analyze real estate trends for an entire state. Prices and availability tend to fluctuate on a regional level. Ferndale’s housing prices are higher than Rapid City’s, but Ferndale prices are lowering, and Rapid City prices are rising.
Work with an experienced, local real estate agent who knows the peculiarities of the local market.
Get Pre-Approved for a Mortgage
The next step in purchasing your home is getting pre-qualified. To pre-qualify for a loan, you talk with a mortgage company or bank about your assets and debts. You self-report your income and your current credit score.
The mortgage company professional will look at the information you have given him or her and suggest mortgage products that you may qualify for later in the process. This gives you the ability to shop around for the best rates.
Once you have determined which company you would prefer to work with, you will go through the pre-approval process. There is a difference between the pre-qualifying process and the pre-approval process. During this process, all the information that you previously gave the institution will be verified. They will confirm your income and credit score. Pre-approvals take time, so don’t expect that you can start the process one day and have an offer approved on a home the next day.
Buyers want to see a pre-approval letter in your hand before they accept an offer on the house in a competitive market.
Start House Hunting
Finally, the fun part starts. It’s time to look for houses in earnest.
How do you pick a home?
First, determine your priorities. Do you have physical restrictions that would make living in a multi-level home difficult? Do you require a garage for your car? Do you have several dogs and would prefer a home that already has a fenced-in yard?
Next, only look at houses in your price range. It does no good to look at homes that you can’t afford right now because then you will be comparing every other home within your price range with the fantastic property that was $100,000 out of your price range.
Finally, remember that your home is an investment. Use online tools and your buyers agent’s recommendation to narrow your search. Look for the least expensive home in safe neighborhoods.
Even if you don’t have kids now, you may have some before you are ready to move. Make sure the local school district has a good reputation. Your future buyers may think this is an important feature, even if it is not a determining factor for you.
Make an Offer
Once you have found THE house, and you are ready to make an offer, work with your buyers agent to draft an offer letter. Your buyers agent has experience in such things and should walk you through the process.
Here’s how it typically works.
First, your buyers agent will call the listing agent to ascertain whether there are any other offers on the table. If there are, you may have to prepare yourself for a bidding war.
Once the amount that you are willing to pay has been determined, you may need to write a check for the earnest money that will hold your spot on the house. This amount is usually between 1% and 3% of the purchase price.
The offer letter usually has the terms of the payment, the date which you expect to be able to close on the home, a provision of who will pay for the inspections and title insurance, an arrangement to perform a last-minute review of the property, and a deadline for the offer.
The offer letter, along with a prequalifying letter from your mortgage company and the earnest money will be sent to the home seller. Then you wait to hear back . . . oh so patiently.
Inspections and Negotiations
You were thankful for your buyers agent when writing the offer for the home, but you will be extremely grateful for your buyers agent during the negotiation stage of home buying.
Let’s assume that the home seller has accepted the offer. You will then hire a professional home inspector to go through the property with a fine-toothed comb. Ask to walk through with the home inspector during the process. Chances are, the inspector may find several issues with the home. You can use this knowledge to negotiate the price for the home.
For example, maybe the home inspector found that the whirlpool tub doesn’t function. You can point this out to the homeowner and ask for him or her to pay more of the closing costs since you will need to pay for the tub to be repaired at some point in the future.
Your buyers agent should know enough about the market and seller to determine how much to push back to get the best price. The market may be so competitive that you will not be able to ask for many concessions.
It’s Closing Time!
You are finally ready to close on your house. Your agent should be able to help you determine your financial responsibility during this process.
Luckily for you, buyers in South Dakota are not required to pay a real estate transfer tax, but you may be responsible for mortgage fees, escrow funds (for property taxes and home insurance), appraisal fees and inspection fees.
According to a recent study by Bankrate, the average closing costs for a buyer in the state of South Dakota is $1,814. Other studies say to plan on spending 3% of the purchase amount on closing costs.
Since the price of homes fluctuates so much depending on the area of South Dakota you are purchasing in, these costs can vary greatly too.
For example, if you purchase a home Colonial Pine Hills outside of Rapid City, 3% of the average home value of $327,400 is $9,822. If you are purchasing a property in Rapid City, where the average home value is $190,200, you can plan on spending $5,706 during closing.
Even if you have purchased a home once or twice before, going through the process without a professional buyers agent is a mistake. Find the best agent in your area of South Dakota by filling out our online form. Believe me, you will be so thankful for your buyers agent by the end of the process that you will feel like buying him or her a housewarming plant during your moving day.