Guide to Buying a House in Florida
Sometimes when we go to a shopping center we see something that catches our attention in a store and we buy it without first checking our budget. The same happens with houses, a friend or family member buys a house and we get excited and decide to buy a house without first asking ourselves if we are really ready to buy a house.
How to make a budget?
One of the key points in this guide to buying a house in Florida is defining your budget. To prepare a budget you can follow these 3 simple steps:
- Identify monthly savings. Make a list of all your household income and another list of all expenses. Then subtract the expenses from your income and you will get the amount you can save each month..
- Set your priorities. If the amount of money you save each month is not enough, identify your priority expenses and try to reduce other less necessary expenses.
- Control your expenses. Make use of an application, spreadsheet or physical notebook of all the expenses you have each day, no matter how small. Then create several categories (food, transportation, health, insurance, clothing, entertainment, etc.) and frequently review your expenses to identify which ones you should reduce.
How much can I pay for a house?
The important thing is not to know how much money they can lend you but how much you can pay each month. It is recommended that your monthly mortgage payment does not exceed 28% of your monthly gross income. For example, if your monthly gross income is $6,000, the maximum amount you should pay in the mortgage is $1,680, corresponding to 28%. If you buy a home with a mortgage over 28% of your gross income, you may have future financial problems due to a lack of planning.
How much should my initial payment be?
The best recommendation will always be to pay 20% of the initial fee since it would save the payment of private mortgage insurance (PMI) that is included within your monthly payment. By paying a 20% down payment, you will considerably reduce the monthly amount to be paid on a mortgage.
Now, it does not mean that if you have not saved 20% of the price of the house you should not buy a house. There are types of loans like the FHA that only require you to initially pay 3.5%.
It is true that the higher the down payment the lower the monthly payment will be, but this does not mean that we should run out of our savings just to make a larger initial payment and be with an empty back account. In life we are always presented with unexpected situations for which we must be prepared, and even more when we are homeowners, therefore we recommend that you have an emergency fund that will help you to cover for any unwanted incidents if they arise.
What is your lifestyle?
It is important that you review your lifestyle, and that it is within your monthly budget otherwise you’ll have to sacrifice some of the things you like in order to pay the mortgage, and if you are willing to do in order to buy a house and to own your very own property. You can also consider buying a less expensive house, even if it is not the house of your dreams, but one that allows you to maintain your lifestyle and to capitalize. After a few years, the house will have acquired value and you can sell it to buy the house of your dreams.
Buying or renting?
This is a question that many people ask us and we answer with the following example: If you are paying a rent of $ 1,700, why instead of paying the homeowner’s mortgage, don’t you pay your own mortgage? With that monthly money, you are paying the debt of another person who, probably once you finish paying that mortgage, will continue investing in Orlando real estate to rent long-term or vacation homes. Now, if you are renting temporarily or you don’t have a good credit score, renting a house in Orlando is the best option.
Sell one house to buy another?
If you are going to sell your house in Orlando to buy another one, it is important that even when you have the money earned from the sale, analyze your income and fixed expenses. It is also necessary that you have an established budget so that you do not commit to debts that you do not know if you will be able to assume.
There are several options when you want to sell your house to buy another one. One of these is to make an offer for the house you want to buy and place as a contingency that you must sell yours first. Now, you must be aware that these types of contingencies can make the seller lean towards another offer even if it is for less money.
When you have the need to sell a house to buy another, you can make mistakes that do not allow you to get the best return on the sale of your home. That is why we recommend you consult with a real estate agent before taking that step.
What aid does the government offer?
The government generally offers some types of help, including for first-time homebuyers. Here are some links for you to learn about the types of aid the government offers. It is important that you review all requirements to access them. A real estate agent will be able to advise you so that you can make the best decision in case of applying for some type of help. Contact us to advise you in the process of buying your home.
Work with a real estate agent
There is no obligation to buy a home in Orlando to work with a real estate agent. You can visit different Orlando communities on your own, surf the Internet and view home sales websites, and do the whole process on your own. Now, it is good to know that when you work with a Realtor you should not pay any type of fees or commissions, since these are paid by the seller.
Working with a real estate agent offers you great benefits since you can rest easy knowing that you are advised by an expert and that you will not make mistakes. The process of buying a house is usually very stressful, a Realtor will provide you with all the tools you need, saving you time and money.
Your agent will present your listings of houses for sale according to your needs, will accompany you to see them, which is a great guarantee since due to his experience he will focus on all the details that add or subtract value to the house. Likewise, it will present the offers and represent you in the negotiation to obtain the greatest benefits, and finally, it will fill out all the legal documents that are usually very confusing for someone with no experience, avoiding any type of error that may affect your interests.
While a real estate agent is crucial to making a successful purchase, it is even more important to choose the right agent. We recommend working with an agent that meets most of the following criteria:
- Time availability. You need to work with an agent who has enough time to take you to see houses at times that suit yours and who has time to clarify your questions about the process.
- Expert in the area you want to buy. When you define the area you want to live in, you will need to know everything about that community. A Realtor specialized in that area can advise you to choose the right house.
- Service vocation. You need an agent who cares about your interests and benefits, someone who works and is satisfied by helping people achieve their dream of buying a home rather than for a commission.
- Agent who makes suggestions. In many cases, the buyer is inexperienced and does not know what aspects of the house must be analyzed to make a decision. It is important to have an agent that makes suggestions to you, so that when they visit a house they can inform you about the details that they identify, however small, about improvements that can be made, about details that buyers sometimes omit, such as the state from the roof of the house, the air conditioning system, among others.
- Someone who connects with you. You and your agent must be aligned to achieve results successfully. You should work with someone who you feel is connected and that they are both on the same page. This will give you more confidence and streamline processes.
Choose a lender
If you have the necessary money, you can afford to buy in cash without having to make a loan. Now, if you require a loan to buy your home, it is essential to choose the right lender, and for this, you should consider different options such as banks, mortgage brokers, credit unions, savings and loan entities, builders, and credit entities that you will find by the Internet.
Some general questions to ask lenders are: what are the types of loans, interest, closing costs, insurance costs, and down payment requirements.
- What type of loan is right for me? There are different types of mortgage loans, but the most recognized are FHA, Conventional, and veterans loans. It is important that with the advice of your lender you define what is the most convenient option for you. On this government page, you will find more detailed information about mortgages (view information).
- Request quotes from 3 lenders. Deciding to work with the first lender you speak to is not a good decision. Quote with at least 3 lenders to make sure you get the best benefits on interest rates and terms. According to a study by the Federal Loan Mortgage Corporation (Freddie Mac), a company guaranteed by the United States government and authorized to guarantee and grant loans, a borrower could save on average $ 1,500 when obtaining an additional quote and up to $ 3,000 when obtaining 5 quotes. Therefore, do not stay with the first quote you receive, remember to compare several options.
- Get a pre-approval letter. The pre-approval letter will be very useful before starting the process since you will avoid spending unnecessary efforts looking for houses for amounts greater than what you have to buy. In addition, it will be an advantage over other potential buyers interested in the same house, since with this you are showing the seller that doing business with you has a guarantee and a high probability of success. This is the best evidence that your lender has evaluated your finances and is willing to loan you that amount to buy a home.
- What documents will you need to obtain approval for your loan? To obtain your pre-approval letter, you must provide certain information to the lender to carry out your credit study. Here is a list of the main documents:
- Social security number, proof of payment for the last 30 days.
- W-2 for the past two years (Tax returns).
- Proof of other income (if any).
- Salaries, names, addresses, and phone numbers of your employers for the past 2 years.
- Bank information.
- Information on current debts.
- Information about the initial fee you can pay and where the money comes from.
- Other records and documents.
In which area do you want to buy?
Remember that buying a house is not the same as buying a garment, that if you regret it you can return it or simply keep it but you will use the ones you like the most. Buying a house is a decision that you must make with a lot of responsibility. Therefore it is necessary that you identify which is the ideal area for you and your family. For this, start by analyzing your lifestyle:
- Identify which are the places you most frequent (work office, restaurants, shopping centers, etc).
- The ease in terms of routes to get to those places.
- How close are the supermarkets.
- Close to pharmacies, shopping centers.
- If you like to exercise, which is the closest gym.
- In case you have children who go to school, it is essential that you know the schools in the area and their respective qualifications.
Make a competitive offer.
Once you start searching for houses with your real estate agent, you should be prepared to make an offer the moment you find the house that meets your needs. Remember that like you, there are many more people interested in buying a house in Orlando and there will surely be several interested in the same house that you want to buy. Therefore, you must be clear that the seller will receive several offers for the house. It is important to make a competitive offer as soon as possible and with the least amount of contingencies since the latter also affects the seller’s decision.
We explain with an example of what we mean by contingencies. Imagine you have a house and you need to sell it to buy another house. After having found the house that you like, you decide to make an offer for a certain amount and put as a contingency that to buy the house you must sell yours first. The seller may receive an offer for less than what you have offered, but without contingency. This could cause the seller to be more attracted to the other offer since you won’t have to wait for someone else to sell your house to buy yours, which will mean less time for you and perhaps less cost.
Security or good faith deposit
The security or good faith deposit will be released to your real estate agent once the offer is approved, another option, and the most common one is that you deposit the escrow, into a title company account. If you give the check to your agent, he/she will deposit it in a “security deposit” account as a sign of your good faith, interest, and respect for the seller and also shows that the offer is serious. If everything is carried out in the best way and the sale gets to closing, the deposit will be deducted from the closing costs payment. Now, if the seller decides to exit the negotiation within the right times, the deposit money should be returned to you.
Actually, you are not required to make a security deposit, the question is whether the home seller would accept an offer that does not include a deposit, most of the times they will not accept it and will take into consideration other offers that are accompanied by an escrow deposit showing the good faith sign.
If we put ourselves in the position of the seller of the house, we will understand that it is normal that the seller does not accept an offer without a deposit. If you want to sell your house in Orlando and receive an offer that does not include a deposit, you are risking that the potential buyer is not really interested and withdraw their offer at any time. In this case, as a seller, you will assume financial expenses, since if you are still paying for the house, there are mortgages, insurance, and property tax payments, that you must make.
Okay, now the question is how much should you give as a security deposit? In general, a large part of the buyers usually give between 1% -2% of the purchase price as a good faith deposit, but finally, it will be your real estate agent who recommends the specific amount depending on the demand and the market as such.
There are some specific cases where you can lose your security deposit. Suppose you want to buy the house of your dreams but in order to do so, you must sell your home first. The owner of the house of your dreams accepts the offer you have made and immediately you make the respective deposit and put your house up for sale. For whatever reason, you could not sell your house and the date has come to close the house of your dreams. You will not have money for the initial payment, since you still need to sell your house to buy one of your dreams. In this scenario, when you withdraw from business and don’t meet the deadlines, you probably will lose your deposit.
Do a home inspection
An inspection will be necessary so that you know the conditions of the house you are buying. A qualified inspector will be in charge of inspecting the entire house, including plumbing, electrical system, air conditioning, heater, roof, and any other aspect that may affect the value of the property.
Once the inspection is done, you will receive a written report from the inspector, detailing the conditions of the house. Recommendations for repairs, maintenance, or any type of adjustments that must be made will be detailed so that you can then decide how to proceed in relation to the offer.
Depending on how costly repairs are and the severity of contingencies the inspector encounters, you may decide to proceed with the purchase, renegotiate the purchase price, ask the seller to make the necessary repairs or cancel the contract. In the event that the vendor makes the necessary arrangements, a re-inspection is necessary to ensure that all agreed contingencies have been resolved.
An inspection should not be confused with an appraisal. While both are part of the buying and selling process for a property, an inspection seeks to find out the status of the property, while appraisal focuses on determining the value of the property.
House appraisal
The appraisal of the house, as previously mentioned, is the inspection carried out by a professional to determine the value of a property, and which is carried out by comparing recently sold houses in the same area of said property. The appraisal or appraisal is based on methods established following the procedures of the USPAP (Uniform Standards of Professional Appraisal Practices).
If you are going to buy a house through a mortgage loan, the lender will require you to carry out an appraisal, since this way they protect themselves from lending more money than the property is worth. Your lender will lend you at most the value shown in the appraisal.
The lender, as we mentioned, will demand an appraisal from you, but it will be you as the borrower who pays the appraisal. It is important that before making an offer you have the certainty that this is the house you want to buy since the money you will spend on the appraisal is not refundable.
The appraisal is carried out by an external professional who does not have any type of relationship with the buyer, seller, or lender, in such a way that all the parties can feel safe since this will be impartial and will not be influenced by any of the parties.
Regarding the cost of the appraisal, we could say that there is a range between $200 and $600 that vary depending on various factors such as the size, location, type of house, and other factors that affect the amount of time and effort required to carry out the work of appraisal.
Title company
Title companies also play an important role in the process of buying and selling a property. The title company will be in charge of verifying that the title of the property that is delivered to the buyer is legitimate. Also ensuring that the seller has the right to sell the property.
There have been many cases where property belongs to several owners, whether due to a will or any other reason and that one of them sells the property without authorization from the others, which will have legal consequences that may affect the buyer of the property home at a certain time. Title companies, through title insurance, protect lenders and homeowners in the event that someone makes a claim about it in the future.
In most cases, the title company is responsible for closing and maintaining escrow accounts. Still, sometimes, though very few, the companies that handle title and title insurance are different.
Usually, people tend to confuse the title with the deed. The deed is a legal document that is used to transfer property between owners. When the closing is done, the deed is signed and witnessed before being delivered to the new owner. In the deed, you will find an exact description of the property and what is transferred.
On the other hand, a title is a document that says you are the owner of the property. Usually, when signing titles documents, mortgage documents are also signed.
A title company will do a title search to identify potential obstacles to a clean transfer. Extensive research is done to make sure there are no other owners that have rights to the property. In addition to the above, the title company is responsible for identifying possible problems such as:
- Pending mortgages to pay.
- Some types of existing liens.
- HOA fees are outstanding.
- Taxes pending to pay.
- Leasing issues.
- Easements. This refers to agreements made by the owner to give permission to third parties to use their land for specific purposes. For example, a permit for vehicles to park on your property.
As for title insurance, there are two types, that of the lender and that of the owner. When you buy a house through a lender, you will be required to pay for a lender’s title insurance that you must pay (sometimes paid by the seller). Owner’s title insurance is optional, although it will help protect your investment in properties in Orlando or any other city.
Closing day
The closing day is the last step in the process of buying and selling a property, and it usually takes place between the fourth and sixth week after signing the purchase-sale contract, although sometimes it may take less or more time. Once all the parties have signed the required documents, you will receive the keys to the property, you will take the photos for the souvenir and you will legally be the owner of the property.
Okay, now for the question you are waiting for about the closing day. How much do you have to pay in relation to the closing? On average, the buyer pays approximately 3% to 4% of the home’s purchase price at closing. This percentage includes costs for attorneys, inspection, property insurance, credit reports, among others. Some of the expenses, such as the inspection, must be paid before the closing day.
Your lender must send you closing information at least 3 days before the closing date. This document, known as a closing disclosure, details all the terms of your loan, as well as the costs that you must assume on the day of closing.
It is important that you review this document in great detail and compare it with the initial estimate they made for you. If you notice any significant changes, ask your lender what the new value is due to.
Insurance for your home
If you are buying your house in cash, you are not obliged to take out any type of insurance. If you need a loan to buy your home, your lender will require some type of insurance for your home.
Home insurance is a pledge of guarantee for the lender since it protects your investment. If at a certain time the property becomes damaged or destroyed by a fire, tornado or any event, this insurance will allow you to repair or rebuild your property.
A question that we are asked very often is what type of insurance policy do I need? There are many types of insurance policies, now, the most desired are those that mainly cover:
- Repair or reconstruct your house as well as other structures such as separate garages.
- Replace your belongings if they have been damaged or destroyed by a covered loss.
- Accommodation while your home is being repaired or rebuilt.
- Related medical bills up to a certain amount determined in the policy.
Tips for before the move
Even if you have the keys in your possession, unless you have bought a new home, you will want to make some adjustments to the house to decorate it to your liking. Here are some tips to keep in mind:
- Change the front doors locks. For your safety, it is recommended that before inhabiting the house you change all the locks that connect to the exterior of the house since you do not know how many copies of the keys are loose around there. In case it is a smart house, we suggest you reset all the settings.
- Verify that all services are operational. Don’t wait until move-in day to verify that everything is working properly. Check that everything works correctly, electricity, water, gas, refrigeration, heating, waste management, etc.
- Do a deep clean. Clean all corners of the house, bathrooms, kitchens, cabinets, closets, etc. If you have rugs, it is advisable to clean them with steam, since you do not have knowledge of the use they gave it. If you want to paint it, it is better to do it before the move.
- Prioritize repairs. As in any house that has been previously used, it may require some repairs or you may want to make changes to decorate it. After the inspection made before the purchase, you already have knowledge of the main repairs that the house needs. You will have a lot of time to decorate the house to your liking, so it is important that before the move you give priority to the most important repairs.
- Connect the Internet and TV. No one likes to move out and get disconnected. Schedule a week or two before your move to install Internet and TV services.
- Update your address. Be sure to update your address with all entities such as banks, subscriptions, etc. to avoid future problems.
- Identify the water valve and fuse box. If at any time you have an electrical or water problem, you don’t want to be looking everywhere to cut the electricity or turn off the water. Therefore, it is good to know the exact location before you move in.
Coordinating your moving
While you are getting your house set so it is ready to move in, you can coordinate all the aspects related to the move. We will focus on 3 possible scenarios:
- You already live in Orlando and need a local move.
- You live in the United States, but outside Orlando and you need a national moving company.
- You live in a country other than the United States and need international moving services.
If you already live in Orlando, you have two options, make the move on your own or hire a local moving company. If your priority is the budget, we suggest you pack very carefully all your belongings and rent a truck. You can ask friends or family for help to do all the loading and unloading.
Now, if your priority is that everything is packaged and assembled in a professional manner and not have any type of stress during this process, we recommend hiring a moving company in Orlando. At Orlando Homes Sales we recommend our friends and allies Orlando International Moving, a company with highly qualified professionals.
In relation to a national moving, depending on the number of belongings and the distance, you can also rent a truck and carry out the move yourself, although you should be aware that the wear will be even greater and that you will have to do everything on your own. Unless you are traveling with people who help you or you know someone in Orlando to help you with the unload. In case you want to avoid stress and minimize risks, your best option would be to hire a national moving company and travel with your family separately.
Finally, if you live outside the country, the process will be much more detailed, since you not only need an international removal company but also manage the entire legal and customs process to enter the country with your belongings.
After the move
You are already at home, perhaps making the last adjustments so that it is to your liking and organizing all your belongings. If it is the first time that you buy a house, you should bear in mind that the responsibility is much greater than when you rent. When you pay to rent and you have some damage, in most cases you call so they can solve your problem. When you have your own house, no one will solve your problem, so we recommend that you be prepared for any unexpected case, that you have some savings available for any unforeseen situation that arises.
With this, we end our guide to buying a house in Florida. Contact us if you need any type of advice, we will be happy to help you.
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