How to Buy a House in Birmingham 101
Find a REALTOR® to show you houses.
(The Seller usually pays the agent’s commission.) Ask friends and family for recommendations of agents who have helped them. (See our previous blog post on How to Interview Real Estate Agents.) When you’ve narrowed your search to a couple of houses, ask your agent for comparison properties (comps) – this should include active properties as well as “solds”. Also ask for help with figuring price per square foot (which may prove difficult in the Birmingham market). Determine the earnest money—the money that shows you are “earnest” in your desire to purchase (not just “playing”) (1% of sales price is typical for Birmingham). You may have contingencies in your contract—contingent upon financing, appraisal, inspection and final walk-thru are typical here (earnest money is NOT at risk). Only after both parties have signed the contract (meeting of the minds) does it mature from offer to contract. It can be confusing, but until everything is signed with all changes initialled, it is NOT a contract and another buyer CAN come along and also bring an OFFER!
Home sale contingency—TOTALLY different than the above—makes it a bit more difficult, as the seller of the home you wish to purchase becomes “responsible” for your previous house getting sold PLUS you will usually have a Break Clause—if someone else brings an acceptable written offer you may have either 24 or 48 hours to remove your contingency or the OTHER people get to buy your dream home. IF everything lines up perfectly, this CAN work, but strap on your seatbelt for an emotional roller coaster ride!
Home Inspection (not for the “faint of heart”)
In the state of Alabama, residential real estate is sold under caveat emptor (From Latin caveat ēmptor: let the buyer beware) IT IS EXTREMELY IMPORTANT TO GET A HOME INSPECTION!!!! This is possibly the largest investment of your lifetime—do NOT enter into it without knowing what you are buying!!! Ask your agent and friends for recommendations for good inspectors! You can ask the seller to make repairs OR get out of the deal based on the inspection—be cautious of the time and get this done and negotiated within the time frame of the contract!!!
Mortgage Companies & Banks
Congratulations!!! Those little initials after your name will get you a NICE Break with a local lender to qualify for a mortgage!!! I can help you get 100% financing. Just call me for more information. You can ask your agent and other residents for recommendations on mortgage companies who have helped them. Arms, Legs and Feet (actually its just an ARM) Adjustable Rate Mortgage—is set for a certain period of time and then adjusts—usually tied to a rate quoted in the Wall Street Journal. Be aware of what you agree to on the front end—if you are NOT planning on staying in the house but 4 years and have a 5 year ARM and actually do move in that timeframe—that’s great! no harm, no foul. BUT, if you stay 6 years and the rate adjusts—your house payment could adjust upward, as well!
Closing (it’s NOT the end, just the beginning)
In Birmingham, attorneys actually perform the closing, compiling title insurance, all the closing costs, homeowner’s insurance, etc onto the HUD-1 (The form required by the US government for residential real estate closings). Your earnest money will be shown on this form as a credit to you. Property taxes will be prorated, as will any homeowners association fees. The process for a closing usually takes an hour. HERE is the TIME to ask ANY question you may have. If you don’t ask now, you will NOT get another chance to understand what you have signed. When you leave and all the paperwork is complete, you own the house!! However, typically in Birmingham, possession occurs 1-2 days after closing to give the sellers time to move out—make sure you have a HOLDOVER AGREEMENT to cover the time between closing and possession. Usually taxes and insurance are “escrowed”—held by the lender to pay at the appropriate time. They will add a monthly prorated amount to the principle and interest that you pay (if your yearly property taxes are $1,200, then you would pay $100/month in addition to your principle, interest and Insurance). This way, at the end of the year, you don’t have to come up with big $$$ to cover taxes and insurance.