Buying a Home in Philadelphia
Most home buyers begin the home buying process by looking at homes online and, maybe, checking out a few open houses. Most home buyers have a lot of questions about what happens next. The first steps in the home buying process are to talk with a real estate agent and a lender. Read on to learn more about how buy a home in Philadelphia and Montgomery County, PA.
Too many home buyers wait until they’ve found the perfect home online before taking these steps. Oftentimes, these steps are avoided because they don’t know who to talk to or where to begin. It’s also common that home buyers aren’t ready to commit to working with someone or commit to buying a home or getting a loan until they’ve found the right home.
Unfortunately, the real estate industry is filled with stories of would-be home buyers who missed out on the home they were waiting for because they weren’t well-prepared.
Summary of How to Buy a Home in Philadelphia
Buying a home is a process that takes some time. There are many people involved in the home buying process and you’ll have a lot of work to do. It’s common for home buyers to spend months, or years, just thinking about buying a home. Once the decision has been made it often takes at least a few weeks to view homes in-person before making an offer. Once an offer is accepted things move fast. You’ll typically take ownership of your home in about 30-60 days.
Below is an overview of how to buy a home in Philadelphia and the suburbs. There is more detail on each of these steps further down in the post.
- Connect with a Realtor®
- Choosing a Neighborhood
- Narrow Down Your Budget
- Get Mortgage Pre-Approval
- Wants and Needs/Search Setup
- Tour Homes In-Person
- Making an Offer
- Seller’s Response
- Negotiate Counter Offer
- Under Contract
- Mortgage Application
- Home Inspections
- Negotiate Inspections
- Final Walkthrough
How Much Does it Cost to Buy a Home in Philadelphia?
The amount of money that it costs to buy a home in Philadelphia varies depending on your mortgage loan and the cost of the home. As a general rule, your down payment will range from 0-20% of the purchase price and closing costs will run around 5-7% of the purchase price. Here are the typical costs to expect when you buy a home in Philadelphia.
- Deposit/Earnest Money
- Down Payment
- Inspection Costs & Appraisal Fees
- Closing Costs
- Broker Commission
The Deposit, also called Earnest Money, is money paid once you go under contract with a seller to buy a house. The amount can vary but higher deposits typically indicate more commitment which makes a stronger offer.
Y0ur Deposit will typically be paid to the seller’s real estate brokerage and held in escrow until it is released. When you buy the house these funds will become part of your down payment.
The Down Payment is money that you’ll pay toward the purchase of the home. The higher the down payment, the less interest that you’ll pay over the course of your mortgage payments.
Down Payments will vary depending on:
- Type of Mortgage Loan
- Conventional loans are available at 5%, 10%, and 20% of the purchase price.
- FHA Loans require a minimum of 3.5%
- VA Loans require no down payment
- Many “Doctor Loans” require zero down payment
- Cost of the Property
Some properties require a higher down payment due to their cost. Higher priced properties may require a Jumbo Loan which requires a minimum down payment of 25%.
- Type of Property
Some condos require larger down payments. These can be minimums of 25% or more.
Home Inspection Costs & Appraisal Fees
In addition to your Deposit the other fees that you’ll typically pay prior to going to settlement are your inspection costs and appraisal fees.
Inspection costs typically range from $450 to $700. The actual cost depends on the inspection company, size of the property, and which inspections are performed. Typical inspections for homes in the Philadelphia area include a general home inspection, radon test, and a termite inspection.
These costs are paid at settlement. Closing costs include:
- Lender Fees
- Title Fees
- Insurance Premiums
- Property and Transfer Taxes
Your mortgage lender will be able to provide estimates of closing costs for any property that you’re considering buying. They can also provide ballpark numbers as you begin your search so you know what to budget for closing costs.
Your agent’s commissions when buying a home in Philadelphia are usually paid by the seller. The seller will contract with an agent to sell their home. That agent agrees to split the commission with the agent who represents the buyer. Many real estate agents in the Philadelphia area will also charge a nominal commission to buyers that will be due at settlement. Generally, this is used to pay processing fees charged to them by their office. These fees are typically under $500.
How to Buy a Home in Philadelphia and the Suburbs
Below is a detailed explanation of the steps of how to buy a home in the Philadelphia area. Being prepared for your home purchase is the best way to avoid stress, frustration, and roadblocks. I recommend talking through the process with your Realtor® as you begin to think about buying a home so you can get your questions answered and know what to expect from start to finish.
Connect with a Realtor®
If you’re considering buying a home in the next 6-12 months, it’s time to connect with a Realtor®. You’ll be working closely with your agent so you want to make sure they’re knowledgeable about the areas you’re considering, experienced, organized, and detail-oriented.
When you connect with a Realtor® ask them to go over the home buying process with you and make sure they can answer your questions. An experienced Realtor® can also provide you with a list of experienced local lenders to help you with financing and budgeting.
One of the biggest mistakes that I see home buyers make is to wait until they’ve found the right house before connecting with a Realtor®. To see the home they have to scramble to find someone to work with or get a random agent who advertises on one of the major platforms like Zillow or Realtor.com by clicking the “Schedule a Showing” button. That person may or may not know the house or the neighborhood.
Most Realtors will begin by going over the home buying process and making sure you have your pre-approval letter in hand. You should expect to sign a document called the Consumer Notice which explains the types of agency relationships allowed in Pennsylvania and a Buyer Broker Agreement. The Buyer Broker Agreement creates the business and legal relationship between the buyer and their agent.
Determine Your Budget
The only way to determine your budget is to talk with a mortgage lender about your financial situation. Your lender will be able to narrow down the best loan options for you depending on your income, debts, and credit rating.
Knowing your budget and price point is the most important first step in narrowing down your target neighborhoods. You can use your budget to get a good idea of the size, features, and condition of homes in your ideal locations.
Get Mortgage Pre-Approval
Before seeing homes in person it’s critical to get mortgage pre-approval.
- Most real estate agents will ask that you get pre-approved by a lender before they will show you a home
- Sellers expect that potential buyers who visit their home have been pre-approved
- You’ll need a pre-approval letter to make an offer on a home
Most importantly, homes often sell very quickly and mortgage pre-approval can take a few days to a few weeks. You probably don’t want to fall in love with a home and have someone else buy it before you have a chance to make an offer.
A common myth about mortgage pre-approval is that when getting approved you’re committing to getting a mortgage. That’s not the case. You’ll commit to getting a loan after you go under contract with a seller and submit your mortgage application.
I recommend working with a well-known local lender instead of a big national lender. An experienced local lender will understand how things work in the Philadelphia area and can make your purchase far easier. I’ve seen many buyers lose out to competing offers because of their decision to choose a national lender with a reputation for making transactions difficult.
Narrow Down Neighborhoods
Once you’ve narrowed down your comfortable budget and price range you can easily identify neighborhoods that will meet your needs. The best way to do this is to look at recent sales of homes in your price range in various neighborhoods. When you find neighborhoods where the homes in your price range meet your needs you’ll have a great starting point. After that you can make sure they work for your commute and what you want in a neighborhood.
If at all possible, spend some time in your initial target neighborhoods to see if they are what you’re looking for. While you can change things like the cosmetics of your home, you can’t change the neighborhood. Be sure to look at things that may be important to you like local parks, nearby restaurants and shopping, transportation and neighborhood schools.
Search for Homes
After you have your target neighborhoods you’ll want to set up a home search through your real estate agent. Your agent will have access to the Multiple Listing Service, or MLS. The MLS is the database where real estate agents share their listings with each other so everyone has access to the same homes. The MLS is the most complete and accurate source of information for homes for sale and Coming Soon listings.
Your Realtor® will be able to schedule showings at any property listed for sale on the MLS. You’ll have one point of contact for all showings by working with a real estate agent.
Showings will typically be limited 30 minutes. While at the house take time to look for any obvious defects and see if the home has what your looking for as far as:
- Square Footage
- Natural Light
- Storage Space
- Layout and Design
- Updates and General Condition
If you like a home enough to make an offer then plan to do that right away. It’s a strong seller’s market in most areas in and around Philadelphia so homes sell quickly. You’ll have time for a more in-depth look at the condition of the property when you get a home inspection after going under contract.
Making an Offer
When you make an offer on a home your real estate agent will put the paperwork together. You’ll want to have your agent find out if there are other offers and how many. Your agent won’t get confidential details about any other offers but knowing whether or not there are other offers is helpful.
Most home sales require that the seller disclose any known defects. In PA, this will generally be on a form called the Seller’s Property Disclosure. You should get a copy of this prior to writing an offer.
Have your agent show you homes that have recently sold in the neighborhood with similar size, style, # of bedrooms, and condition. You can use this to help determine your offer price.
You’ll need a copy of the Mortgage Pre-Approval Letter from your lender when submitting your offer. Be sure to have this ready to go before you start looking at homes.
The offer will include every detail of the offer, not just the price. Offers include:
- Offer Price
- Deposit Amount
- Settlement Date
- Seller’s Money Toward Your Closing Costs, If Any
- When Your Offer Expires
- Personal Property Included with the Sale (ie, Refrigerators, Washers, Dryers)
- Your Mortgage Lender
- Maximum Acceptable Interest Rate
- Elected/Waived Inspections
- Inspection and Negotiation Timelines
- What Happens to Your Deposit if the Sale Falls Through
- Appraisal Contingency, If Applicable
Your offer may include any number of additional terms and conditions but this is the basic. Having conversations about these items with your Realtor® will help you navigate the offer process.
If all goes well the seller will accept your offer as-is. Another possibility is that they outright reject the offer. Or, they can make a counter offer and request changes of price, terms, or conditions.
Negotiate Counter Offer
If the seller makes a counter offer you can negotiate their offer, accept it, or reject it.
When all goes well and you and the seller come to agreement with a signed purchase agreement you are then “Under Contract.” It’s now time for a small celebration but there’s still a lot of work to be done.
After you’ve gone under contract you’ll apply for your mortgage. Most lenders will require a lot of the necessary documentation when they write the pre-approval letter. To apply for the mortgage you’ll send your lender a copy of the purchase agreement and provide any additional paperwork they require.
For most home buyers (and sellers) home inspections are the worst part of the home buying process. Buyers, especially first-time home buyers, can be easily overwhelmed by all of the items noted by the inspector. Inspection reports can easily 40-60 pages long.
The inspection report will note everything from major items of immediate concern to lots of tiny items that can add up over time. Talking through the home inspection process with your agent and the inspector before the home inspection is extremely helpful for most home buyers.
After the home inspections most contracts will allow you to either accept the house as-is, walk away from the purchase and get your deposit money back, or ask the seller to make repairs or provide you with money to make the repairs after settlement.
Most of the time there will be some negotiation of items noted by the inspector. Every situation is different and your real estate agent will help you choose what to ask for.
Your lender will order an appraisal when you apply for the mortgage. The appraiser makes an independent assessment of the value of the house to make sure the bank is making a good investment. If the appraisal report comes back at the sales price or higher that’s great news. But, if it comes in lower than the sales price it can cause major issues. This happens a lot as prices are increasing during strong seller’s markets. I highly recommend having a plan for a low appraisal in place when making your initial offer so you and the seller know what will happen ahead of time.
Before going to settlement, the day you take ownership of the property, you should do a final walk through of the home to make sure that it’s in the agreed upon condition. You want to make sure that the prior owners have vacated the property . . . yes, there are stories where they hadn’t moved out yet. You’ll also want to make sure that personal property that was supposed to be left at the house is still there and everything else has been removed.
The day that you finally take ownership of your home is called Settlement, or Closing. Settlement is typically held at your agent’s office or a title company office. Expect settlement to take about 2-3 hours, but it can take longer, or even be delayed into another day, so it’s best to schedule movers for after settlement day.
Home Buying Resources
How to Buy a Home in Philadelphia | Realtors and Lenders
Great Realtors and lenders will take the time to go over the home buying process and the loan process. They will answer your questions and help you know what to expect, help make sure that you’re looking at the right homes for your budget and needs, and make sure that you have everything in order and ready to go so that when the right home comes along.
Buying a home is a stressful process, no matter how smoothly it goes. Preparing for your home purchase will help reduce that stress as much as possible.
If you’re considering buying a home in the next 6-12 months, now is the time to talk with a Realtor and a lender. If you’d like to connect with an experienced Realtor® in Philadelphia or Montgomery County please send me an email at firstname.lastname@example.org.