By: Agnes A. Gaddis on Oct 26
Can you believe that it is possible to live in California today, make an offer on your dream home in Springfield, Missouri tomorrow, and close within a month? The prevalence of remote work and state-of-the-art real estate technology has made it easier than ever to search for homes without concern for geographical limits.
Millions of Americans now work remotely, far from corporate HQ, and sometimes from the flurry and fuss of city life. In fact, during the 2020 Covid-19 pandemic, one in five Americans moved or know someone who moved, especially from big cities. One of the primary reasons for this exodus was affordable housing. People relocated to suburbs and vacation hotspots in search of larger, less expensive homes as more companies became remote-work-friendly.
Buying a home in one state while living in another, whether it be for more affordable living, work reasons, or as a second home, might not be as straightforward as buying in your current state. It can be challenging to purchase in a place you are not familiar with- housing laws, walkability of the community, home maintenance concerns, etc. can be vastly different from one state to another. This article is a step-by-step guide to follow if you are considering buying out of state.
How to buy a house of out state
1. Learn about the local market- prepare for competition
When you are researching different areas, you should ask yourself, “should I prepare for a buyers’ market or sellers’ market?” Today, buyers should expect competition in many markets in North America as it is primarily a sellers’ market. In a sellers’ market, many buyers compete for a limited supply of real estate listings. So, what do you do in these cases? Act fast. Additionally, team up with a real estate agent who is knowledgeable about the local market and neighborhoods you are exploring. An agent is a great asset when it comes to speedy and seamless transactions.
When you’re looking to buy a house out of state, consider what factors are important to you in terms of location and property. For example, are you looking to live somewhere with a more temperate climate? Do you have concerns about the age of the properties in a certain neighborhood? You will want to research as much as possible before making an offer. We recommend researching the area’s job growth, walkability (especially if you aren’t keen on driving often), school system, transport facilities, shopping centers, and parks. There are online tools to make your research easier. For example, you can search for your desired city on Census.gov or Statcan.gc.ca. You can also read reviews on sites like niche.com or bestplaces.net. That being said, an expert realtor is always your best bet for market information. The best realtors know the ins and outs of the local market, should be able to answer any questions you may have, and point you to reliable resources.
2. Research and contact a good buyer’s agent
A trustworthy buyer’s agent is an indispensable part of your team when buying a house out of state. Read testimonials from past clients and ask the agent about his or her experience, especially as it relates to out-of-state transactions. Experienced agents are great resources when it comes to recommending other reliable professionals such as home inspectors, contractors, moving companies, etc. They also save you time by curating a list of homes that match your criteria and price range.
When you’ve found the home you desire, your buyer’s agent will advise you on how to negotiate and what contingencies to include in the contract. Be aware that some states allow dual agency, so it is possible that your agent could represent the home seller as well. Although this is not the norm, it is rarely a problem due to the high standards expected of real estate professionals. However, if you have concerns, you should ask your agent in advance.
3. Find a relocation expert
While planning your move, you should contact a relocation expert to make your out-of-state transition easier. Their services are often free to the mover. They get paid referral fees from vendors and moving companies they refer. Relocation specialists can help with a variety of tasks, such as:
- Suggesting a realtor to sell your current home
- Finding a long-distance moving company
- Collecting school enrollment information
- Arranging home repairs at the new property
- Helping to rent self-storage space
- Shipping automobiles
How do you find a relocation expert? We recommend checking out sites like PODS or Realty Executives Relocation. You can also search for experts in your city with CRP (Certified Relocation Professional) or GMS (Global Mobility Specialist) designations.
4. Get to know local real estate laws
You need to know your target area’s real estate laws, not just from online sources but also from your agent and other property owners in the area. Some laws are specific to the local neighborhood. For example, you must purchase flood insurance in some Florida counties. But ideally, you want to know the state’s laws regarding:
- Property disclosures. What must be disclosed to a buyer before closing on a property?
- Land use limitations. What laws control what you can build on and how you use your property?
- Contract agreements. If you plan to rent out a home for AirBnB or long-term renting, what rules apply to landlord-tenant agreements?
- Taxes. Homeowners may have to pay capital gains or other taxes, which vary by state. Generally, if you sell a property that you have owned for less than two years, expect to pay a higher amount in capital gains taxes.
- Second homes. What laws control buying a second home in another state?
Instead of depending on online sources, you could consult with a local lawyer to help you understand what applies in your target state.
5. Leverage technology- limit travel
In the last five years, real estate has felt the positive impact of disruptive technology. Right now, buyers can view drone footage of homes that are 2000 miles or more away. Documents can be signed online, making it easy to close on out-of-state real estate without leaving your current state. You can view homes through mobile apps and access unique information on getting mortgages.
Physical viewing can be replaced with 3D Matterport scans, 360 virtual tours, and videos. You can take advantage of Facetime and Google Hangouts to converse with your buyer’s agent from any part of the world. With technology, you can expedite much of the home buying process. If your real estate agent isn’t familiar with using some of these tech tools for home buying and selling, that’s a big warning signal.
6. Organize financing
Now it’s just a matter of making yourself credit worthy.
- Setup a money savings plan for meeting down payment requirements.
- Don’t just interview one lender. Talk with at least three different lenders and see what interest rates they offer.
- Handle all your bills promptly. A lender will look at your DTI (Debt to income) ratio before approving your mortgage application. If your DTI is high, you may not be able to secure a mortgage. Set up reminders or automatic bill payments to avoid late payments.
- Check your credit report periodically. Fix errors on your credit report before your lender starts looking into your credit.
- Get pre-approved before seeking out homes. This article presents some reasons why you should be pre-approved before searching homes in your target state.
7. See the home virtually and physically, if possible
Today, you don’t need to show up to view homes in person. You can check out videos and virtual tours of homes online. This is why the percentage of home buyers making sight-unseen home purchases when buying a house in another state increased. Redfin estimated that 33% of home buyers bought homes sight unseen in 2020. This means that they bought their home without physically touring the place.
Buying a house in another state sight unseen is risky, especially in a hot market, where you may be compelled to waive the inspection. Online information can be incomplete, and the property may include some flaws that could be costly to repair in the future. It’s essential that you go and physically check out the property- especially if you are planning to waive the inspection.
If you cannot physically travel to the property in person, ask a friend or family member living in that state to accompany your agent and take videos of the property and surrounding area. These videos will show you how the property looks in real life. Remember, most real estate professionals are more than happy to do this on your behalf!
8. Conduct a home inspection
A home inspection contingency allows a buyer to back out of a transaction if there are costly repairs uncovered on the property or if the seller is unwilling to make requested repairs. Some fixes are mandatory, like removing mold or electrical hazards. However, many minor fixes can pop up on an inspection report (like a leaky faucet). It is common for a seller to resolve the issues from the home inspection or negotiate which items will be fixed to keep the sale process rolling. Major defects like roof leaks or faulty electrical wiring are expensive to fix and will affect your safety in the home. It’s important to detect these early to make an informed purchase.
Ideally, you should be present during the inspection. The inspector would be able to reveal to you directly what they found and how critical it is. You’ll also be able to ask questions about any problem the inspector reveals. The typical inspection lasts two to three hours and would reveal:
- Safety issues
- Major and minor defects
- Items that should be replaced in the near term (like appliances, AC units)
Regardless of whether you attend, expect a full inspection report with photos so you have a better grasp of the condition of the home.
9. Close on your new home
Nowadays you can close on a home from out-of-state since closings can be handled digitally. Remote online notarizations, remote ink-signed notarizations, and mobile notary services are being used in the real estate industry today to speed up closings.
For documents that require physical signature, instead of traveling over, those could be sent via direct mail. Your real estate agent or relocation expert should be able to recommend a good title or escrow company and assist you through the closing process. Note that closing may take a bit longer than you expect as banks may require extra paperwork or sellers may request an extension.
Can I get a mortgage for a house in a different state?
It’s recommended that you get preapproved for a mortgage before relocating. This initial pre-approval letter shows sellers and real estate agents that you are qualified to make a large financial investment. In many cases, buyers may even need to supply proof of pre-approval before visiting properties.
However, even with a pre-approval letter, it doesn’t mean your financial situation won’t be reassessed before final approval. A lender primarily wants to know that you can repay a loan regardless of where it is located. Typically, the lender will want to see that you have job stability, solid credit, and money for the down payment. This means that your lender will request information like W-2s from the last two years of employment, copies of bank statements from the previous 60 days, and more.
Buying a home out of state is not only possible but can be exciting. However, you need to build a team of trustworthy professionals. Realty Executives’ network of experienced buyers’ agents and relocation specialists can help make your move to any state a breeze.
Author Bio: Agnes A. Gaddis is a specialist writer for real estate SAAS companies. She is a contributing writer for Credit.com, CXL, Getresponse and Inman news. She’s a big fan of caramel coffee and mystery novels. Get in touch with her on Twitter @Alanagaddis or visit her website, agnesgaddis.com.