How to Purchase a Home
1-Figure out your needs
Congratulations on deciding to purchase a home! Buying a home is a process not an event. Your next decision is selecting a professional real estate agent to guide you down the home purchase path. The right real estate agent will be your best resource in the home purchase process. It’s important that your agent has experience working with home buyers will be very familiar with the market in which you’ll be purchasing your new home. Your agent will help you determine what kind of home and neighborhood will best fit your wants and needs. Deciding on what you’re looking for is the first step in an efficient search process.
2-Get Preapproved for a Loan/Mortgage
A savvy listing agent won’t even consider an offer unless it’s accompanied by a pre-approval letter. Start with a bank you currently have a financial relationship with to get pre-approved for a loan. Even if your current bank offers loan products, it’s also wise to speak with you real estate agent about other local lenders who may offer competing products. Different lenders often offer alternative loan products, so it’s important to familiarize yourself with the options available and work with a lender who offers completive rates and a quick turn around. A approval letter allows the seller to know that:
A) You are serious about purchasing and have put the time and effort into getting your finances in order
B) A lender is willing to do business with you
C) The chances that your offer won’t get to closing because of financing problems are minimal
This process also allows you to shop for a loan and figure out what loan options best fit your housing and financial goals. Ask the loan officer for a Good Faith Estimate(GFE) so you can compare different loan options. This GFE will break down the costs associated with the loan. The loan officer will also allow you to determine what monthly payment works best for your budget.
3-Start your house hunting!
Once you know your budget you can now dig deeper into what housing are available in your price range. You’ll work with your real estate agent to start searching for properties that fit your specific criteria. An attentive agent will work in partnership with you to search the market for available homes that may be a fit for you. Your real estate agent may also elect to set up an automated search for properties so you receive an emailed alert as soon as properties matching your criteria come on the market. Let your agent know how often you would like to be contacted with a property update.
4-Make an offer
Once you have found a house that you’d you’re interested in buying, your real estate agent will determine market value for the property and assist you on an offer strategy. To do this the agent will review recent sales that are similar in size, location, amenities, etc to the property you’re interested in. Real estate agents call these similar properties "comparables sales" or “comps.” After you’ve made a decision on your initial offer, you’ll work with you agent to draft an offer. It is important that you understand the offer because it will become a binding contract if the seller accepts your terms. Note that if the seller changes anything in the offer, you must approve those changes before the offer can become a ratified contract.
5-Ratify the Contract/Full Contract Agreement
It is rare that a seller will be okay with all of the terms in your initial offer. In most cases, the seller will make changes to the offer and make a counter offer. It’s at this point in the negotiation process where your agent’s negotiating skills and experience are extremely valuable to you. You’ll work with your agent to formulate an counter offer that is in your best interest. Keep in mind that you can negotiate just about all of the terms when purchasing a home. Once a buyer and seller are in agreement of all terms and all parties have signed the contract it becomes a "ratified contract."
6-Work through Contingencies/Prepare for Settlement
Once the contract is ratified, there is still plenty of work left to do. You’ll need to work through a number of “contingencies” before you can actually purchase (settle) on your new home and move in. Most contracts include appraisal, financing, and a home inspection contingencies but often times there will be additional contingencies standing between the ratified contract and closing. Contingencies are built into the contract and allow you time to make sure this home purchase is in your best interest. We like our buyers to operate in a logical order so they only spend the money they have to. The contract will outline home much time you have to complete your home inspection, appraisal and financing.
The first step after a ratified contract is typically a home inspection. A thorough home inspection will bring up any repair items that need to be addressed. Some houses may have more defects than meets the eye. After the home inspection, you may want to renegotiate with the seller or rescind your offer all together depending on the home inspector’s finding.
If your offer is contingent on an appraisal then the lender will send an appraiser to the property to make sure that the price you are paying for the property makes sense with what other similar properties(comparables) are selling for. An appraiser is an independent third party who verifies the value of the home. Almost all lenders require an appraisal as part of the financing process.
After the home inspection and appraisal have been completed, you’ll still need the blessing of your lender’s underwriting department. Most lenders require additional documentation before they give the final okay to issue your loan. Loan underwriting requirements are part loan process. A good loan office will collect most of the required documentation up front, but often times additional verification may be required. This isn’t anything to worry about. As long as you haven’t had any significant changes in your financial situation since your original application, then final underwriting approval should be nothing more than a formality.
In advance of settlement (usually at least 24-48 hours prior to settlement) the title company will be provided a copy of the HUD1 for your review. The HUD1 is a standardized document used in all residential estate settlements. The HUD1 itemizes the credits and debits between all parties involved in the transaction. Your agent as well as your lender and the title company will review this document to make sure that is accurate prior to closing.
The day of the closing you’ll complete a final walk through of the property. At this time, you will make sure all requested repairs have been completed and the seller has left the property in the condition that was agreed upon in the contract.
Closing (also known as settlement) is the time where all parties meet and the property is legally transferred from seller to buyer. This process usually occurs at the title company's office. An attorney and your real estate agent will be present to review all documents. The title company will coordinate all the document signing and disbursement of funds.
Congratulations! The process is now complete and its time for you to move into your new home! Throw a home warming party or go shopping for new furniture! Enjoy your new home!