If you have never purchased a home, starting the home buying process can feel overwhelming. How do you get a home loan? Do you qualify? How do you pick a home? Who writes the offer? What happens when you are under contract? These seven steps will help guide you through the home purchasing process.
Step One: Choosing a Real Estate Agent: My first recommendation is to find a qualified real estate agent in your target area to help guide you with the home buying process. An experienced real estate agent can be a fountain of knowledge. They know the area and are familiar with sale prices; they have recommendations for lenders, inspectors and title companies. Your real estate agent will request your home criteria andset you up on a saved search (email updates when new homes matching your criteria hit the market) and schedule appointments to view properties.
Step Two: Obtaining Pre Approval: This step actually goes hand in hand with Step One because your real estate agent will more than likely ask you in the beginning; how you plan on purchasing your home? Unless you have cash available in the bank, you’re going to be using a home loan. Your home loan will most likely be a conventional, FHA or VA loan, depending on your down payment, credit history, and military status. Once you find a mortgage lender that you would like to work with, they will ask you basic questions regarding your financial and employment status. Most lenders will also request documentation (pay stubs, bank statements etc;) to verify the verbal information that you provided, which is very useful for your pre approval letter. In today's active market it is very important that you obtain a pre approval letter from your lender prior to beginning your home search or submitting an offer. The pre approval process will allow you to determine a more accurate price range and it will inform sellers that you are a serious and able buyer.
Step Three: Writing the Offer: Once you select the home you would like to place an offer on, your real estate agent will look at comparable properties that have sold within a mile radius or within the specific community to establish a good initial offer based on recently sold comparables in the last 6 months. In addition to negotiating the sales prices there are many other terms within the purchase offer that can be negotiated, such as; closing date, earnest money, closing costs, condition of the home, home warranty and inspection period, your agent will go over each item with you.
Step Four: Execution of Contract: Once your offer is accepted. You will pay the option money (out of pocket expense) and the earnest money, typically 1% of the sales price but negotiable (out of pocket expense). You should receive a credit at closing for both the option fee and earnest money unless you choose not to (option fee). Once you have an executed contract, your real estate agent will send a copy to your chosen lender. Your lender will then contact you to begin the financing process (loan application must be signed, additional documents submitted, financing terms agreed on and conditions met etc.;)
Step Five: Option Period and Home Inspection: The option fee that you pay to the seller buys you the period of inspection, the duration of this period is based upon the negotiated number of days in your contract, it’s typically 5-10 days but can be more or less. During this time is when home inspections occur. The home inspector is a third party inspector of your choice. Home inspection costs vary depending on the size of the home and the prices of the home inspector you select. This is also an out of pocket expense and will NOT be credited to you at closing. It is highly encouraged that you and your real estate agent attend all home inspections in order to fully understand the condition of the home that you are purchasing. After the inspector is done with his report he will provide you a copy that can also includes pictures. From this point, if you wish to either ask the seller to make repairs or provide funds for the repairs your agent must do that within the option period. If for any reason you wish to back out of purchasing the home it must be done within the option period to receive your earnest money refund from the title company (not the option fee).
Step Six: The Appraisal: Once the home inspection and negotiations are completed we will ask the lender to order the appraisal, this is another out of pocket expense for you as the buyer and the price will vary. It is important to discuss this cost with your chosen lender upfront to be sure you have the funds required. Appraisal fees are typically credited to you at closing as well.
Step Seven: Closing: From the moment the contract is executed Title is opened on the home either at a Title Company of the buyer’s choice or the seller. When a home is purchased through financing it can take 30-45 days to close. Title is responsible for reviewing and preparing your deed to the home as well as communicating with your real estate agent and lender to work towards an on time closing. Your closing will take place at the title company unless you are unable to attend, in which case you need to notify your real estate agent in order for the title company to make arrangements for you ahead of time.
There are many moving parts to purchasing a home and also many unexpected circumstances that pop up during transactions. It's extremely important that you choose to work with an experienced agent that can guide you through the entire home purchasing process.