The Home Buying Process
1. Hire a Professional Realtor
Purchasing a home is a legal transaction. While most rational people wouldn’t consider representing themselves in a court of law, neither should you represent yourself in a real estate transaction. While realtors are not attorneys, they are licensed professionals who buy and sell homes every day, and are aware of potential pitfalls that can arise in the home buying process that can ultimately end up in litigation. At that point, you will need to hire an attorney!
We’ll let you in on a little secret....
Working with a professional Realtor to help you purchase a home doesn’t cost you anything!
Here’s how it works: The majority of homes being offered for sale are listed with a professional Realtor. Your Realtor has access to more information on all of these homes than you can see online because they are members of the BLC (Brokers Listing Cooperative), which you may know as the MLS (Multiple Listing System). Sellers who hire a Realtor to market their home for sale, contractually agree to pay a specific commission to the listing agent for marketing their home, AS WELL AS a separate commission to your Realtor, also known as a Buyer’s Agent Commission. The seller actually pays YOUR Realtor to represent you and your interests in the sale of their home!
2. Financing Your New Home
It’s important to know the price range of the homes you can afford before you start your home search. If you plan to finance the purchase of a new home with a mortgage, you will want to get a pre-approval letter from your lender.
It is highly recommended you work with a local lender, and your Realtor can provide you with good lender recommendations. A local mortgage representative tends to be more responsive and accountable when it comes to processing your loan, being available to answer questions and getting everything to the closing table in a timely manner.
You will want to talk to your mortgage lender about the different types of loans available, and which type of loan is best suited for your financial situation. You will want to discuss your down payment options, closing costs and the interest rate you can expect to receive. All of these factors will determine the amount of your monthly mortgage payment.
3. The Home Search
Once your budget is established, you can start looking for your dream home!
Your Realtor has the tools to create a very specific home search to meet your personalized needs. This will make your home search more efficient and effective in finding the perfect home in a timely manner.
As you talk to your Realtor about your specific needs, you should consider the following:
- Are there specific geographic boundaries that you want to limit your search to (ie: proximity to work, school, family etc.)?
- Is the school system important to you?
- How many bedrooms, baths, square feet, and acreage do you want?
- Do you want a ranch or two-story home? Does the age of the home matter? What kind of garage or parking is needed?
- Do you want a maintenance-free community? Do you want a home or neighborhood with a pool?
Your Realtor can get very specific results from the criteria you provide. If you aren’t seeing the results you hoped for, you can talk to your Realtor about narrowing or widening your search criteria to find the best fit for you.
4. The Purchase Agreement
When you find the right home, you will be in a position to make a Purchase Offer. Your Realtor will help you determine a fair market value for the home, and will discuss a negotiating strategy with you to determine the terms of an offer that makes sense for you.
Your Realtor will review every part of the Purchase Agreement to be sure you understand all the items on this document. There will be dates you are responsible to comply with, including the closing and possession dates, making formal mortgage application, having inspections completed and obtaining homeowner’s insurance. The Purchase Agreement will also clarify specific items that will be included or excluded in the home sale. It’s important that no detail is over-looked on the Purchase Agreement because it is a legally binding document.
You should be prepared to write an earnest money check at the time of your offer. Typically the earnest money is about 1% of the purchase price, and it is deposited only after the Purchase Agreement is accepted and signed by all parties.
5. The Inspection Process
As part of your due diligence, you will want to schedule a home inspection, which will typically cover the mechanical systems, functional elements, and structure of the home. There are additional inspections you might wish to consider, including termite inspections, radon testing, mold testing etc. A professional home inspection generally costs in the range of $400- $600 depending on the size of the home. We strongly recommend you attend the home inspection, and walk through the house with the inspector to ask questions if issues arise.
Upon completion, the inspector will provide a detailed report of the inspection and highlight any potential problem areas. You and your Realtor should review the inspector’s findings together and determine if there are any items you want to request the seller address before the closing. Your specific requests will be submitted in writing to the seller in the form of an “Inspection Response” and the seller will have the opportunity to respond to your requests as part of the binding contract. If for any reason you are unable to come to a mutually agreeable solution to the inspection requests, it can potentially terminate the Purchase Agreement. This is one area you are sure to benefit from the professional counsel of your Realtor, in order to avoid potential litigation.
6. The Underwriting Process
Your lender will need a copy of the fully executed Purchase Agreement to start the formal mortgage application and underwriting process. Your lender will require financial documents, which may include tax returns, paycheck stubs, W-2 forms, and bank statements. It is critical you provide this information to your lender in a timely manner so they can meet the closing deadline.
Your lender will also order an appraisal of the home. The lender will not issue a mortgage for more than a home’s appraisal value.
Once the lender has officially approved your mortgage, they will provide a closing package to the title company and let them know you are clear to close.
7. The Closing Table
The title company will coordinate all the paperwork for closing, and the actual closing is generally held at the title company’s office. They will provide a title insurance policy that guarantees the property is being delivered to you with a clear deed, without any liens or encumbrances. The title company will obtain the new loan information from your lender, and prepare a Settlement Statement for your review. The Settlement Statement outlines all the costs associated with the transaction and will detail the exact amount of money you will need to bring to closing. Your lender should be able to provide you with this information as well.
8. Your New Home
When all the documents are signed and the keys are exchanged, you are now ready to move into your new home and enjoy all the benefits of home ownership!