Here are some helpful steps as you begin the process of finding a new home.
Step 1: Go shopping for a mortgage. This may seem backwards to look for a mortgage before you find a house, however, this is so important to do first as it will give you guidance to the shopping experience. Talking to a Loan Officer will give you a more accurate idea of how much you can borrower. Also, when looking at difference mortgages, although you may qualify for a larger loan amount, you will soon be presented with monthly mortgage payments and only you know how much you can comfortably handle.
As part of looking for a mortgage company to work with, getting pre-qualified for the amount you’d like to borrow is critical. The pre-qualification will check credit, employment and assets to be sure you meet all product guidelines. Then, once you find a home, you will simply need the purchase and sale and the appraisal to complete the process. Sellers typically want the buyer to be pre-qualified because there’s less risk the deal won’t go through.
Step 2: Find a good lawyer. Get a referral from a friend, the mortgage broker or just ask around and check the web. It’s important for a lawyer to be involved once the negotiation process starts and if an offer is accepted, they will need to review all documents before signing.
Step 3: Find out what houses are selling for in your area. Get a feel for prices in the area where you want to live. Look at the selling prices and not necessarily what the homes are listed for. Drive around and see what is happening in terms of number of houses for sale, what has sold, and what is available for new construction. Have an idea of a town or two or three that you are interested in before you start looking with a realtor.
Step 4: Make sure you have a down payment. Mortgage products vary in terms of required down payment. There are some with no money down (VA loans) to others requiring 25% down (investment properties). Some products require the borrower to have a minimum amount of the down payment from their own savings, after that, the funds may come from various other sources. This is an important part of the process for you to review with your Loan Officer early on to be sure the funds you intend to use for down payment are acceptable.
Step 5: Find a Real Estate agent. The best way to find an agent is through a personal referral. You’re trying to find someone you can trust, who is knowledgeable in their area, and who will see the deal through to the end. Real Estate Agents need to fully understand what you are looking for so that they research and show you the right properties. If they begin to show you otherwise, consider looking for a different agent, they are clearly not listening. Do not allow them to talk you into a property that does not feel right for you. What you would call a broken down shack becomes a “fixer-upper with charm.” Don’t be afraid to say no, continue to look as long as possible, but be ready to react when you see the right property. That way, they know you are a serious buyer and will provide the service you need.
Step 6: Find your new home. Start your active home search. Be sure to compare one property with another in terms of location, size, features, etc. You may find a house you fall in love with, you may not get it, and if you don’t, know that it was meant to be and move on. When you find a home and want to move forward, make a reasonable offer, based on the other houses you’ve seen and recent sales of that are comparable to the home. You don’t have to offer full asking price, but if you go in too low, the seller may not want to deal with you. Depending on the market area, homes my go below or in some cases above asking price. Know the market so you are in the running when you present your offer. The stronger you go in, the more likely your offer will be accepted.
Step 7: Wait for a reply to your offer. Now the waiting begins! Once you present the offer, the seller will decide if they will accept. If you have bid lower than the list price, you can expect a “counter offer” higher than your bid. This negotiation can go back and forth a few rounds until you settle on a price.
Step 8: Your offer is accepted: At this time, you may be asked to put down an additional deposit. Otherwise, this additional deposit will be required once you sign the Purchase and Sales agreement. The offer will be made subject to a home inspection. You will want to contact a home inspection immediately since typically you have 10 days to have this completed.
Step 9: Call a home inspector: You have the option to have a home inspection, please take it! Schedule the home inspection as soon as possible because you only have 10 days to have the inspection and make the final decision if you want to move forward with the purchase. Go to the home inspection appointment, you will learn a lot more about the house. It’s the home inspector’s job to give you current condition of the property as well as determine if it meets codes. They may recommend additional tests, based on the findings (well, pest, etc.). Once you receive the report, review it to be sure you are satisfied with the property and there are no major concerns.
Step 10: Call your lawyer. The seller’s lawyer will prepare the Purchase and Sales Agreement and send it to your lawyer for review. This document must be read carefully. There are “standard” clauses, but there’s no such thing as a “standard” real estate contract. Understand what each clause says even if you don’t follow the language in it. This is why you want an attorney who takes the time to explain things. Go over the “contingencies” very carefully. The most important contingency is the Financing Contingency. Without this contingency, the contract says you have to buy the house anyway. Typically you will need 30 days from the date you sign the P&S to meet this. Others contingencies include but are not limited to: 1) the house has to conform to local zoning laws; (2) the seller has to have clear title; (3) there are no “major” problems like a faulty foundation, etc. These are negotiable: you can try to put whatever you like in the contract and the seller can agree or disagree with these contingencies.
The contract will also set the closing date, which is also negotiable.
Step 11: When the Purchase and Sales is okay, sign the contract and provide the deposit check. When you sign the Purchase and Sales, you are asked to provide an additional deposit, typically at least 10 percent of the cost of the house. You give the down payment check to your lawyer or the Real Estate Broker, however, they do not keep it. Your money goes into escrow, neither you nor the seller has right to these funds until the sale closes. If something goes wrong, you may or may not get it back. If the sale is cancelled because one of your contingencies wasn’t met, you should get it back. If not, you could lose all or part of your down payment, even if you don’t buy the house. You may have cost the seller another buyer by signing a contract and then not following through.
Step 12: Submit your mortgage application. Sometimes the mortgage application is submitted prior to the actual signing of the Purchase and Sales agreement. This can be done and is a good idea as long as you have an accepted offer. If you choose to lock in your rate, be sure it covers you until the closing date. As part of the application, you will be provided with an estimate of closing costs and various state and federal disclosures, which are required by law. You will also receive a list of documents needed to process the loan and a request for an application deposit. Review all disclosed fees to be sure that they are what you discussed with your loan officer. All documents should be reviewed before you sign them so you completely understand all parts of the mortgage application. Some common closing costs include: appraisal fee, credit report fee, underwriting fee, mortgage “points” (a percentage of the loan amount), attorney fee, title insurance (in case the title proves faulty), government recording fee, transfer taxes. Escrows also need to be considered as part of costs required to close. This would include partial interest payment and partial property taxes (if you close in the middle of a month), and a home owners policy, to be paid in full for one year.
Step 13: Provide necessary financing paperwork Your mortgage company will provide you with a list of documents that are needed to process the loan. It’s extremely important to return these documents and the signed application and disclosure as soon as possible. Upon receipt, the documents will be reviewed and additional documents may be requested in order to be sure there are no additional questions regarding your income, assets etc. before the file is submitted to underwriting for approval. Once your loan is approved, you will be issued a commitment letter. Be sure you review the conditions contained in the commitment letter so that you know you can meet all deadlines. If you are concerned, do not accept the commitment and be sure to have the conditions cleared before you do accept the commitment in order to meet your financing contingency date. Once all conditions are met, you loan is considered “cleared to close” and you are then ready to complete the mortgage financing transaction.
Step 14: Schedule your closing: Contact the closing attorney to schedule a time and place for the date determined within the Purchase and Sales agreement. Your closing attorney will review documentation and fees related to the transaction and will determine the cash required to close – letting you know what checks you will need and why. The closing attorney can review any documents with you prior to closing.
Step 15: Closing day: This is the big day - you sign all the necessary papers that will transfer ownership. Don’t forget to bring your checks. There is a lot of paperwork that you will be signing and several checks you will be providing. Be sure the attorney reviews all documents with you prior to you signing. Be sure the mortgage terms are exactly what you agreed to and that the closing costs are as well.
Congratulations! You are now the proud homeowner of your dream home!”