Buying a home? What is the process?
Buying a home is one of the most exciting and sometimes horrifying experiences adults face. It can be exhilarating in the beginning, labor intensive in the middle and exhausting by the end. Some deals just go that way, but not every deal needs to wear you out by the end. If you are armed with information, buying a home can be a smooth and fun experience. Let me show you how.
Buying a home: Step 1
The first step in buying a home is financial. You need to know where you are financially to make an offer on a home. The process starts by looking at your finances and determining if you’re in a place to buy a home. You may be able to do that with a lender, but you can also talk to a credit counselor to figure out what your financial commitments tell you about a near future home purchase.
Most lenders are happy to sit down with you and talk about what your financial capabilities are when you hope to buy a home. You’ll want to make sure you have enough income available to make your mortgage payment while continuing to pay your utilities, car payments, student loans, etc. A lender can help you find out what is left once you pay your monthly reoccurring debts.
If you keep your steps in order, you’ll end up with a great result, but if you mix them up, you may end up frustrated and disappointed. If you call a Realtor first and the Realtor says you need to talk to a lender first, trust her. You’ve got to know your numbers before you go shopping.
Make sure the lender you work with is a reputable lender with good references. I worked with a young couple in 2016 that had an online lender’s pre-qualification letter when we met. I looked at their pre-qualification letter amount and it seemed a lot higher than a young couple with one income and an entry-level job would have. It was.The letter led them to make an offer on a home that was nearly $100,000 over their credit-worthiness. They were crushed, and I was sad for them because they needed a home to meet their growing family’s needs. I became suspicious of the first lender letter as we worked together and talked about their finances. I asked them talk to a local lender, and they did. Sadly, he discovered a huge discrepancy in their online pre-qualification letter and their reality. You’ve got to know your numbers. Once you know what you can afford in a mortgage, you know what you can offer for a home. THEN it’s time to talk to a Realtor.
Buying a home: Step 2
Now, it’s time to find a Realtor. Once you know what you can spend, you can start searching for a home that meets your wants, needs and desires. Those three criteria may change often throughout the process. Needs weigh heavy on the three, but you don’t want to sideline your wants and desires until you’ve had a good look at the market. You may find that your wants and desires fall into a class that exceeds your budget. At that point, you have a decision to make. Do you continue your search hoping for that needle in a haystack (and they do exist), or do you buy something that meets your needs, but isn’t the dream house you envisioned?
My encouragement is to find a Realtor who will sit with you in his/her office and look at properties online until you narrow your search down to a manageable number. Once you’ve set that number, then you can hop in a car and take a look.
A lot of first-time home-buyers let their enthusiasm for the process take over their logical side. I urge my buyers to do drive-bys before we go out to look at homes. It is not unusual for a buyer to send me 20-30 houses they want to look at over a weekend. That’s difficult in the best circumstances, and it’s even more complicated when they are spread out over two or three communities miles apart. Narrow the search down in the Realtor’s office so that you don’t waste your time looking at homes that really aren’t matches for you.
Buying a home: Step 3
The third step in buying a home is writing a contract. Once you’ve found a home that meets your criteria, it’s time to write a contract. In this phase, you are going to set the limits for your purchase. You will state what price you are offering, how much money (if any) you are putting down as a down payment, the type of loan you will be using and when the appraisal is due to be done, the interest rate you’ll be paying, if you will be requesting closing costs help, whether you’ll be doing a home inspection, who will be closing the sale for you, and when the closing date will be.
There will be a lot of activity that takes place once the contract is ratified, but first, you’ve got to get the seller to agree to your offer. That may mean you and the seller may go back and forth in negotiations until you mutually agree to an acceptable deal for all. Once that’s done, a new phase of the process takes over.
Buying a home: Step 4
Now, it really gets busy. I don’t want to scare you, but getting a contract accepted is the easy part. Once you’ve accomplished that, a whole myriad of things take place. First up, there is a home inspection. A home inspection typically takes place in the first 10-14 days after ratification of you contract. You want to get that out-of-the-way upfront because it may show information that causes you to decide not to buy a particular property.
A home inspection is designed to look at the home from a lot of different perspectives. The inspectors will look at the components and systems, including, but not limited to the plumbing, electrical, heating and cooling, roof, insulation, foundation, construction and appliances. Home inspectors are not code enforcement officers and they should not say things like, “This is a code violation,” when they see things they think might be a modern-day code violation. What they should say is, “You may want to have a licensed professional check this to make sure it is safe.”
The reason I state that, is because codes change. A home constructed in the 60s that passed all standard code compliance inspections in the 60s will not meet code compliance standards in the current day. That doesn’t mean the house is unsafe, it just means that codes change and the house may not have been upgraded to meet more modern codes.
It is fine to ask a seller to bring certain things up to modern codes, but there is a limit to what most people will do. So, if the home seller comes back and say, “It met all applicable codes at the time of construction,” he is likely correct. At that point, you can walk away, or you can accept whatever the seller is willing to do with your requests.
When you ask for home inspection repairs, always request that the seller used licensed professionals to get the repairs done. This is no time to have a sub-par handyman working on the home. Repairs need to be done by professionals.
Home inspections cost different amount based on the property, place, inspecting company and how soon the inspection needs to take place. The fee will be paid at the time of the inspection by you, the buyer. Once you get past the home inspection and the negotiations that follow, you’re ready for step 5.
Buying a home: Step 5
Now, lenders and closing take the lead. Once the home inspection process is over, the lender and the closer to get involved again. The lender is going to start the loan approval process. That means you will need to verify what you originally told the lender by providing evidence of income, debts and credit-worthiness.
A lender will look at your payment history, your income stream over time and the steadiness of your financial life. The lender wants to know that you can buy a home and that you can pay for a home faithfully. At this point, everything is about verification. Before any lender will loan you money, he wants to know you will pay it back. That’s a simple process and conclusion.
Also at this time, the lender will call for an appraisal on the property you are buying. The appraisal is done to confirm that the property is valued at or above the loan you are applying for. The lender will loan money based on the lower of the offer price or the appraisal.
At the same time, the closing attorney or title company will be looking at the history of the home which is recorded in the courthouse. They will be looking for any issues that need to be addressed before closing. Most closers will check at least 60 years of the property’s history. The goal is to make sure the title to the home can be transferred from the seller to you without any legal hurdles that might present legal liability later. A good closing attorney can save you a lot of headaches in the long run. You want what is called “clear title” before you sign any documents at the day of closing. A clear title means that there are no encumbrances (clouds on) to the title, and you can have that with a good closing attorney.
During this period, your Realtor may seem MIA, but the truth is, there is little for the Realtor to do during the lender underwriting and title search period. He/she will be making sure repairs are done on time, pest inspections and water tests (if necessary) are done, but there is limited need for the Realtor to be heavily involved at this phase.
Buying a Home: Step 6
If you survived the first 5 steps, you’ve made it. It’s time to close. At closing, the work the closing attorney has done, and the reams of paper the lender has generated will all show up. You’ll sign documents for about an hour and the home will be yours.
Just before the closing, a few things will happen. Shortly before closing, your lender will pull your credit one more time to make sure you’re still a credit worthy buyer. You never want to take out a loan, buy anything on credit, skip revolving payments, quit your job or anything else that would negatively affect your credit during this whole process. Once the lender has verified that you are still credit-worthy, he will issue a “clear to close” to the closing attorney.
The funds to buy your home will be transferred, you’ll sign for the loan and you will be given the keys. The entire process take 30-60 days depending on what loan you are using. Government backed loans tend to take a little longer to close, but they are not radically longer.
This is a simple look at buying a home. There are a lot more details in many of these steps, but you get the gist in these six steps. When you’re ready to make that home purchase, be sure to call the Cornerstone Business Group, Inc. We are your local real estate sales pros, and we can help you navigate this process successfully.