Buying or selling a house is likely one of the most emotionally, stressful and mentally exhaustive times that a person can experience. But what a great feeling when it is accomplished!
Most people only purchase a home once or twice in their lifetime. Because it’s not something you do on a regular basis, the majority don’t know how to do it. Here are basic steps to follow once you decide to purchase a home.
Find a lender and get a pre-qualification letter. This will let you know how much you COULD be approved for a loan. This pre-approval is based on a quick conversation with the lender who will ask you your credit score, income and debts. Be honest. The truth will come out eventually. Be upfront with the lender from the very beginning.
Keep in mind, this lender may not necessarily be the mortgage lender at the bank or someone you find online. Ask around, ask your friends, relatives and friend’s relatives. The biggest question to ask a lender is what their track record for closing a deal on time. This is an important one. Nothing adds more frustration that a deal not closing when the contract states it is supposed to.
Create a list. Make a wish list of your dream house. Start with columns:
Your musts are the number of bedrooms/bathrooms/garages, Schools, tax rate, price.
Would love to have are the neighborhood amenities, upgrades.
Icing on the cake includes huge walk in closet
And deal breakers could be age of home, condition, barking dog next door, etc.
All of these will be different for everyone.
Find a realtor. Realtors are everywhere; just like Starbucks. You will be in a relationship with your realtor, so you need to be sure your personalities mesh. Consider market knowledge, communication styles, responsiveness and professionalism. Once your realtor gets your list of wishes and deal breakers, the search begins.
Find “the one!” Now you have found the house of your dreams and you’re ready to make an offer. The realtor should run the comparable of that property and consider the condition of the home. From there, you will make a fair and reasonable offer. Now you wait….. Seller accepts OR seller comes back with a counter and ultimately you land on a price you both agree with.
At this point, the realtor will submit the fully executed contract to the lender and your countdown starts. TIME IS OF THE ESSENCE FOR THE NEXT STEPS.
Submit Earnest Money. Earnest Money is a deposit that is made directly to the chosen title company and is put in escrow. Here it will remain until the deal closes or you determine that you no longer want the property as a result of inspection or financing. This must be done within three days of executing the contract.
Deliver option fee to the seller. The option fee allows you a period of agreed upon days to get an inspection, rethink your decision, and dig a little deeper into financing. At any time during this option period, you can terminate the contract without reason. Inspections must be done and renegotiated within this time period.
Hire an inspector. Your realtor can offer some suggestions, or check out the google. The inspector should be thorough and check every aspect of the house. It is highly recommended that you attend the inspection. This is a fantastic opportunity for you to really see the house and investigate every nook and cranny. Costs will vary between $400-$800 depending on size of home.
Once the inspector is done, he will deliver a report to you based on his findings. The report will be anywhere from 20-120 pages. Do not be afraid. These are important details and your realtor can help you drudge through it. Keep in mind, unless you are buying a new home, there will be many items that are not up to current code or simply have normal wear and tear. This is completely normal and you should take this into consideration when requesting repairs.
Request repairs or sellers concessions. Once you have determined what you wish the seller to fix, your realtor will prepare and amendment requesting said repairs. You can ask for the moon, and hope that you land on the stars. It is unlikely that the seller will fix everything on that report, but you can certainly ask for major repairs such as your structural or mechanical items; roof, a/c, furnace, water heater, major plumbing and electrical. Be sure that you request that a LICENSED contractor complete the repairs. This is already included in the TREC contract, but it’s nice to give that friendly reminder.
The seller, at this point, can agree to entire request, partial request, or flat out deny the request. That’s when you must decide if you wish to move forward with the purchase.
Alternatively, the seller may prefer to lower the price OR give you a concession on the contract. The seller may not be able to make the repairs – perhaps they have already moved and left the state, or it’s an estate home, or they just don’t want to deal with coordinating the repairs. So, they give you a reduction in price in lieu of repairs. Or a concession, which will allow you to bring less money to closing.
Lending and full financial exposure. Inspections and negotiations are complete and now you are really in the thick of it in buying a house. At this point, any backing out of the contract will subject you to being liable to fulfillment of the contract and you will lose your earnest money. UNLESS, you are not approved for lending.
When you submit the contract offer, you will also submit a financing addendum. This protects you from losing your earnest money in the event that you are not ultimately approved for lending, or if the interest rate is significantly different from what you originally signed up for, or the property doesn’t appraise (case basis), or the loan fees are considerably higher than was initially presented to you.j
Now you and your lender will start having a very intimate relationship. They will request tax returns, bank statements, pay stubs, credit report, debts. It is very important that deposits in your bank statement are explained. For example, if you have a large deposit with no explanation as to where it came from, the lender may not approve your loan. Sometimes parents may “gift” monies to their children for the purchase of a new home. Be sure to ask your lender how to handle that money. It could subject your gift-or to providing their bank statements as well.
REMEMBER: There is an on or before close date on the contract. Do not be the reason for any delay. If you do not close by the stated closing date, you could be in risk of losing the contract and being liable for nonperformance. You must respond to the lender and provide necessary documents on a timely basis. No excuse, no exception.
Next comes the appraisal. Your lender will schedule the appraisal and the appraiser will coordinate with the listing agent for access to the house. Ideally, you want the appraisal to at LEAST be the amount of the contract. Even better, if it comes back higher than your agreed contract price (instant equity for you!)
But… it could come back BELOW contract price. Depending on the loan, your realtor will have to negotiate with the listing realtor on whether or not they agree to sell the house at the lower appraised value OR they may say if you want the house, you will have to bring that extra money to the table. It’s a negotiation and its up to the buyer on how you wish to proceed. For some loans, like FHA and VA, you are not allowed to bring extra money to closing, so therefore the seller has to agree to the discounted price or they have to find a new buyer.
In most cases, if both realtors have done their due diligence, the appraisal will come in well within range of the listed price. If it falls below, it is typically relatively minimal, and negotiation is not too difficult.
“Clear to close” are some of the best words a home buyer can hear. This means that all conditions of the loan have been met; credit, debt to income, financials, appraisal, home condition, insurance. Almost time to celebrate. Now the lender sends out a Closing Disclosure. The CD is a statement of lending and closing fees that you must pay to complete the transaction and change ownership of the home to you. This form MUST be sent to you 3 days prior to closing so that you can look over the fees, make sure that they are within the amounts that you “figured” on, and you must sign and return to lender.
Make an appointment with the title company – one step closer! Yippee! Buyers and sellers do not usually sign at the same time anymore. Therefore, your realtor can request a morning or afternoon appointment, according to your schedule.
Be sure to bring the following items to closing:
- Drivers license for all parties that will be signing documents
- Personal check book, just in case the final numbers weren’t accurate, and you have to pay a little more. This does not usually happen, but best to be prepared.
- Cashier’s check OR wire receipt for amount of closing funds.
- An hour of your time and ready to sign a lot of paperwork
After closing, you wait for the email from the title company that declares that the file has funded. Access to the house cannot be granted until the funds are distributed to the seller.