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Home Buying 101 - The Step-by-Step Process to Buying a Home
1. Hire a REALTOR!
If you’re reading this, then you’ve probably already reached out to me, or found me online, looking to buy a home. As your Buyer’s Agent, I will assist you in the home buying process from start to finish (and beyond). Hiring a REALTOR is like hiring any other professional such as an attorney, doctor or dentist. You want to find someone who has a good reputation, who is a good fit for you (personality-wise) and, most importantly, can get the job DONE.
Once you’ve found a great REALTOR to work for you as your Buyer’s Agent, then it’s time to get the home buying process started.
2. Hire a Mortgage Broker or Lender to determine how much you can afford
As your Buyer’s Agent, I can refer you to several lenders who I highly recommend. The lender will ask that you complete a loan application in which you disclose your income, debt, savings, credit scores, etc. The lender will then:
- Determine what you qualify for and what price range you should be looking in;
- Provide different loan options that are available to you and the pros and cons of each;
- Provide details on the loan amount, interest rate, terms, closing costs and payment options; and
- Provide you with a pre-approval letter to give to your agent and to submit with any offers.
3. Determine what type of property you’re looking for.
What are your “must have’s” vs. “nice to have’s”? Things to think about:
- Location (city, neighborhood, proximity to work or schools)
- Property type (single family home, townhouse, condo, etc.)
- Size: number of bedrooms & bathrooms, square footage, etc.
- Schools district (for families with school age children and for resale purposes)
- Any other requirements I should know about (i.e. 2 car garage, fireplace, finished basement, 2-story etc.)
Note: It is not uncommon for a Buyer’s wants & needs to change after the search begins. Also, it’s not uncommon for a Buyer’s price range to change once they see what they can get for $400K.
4. Go house hunting
Based on your criteria, your agent will search the Multiple Listing Service (MLS) for properties that meet (or come close to) your requirements. Keep in mind, the “perfect” property you described above may not exist. You may have to compromise on some of your “must have’s”.
Eventually, you will be able to narrow the possibilities down to a few, and then make a choice that will best fit your needs.
I frequently recommend clients do a “Drive By” of properties and neighborhoods they are interested in. This can often weed out listings, based on “dealbreaker” types of issues (i.e. the house is directly next to a power plant, or the neighborhood may have lots of junk cars on the street).
5. Make an offer
Your agent will help determine the market value of the property based on recent sales data (also called “sold comps” or comparables) in the area, and will advise you on purchase price, terms, dates & deadlines and other details of the offer.
In a Buyer’s Market (when there are more sellers than buyers) and especially for first time buyers, it is not uncommon to ask for a portion of the closing costs to be paid by seller. It is also possible to negotiate for items that were considered ”exclusions” by the Seller (i.e the refrigerator, or washer & dryer).
Consequently, in a Seller’s Market (when there are more buyers than sellers), a buyer may need to make their offer more attractive, especially if there are competing offers. You may have to offer more than list price.
When we find “the one” I will write up the Contract to Buy and it needs to be signed by you, the Buyer, and me, the Buyer’s Agent, and is submitted to the Listing Agent. This all can be done electronically. In addition to the contract, I also submit the lender's pre-approval letter. I will also ask the lender to call the listing agent to explain what great buyers you are, how well qualified you are, etc.
After the Seller and Listing Agent receive your Contract to Buy, they may accept it, reject it, or make a counter offer.
This can go back and forth several times. Once both parties agree on everything, including the price, terms, etc. you will be considered “Under Contract”. Copies of the signed contract will be sent to the Title Company and the Lender in preparation for the loan and transfer of title. Your agent will steer you through all the steps in the process leading to closing, the main ones of which are listed below.
6. Get an inspection
The purpose of the inspection is to establish any issues or defects the property may have. It also gives you, the buyer, the opportunity to ask the seller to remedy the problems or request compensation to fix the problem yourself. Even brand new homes may have inspection issues, so it is unrealistic to expect any house to be “perfect.” Your agent will be able to steer you through the process and help you determine what issues are serious and need to be fixed and what to ask the seller to do.
For re-sale homes, you’ll want to address issues that pertain to health, safety and structure. Don’t worry too much about cosmetic issues, or minor problems that can be easily fixed.
7. Get an appraisal
If you are financing the home (getting a mortgage, and not paying cash), the lender will require an appraisal and will order this. The house must appraise at the purchase price, or the lender will not approve the loan. NOTE: In this competitive seller’s market most buyers are including an “Appraisal Gap Clause”. This means that IF the house does not appraise for the purchase price, the BUYER has to come up with the difference in their down payment.On FHA loans, the lender will have a special FHA appraiser who will also look at any inspection issues. For example, if the house needs extensive repairs, FHA will not approve a loan. Note: This type of loan may sometimes not be seen as very favorable to a seller.
8. Get insurance
During the loan approval process, the lender will require the Buyer to arrange for homeowner’s insurance before the loan can be finalized. With insurance in place, the lender can move on to underwriting and final loan approval.
9. Mortgage underwriting & approval
After you get through inspection, appraisal, insurance (and you still want to move forward) your lender will move forward with final loan approval. During the underwriting process, it is very common for the lender to ask for additional documentation such as more bank statements, paystubs or tax returns.
10. Closing and title transfer
A few days before closing your lender will give you a Closing Disclosure (CD) for review. This will detail your loan amount, principal, interest, taxes, insurance, etc. These numbers get sent to the Title Company and they will draft your Settlement Statement and other closing documents. They will provide all the charges, fees and adjustments pertinent to the purchase and can be a complex document. Your agent and lender will review figures with you.
At closing a mountain of paperwork needs to be signed. These involve title documents, property disclosures, loan documents, etc. all required by law, before the keys can be handed over. As a Buyer you will need to bring a driver’s license (or other form of photo ID) and a certified or bank check for any additional funds you will need to bring to closing (unless a wire transfer had been pre-arranged).