So you think you’re ready to buy a house? What now? You’ve probably calculated your finances, know how much money you have for a down payment and closing costs and have somewhat of an idea about what sales price you can afford.
Most likely, this is the largest purchase you will make so choosing the right players in the transaction is critical. The two most important individuals are your real estate agent and your mortgage broker (or lender). They can make or break the transaction and their role is crucial to making your real estate purchase a success: getting the best home for you at the best price (agent) and making sure you can borrow money (mortgage broker or lender).
Probably the most important person you will work with on the real estate transaction is your agent. He or she will be there with you every step of the way, acting as your advocate, making sure that you find the right home and getting the best price.
Word-of-mouth is the most common way that people find their agent. Who better to work with than someone who did a great job for one of your friends, family or co-workers. If you don’t have a referral, there are consumer-driven web sites, like Yelp and Angie’s List, that allow people to rate realtors they’ve worked with. Searching the Internet is another common way people look for their agent when they don’t have a referral.
A good real estate agent is ethical, hard-working, detail-oriented, has extensive market knowledge, knows how to price properties and is an effective negotiator.
Keep in mind that every real estate transaction is different but the home-buying process ultimately shares the same steps. You and your agent will work together closely to ensure that the proper steps are taken and the transaction is tailored to your needs.
The other key player in the real estate transaction is your mortgage broker or your lender. People often confuse these terms. The mortgage broker acts as a middleman between banks/mortgage lenders and borrowers on the wholesale end to secure financing for homeowners. The lender or bank works directly with the homeowner to provide financing on the retail level. Your mortgage broker or lender will discuss your goals in financing and your available funds in order to determine the best type of loan for you. Your mortgage broker will also run a credit check, look at your paystubs and asset statements and debt-to-income ratio. More importantly, he or she will help you determine how much you can borrow which has a lot to do with how much house you can buy. He or she will indicate what your monthly payment will be at various financing amounts in order to help you figure out what you can afford and how much you’re comfortable financing. In determining their target sales price range, most buyers are concerned about their monthly loan payment. It’s important to obtain this pre-approval prior to house-hunting so that you know what you can afford. In addition, you will have to submit this pre-approval with an offer as proof to the sellers that you can afford the purchase. Your mortgage broker (or lender) and realtor will work closely together to ensure that your house loan can be secured. Your agent can recommend some mortgage brokers and/or you can ask family, friends and co-workers for a referral. Some buyers prefer to work directly with their bank.
Owning a home is part of the American dream. Now that you’ve selected your realtor, you will meet to discuss a game plan and approach to your home-buying dream. Your realtor will assess your needs by asking lots of questions. Why are you buying? When do you need to close? What are your goals in purchasing a home? How long do you plan to stay in your new home? Do you have children or plans for them? Are schools important? What are you home likes and dislikes?
Most likely, your home purchase is the largest purchase you’ll ever make. With this in mind, your agent will assist you in finding a home that matches your specific needs, negotiate the agreement, advocate on your behalf, guide you in the home-buying steps and facilitate the process so that it’s a seamless transaction.
Besides your realtor and mortgage broker, there are three other major players in the transaction: the property inspector, the escrow officer and the insurance agent.
Together, all of these people will help you with the dream of your home purchase.
And now, for the fun part, house-hunting! Your realtor will set up a search in the Multiple Listing Service (MLS) based on your search criteria: price range, location, and house needs (minimum number of bedrooms, bathrooms, square footage, lot size, single story vs. two story, pool vs. no pool, new home vs. resale. You will receive an email with all of your property matches and a new email every time a new house that matches your criteria hits the market. Once you’ve had a chance to look at the homes that match your criteria and pick your favorites, you and your agent will go look at as many homes as necessary until you find the right one for you. A good agent will be able to make suggestions about the right home for you once he or she has taken you house-hunting and has had the chance to learn about your preferences. He or she will ask you important questions about your home needs as well as likes and dislikes during the home search. Finding the right home can take one week to 6 months (or longer), depending on market availability and whether or not you find your dream home. On average, it takes about three to five outings. Part of the process of looking at homes is honing in on what you want so don’t worry if you’re unsure about exactly what home is right for you from the get-go. The house-hunting process enables you to figure out you’re your top priorities in a home.
You and your agent have identified your dream home and you’re ready to make an offer. It’s time to submit a contract. The contract has many terms (closing date, earnest money, option period and fee, financing, who pays for the title policy) but, most likely, the most important one to you is price. Your realtor will prepare a Comparative Market Analysis (CMA) which assists in determining the fair market value and ultimately your offer price. Your realtor will advise you on getting the terms that best suit your needs, you’ll sign the contract and your realtor will submit the offer to the seller’s agent. How long does it take for a response? In a real estate transaction, time is of the essence so you’ll generally hear back the same day or the day after your offer has been submitted. The seller can accept your offer, reject it or counter it with different terms. Perhaps the seller needs to close on a different day to correspond with an out-of-town move for a new job. This might be one reason that the seller will request a different closing date. All of the terms in a contract are negotiable. The key to executing the contract is finding the terms that work for both the seller and the buyer. Your agent will advocate for you during the process and make sure that you’re completely satisfied with the contract terms and sales price.
Once the negotiations have been completed and both parties have signed the contract, it’s time to schedule a general property inspection by a licensed professional. Friends, family or co-workers can be a good referral source for a home inspector. Or your agent can provide a list. Consumer-driven review web sites like Yelp and Angie’s list are also a good referral source. The general home inspector might recommend that you hire another inspector that specializes in foundations, plumbing or roofs for further evaluation. Your realtor can help you coordinate with these service providers. Based on these recommendations, you and your realtor will decide which items, if any, need to be repaired by the seller. Most homes will require some repair work, especially older homes. There are a couple of ways to handle the repairs. You can ask the seller to repair them prior to closing or you can reduce the sales price by the cost of repairs.
After the inspection has been completed and the repairs have been negotiated, your lender or mortgage broker will order an appraisal. Appraisers compare the features and condition of a home to similar properties in order to arrive at a dollar figure for the home value. One of the primary purposes of the appraisal is to provide assurance to your lender that the home is worth what you’re paying for it.
A survey determines the boundaries of the property, its location and the size and shape of any buildings on the lot. The survey also identifies any existing easements or encroachments. Most sellers will have an existing survey which they will provide to the buyer. As long as your lender approves it, you can use this existing survey and save yourself the expense of buying a new one. It’s always prudent to have your own survey done.
Shortly after the option period, the title company will issue a title commitment. In general, the title commitment is a promise by the title company to insure the sale of the property and issue a title policy after closing, once the requirements of the contract and the commitment have been filled. The title commitment will contain Schedules A, B, C & D.
Several weeks before closing, you should consult with an insurance agent regarding homeowner’s insurance. Homeowner’s insurance is designed to protect one’s property, both the home as well as the contents from disaster. It also covers legal liability in the event of damage or injury to others while on one’s property. Most disasters are covered, with the exception of flood and earthquakes, which have their own special insurance coverage, and must be purchased separately. Since there are many different types of policies, you’ll want to work with an agent who will tailor one for your needs. Most people start with getting a quote from the agent who’s already providing their car insurance since it’s generally more economical to bundle services. It certainly doesn’t hurt to comparison shop. Again, family, friends and co-workers can be a great referral source for a preferred agent. Your realtor can provide some suggestions, too. Since this a lender requirement for financing a loan, you will need to provide proof of homeowner’s insurance to your mortgage broker or lender, prior to closing.
Several weeks before closing, your mortgage broker or lender will be working diligently to secure your loan and finalize the loan documents. At this point, they may need additional paperwork from you, and it’s very important that you get it to them as soon as possible. Keep in mind that you shouldn’t make any major purchases during this time without consulting your lender. Major purchases can affect your credit score and your debt-to-income ratio and could cause you to no longer qualify for a home loan.
Once all of the loan documents have been approved, your mortgage broker or lender will send them to the escrow officer at the title company. The escrow officer will prepare a Settlement Statement, also known as the HUD-1. This will be approved by the lender and both agents will review it to ensure that the terms in the contract are correctly reflected. The HUD-1 Settlement Statement is a standard form which is used to itemize services and fees charged to the borrower by the lender or broker. The HUD will indicate how much money you need to bring to closing.
In the final week or weeks before closing, you’ll need to schedule the initiation of utilities and other services such as cable.
Prior to closing (a few hours to one day before), a final walk-through is conducted by the buyer to inspect the home. The purpose is to make certain that the property is in the condition it was when you agreed to buy it – and that agreed upon repairs, if any, were made and nothing has gone wrong with the home since you last looked at it.
Just because your house has closed does not mean that the relationship with your realtor will end. A good agent will remind you to file your Homestead Exemption at the appropriate time. He or she will be there for you if you ever have any questions or if you ever need assistance with service provider recommendations. Your agent will always remain as an invaluable resource for you.