A Step By Step Guide Through The Home Buying Process
The Home Buying Process
We've put together this guideline to give you an overview of the home buying process. Please take a moment to read through it, and call us if you have any questions!
1. Pick a REALTOR
2. Get Pre-Qualified or Pre-Approved
3. The Home Search
5. Contract to Closing
a. Home Inspection
b. Termite Inspection
c. Well and Septic Inspection
e. Home Owners Insurance
f. Choosing a Closing Attorney
6. Day of Closing
7. Post Closing (You’re in! It’s Yours!!!)
1. Pick A REALTOR
This first step is the most important part of the process. It’s like picking the pilot of your airplane. You may not have the expertise to do it yourself, so you want the best-qualified person in the cockpit to give you a sense of security. I’m going to say up front, we’re likely to run into some turbulence so you want a REALTOR who knows how to fly around storms and when and how to fly through them when we must. You also want a REALTOR you can trust. Just like when you pick your lawyer or doctor, you are going to want to give confidential information to your REALTOR. That’s why you’ll need to be working exclusively with one particular REALTOR, so that REALTOR can work for you EXCLUSIVELY!
2. Get Pre-Qualified and Pre-Approved.
The last thing I’d want as your REALTOR is to put you in a bad financial position, so we need to have a meeting with a mortgage expert. We need to explore all the possible plans that are out there for financing your purchase. These days, when you go to the store to buy an apple, you are presented with many choices of types of apples. We’ll need to try a few of these apples to see which works the best for your pie. Your initial conversation with your potential loan officer can be as quick as a 5 to 10 minute phone call. This will involve simply telling someone over the phone what you’re intending to do and having them tell you what the general option are. This results in being “Pre-Qualified”. However, in today’s Market most Sellers are asking for a “Pre-Approval Letter” before they’ll even consider an Offer. A Pre-Approval Letter means the loan officer has pulled your credit, discussed employment status and assets (down payment availability). This does not lock you in to using that particular loan officer. But it does give you a chance to fix a problem on your credit report before you go Under Contract. If you wait till you’re Under Contract to fix credit problems it could result in your losing the home and your earnest money deposit.
3. The Home Search
One of the most important things for me to do is to listen to you when you tell me what you are looking for in a home. That seems like a self-evident thing to say, but in my experience, I’ve found time and time again clients have complained about REALTORS not really hearing their needs in homes and pitching homes that just didn’t fit. If you ever feel I’m not listening, you have my permission to tap me on the shoulder and “address” me. I’m very serious about this. Beyond that, at Coldwell Banker Howard Perry & Walston, we have some tremendous tools to help us in your search, the most important being My Agent Online. This is your own personal, private website that you control. You can create any number of searches that will constantly be looking for your perfect house. At Coldwell Banker Howard Perry & Walston, we download all the MLS listings every two hours. Your website then searches through those listings. When it finds something that matches your search parameters it will pop you an email alerting you to that fact. Anytime there’s been a price reduction or if a home goes under contract, you’ll be notified. Of course, I’ll be doing my own searches for you at the same time and quickly we’ll come up with at least 3-5 homes that may fit your bill. Then we set aside about half a day to go visit these homes. (Keep in mind that we don’t want to wait too long as homes can get sold out from under us.) We’ll evaluate the prospective homes together to find the one we can make an offer on. (If we don’t find one at all, we can continue looking.)
Once we’ve found the home you want, it’s time to make an offer. There are many approaches to deciding how much to offer. Every deal is unique. One thing I try to tell my Buyers is not to worry about what the Seller wants for the house but, instead, think about what the house is worth to you. Always negotiate from a position of strength. I will be helping you every step of the way.
Five Elements Of An Offer
There are 5 things the Seller of your next home will be considering in your offer to purchase. These 5 elements together must add up to an acceptable total for the Seller. These elements include:
A. The Earnest Money Deposit & Due Diligence Fee. In our market, Sellers usually expect an Earnest Money commitment of 1% to 3% of the Purchase Price. And the Due Diligence Fee is expected to be about 10% of the Earnest Money Deposit. For example: on a $200,000 home we might want to offer a $2000 Earnest Money Deposit – and $200 in Due Diligence Fee.
B. Due Diligence Period & “Continuation Date”. This is the period of time we are asking to be allowed to do all our inspections and ask for repairs (if any needed). A typical Due Diligence Period is 14 to 21 days. If we need a longer period we may need to offer a significantly larger Due Diligence Fee.
C. The Closing Date – The sooner you are able to close on the house, the less mortgage, insurance and taxes the Seller will have to pay.
D. Miscellaneous Concessions and Other Terms – Sometimes we ask the Seller to include the refrigerator or some other piece of personal property in the house. Any and all issues of importance must be put in writing.
E. Purchase Price – Of course, the most important element is the actual sum total you are willing to invest in your next home. But this can be greatly influenced by the other terms of our Offer.
The Earnest Money Deposit - An earnest money check will need to accompany your offer. It’s traditional to attach a check for 1% to 3% of your offered purchase price to Offer to Purchase and Contract (the official document). Here’s what will happen to your check. No one will cash that check until all parties are satisfied that we have an agreement. But even then, the Seller does not get your money. The listing agent has to hold your money in an escrow account until the day of closing, at which point your earnest money deposit is applied toward the purchase of your home. If you make an offer and it’s rejected, you will get your earnest money check back right away.
The Due Diligence Fee - Usually, about 10% of your Earnest Money Deposit will need to be separated out as your Due Diligence Fee. This is a second check that will be written directly to the Seller. It’s important to note that this money is non-refundable (unless the seller defaults). Once again, I do not deliver this check until we have an agreement and everyone has signed the Contract.
Both the Earnest Money Deposit and the Due Diligence Fee are applied to your Purchase Price at Closing.
Closing Costs – Many times, especially with FHA loans, I try to ask the Sellers to pay most or all the Buyer’s closing costs associated with the transaction. This can be as much as 3% of the Purchase Price and is cash the Buyer would normally bring to Closing above and beyond the Down Payment. But we must keep in mind the Seller knows this will lower their “bottom line” and most times we are asked to compensate for this by raising the Purchase Price by a similar amount. The end result is that the Closing Costs are rolled into the loan.
5. Contract to Closing
We’ll still have a few more air pockets to fly your plane through before we can come in for a landing and the home is yours. The next hurdle, and it can be a major one, are the home inspections – all of which need happen during the DUE DILIGENCE PERIOD.
a. Home Inspection – As the Buyer, it’s your responsibility to hire, at your expense, a home inspector. The home inspectors job is to find out for you all the things that are wrong with the house. A word of caution: Every house has a surprising number of minor things wrong with it. But when major things are found to be wrong we can enter into a secondary negotiation phase. We will ask the Seller to fix all the things that are important to you. If the Seller refuses to fix it all, but does agree to fix some of the problems, it’ll be up to you on whether or not that’s acceptable. If not, you get your earnest money deposit back and we are back to the beginning of your home search. It must be kept in mind that we must conclude these negotiations before the end of our Due Diligence Period and our “Continuation Date”.
b. Termite Inspection – You’ll need to hire a pest inspector to look things over.
c. Well & Septic – If you’re not hooked up to city water and sewer, it’s highly advisable to hire a well and septic inspector to make sure you have good water. It’s required by certain loans (FHA & VA, etc…).
d. Loan Processing – While all these inspections and secondary negotiations are going on, we’ll need to be in constant touch with your loan officer. You should have been Pre-Approved before we made an offer, which is great, but actually getting down and writing the loan requires more work. You’ll be providing your loan officer income documentation, bank and brokerage statements and maybe letters outlining gift money. A good experienced loan officer can make all the difference in the world. NOTE: Please protect your credit while you’re Under Contract! Do not make any big purchases (especially cars) or add any debt to your credit cards. Even small changes to your financial picture could result in you no longer qualifying for the loan program you have chosen.
e. Homeowners Insurance – A good insurance agent cannot only save you money but can make sure you have all the proper coverage.
f. Your Closing Attorney – We’ll need to choose and hire the attorney that will be handling your closing. He or she’s responsibilities include researching your deed, coordinating all the documents, dispersing all the moneys and making sure your deed is recorded at the county courthouse.
6. Day of Closing
(Coming in for the Landing) Our closing will take place at our attorney’s office. But before we go there we’ll need to go by and take one last look at your new house before you actually buy it. This is called the “Final Walk-thru”. We should have already checked to be sure all the repairs agreed to have taken place, but if we haven’t we can do so now. Basically, we’re just making sure the house is ready for you to move. At the closing you’ll be presented with lots of documents, but the most important one is called the “HUD-1 Settlement Statement”. This is the one with the “bottom line” on it – the actual number of the amount on the check you’ll need to bring to the lawyer. This check will need to be a certified check, made out to the attorney’s escrow account. Lawyers will only take a personal check if it’s for a small amount. I will have checked the HUD-1 to make sure all the numbers are correct. Expect to take about one hour signing the copious documents your loan company will want you to sign at the closing. After you’ve signed everything – YOU GET THE KEYS!!!
7. Post Closing
(YOU’VE LANDED!) We’ll help you make sure all the utilities are now in your name. We’ll also make sure any home warranty negotiated or ordered is activated. As your Buyer Agent I will continue to check on you to make sure you’re settling in and you don’t have any lingering questions. CONGRATULATIONS!!!