Key Steps in the Home Buying Process
The following 10 steps are meant to provide a short overview of the steps that one should take in the home buying process. While it is by no means a comprehensive list -it provides valuable tips and reminders to all home buyers.
Figure out how much you can afford
Talk with a mortgage professional. In fact, talk to three mortgage professionals. Not all lenders are created equal, there are bankers and brokers. Get good faith estimates. Compare bottom line only…meaning don’t just look at the rate being offered, consider all closing costs related. Get pre-approved, not pre-qualified.
Choosing the Right Property Type
In order to determine the best property type for you, think about how much you can afford and your reasons for buying. Each property type comes with its own pro’s and cons. After consulting with a lender, you will know what you can afford in terms of dollars. Now, you need to decide amongst a Condo, Townhouse or Single Family Home. In fact, it may be more difficult to obtain financing on a condo than a single family home. It is important that you consider the goals for your real estate purchase, both short term and long term. For example if it is going to be your primary residence, you want to make sure it can comfortably accommodate your current and future family i.e. children or in-laws. If the market takes an unfavorable turn and it become difficult to sell then you can still live comfortably in your home until the market recovers.
Finding the property
Now that you understand your budget and the type of property you are looking for, its time to start looking. So where do you start? I recommend finding a local real estate professional. Buyers’ agents are paid at closing by the seller, not by the buyer. The total commission is generally split between the buyer’s agent and the listing agent. Bonus: If you choose a buyer’s agent from Lucid Realty you can receive up to 50% of their commission at closing. Basically, you are getting a “free” high level service and money in your pocket. Your agent will want to know about you and how you like to live and other important criteria. From there, the agent will send you properties to review and view in person.
You found the property
Before placing an offer on a home you should know how much it is worth to ensure the listing price is in line with the actual value. Your agent should provide you with a CMA (Comparative Market Analysis). A CMA compares homes based on size, location, condition and several other factors to estimate the value real estate in a given area. Hopefully, it will give you a better understanding of the local market. It is also important to understand that everything is negotiable. A good agent will help you learn as much about the seller and the property as possible. It also is important to include contingencies in the offer as well. The most common types of contingencies are a mortgage contingency and an inspection contingency.
Hire A Real Estate Attorney
Once the offer is accepted, get it to a real estate attorney to review. Real estate brokers and agents are professionals at finding an ideal home and negotiating the terms, but attorneys are experts at reviewing and explaining contracts. As a result, it is best to have an attorney review all contracts before entering into any agreements with the seller. The best way to find a good attorney is to ask your real estate agent. Real estate agents regularly work with a number of attorneys in many different capacities and know which attorneys will be best based on your specific needs. It is in the agent’s best interest to recommend an attorney that they know is competent, trust worthy and focused on protecting their clients’ interest. It is also advisable to use a real estate attorney as opposed to a family friend who specializes in any other law to get the best representation.
Hire a Home Inspector
A home inspection is an essential part of the home buying process. A home inspection will validate that you are investing in a good home or uncover significant defects that you would otherwise not have known about until moving into the home. It is far more valuable to know what you are buying before you buy. So what happens when defects are discovered by the inspector? In most instances the buyer and seller come to a mutual agreement on how to deal with the issues. Sometimes the seller may agree to take care of the issues. In other instances the buyer may assume the responsibility for a discount in the price. It really just depends on the specifics of the defects. As a buyer, it is best to know as much about your home before you purchase it as possible. One word of caution: be prepared for seeing a laundry list of really scary issues. This is normal. Many inspectors relish the idea of finding problems and some tend to exaggerate how bad things are.
Once of all the terms are finalized following the home inspection, complete your mortgage application. The first step would be to provide your lender or bank with the real estate contract. In most cases, your agent will take care of this step for you. They will ask for a signed copy of the contract along with other financial documents needed to complete your loan application. It is important to get this application in as soon as possible so the bank has as ample time to process your application. In accordance with the contract, the bank must provide the buyer with a commitment letter by a specific date. The commitment letter states that the bank is going to give you the loan. If the lender does not supply this by the specified time, they buyer runs the risk of forfeiting their earnest money. You won’t lose your money if you don’t get your commitment in time but you may have to walk away from the deal or you have to ask for an extension – which can scare the hell out of the seller.
After the bank provides a commitment letter, the only additional requirement from the buyer s the insurance binder. Before the bank can complete the loan the buyer must purchase home owners insurance. Again, talk to three people. Perhaps start with the person who insures your automobile – or perhaps one your agent recommends. The insurance binder is then sent to the lender prior to closing. Now the funds are all set to be released on the specified closing date.
Review the HUD
1-2 Days before you close, your attorney will provide you a settlement statement (also called a HUD) for your review. It is important that you, your attorney and your Realtor review the charges, fees and adjustments to ensure everything is correct. The HUD will have all of the information such as the closing costs, tax adjustments, utility adjustments your real estate rebate and several other fees. It will also state the amount you need to bring to closing. Any funds brought to the closing should be done in the form of a certified or bank check. We recommend that you bring at least a few hundred more to closing to help avoid any unforeseen issues. If you bring too much, the title company will issue you an overage check.
So what do you need to bring to the closing? You will need at least 2 forms of identification, and a certified or bank check for any additional funds. The closing is typically attended by the buyer(s), seller(s), closing attorney, your attorney and the real estate agents involved in the transaction. Your attorney will explain all of the documents to you prior to signing any of the disclosures at the closing. Once you are finished signing, you will receive your keys. Congratulations! You get your keys and now its time to figure out how you are going to spend your rebate!