BuyersPurchasing a new home is a significant endeavor as your house is not just a home but a serious investment in your future. The process can be an absolute pleasure or a massive headache depending on the representation you choose. The job of a Realtor is to ensure the progression of the transaction is as streamlined and smooth as possible for you.
One of the best tools I can offer my buyers is the ability to search the MLS for home listings absolutely free from my website. And because I understand that you may be at the point of simply gathering information, there is no login or tracking system when doing so. Without exception, I always respect my client’s privacy.
Below are some articles that might be helpful in explaining the steps of the home buying process. If you still have questions after reading these articles, by all means, contact me for clarification.
Advice for a First Time HomeBuyer:
Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home.
Pre-Approval: While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have been pre-approved. This also ensures you are searching for homes within your designated price range. With a pre-approval, the homebuyer will actually apply for a mortgage and if approved, will receive a written commitment back from the lender. Therefore, assuming the home you're interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. There are no costs for the pre-approval itself, however an upfront credit report fee is usually charged.
List of Needs & Wants: By creating a list of your needs and a list of your wants in a home, you can stay on track and look only at homes that fit your specific criteria. The needs list should consist of things you really must have to accommodate your household. The wants list will consist of things like a pool, den, bonus room, that are not absolutely necessary. By offering the results of these lists to your Realtor, he/she can then set up a search criteria based on the specific items you desire in your new home.
Representation by a Professional: Be sure to have a licensed, Realtor who is working for you and is on your side. A good Realtor will offer sound advice and have your best interests in mind, always.
Focus & Organization: In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:
- One or more detailed maps with your areas of interest highlighted.
- A file of the properties that your agent has shown to you, along with ads you have cut out from the newspaper.
- Paper and pen, for taking notes as you search.
- Instant or video camera to help refresh your memory on individual properties, especially if you are attending a series of showings.
- Location: Look at a potential property as if you are the seller. Would a prospective buyer find it attractive based on school district, crime rate, proximity to positive (shopping, parks, freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?
Visualize the house empty & with your decor: Are the rooms laid out to fit your needs? Is there enough light?
Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don't make a hurried decision that you may regret later.
Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. Don't forget such essentials as:
- Include inspection & mortgage contingencies in your written offer.
- Have the property inspected by a professional inspector.
- Request a second walk-through to take place within 24 hours of closing.
- You want to check to see that no changes have been made that were not agreed on (i.e., a nice chandelier that you assumed came with the sale having been replaced by a cheap ceiling light).
All the above may seem rather overwhelming. That is why having a professional represent you and keep track of all the details for you is highly recommended. Please email me or call me directly to discuss any of these matters in further detail.
The Mortgage Process
Step one: Determine how much you can borrow
How much of a monthly payment can you afford? Given your unique credit and employment history, income and debt, and goals, how much will a lender loan you? These are questions your Mortgage Broker will ask you so be prepared to answer honestly and have the pertinent documentation available with you when you meet/speak with them.
Step two: pre-qualify for your loan
The Mortgage Broker will ask that you supply information about your employment, assets, residence history and so on. Then they will get your permission to obtain a credit report with your credit score. After review of all of this information you will be given a Pre-Qualification Letter. Handle it with care -- to a home seller, it's like a suitcase full of cash! Your Realtor will use your Pre-Qual (as they may call it) to make the best offer on the home you choose, and to show the seller that you're pre-qualified. It gives you buying clout!
Step three: Obtaining loan approval
Once you've made an offer and it's been accepted, it's time to start the loan underwriting process. An application will be taken, there will be disclosures for you to sign and your income/asset documentation will be gathered. The Mortgage Broker will package the loan with all necessary documentation to send to the lender for final loan approval.
Step four: Funding
Your real estate agent and the seller's agent will work together to designate an escrow/title company to handle the funding of your loan once it's approved. The Mortgage Broker will coordinate with the escrow company to make sure all the papers your lender will need are in order and you'll sign the final loan documents at the escrow/title company's office.
The Settlement Process
Now that you’ve found your dream home and have qualified for the loan, you will begin what as known as the settlement (closing) process. This process takes place between the day you receive loan approval and the day you finalize the purchase of your home. During this time you will schedule and complete all of the pre-closing activities that need to be done prior to the closing date. The closing appointment will consist of signing of documentation in order to complete the purchase of your new home.
Before a borrower can close, there are a few things that must be tended to. If you are using a Realtor, most likely he/she will be arranging these things for you. Be sure to have enough funds set aside for the closing of your home to cover not only closing costs but any down payment as well.
Property Appraisal - An appraiser will view the property and also look up the price of homes comparable to the home you want to purchase. This is done to determine the fair market price for the home.
Property Survey - A surveyor will verify the property lines for the home being purchased.
Title Search - A title company will check that there are no outstanding liens against the property or other potential claims against the property.
Homeowner's/Hazard Insurance - Obtain homeowner's/hazard insurance. Lenders often require proof of payment of the first year's premium at closing. Hazard insurance offers protection for you and the lender against loss due to fire, windstorm, and natural hazards. This coverage may be included in a homeowner's policy that insures against additional risks which may include personal liability and theft.
Home Inspection - A home inspector will determine the structural and mechanical integrity of the home. Examples of structural items to be inspected include the foundation, walls, roof, floors, windows and doors. Mechanical items to be inspected include heating, ventilating and air conditioning (HVAC), plumbing and electrical fixtures, appliances and other items that may convey.
Termite Inspection - An exterminator will inspect the home for evidence of infestation and/or damage by termites.
Radon Inspection - A radon inspection may be required in some localities.
Final Walkthrough Inspection - It is important that you complete a final inspection of the house, known as the walkthrough, within 24 hours before your closing. This is your final chance to check for any additional problems or repairs, to make sure that agreed upon repairs have been completed, and to check that the house is in the condition you expected. You should check that all items conveying with the house are present and have been left in acceptable condition. If not all of the requirements are met by the official closing date some of the seller's funds can be held in an escrow account until the required actions are completed.
Certified Check to Cover Closing Costs - A few days before closing you will be told what your final closing costs will be. You must have enough money to pay these costs on the day of closing. Usually a certified check is required for payment rather than a personal check.
Several people may be at the closing representing the buyer, seller, and lender.
Homebuyer - Becomes the new owner of the home once the required payments and closing transactions are completed.
Seller - Transfers the house to the homebuyer.
Real Estate Agent - Helps the homebuyer understand all the documentation to ensure that the contract stipulations are correct and that the closing process goes smoothly.
Attorney - You may use a real estate attorney to handle the closing transaction to protect your rights as a buyer and to identify any loopholes with the legalities of the contract. In some states, the escrow/closing officer will perform the function of the real estate attorney.
Escrow/Closing Officer - The escrow/closing officer is a neutral third party who helps both the buyer and seller, ensuring that all documents, inspections, and funds required to close the transaction are completed and received by the appropriate party.
Title Company - Performs title search for the property. In some cases, the title company can coordinate the closing transactions.
Lender - Provides the loan package for the buyer.
Servicer - Organization (usually a lender) that collects your monthly mortgage payments and services your loan.
What Happens at Closing
Closing day is the day the homebuyer and the seller complete the legal transfer of the house. Once the closing process has been completed, the keys to the house are given to the buyer.
Present Homeowner's Insurance Receipt - The buyer gives the lender a receipt to prove that homeowner's insurance has been obtained for the property.
Review HUD-1 Settlement Statement - The closing agent will review the HUD-1 settlement statement with the buyer and seller to verify that the agreed upon dollar amounts have been entered and, if so, have the buyer and seller sign the form.
Present Closing Costs Check - The buyer and the seller give the closing agent certified checks to cover the closing costs.
Review All Other Documents - The closing agent will have the buyer and seller review and, if correct, sign all remaining documents that are part of the closing process.
Establish an Escrow Account - The closing agent will establish an escrow account for the buyer to cover property tax, homeowner's insurance, interim interest, and possibly private mortgage insurance.
Execute Mortgage Documents - The buyer reviews and signs all of the documents required by the lender, the most important of which are the note and security instrument (either a mortgage or a deed of trust).
Present Mortgage Check - The lender gives the closing agent a check to cover the mortgage amount.
Receive Title to the Property - A warranty deed is given to the buyer, signed by the seller.
Receive Keys to the Property - At the conclusion of the closing process the buyer will receive the keys to the home. These keys should be temporary — it is common practice to replace all the locks on the home to prevent anyone with duplicate keys from entering the home. The seller may also provide the buyer with documents such as instructions and warranties for appliances and other major components that are part of the home.
Record Legal Documents - The recording process is the final step in the closing process. The escrow/closing company, attorney, or title company that handles your transaction will complete the recording. The process officially records certain documents such as the warranty deed and the security instrument.
Paperwork You Will Sign
On closing day you will have a series of closing papers to sign. It is important that you review each of these documents with your real estate agent or attorney before signing them.
Real Estate Settlement Procedures Act (RESPA) - Statement that acknowledges that you have been informed about how the closing process works and that you fully understand all the closing documents and financial obligations related to your mortgage.
Truth in Lending Disclosure Statement (TIL) – This is a final statement that requires lenders to disclose all the actual terms and conditions of the loan. The final disclosure statement makes any corrections to the preliminary Truth in Lending Disclosure statement you received when you applied for the loan.
HUD-1 Form (Settlement Statement) - Standard settlement statement developed to comply with Real Estate Settlement Procedures Act (RESPA). The form itemizes each payment made by the respective parties in the transaction.
Mortgage Note – Is a buyer's commitment to repay the mortgage. The note stipulates terms for the loan including the loan amount, interest rate, address to send payments, maturity date for mortgage, frequency of payments, and the change dates for adjustable rate mortgages.
Security Instrument (Mortgage or "Deed of Trust") - Pledge of the property as security for the loan. The document stipulates the same basic debt information that is found in the note and is recorded.
Warranty Deed – A legal document that transfers the title from the seller to the buyer and identifies the name of the seller as the grantor and the name of the buyer as the grantee.
Other documents - Depending on local laws and customs other documents may be used in your closing process.
Local laws and customs will determine whether or not other documents will be used in your closing process. Some contain information that by law you are required to receive. These documents may require your signature to verify that you have received, read, and understood the document. Below are some of the more common documents used:
Loan Application - Confirmation that information, such as your employment and marital status, that was given when you first applied for the loan has not changed.
Escrow Analysis - Lender provides a detailed itemization of the escrow account used in servicing your loan.
Tax Authorization - Gives permission to your local real estate taxing authority to send tax bills directly to your loan servicer so that payments may be made from loan's escrow account.
After the closing, the majority of your work is over. Following are some post closing matters that occur for many homebuyers.
Servicing Transfer Statement - Once you begin making your monthly mortgage payments you may receive a Servicing Transfer Statement from your lender. The lender that sold your mortgage loan may not necessarily be the lender that will be servicing your loan. This Servicing Transfer Statement will indicate that your loan has been sold. This simply means that your lender has sold your mortgage loan to another lender. This has no impact on your mortgage except that you will be paying your monthly mortgage payments to another lender.
Mortgage Payment Adjustments - Periodically your loan servicer will send you a new statement showing the payment due for each billing cycle. This amount may go up or down depending on several factors. For example, if the local property tax rate has been raised the payments may be increased to maintain sufficient funds in the escrow account.
Homeowner's Association Fees - If the property you purchased is part of a Homeowner's Association (HOA) you will need to inform them that you are the new owner of the property. Most Homeowner's Associations require you to pay a fee. The fee is usually collected monthly or quarterly and usually covers trash pickup, snow removal, maintenance of common areas, and use of community facilities