Before I get going about the steps in the buying process, I’d like to provide you with a brief disclaimer. Every state is different. There are different regulations, norms, fees, entities, etc. I’m extremely familiar with the process in California, but if you live outside of California some of these steps may be inaccurate. However, regardless of where you live, this article should provide you with good information, a quality foundation, and reasonable expectations. Also, feel free to show your agent this article and ask what’s different in your State.
Step 1: Hire a Loan Officer
I touched on this in my entry What’s My Rate. Your first step in the buying process should always be to interview and hire a loan officer. Your loan officer will provide you with a max pricepoint to help you with your search. You don’t want to search for homes out of your price range, because after you do you’ll likely be disappointed with everything you find within your budget. Also, you don’t want to find your dream house and lose out on the bidding because another buyer had a pre-approval letter and you didn’t.
Step 2: Hire a REALTOR . . .
And what’s the best way to hire your REALTOR? Simply go to www.WeFindAgents.com and complete the quick application. We Find Agents is a REALTOR head hunting service with a client-first approach to agent selection. If you’re reading this on another site and haven’t already visited the We Find Agents, take 5 minutes and read through the content. Our overall attitude and philosophy will blow you away.
Step 3: Find a House
When you first meet with your agent you need to accomplish two things. First, let him know your maximum pricepoint. Second, make a list of needs (what you absolutely must have and can’t live without) and wants (features you’d like to see if possible). If your agent isn’t finding many properties that fit your criteria you’ll need to move one of your “needs” into the “wants” column. On the other hand, if you’re search is producing too many results, you might want to make your search a little more specific. Finally, when you go touring with your agent try to keep an open mind and an active imagination. Ignore the paint, carpet, and furnishings and try to picture each house as you would decorate it.
Step 4: Negotiate the Purchase
I’ve touched on this in my previous post Managing Negotiations. First, do what you can to find out the negotiating style of the seller and match it. If they’re negotiators, start low. If they’re not negotiators, a lowball offer could be seen as offensive. In this instance, make your offer competitive. Most importantly, remember that REALTORS negotiate for a living. Tell your agent what you’d like to accomplish and then trust his advice.
Step 5: Deliver the Good Faith Deposit
A good faith deposit is usually between one and three percent of the purchase price. It shows the seller that you’re committed to the purchase, and it gives the seller recourse should you breach the contract. As long as you follow the terms agreed to in your purchase contract your deposit will be safe. Should you breach the contract, the seller may be entitled to this deposit. The lesson here is this: read the contract and make sure you understand your timelines and responsibilities.
Step 6: Complete the Escrow Paperwork
Once the good faith deposit is delivered to Escrow, your Escrow Officer will draft and mail out your Escrow packet. This is going to include the Escrow Instructions, Commission Instructions (for sellers only), Wiring Instructions, and various forms that you need to complete and return. Make sure you complete and return the packet promptly. If you have any questions, don’t be ashamed to ask your Escrow Officer, Loan Officer, or your REALTOR.
Step 7: Review the Preliminary Title Report
The Preliminary Title Report serves two purposes. First, it helps to uncover any recorded documents affecting the property (liens, easements, restrictions, etc.) Read through the Prelim carefully. Your Title Insurer will provide you with any recorded documents you ask for, so if you want more information make sure to ask your agent. Second, the Prelim acts as a commitment from the Title Insurer to provide a new policy of Title Insurance at closing. If you’re getting a loan, Title Insurance will be required by your lender.
Step 8: Obtain Hazard Insurance
Your lender requires that you obtain a policy of hazard insurance to help protect their investment. It’s your responsibility to shop insurance companies and select an insurance policy. Once you’ve done this, provide your insurance agent with the contact information of your Loan Officer and Escrow Officer and they’ll help you take care of the rest.
Step 8: Inspect the House
Inspecting the house is your responsibility . . . not the seller’s and not your agent’s. First you’re going to hire a General Inspector. A General Inspector is typically a jack-of-all-trades but a master of none. He’ll help you by pointing out red flags, and he’ll recommend further inspection if necessary. Take care of the general inspection quickly so you leave yourself time to order additional inspections and negotiate repairs. Most importantly, if there is anything you’re uncertain about get it inspected by a specialist. Remember, $100 for a roofer now is better than $10,000 for a roof later.
Step 9: Repair Negotiations
Now that you’ve completed your inspections, it’s time to decide whether or not you’re going to ask for any repairs. The repair request is for items discovered by your inspector and unknown to you and your agent at the time you made your offer. This includes problems with the foundation, roof, plumbing, electrical work, etc. The seller is not required to complete any repairs, but they might agree to all or part of your request to keep you in the transaction.
Step 10: The Appraisal
The appraisal will be ordered by either your loan officer or your lender. The job of the Appraiser is to analyze the comps and determine an accurate value for the home you’re buying. The purpose of the appraisal is to ensure that your lender will be able to recuperate their investment in the event of foreclosure. The only way your appraisal can cause a problem is if the appraised value comes in lower then the purchase price. Should this happen, you’ll have to either 1) lower the loan amount and increase your down payment, 2) renegotiate the sales price with the seller, or 3) back out of the purchase.
Step 11: Loan Approval
Once the lender is satisfied with you as a borrower and the value and insurability of your purchase, they’ll issue you a “prior-to-docs” loan approval. Once you have this approval, the odds that you’re going to have any problems funding your loan drop significantly. While your loan still isn’t 100% guaranteed, you can feel confident moving forward with your purchase.
Step 12: Contingency Removal
This is the most stressful step in the buying process. When you remove your contingencies you’re placing your initial deposit at risk. If your loan fails to fund or if you change your mind and back out of the purchase the seller will be entitled to the deposited funds. Before you remove your contingencies, first make sure you’re satisfied with the condition of the property and that you’re content with completing the sale. Also, find out if the appraisal has come in at value (or higher) and if your lender has accepted the appraisal. Finally, confirm with your loan officer that your loan has been approved. Once you’ve done those three things, you shouldn’t have any problem removing your contingencies.
Step 13: Doc Signing
Doc signing is where you formalize the purchase and the terms of the loan in front of a notary. Lenders and Escrow Officers do occasionally make mistakes, so read through everything before you sign. If you have any questions, call your Loan Officer, Escrow Officer, or REALTOR immediately.
Step 14: Funding/Recording
Once the Loan Docs have been processed and reviewed by your lender, your loan will be set up for funding. Once the loan has funded, the deed will be sent to the County to be recorded. As soon as the deed has been recorded you’ll receive a phone call with confirmation that the house is finally yours.
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