The process of buying a home can be very daunting and stressful, more so if you are a first time buyer. In this day and age of digital accessibility there is an ocean of information at your disposal and more often than not it just serves to confuse people more. The good news is I am here to tell you to take a step back and a deep breath; the home buying process really isn’t all that complex. Below you will find the 11 basic steps in purchasing a home.
Step 1. Self-analysis.
This seems to be a very basic step that I see people skip all the time. By doing this simple financial self-evaluation you can save yourself a lot of time and heartbreak. It’s simple, make a list of all your debt, both secured and unsecured. For example, a secured debt would be a car loan while unsecured debt would be credit cards. In addition, take into account all your living expenses like food, gas, phone etc.. Also make sure you included all you little creature comforts like your morning coffee as this all adds up. A good way to track your expenses is to start at the beginning of the month and write down every time money leaves your purse or wallet and by the end of the month, after picking yourself off the floor from fainting at knowing how much you spend in a 30 day period, you will have a very good idea of your total expenses. Now, once you have this amount compare it to how much you make. By doing this you will get a very clear picture of your financial situation.
Step 2. Determine your needs.
You will have to sit down and think about what you need in a home. Consider the size of your household, location and proximity to schools and work. Do you want to live in the city or the suburbs? What style of home you would like, single family, duplex or multifamily.
Step 3. GET A PRE-APPROVAL!!!
This is the first step in actually purchasing a home. A pre-approval letter tells the world that you are financially ready to buy a home. Nowadays 99.99% of sellers will not even look at your offer if you do not have a pre-approval letter from a reputable lender. In order to obtain a pre-approval you must meet with a lender, whether it’s your bank or a mortgage company. They will sit down with you and go over your financials and once they run the numbers they will let you know which loan programs you qualify for and how much you can afford. In addition they will explain down payment amounts, fees, and interest rates. Now let’s say you are thinking “Hey I have cash I don’t want to get a loan!”, well you still need to supply the seller with proof of funds. This can be easily obtained by going to the institution that is holding your money and asking for a proof of funds letter.
Step 4. Find a Realtor.
Working with an experienced Realtor is an invaluable tool. As they have access to all the homes that are currently listed via the Multiple Listing Service. In addition they know the current market data and are able to tell you up to date home values. And of course they know the home buying process and will serve as your guide in your home purchasing journey. In addition once you let the realtor know what you are looking for in a home they will be able to link you directly to the MLS via a portal or email drip which will feed you the latest listings in real time as they become available, giving you the edge in a competitive market. Another thing to keep in mind is Buyer Agency which is a written agreement between you and the agent stating that you are their client and the agent is working on behalf of your best interests. I will elaborate more on buyer agencies in future articles as this subject alone can take up multiple paragraphs.
Step 5. Begin viewing homes.
When you have met with your Realtor and narrow down what you are looking for, you will begin to schedule private showings. Your Realtor will set these up for you and take you through the homes. One thing I tell clients is to look beyond the current cosmetic conditions, you must look past the current owner’s interior decorating choices and colors. Focus on the layout, structural and mechanical components of the home. That 70’s shag carpeting and avocado green paint job can always be replaced with something more to your liking. Also, if you did a good job of narrowing down what you are looking for, it should only take viewing 6 to 10 homes to find what you are looking for.
Step 6. Listen to your Realtor’s advice.
This is easier said than done, as buying a home is a very emotional ordeal and we tend to put our trust in individuals that we have known for years, like a family and friends. Don’t get me wrong it’s always good practice to bounce ideas off of these individuals and get their opinions. But, at the end of the day your Realtor has the experience and resources to guide you in the right direction. For example your Realtor can run a competitive market analysis to let you know what the current values are of the homes in the area. This is the best way to determine the true value of a home, or you can follow Uncle Joe’s advice, because we all know he bought a home 20 years ago, in a completely different area of town back when they accepted goats as down payments. All kidding aside your Realtor lives and breathes real estate so make sure you leverage this knowledge.
Step 7. Write an offer.
Once you have found a home that you like it is time to make an offer. You do this by sitting down with your Realtor and drafting out an offer to purchase agreement, which is a state approved form that your Real estate agent will review with you. In this document you will state what purchase price you are offering and list any additional contingencies you wish to include, like your financing contingency and home inspection contingency. In addition, the offer will include an addendum and a few other documents for review like the property condition report and lead paint disclosure. Your Realtor will go over these documents with you and explain all aspects of the documentation. At this point make sure you ask questions if you don’t understand anything your agent will be more than happy to answer any questions you may have.
Step 8. Conduct a Home Inspection and Appraisal.
This is vital. You should always have a home inspection done especially if you are a first time homebuyer. In most cases, if you’re financing the property your lender will require a home inspection be completed. The home inspection is usually paid for by the buyer and is done by a state licensed Home inspector within a specific period of time, so Uncle Joe and his wall-knocking powers can sit this one out. The home inspection will be a nondestructive evaluation, which simply means the home inspector will only be able to inspect what is easily accessible to them. The inspector is not authorized to remove any paneling or take samples of anything unless it has been pre authorized by the seller in writing. The inspector will concentrate on locating major defects, for example roof and foundation issues. That ugly shag carpeting in the rec room is not a defect! Once the inspection has been completed he will issue an inspection report.
If any issues do come up your Realtor and you can address them with the seller’s side. Once the home inspection issues are addressed the bank will order an appraisal to be done to determine the value of the home. This is how they ensure that you are not overpaying for the home. This step is pretty much covered by the bank, and your realtor will just follow up with the lender to check on the status and if there were any issues with value.
Step 9. Deliver Loan Commitment.
Once your bank has reviewed the home inspection, appraisal, title and all other financial documents and if everything checks out they will issue a Loan Commitment letter stating that your loan has been approved. This letter, with your approval will then be delivered to the seller basically stating that you are ready to close. Also please note most bank loan commitment letters will have conditions that still need to be met, like employment verification or proof of homeowner insurance to name a few.
Step 10: Final walk through.
Once you have your day of closing scheduled you will be able to conduct your final walk through, this is done within 3 days of closing. At this time you will verify that the property is still in the same condition as when you wrote the offer and usually by this time if the property was occupied you can make sure that all of the seller’s items have been removed from the home.
Step 11. Attend Closing
The big day has finally arrived! This will be the day you officially purchase your home. On this day you will review the final financial numbers with your lender to make sure everything is in order. Lastly you will sign the note, mortgage and the deed. More importantly this when you get the keys to your new home!!!!!
Hopefully this semi short explanation makes the home buying process appear less intimidating. Also please note this is a condensed explanation and each transaction is unique, and for this reason I strongly recommended you seek out a Realtor you can trust to help you throughout the process.
By: Virgilio Maldonado