Buying a home often represents a new beginning, whether you are moving to a different area of town or moving to a new city or state.
There are many steps involved in buying a home, and the process can seem overwhelming. Whether you are a first-time home buyer or have bought and sold many times; the process is complicated and ever changing.
The first step is choosing a realtor. Not all real estate practitioners are REALTORS®; the term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. They can assist you by guiding you through the process; providing objective information for you, helping you find the best property, translating real estate lingo into terms you can understand; and they will act as your agent throughout the process.
When interviewing agents to assist you with your home purchase, make sure you understand how they will be representing you. Are they working for the seller? Are they dual-agents, or do they work as a buyer’s agent? You’ll want to make sure they are representing you, and only you.
The next step is to have a conversation with a mortgage professional. Working with a reputable mortgage broker is essential to a hassle free closing. It is the mortgage professional’s responsibility to provide financing for your new home.
Schedule an appointment early in your house hunting process. Your broker will work with you to identify any credit issues that need to be addressed prior to closing on your new home. Based upon the information presented to them, they will also let you know how much of a loan you qualify for. This information is vital to you and your Realtor when shopping for a home.
Your first appointment with your broker will entail providing financial and historical information for the Loan Application. This information will include but is not limited to the following:
– 2 Year Employment History
– If you plan to use a VA Loan your Certification of Eligibility
– If you plan to use a VA Loan and are relocating your Orders
– 2 Year Rental or Mortgage History
– Vital Statistics for you and your spouse (Birthdate, Social, Kids, Assets, Liabilities, etc)
– Last 2 Years W-2s
– Last 2 Pay Stubs
– Last 2 Bank Statements
– Last 2 Quarterly Retirements Account Statements
Your broker will pull a tri-merged credit report to review your credit history. This report shows everything reporting to each credit bureau (Experian, Equifax and TransUnion). Not all creditors report to all three bureaus so your scores may vary. The lender will use your mid-score when evaluating which loan programs you qualify for.
Should your credit report show derogatory information reporting, your Broker can assist you with credit repair options to improve your credit worthiness.
The only liabilities that will be counted in your Debt-to-Income Ratio will be those that report to the credit bureaus. So, regular household bills like utilities, auto insurance, cable do you factor into the mix. If you do not have a minimum of three trade lines reporting, some financing programs allow you to use standard monthly bills in lieu of revolving trade lines like credit cards.
Once all of this information is obtained, your Broker will be able to calculate the amount of loan you qualify for. Many factors are considered when qualifying you for a loan:
– Gross Income
– Interest Rate
– Loan Type
The standard Debt-to-Income Ratio should fall between 40-45%. When discussing your financing options, it is important to know where you would like to keep your PITI payment. You may qualify for more then you feel comfortable paying each month.
Once this number has been determined, and all documentation has been provided, your Broker can shop your loan with many lenders and qualify you for the loan program that will suit your unique circumstances.
At this point, your Broker will put together a Good Faith Estimate. This document will show you estimated costs involved with closing your loan. If you are using a VA Loan there is a funding fee that is built into the financing. It will also estimate your monthly payment based on current interest rates for the loan program you are qualifying for.
Now that you know how much you qualify for and the payment you feel comfortable with you can shop for a house within your budget.
Your Broker will advise you not to make any new credit purchases or apply for new credit until your loan closes as this will affect your credit score and Debt-to-Income Ratio.
Once you have your initial meeting with a mortgage professional, you should decide where you want to live. If you are getting ready to move to a new area, use the internet as a starting point. Research schools, demographics, crime statistics; research any and everything that is important to you. A sampling of some web sites to get you started:
Scorecard http://www.scorecard.org generates a pollution report card at the county level, giving information on such topics as air and water quality.
School Matters – shows academy performance http://www.schoolmatters.com
The U.S. Environmental Protection Agency’s http://www.epa.gov/epahome/commsearch.htm Has a tool that allows visitors to search a community by ZIP code for environmental facts about the area, including pollution statistics, the location of hazardous-waste sites and information about the area’s watershed.
Zip Skinny http://www.zipskinny.com Enter your zip code to see U.S. Census data and comparison with other zip code
If you need assistance finding this information, a Realtor can provide this information for you or tell you where you can find it. Also, most Realtors have comprehensive relocation packages they can customize and send or email it to you.
After you narrow down the vicinity you want to live in, you’ll want to drive around and see if you still like the area. No matter how much research you do on the internet, nothing takes the place of seeing a neighborhood in person. Pay attention to the upkeep of the neighborhood and look at the surrounding traffic. Does it have the components you are looking for? Is it close to shopping, close to work, close to schools? Does it consist of families, or singles, or working couples? Does it seem safe? Are the homes tidy and well-maintained? Are the streets quiet?
Once you decide on the area, then you can start looking at potential homes. Remember, first focus on the location of the house. From there, focus on the floor plan; whether it is a ranch, bi-level, 2-story, etc. The two things you can’t change in a house are the location and the floor plan; almost everything else can be modified. Different floor plans suit different needs; you may want a ranch with no steps, you may want a bi-level and the kids to have their bedrooms in the basement; you may want a two-story with the bedrooms on the 2nd story and for the main level to be the living area.
In- person property searches can take an afternoon or months, some people like the first house they see, and others see 75 before they find the perfect house. As you walk through a potential house the first time, see if you can imagine yourself living in it, will it fit your lifestyle and all of the things that are important to you. As you leave the house, decide on a scale of 1 to 10, with 10 being the highest rating, where it fits within the range. If it is a 2, discard the info on the house. If it’s a 7 or 8, put it in a „keep pile“. If you spend a couple of days looking, you should be able to narrow it down to your top 3 or 4. You’ll want to look at your top houses again, this time with a more critical eye. Is there anything you missed the first time? Do you still like it? Drive the neighborhood during different times of the day and on different days of the week. Make sure you like the neighborhood, ask questions of the neighbors. Most people are very eager to tell you about the area and why they do or do not like living there. Remember, location, location, location. Ideally you want to buy in an established neighborhood; and you don’t want to fall in love with the most expensive house on the block. You always need to think about resale. If all of the other houses are 3 bedrooms, and the one you love only has one bedroom which is all you need; you may want to think twice about it. Are you going to be able to resell it?
Then, after you have decided you have found your perfect dream house, have your Realtor do a comparative market analysis, CMA, for you. The purpose of this research is to see what comparable houses have been selling for in the same area during the last several months. No matter how much you love it, you want to know if it is priced fairly. If it is overpriced or under-priced, either way you’ll want to know. Remember, the more informed you are the better. The CMA will provide information that can help you decide on your beginning offer price.
The next step is to have your Realtor write an offer with the terms and price you want to offer. Before writing the offer, you’ll want to discuss the purchase price, earnest money, what’s included with the property, closing date, and all types of other pertinent details with your agent. All of these details should be included in the offer. Once the offer is written and you have signed it and written an earnest money check, the Realtor presents the offer along with your prequalification letter to the listing agent who is representing the seller or in some areas it is customary for your agent to present it directly to the listing agent and the sellers at the same time The response to your offer can have several different outcomes; (1) no response from the seller (2) acceptance by the seller with no changes to the offer (3) a counteroffer from the seller which can including anything from the price, to the closing date, to the inspection dates, to the earnest money. Anything in the offer can be subject to a counter. The response from the seller will determine your next move. Ultimately, you and the seller want to come to a joint agreement on all facets of the offer and this will be signed by both parties and detailed out in the counteroffer. In today’s market conditions, many buyers are asking sellers to pay for their closing costs, as well as a home warranty. As a buyer, make sure you thoroughly understand the offer and all of its components. Once it is signed by both the buyer and the seller, it becomes a binding legal contract enforceable by law. In many states, Realtors are required to use state approved legal contracts and forms, and you can get always have a lawyer review the contract.
Once the contract becomes accepted, then you and realtor really start to work. The title commitment (or abstract) is ordered and you, your Realtor and your lender will receive a copy of it. Your agent will help you read through it to make sure you understand the requirements and exceptions that come with the property. This is a very important step, as the title company will be issuing an insurance policy guaranteeing that you have clear title to the property.
Once you have an accepted contract, your Broker will update your application per the contract and submit your file to the lender’s underwriter. Depending on how long it took to find your house, the lender may require you resign the loan documents. The underwriter will review all of the documentation and verifications provided by your broker. Depending on your personal situation the underwriter may ask for additional information or clarification regarding your credit history. This is called a CONDITIONAL LOAN APPROVAL. This means, as long as you can provide the additional documentation, the underwriter will approve your loan.
The most common items on a conditional loan approval list are:
– Letter of explanation on credit history
– Pay off old credit accounts or proof they were paid
– Provide proof of home owners insurance
– Update the title insurance with the lender’s information
– Provide updated pay stubs and bank statements
– Appraisal of the property
– Lock the interest rate
One of the most important steps in the process is to lock in your interest rate. Each lender has their own set of requirements for locking a loan. The rate you were quoted on your Good Faith Estimate is only an estimate based on market conditions at the time of your prequalification. Locking your rate will be a decision you and your Broker will make together prior to closing your loan. Rates are currently at a 28 month low, however rates are subject to change daily, and often times multiple times a day.
From the time your Loan Application is submitted to underwriting until closing can take appx. 21 days. Timing is often times dictated by the time of month you plan to close, how long it takes to gather the Loan Conditions, and the closing date on your contract.
While your loan is going through underwriting, you and your Realtor will get the inspections scheduled. General inspection, structural inspection, termites, radon are just a few of the inspections that can be scheduled and these vary from area to area of the country. As an example, In the Rocky Mountain area you may want to have a structural inspection because of the expansive soil and underground mines; in the Midwest you may have to have an inspection for termites. Your Realtor can suggest the appropriate ones for your area. Remember, this is one of the most expensive purchases of your life, you want to know the condition of the property you are buying. Safety concerns and other major ticket items that come up during the inspection can result in a laundry list of items that a buyer may ask to have repaired or replaced. The seller doesn’t have to agree to fix anything, but it doesn’t hurt to ask. If a contract is going to fall apart, it is usually because the seller and buyer can’t come to terms on inspection items, or it is due to the buyer not being able to qualify for a loan.
If your financing gets secured, if the property appraises correctly, if you come to terms on the inspection(s), if the title (or abstract) looks O.K., and if you get your home insurance secured, then chances are you will close on the property and the property ownership will get transferred to you.
One last thing that should be done before closing, is to conduct a final walk-through of the property. This isn’t a chance for another inspection, but the buyer should make sure that nothing has changed in the property from their last walk-through and the buyer will want to confirm that any personal property negotiated as part of the contract is still there. As an example, if the offer included the refrigerator and washer and dryer; these items should still be in the property during the walk-through. If the property had storm windows on all of the windows, then they should be there during the walk-through.
When a successful closing occurs, it’s the result of a team effort between you, your realtor, your lender, the seller, and the seller’s lender. It’s a perfect way to start a new beginning.
by Kathy Torline