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Buying Your First Home - The Home Buying Process
Dated: December 18 2020
When it comes to purchasing your very own, very first home, it is perfecty normal to have a million qustions. The most common question among our first time home buyer clients is often, "Where do I start?" Followed by many more questions regarding the process of purchasing a house. Let's go through this process and help you find answers to those questions, and remember - we all started out as first time home buyers. We all made it through the process, and you will too!
First things first. You need to find a realtor that you can trust. I've got people, so I can help you with that one! Once you've established a relationship with a realtor, hopefully that realtor will be able to introduce you to a really, really good local lender. That brings us to the next step in the process which is having a consultation with a local lender. You want to find out what you're qualified for, what's going to fit your budget, and if there's any credit issues you will need to work through. There's also lots of different loan programs available, so you're going to want to talk with that lender and decide which loan program is going to be the best fit for your situation. Once you've determined that and you have your pre-approval letter from that lender, now you're ready to start shopping.
Here is how it will go. You're going to go out and view some properties, walk through properties, check out the neighborhoods, most likely with your realtor, and decide what's going to really be a good fit for you. Do you want a townhome? Do you want a single family home? Do you want something that's on a large lot or do you prefer something that's on a smaller lot? All of these things kind of go into that decision making process of what's going to be the best fit for you, and your realtor will make sure you can see everything that fits your criteria. This can take days, weeks, or months depending on the market, your preferences, and your timeline.
Once you have found a property that is a good fit that you want to make an offer on, your realtor will write up that purchase contract and you'll need to make some decisions. How much earnest money do you want to put down? How long do you want to have the escrow period? Your lender will give you some input on that, and because your lender is the one that's going to have to schedule the appraisal and go through that process. So you don't want to put your lender in a bind, the appraiser in a bind, and the underwriters in a bind with a timeframe that is too short.
There's also going to be a due diligence deadline within the contract. Due Diligence is the period of time where you can check out anything you want about the property and get a home inspection done. Work with your agent to decide how much time you would like for Buyer Due Diligence before the offer is sent to the Seller. I typically have buyers go about two weeks or so, but get out the calendar and make sure that that's going to be a good fit for your timeline.
Once your agent has written up the offer, then your agent will submit it to the seller's agent. The seller's, or the listing agent, will review that offer with the seller. Hopefully you are the only offer, if not then there will be some additional back and forth. but in a typical transaction you submit your offer, the listing agent will have a conversation with the seller to see if they are willing to accept all of the terms, or if there's anything that they want to counter back. If the seller does counter back, then you have the opportunity to review that with your agent to see if you are okay with all of those terms or if there's anything else that you need to continue to counter back with the seller. So sometimes that goes back and forth two or three times! No worries if it does, it is not an uncommon thing. Once you've got that offer accepted, that's really the catalyst for all of these deadlines. This is when the clock starts ticking to complete the transaction.
Now you are under contract, you have an accepted offer! Your agent is going to send that offer to your lender and also to the title company. Two things happen from there, simultaneously. First thing, the lender starts working really hard to get your loan package put together, they're going to order the appraisal, and they're going to want all kinds of documents from you. Whatever the lender asks you for, please understand that you need to have it in a timely fashion because everything they do must be completed by the finance & appraisal deadline as well as the settlement deadline. Second thing, the title company is going to get busy and they are going to start with the preliminary title report. This is a document that is their research on the history of the title. What liens are there, are there any encumbrances, are there any easements? Is there any unpaid property taxes? These are things that are going to show up on this preliminary title report and your agent should review that with you to ensure that there's nothing about the property that's going to cause a bump in the road. Luckily, there usually isn't anything, but you can never be too safe in real estate! If there is something that comes up, just be sure to take care of it with the title company. Your realtor will assist you.
Marching forward, you are going to be doing your due diligence at the same time. Your agent's going to schedule that inspection and go through that process with your inspector. Then your lender will order the appraisal. Remember, this is all happening simultaneously, there's a lot of moving parts to a transaction. If your appraisal comes back and it does not meet the purchase price, there is another little bit of negotiation that can take place to be able to continue through the transaction and complete your loan.
Nearing the end the title is clear, your loan has been completed, and you are ready to go! Your lender will then let you and your agent know that you're ready to close. This is called "the clear to close", and everybody does a little happy dance when you get the clear close! It means you're probably a day or two away from actually settling. Your lender will then send all of that information to the title company, and the title company will prepare the settlement statement.
The settlement statement is basically the debits and the credits of the transaction. Did the seller agreed to pay any of your closing costs? That's going to show up as a line item on the settlement statement. What are your fees? Title, insurance, closing fees, recording fees? That sort of thing. These things are going to show up as a line item on the settlement statement, it'll show how much your loan is going to be, and how much your lender is going to contribute.
Any cash that you need to contribute will also be a separate line item on that settlement statement. All of these details are extremely important, ensure that you review the settlement statement prior to closing and make sure each number is correct. The Seller will be doing the same. Once you've approved the settlement statement, then the title company will prepare the final closing documents. Typically you will go to the title company and sign. If you are not in town and you can't physically go to the title company and sign those docs, they will either email them to you and you'll have to sign them in front of a notary, or they can send a notary to you and they'll notarize everything there after you've signed. The notary will then send everything back to title.
After both you and the seller have signed, the title company gathers all of those documents up, and sends it back to your lender. The lender releases the funds, the title company distributes the funds, pays off any existing mortgages on the property records, your note, your mortgage against the property, and then it will finally record. The title company will record that property in your name, the deed that gives you title, and ownership to the home.
Now you know how a real estate transaction works from start to finish! Hopefull this helped you find your confidence in buying your first home. Remember how important it is to have a trustworthy realtor in the midst of all this! You will never regret having a good realtor, especially for your first time! Thanks for reading!
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