Congratulations on the decision to buy a home! This is a major decision and one that comes with a lot of research and planning, so I’m glad to see you here. In the following post, I will give you a quick run down of what to expect throughout the entire home buying process.
Step 1: Hire a Realtor
This is the most important step as your Realtor will help you throughout the entire process. You want to make sure you hire someone that you can trust that will take care of your best interests. Being a first time home buyer, having someone that is patient and is willing to educate you throughout the process may also be important.
For a list of questions to ask your Realtor, visit this post on our blog.
Step 2: Get pre-approved for a loan
Your Realtor will be able to give you contacts for loan pre-approval. It is always a good idea to check out their list of contacts. These are people that they are used to working with and that they know close deals. There are so many mortgage companies and banks out there that you don’t know what you are getting if you go it alone. A Lender that your trusted Realtor provides is given to you for a reason, and that reason is that they know how to work together and the Realtor knows that the lender will close a loan, which means everyone gets paid. Not that money is the most important part of it, but a Realtor’s paycheck counts on deals closing, so rest assured that they will not give you someone’s contact information that has a problem getting things done.
In all seriousness, a Realtor wants to make sure his clients are happy and so much of the process involves the lender, so they are going to give you good recommendations. On a side note, it is a really bad idea to go with your bank’s mortgage department just because you bank there. Look for the best all-around package when it comes to your mortgage.
However, don’t be scared to shop around and compare. You might find a better deal with a different lender, and your Realtor’s recommended lender may also be able to match the deal.
Step 3: Start "Window Shopping”
Once you are pre-approved for your loan and have a price range you are comfortable with, your Realtor will be able to set you up on a home search that fits into the parameters that you discuss and that you desire in a home and location, etc. This list will come to you via email and should be set up to automatically update you with any new listings that fit your search criteria. Your job here is to get an idea of what you like and start making a list of the homes that you want to go see in person to see if they are a match. A good practice as you are thumbing through listings is to make your top 10 list. These should be homes that fit your criteria, that you could see yourself living in, and that you would like to go see.
Remember, the listings online may not accurately reflect the home, either good or bad. There are a lot of tricks that can happen with photoshop and camera angles to make homes look more appealing and larger, and there are also photographers and agents that just take and use bad photos in their listings.
Step 4: Set up a home tour with your Realtor
Once you have your top ten list, your Realtor will set up a home tour for you. You will go out with your Realtor and view the homes. You will be looking to see if the homes fit your family and desires when you see them in person. Typically, a buyer is looking at layout of the home, finishes, and picturing their family in the home. Your Realtor will be able to answer any questions you have, and will more than likely be looking beyond the finishes for signs of distress or damage and pointing these out to you. A Realtor has no emotion involved in this process, so they have the ability to help you see things as they are.
Your goal on your home tour is to pick your top 2 homes. This should be two homes that you would be happy living in. If you only come up with one home, that is OK. If you come up with none, then you will go back to step 3 with a little more knowledge of what you want and expect in a home.
Some buyers find their home instantly, and others take two or three outings before they find what they are looking for. Communicate with your Realtor to help them become your extra set of eyes during this process. Whatever you do, don’t pass something up that is amazing because you think that you need to see more homes before you decide. If it is amazing and you love it, don’t hesitate to make the offer before someone else does.
Some buyers prefer to go back for a second showing on a home before they make an offer. This is common practice, but know that depending on the market, if you wait too long, the home may not be available.
Step 5: Make an offer on the home
You will make an offer on your top choice. Prior to making the offer, your Realtor will call the listing agent and get all of the information that is important to the offer. It is a good idea to check in with your lender and insurance agent as well to get a more accurate estimate of your expenses so that you know what to expect with this specific property. Your Realtor will show you comparable sales to help you determine the market value of the home and help you decide what offer to make. Remember, sometimes you are getting a good deal even if the seller doesn’t come off of their list price.
The offer consists of the Real Estate Sales Contract and all necessary Addenda for the property or this specific deal. This is a legal document, so make sure you know what you are signing before you sign it and have your Realtor send it on.
Depending on the market, this process could be very fast and stressful. Rest assured that there is a safeguard in case you find something better or change your mind.
Step 6: Negotiate the offer
It is very rare that the seller accepts the initial offer, although it does happen. However, in almost every situation, you will be negotiating the offer. Your Realtor will communicate with the seller’s agent through this negotiation process. People get very emotional during this process because this is usually a major life decision on both sides. The Realtors take all emotions out of the situation. It’s the same as having a barrier between you and the seller. It’s a way to “keep your cards close.”
Your Realtor and you will devise a strategy before going into negotiations. Your strategy could consist of many different options, but typically it is something like, “let’s start at this price point, and see if we can get it for this price, but I am willing to pay this price.” Make sure you have this game plan established before negotiations are started, and really, you should do this before the offer is made.
Remember, a negotiation is a process with the goal to come to a win-win situation. This is where both parties can come to an agreement that is beneficial. You will probably not get everything that you want, but it will be the same on the seller’s side. Be flexible where you can and this process will move smoothly.
Step 7: Execute the Contract and Open Up Title
Once negotiations wrap up with an agreement between the buyer and seller, the contracts will need to be executed. This is the legalese way of saying that the contracts are signed by all parties and formal acceptance communicated to both parties. Remember to read what you are signing, and ask questions if you don’t understand something.
Your Realtor will be in touch with the title company to open up the title work and escrow account for your deal. Your job will be to deliver the Earnest Money to the title company and the option fee to the seller or the seller’s agent. A lot of times, your Realtor will pick up these checks from you and deliver them on your behalf. There is a timeline in the contract for when these checks need to be delivered, so make sure that you adhere to the timelines.
The title company will contact you shortly after they receive the contract. You will be working with an Escrow Officer and probably an assistant or two throughout the process. It is very important that you respond to them immediately when they ask for information as their process to clear the title is very complicated and involved.
Step 8: Communicate with your lender
Immediately after the contract is executed, make sure your lender gets a copy of the complete contract. It is also a great idea to give your loan officer a call and let them know that you are executing a contract. This way, they can get the ball rolling on getting their approval process started. You will be required to sign loan application docs, disclosure docs, and may need to provide more information to your loan officer. In the first few days, you will have the opportunity to lock in your interest rate. Your loan officer will advise you on what to do at this time. Make sure you have the required information to your loan officer as soon as possible as these first few steps determine the timeline on closing.
Step 9: Have the Home Inspected and Negotiate Repairs
In your contract, you have a termination option, or due diligence period. This is the time that you will have the home inspected and negotiate any kind of repairs that you require. You will want to have a Structural and Mechanical inspection done by a TREC Licensed Inspector and you will also want to have a Wood Destroying Insects (WDI) inspection done by a licensed WDI inspector. Some TREC inspectors also have this WDI certification. Your agent will be able to give you a list of inspectors to choose from, but this should be your choice.
Your inspector will give you an inspection report for you to review following the inspection. Share this with your agent immediately as the clock is ticking on your option period. If there are items in the report that you think require further inspection, bids or estimates to repair, you must have these done within your option period. Common inspections or bids are HVAC (air conditioning system), plumbing (usually water heater), and roof inspections. Be careful about who you hire. A lot of these guys will try to sell you their product. If you don’t have anyone that you know in these areas, ask your Realtor for their recommendations.
Once you figure out what shape the house is in, and what repairs you are willing to make, you can negotiate any other repairs that you feel are necessary with the seller. This is second round of negotiations is very similar to the first round. Your leverage here is that you are willing to walk away from the deal thus causing the seller to put the house back on the market and wait for another buyer. Once your option period is over, you lose your leverage and the seller is not required to make any repairs on your behalf.
You can negotiate for specific repairs to be completed or you can negotiate for money so that you can have the repairs performed by contractors of your choice. This choice is up to you and what you want to deal with when you take possession of the home.
Remember that these inspections and negotiations all have to happen within the option period, which is usually the first 7-10 days of the contract. These are actual calendar days and include weekends and holidays, so make sure you get everything set up as soon as possible.
Step 10: Move Toward Closing - Loan, Appraisal, Insurance, Utilities
Once you are past your option period, you will deal a lot with your loan officer and loan processor as they prepare your loan. You will have a loan contingency built into your contract that states that you will need to have loan approval in x amount of days, usually 14-21 days, so this process will seem like a lot of things coming at you quickly from your loan officer. Your Realtor will stay in close touch with your loan officer and the Escrow Officer during this process and will help move the process along.
Your lender will have the home appraised during this time. You will see a copy of the appraisal. If the home value comes in low, immediately contact your Realtor. In this case, you will go back into negotiations with the seller for a new sales price.
Toward the end of this escrow period, you will select your homeowners insurance policy, select your home warranty company, and set up your utilities to start the day you close. Your Realtor will remind you of all of these steps as they come up.
Step 11: Final Walkthrough
A day or two before closing, your Realtor will set up a final walkthrough for you. You will walk through the home and make sure all repairs are complete, that the seller has moved out, and that the home is in the same condition as it was when you went under contract to purchase it. If there is something wrong, immediately bring it up to your Realtor. Since we are only a couple of days from closing, be aware that if something is wrong, it may delay the closing for you.
Remember to look in all of the closets, cabinets, attic spaces, garage, and any other hidden spaces for seller belongings. If it’s in the house when you close, it is now your property and your responsibility to get rid of. The seller should only leave personal property behind that is part of the contract.
Once the home is in satisfactory condition for you, you will sign a Buyer’s Walk Through and Acceptance form that your agent will keep on file.
Step 12: Closing
The final step in the process is closing the deal! You will close at the title company’s office. Sometimes the buyer and seller are both at the closing table, and sometimes the buyer and seller come in at different times to close. If you have any questions about the home, it is best to get them to the seller prior to closing so that they can answer them for you either ahead of time, or leave the information for you at closing.
You will need to bring the funds for your down payment and closing costs, minus any earnest money and option fee, to the title company. This will be in the form of a cashier’s check made out to the title company. You also will have an option to wire the funds ahead of time if you prefer. Be aware of wire transfer scammers. It’s always best to call the title company to verify the wiring instructions that you receive via email before you send a wire.
You will have a very large stack of documents to sign. This process usually takes about an hour. The escrow officer will explain the documents to you as they are handed to you to sign, and your Realtor will be there to help answer any questions you have and make sure that the closing statement includes all of the correct contract terms.
Once you are completed signing, the escrow officer will leave the room and send the signed documents to your lender. The lender reviews the documents and releases funds for the purchase. Once funds are released, you are a homeowner! Congratulations!
As always, if you have any questions, drop us a line and we will be happy to help!