April 29th, 2015 5:01 PM by Gregg Mower
Excellent, you have decided to pursue the American Dream of home ownership. Now what do you do? Well you need to know how much of a home you can afford with the income and bills you have. This step is the single most important step to your process of obtaining a home. This process is called getting pre-qualified or pre-approved. Although, the thought of shopping for a home may be an appealing one you should not even look at homes until you know for sure what you can buy or if you can buy. The Pre-Approval process is where you will gather all of your financial documents together and get them to a licensed Loan Officer so he or she run the numbers and your credit report and derive a number to which you can qualify for. You can read more about this process on our Pre-Approval page or our Process Flow page. Your Loan Officer will give you a loan amount, a loan program, and a sales price you qualify for based on your finances.
Once you have the Pre-Approval letter in your hand with the terms and amounts you qualify for it is time to find a Realtor to look for homes with. You may ask why you need a Realtor, and a simple answer will be it doesn’t cost you anything to be represented by one that knows the laws, the inspections requirements, contracts, and inventory. Yes, it doesn’t cost anything for you, as a home buyer, to be represented by a licensed Real Estate Agent as the sellers pay the real estate commissions to both the listing Agent and the Selling Agent. If the free service is not enough to convince you to contact an Agent to work for you how about the laws, unless you happen to be a Real Estate Attorney the laws with regards to real estate process and procedures are many. If that doesn’t scare you enough to be represented, how about the contract itself, there are items in a professional Real Estate contract that, if missed, could cost you thousands of dollars. Then there is the inventory, or shopping help an Agent can provide for you. Again you might say I can find anything I need on the internet. Again true, but, the problem with internet data is the updating of the data is old. In some cases like Zillow it requires that the listing Agent actually input the data into the system in order for the world to see it. Whereas the Multiple Listing Service or MLS is required to be used by licensed Realtors for every listing they have or they will be fined.
Now, that you are convinced to find an Agent to represent you, who do you use? I would, of course, recommend one of our qualified Agents, but if you are out of our service area we can always screen Agents for you in the areas you are looking to buy. This is a little know service, again its free to you as a buyer, that we offer to assure our clients are represented by an Agent who knows their stuff. You see, if you go dialing for dollars, as we call it, you will undoubtedly end up with an un-experienced Agent. This is because the experienced Agents are out working not sitting in the office waiting for the phone to ring, the Agents that are in the office waiting for the phone to ring are generally new to the business trying to get call in business. Another pitfall buyers run into is calling the listing Agent on a house they wish to buy and have them represent you. This is called dual Agency, and we as listing Agents love this as we get both sides of the commission, however, undenounced to the un-educated home buyer, the listing Agent’s allegiance is to the seller first, by law. So it can really pay to be consulted first by one of our Agents to have them either represent you or screen other potential Agents to represent you and your needs.
Shopping for the perfect home should not be taken lightly either. You should have a list of items that are “must have” items in a home such as number of bedrooms and bathrooms, updated kitchen, new or existing home, and most importantly location. Making this list is crucial for your Agent as they will be able to search for properties that fit your exact criteria, so you are not wasting your time looking at homes that don’t fit your needs. In addition to the “must have” list you should do a “wish list” like granite counter tops, hardwood floors, a pool etc. You should also do a list of items you absolutely do not want. You Agent has the ability in the MLS system to put in exacting parameters that you can’t get on the consumer version on the internet. Your Agent will put your parameters into the MLS system and put you on an automatic drip of homes in the area(s) you are looking in with the exacting parameters you have. Your first email of homes will be the largest as the initial search will pull all the current listings that fit your parameters. The emails you will get after that are “as they hit the market” emails, in other words you will be the first to see the properties come on the market. This is great if you are in a competitive price range as you will be able to see properties as they come on the market with no delays. This could be the difference of you getting the best home or not.
A great strategy to look at homes is to drive the properties that look good in the listings that you have viewed on line. Driving the properties will give you a real idea of where they are, what they really look like, and how they have been maintained. When driving the properties you don’t have to include your Agent as you are simply doing your own diligence. Make notes of the ones you would like to see and then call your Agent to make appointments to see the homes. Never go up to the door and disturb the occupants it is not nice nor is it safe. To see the homes your Agent will need to make appointments with the listing Agents or the owners directly for you to get inside. Your Agent will put together “a tour” that will include your availability to see them and the seller’s availability to show them. When you go to view the home take pictures and take notes so you can remember the ones you liked and disliked. You may not find the perfect house after several showings, don’t get discouraged homes are coming on the market every day and with patience you will find what you are looking for.
You did not expect to go looking for houses today and find the perfect one, but that is the way it happens, one minute you think you will never find the perfect house the next you find one you can’t live without. You now need to get it tied up so no one else can have your perfect home. Your Agent will write an offer for you and ask you to provide your pre-approval letter and a Ernest Money Deposit (EMD). The offer will be on a 10 page form that has all terms in it from the offer price to the loan amount, to the items that need to be inspected, and it also spells out who pays what. Remember you can ask for anything in the offer and your Agent will go over those details with you. Once you have decided the price and terms you will be offering you will sign the offer and your Agent will then submit your offer to the listing Agent. Within the offer you wrote a time period the seller has to get back to you with a response. When the seller reviews your offer they will either accept it as is or they will counter offer your offer with different terms. This is all part of the negotiation process. Once you and the Seller have reached an agreement and both have signed and accepted the terms you are now officially in contract.
Once in contract you will have certain dates that you must adhere to in the contract such as inspection periods. The inspection periods include your right to get a home inspection, appraisal and any other inspections you and your Agent deem fit. Those inspections periods are about 2 weeks so you should be prepared to start paying for them right away. Your Agent will know good inspectors to use so rely on them to guide you through this time period. A special note about home inspections is that they cover everything from cracks in the driveway to mold in the attic and sometimes it is difficult to determine what items are important to have repaired or if they need repair. You can talk with the inspector directly to determine this or talk with your Agent or both. If you determine you require additional repairs in order to buy the house you will have your Agent prepare a repair addendum, and submit it to the seller. The seller has the right to say that they will or will not do the repairs. If the Seller says that they will not do the repairs you may need to make the decision to renegotiate price or back out altogether. If you do back out during the inspection periods you are entitled to a refund of your deposit. If you miss the time frames in the contract and decide to back out you could very well lose your deposit. Your Agent will work with you to make all of this legal. Another variable inspection is the appraisal. If the appraisal comes in lower than the offering price your Agent will discuss your options with you. Those options will be to give the seller a counter offer with the lower value as the price, or you could pay the difference in down payment if you are so inclined. If you decide to pay the difference be prepared to make the down payment on the lower of the sales price or appraised value and pay the difference. For example if the sales price is $250,000 and you are putting 10% down for a 90% loan to value (LTV) or $25,000, and the appraisal came in at $245,000 you will be required to put your $25,000 down and you will have to add an additional $5,000 for a total of $30,000 and you will still be at a 90% LTV.
Once you have made it through the inspection periods and everything has passed your standards, we are full steam ahead to the closing of this transaction. At this time I would suggest you get back with your MAE Capital Loan Officer and make sure they are on schedule to close and see if they need any more documentation from you or explanations. By now the loan should be approved, and hopefully you are just waiting for the legal paperwork to be delivered to the escrow so you can sign and bring in the remainder of down payment and closing costs. You can always refer to the closing diagram on our Process Flow page to see where you are at in the process. There still may be a few weeks left in your escrow process so be prepared to provide more information for your Loan Officer. Now would be a good time to start preparing to transfer your utilities so you have no interruption when you move.
OK, you signed brought your money in to the Escrow and are ready to close. The lender must review everything before they release funds to Escrow to make sure all signatures are correct and the all the conditions the underwriter put on the file have been met. Once everything is good the lender funds the loan to the Escrow and they then take the Deed to the county to record the transaction to make the house legally yours. Congratulations you are now a home owner and you can move in and do anything to the home you wish. Your first mortgage payment will be due the first of the following month and be sure to make that payment on time or it will affect your credit. I hope this helped you with some basics to buying a home. If you go to our Pre-Approval page and complete the form at the bottom of the page we will contact you are start your process or give us a call we would love to talk to you at (916) 672-6130.