December 11th, 2013 3:30 PM by Gregg Mower
Ok you have decided it is time to buy a home. You may have come to this conclusion to buy a house by either you are sick of renting and dealing with your landlord or you have thought it through and decided it would be a good investment, or all your friends are buying a home maybe I should too. Whatever your motivation is to start the process now is a good time to buy a home. You will hear that from every Real Estate Professional on the planet and it is sound advice for no other fact Real Estate has increased steadily over the long term and is the best hedge against inflation. But you don’t care about all that, you just want to have a home you can call your own, great. But now the question is where do I start, who do I call, how do I research this on the internet? I think most every homeowner out there today has went through the same questions. Most people will ask a family member or a friend how they bought their first house. Some folks will turn to the internet to educate themselves and that is how you found this article. It really doesn’t matter how you find the information it just matters that you do educate yourself of the process and what to expect. So let’s put the steps into focus so you understand some to terms used and the players in the game.
Buying a home is the largest investment most people will make in their lives so they should know some basics when starting the process. The following steps are broken down so you can understand what they are and who is involved as well as basic Real Estate Law. So let’s start with;
Step 1: This is your information gathering stage and you are doing it right now. Learn some basic terms that will be used throughout the process and learn the players in the process. One term you should become familiar with is the term “Escrow” the dictionary says that an escrow is a third party that brings a buyer and a seller together in a neutral place. In Real Estate that is true and is used out of context in many ways, you will hear your Agent say that he or she is “opening escrow” which simply means the process is starting. There are more terms we will go over in the coming steps.
Step 2: You will need to know how much of home you can purchase based on your income, bills, credit and cash you have to buy a house with. The best way to do this is to find an experienced Loan Officer at MAE Capital Mortgage (a selfish plug but hey I am writing this article) and provide them with 30 days of pay-stubs from you job, your tax returns for the last 2 years, W2s for the last 2 years, you last 2 months Bank Statements and any other documents that impact your financial situation like Bankruptcy papers (if applicable) or Divorce Documents (if applicable). This will allow your Loan Officer to get you approved for a specific loan amount before looking at homes that you might not qualify for. You can do this over the phone, in person, over the internet, email, or combination of these. Be prepared to answer any questions about your financial past upfront, don’t hold anything back as it will be found in the process and you will eventually have to answer to it anyway. The more open you are about your finances the easier it will be for your Loan Officer to approve you and make sure that approval will work when you do find a house.
Step 3: This would be the stage you will need a Real Estate professional. Note that I don’t use the word Realtor as this designation can only be used if a licensed Real Estate Agent under the California Bureau of Real Estate is a member of the National Association of Realtors (a trade association). So for the ease of this article we will call the Real Estate Professional an Agent for simplicity purposes. Anyway, I would suggest that your Loan Officer refer you to a good Agent as they will know who is doing good work for their clients and have experience like MAE Capital Real Estate and Loan Agents (again a selfish plug). The Agent will then take your qualifying number from the Loan Officer and ask you some simple questions as to narrow the search parameters. He/She will ask: what area do you want to be in; how many bedrooms and bathrooms you want; what size of a house do you need; what amenities would like? This will allow the Agent to input those parameters into the Multiple Listing Service (MLS) site and retrieve homes that are in the area you desire with all the items you requested. You will be looking at pictures of homes in the area(s) you have chosen and you will be looking for those that stand out to you. Once you have narrowed it down to several homes the Agent will then set up showings of those homes. This is the fun part as you get to go look at the homes now.
Step 4: You have found the house that fits your needs and you tell your Agent that you would like to buy that home. Your Agent will then write an offer to purchase the home. An offer is where a sales price is proposed and any other items you may wish the seller to comply with. The offer is signed by you and the Agent will then present the offer to the seller usually through the Listing Agent (an Agent who represents the seller). The seller will look it over and decide if the offer meets their needs and satisfies what their expectations are with regards to how much money they will walk away with after the sale is complete. If the offer meets the needs of the seller, the seller will sign your offer and it will then become the contract to sell and purchase. If there are items the seller is not satisfied with they may make a counter offer to you with their expectations spelled out in it. If the seller’s counter offer is OK then you sign it and those new terms make up the contract of sale. You are now in contract, at this point you will hear your Agent say that they will be “opening escrow”. This simply means that they will be contacting an escrow company to act as a disinterested third party in the transaction. The Escrow Company will order a Preliminary Title report that shows all the liens (stuff owed against the property) and it will show the legal property lines, the county parcel number, and legal description of the property. In Northern California most Title Companies also do the escrow function, in Southern California there are separate Escrow Companies that many order the title insurance from various carriers. In other states the escrow function is done by an attorney. You will not have to worry about any of that as your Agent will take care of that for you. Your Agent will ask you to put a deposit in escrow of usually $1,000 to show the seller you really intend on purchasing the home and if you do change your mind for no good reason the seller will get the deposit funds.
Step 5: Once the escrow process has started your Loan Officer will contact you to update your loan file. They will ask for your most updated pay-stubs and any other documents that they may not have to complete the final approval process. Your lender will be required to send you “disclosures” within 3 days of the final signature on the contract (remember the offer that has both signatures on it is now the contract). The disclosures that will be sent to you, usually through your email, will consist of many documents and forms that are necessary to protect the lender from legal issues. These documents are meant to help you, the consumer, but really are not worth the typing to explain to you as they are our Government’s way of feeling like they have helped the consumer and are so confusing that most lawyers can’t explain them correctly. You will receive these same disclosures every time something changes with the loan such as the down payment changes, the interest is locked in, the term of the loan changes etc. . On the average you will receive 3 sets of these disclosures. The most import information to you is your monthly payment and how much it will cost with down payment and closing costs to buy this house and your Loan Officer should have covered that with you before you made the offer. Once you have acknowledged the receipt of those disclosures the appraisal can be ordered. Your Loan Officer will ask for you your credit card number on a written authorization form so that the appraisal can be ordered at this point. Now we wait until the appraisal is in, once it has arrived the underwriter (the assigned person at the lender who does the final approval on behalf of the lender) will make sure everything is order and issue the final approval. If there are any conditions that need to be met prior to the legal paper work being drawn up this will be the time to provide those conditions or underwriting stipulations. Once any conditions are signed off by the underwriter your file is then moved over to the legal department so that the Note and Deed can be drawn correctly and sent to the Escrow Company.
Step 6: At this stage a few weeks have gone by and it is nearing the time you are slated to move. By now you should have your new utilities, phone and billing information ready to be changed over once the transaction is done, you still have a few days at this point before the house is yours. Your Agent and or Loan Officer will call you to go to the Escrow Company to sign the legal documents. You will also be told at this time to bring in a cashier’s check or to wire the rest of the funds needed to close. Remember you already made a $1,000 deposit and that will go towards the total. You will then physically sign the legal documents either at the escrow company or you can request a courtesy signing at your home or at the Loan Company. Once you have signed everything the Escrow Company will review everything and send the legal documents back to the lender for their review. The lender will review the documents once they have received them back from escrow and if everything is in order they will fund the balance of the loan.
Step 7: Ok, we have made this far and it has been quite a road to test all of your patience, but we are almost done. The lender funds the money back to the Escrow Company and the Escrow Officer distributes the funds to pay the seller and the seller’s lender off, commissions to the Agents, and any other distributions that may need to be made. The Deed is sent to the county to be recorded, once recorded the home is legally yours. Finally, it is your house and now all you have to do is move in……. I say that sarcastically as most folks want to paint, carpet or do some things to make the house their home before the actually move all their stuff in.
There you go the steps to purchasing a house. I think you can see that it is a process and every client is different and will require different levels of help. Having an Agent on your side is very important, and most folks don’t realize that your Agent is paid by the seller; you don’t have to pay for their services in most cases. Of course if you are going to enter into this process we at MAE Capital Real Estate and Loan would love the opportunity to help you with this process from start to finish. We have done thousands of transactions and know the little ins and outs of the Real Estate industry. Click here to get started