Step 1 | Prequalifcation
Before contacting the Lender:
- Determine a desired house payment (most house payments include taxes and insurance so you will need to add these costs if using a mortgage calculator for principle and interest only)
- Determine if you will consider houses that are distressed sales (i.e., houses that will be sold AS IS)
-What is your capacity to bring money to closing (will you be able to pay for your closing costs and down payment)
-What is your capacity to do updates or repairs on a house
Talk with your Realtor:
-Regarding any special needs you might have, such as, down payment assistance, closing cost assistance
-Ask about purchasing AS IS or distressed sales (short-sales and foreclosures)
-Obtain resources as needed (Realtors work with lenders every day and can provide resources to meet your needs such as, AS IS financing, credit issues, rehab loans, 100% financing loans etc.)
Contact lender(s) and discuss:
-Type of Loan (FHA, VA and Conventional)
-Down Payment Requirements
-If a relative is going to assist with your down payment ask about a gift letter
-Down payment assistant programs (are you eligible and does the Lender participate in these programs)
-Interest Rate and the “lock” process (typically a Buyer does not lock prior to purchase)
-Length of loan 30 or 15 year
-Is the loan a fixed rate i.e., will not change over the length of the loan.
-Ask about principle payments and how this can reduce the length of your loan.
-Requirements for the condition of the house
-Appraisal (will you have to pay for this prior to closing)
-Private Mortgage Insurance (how will this affect your monthly payment)
-Paper trail requirements (For example, the lender will want evidence that you paid your own earnest money and down payment so discuss what will be reviewed in the final steps of “clear to close”)
-Report your marital status to the lender (if you are married, your partner may have to sign at closing)
-What are the lender’s “fees” (your Realtor will know what a typical fee is for the area)
-What will be required to pay before closing, such as appraisal, credit report
-What is an acceptable close date to a lender (most can close in 30 days)
-Does the lender typically meet close dates
-Is the underwriting done in house (the underwriter is the person that decides if the bank will lend; banks that use out-of-office underwriters may need more time to close)
-Does the lender have any concerns about your prequalification
After Talking with Lender, Follow-up with your Realtor:
-Discuss your lending plans
-Problems with obtaining a loan, ask if there are other lending resources
-Ask if the Realtor has had previous transactions with the planned lender (choosing a reputable lender that is known to the area may strengthen your offer)
-Considering an AS IS purchase, discuss with your Realtor how to best manage an AS IS sale.
Select a Lender:
-Obtain your prequalification letter
- Document your credit score for reference
-Review the estimated payment for the maximum approved purchase price (don’t forget to include taxes and insurance). If you are not comfortable with that payment, discuss a price point that will achieve your desired monthly payment.
-Forward a copy of the letter to your Realtor
Step 2 | Protect Your Prequalitifcation
Your prequalification letter is based on what you have communicated to the lender and on your credit score. It is important to maintain your credit score rating. It is critical that your score does not drop while shopping. Things that may change your prequalification status while shopping for a house include:
- changing jobs
- late payments
- insufficient funds (i.e., bounced check)
- change in debt ratio
- change in income
- lack of a paper trail for money in your bank account (all money will need to traced to its source i.e., your paycheck. You will not be able to use money from a safety deposit to purchase your new home. Any deposits into your bank account will require the source to be identified).
It is best that you do not change jobs or increase your debt while shopping for a house. So do not go buy a house full of furniture, a car or a refrigerator until after you close. During this process you need to be “perfect” in regards to credit so spend accordingly. If you must change jobs, talk with your lender to ensure it will not be a problem. Lastly you will be required to prove everything you have told the lender. Submission of paystubs, bank statements, tax filings and other documents will be required by the lender to achieve final approval.
Step 3 | Identify Your Search Parameters
State your minimum requirements for a house. Identify number of bedrooms, bathrooms, garage size, desired search area i.e., city, zip code or school district. Set a minimum to maximum list price based on needed house features and monthly payment estimates. Not all desired features are searchable or may narrow your search too much. Your Realtor can guide you on how to set up a search that will meet your needs. MLS (Realtor data base) most common searchable fields:
- Minimum to maximum purchase price
- Area of Interest (such as school district, additions of interest, map area, city/town)
- Number of Bedrooms
- Number of Baths
- Garage capacity
- Number of Acres (if applicable)
- Pool
Step 4 | Start Shopping
Buyers find their houses 4 ways:
1. Internet (MLS database and other web sites)
2. Realtor
3. Signs
4. Open Houses
Online Search. Your Realtor will setup an online search for your house in the MLS (Realtor database). The search will include the minimum requirements that you have stated. The MLS does have some limitations so narrowing your search to much might miss your Dream House. It is best to have some criteria so you are not overwhelmed with to many listings for review, but not so specific that you may miss a house. Your Realtor will guide you on how to best setup your online MLS search. Once your online search is setup, check you emails and personal MLS site frequently. Popular areas may sell quickly and typically a house has had a sign up in the yard for at least 48 hours before it is in the MLS database.
Visiting Houses. Your Realtor will need to schedule visits to any houses of interest. It is best that you allow 2-4 hours for the visit to be arranged. Short-notice visits are possible, but ideally the more notice the better. This will allow for pets to be removed and the house to be prepared for a visit.
Drive Bys. Ideally you drive by a house and then schedule a visit. Ask your Realtor if this is a good plan. In frantic markets a drive by may cause unnecessary delays.
Open Houses. If while out driving around you see an open house, stop by and visit. This will allow you to see other floor plans and décor’. Most open houses will have a Realtor host so just let them know you are already working with a Realtor.
For Sale by Owners. If you see a For Sale by Owner (FSBO), write the contact information down and let your Realtor know you would like to visit. Most FSBO are more than happy to work with a Realtor.
Visits. The Realtor that shows you the house will be the one that assists with the purchase. If you want to be assisted by a specific Realtor it is essential that your Realtor be the one that shows you the house. Never call the Realtor on the sign if you plan to have a specific Realtor assist with the purchase. Things get complicated if you bring in another Realtor after you have visited a house. Always call your Realtor to visit. Of course, this does not apply to open houses.
New Construction. Builders are more than willing to work with Realtors. If you visit an addition, just let the attendee know that you are working with a Realtor. Before making a deal with the home builder, revisit with your Realtor so you can make an informed decision.
Shopping with a Realtor. A Realtor will be looking at many things when they visit a house. While you are considering if the house meets your personal needs, the Realtor will be considering condition and resale potential. A Realtor will consider flaws in floor plan, lot location and other details that might affect the value and the potential resale of the house. Never underestimate the expertise of a Realtor.
Step 5 | House Identified for Possible Purchase
If there is strong interest in a property, let your Realtor know immediately. Ideally you want to avoid competition in purchasing so prompt action is typically needed. Ask your Realtor if there is time for a second visit (you will see more on a 2nd visit). If not, move forward with gathering information for your offer. Ask your Realtor for a market analysis of the house to determine where the house is priced. Is it priced at the top, middle or below market value? How long has the house been on the market? Discuss terms for the offer with your Realtor. Do you have special conditions for the contract, such as a contingency to sell your current home, need closing cost assistance etc. Discuss if you want your offer to be competitive or at a lower price point. If the market is busy or the house is highly desirable by other Buyers you may need to make an offer on the same day you visit and make your highest and best at submission. Your Realtor can guide you on timing and purchase terms.
Things to consider and review prior to the offer:
1. Review Disclosures
2. Review reported property taxes / special assessments
3. Consider the cost of home insurance
4. Review features (well water, total electric, flood zone etc.)
5. Review the market analysis provided by your Realtor
6. Review Buyer’s estimate of expense from your Lender and/or Realtor i.e., funds needed to purchase.
7. Do you want or need Seller assistance with your closing cost?
8. Do you want the Seller to provide a Home Warranty?
9. Do you want the Seller to leave the Refrigerator or other personal items?
10. Does the Seller have reserved items i.e, items the Seller plans to remove from the property.
What your Realtor will need to draft an offer:
• Formal Name(s) for Title
• Purchase Price
• Type of Purchase i.e., Cash, VA, FHA, Conventional etc.
• Prequalification Letter or Proof of Funds
• Amount of Earnest Money
• Desired Close Date
• Preferred title company
• Repairs that are to be listed in contract vs negotiated later.
• Home warranty if desired
• Special conditions i.e., do you need to sell a house first, closing cost assistance etc.
Step 6 | Make a Bon Fide Offer
• An offer is a formal step that should be in writing.
• Your Realtor will draft the offer with your desired terms for signature. This offer must include an estimate of your expenses to purchase.
• Once signed, your Realtor will submit the offer to Seller for consideration with a deadline for a reply.
• An offer can be withdrawn any time prior to acceptance.
NOTE: Contracts are legally binding. Ensure you understand the terms and required components of the contract. Consult a lawyer if desired.
Things to consider before the offer or during the inspection timeline:
~ Identify the number one reason why you are purchasing the house to ensure this need is met. For example, do you want a specific elementary school? Call the school to verify the house is in that school district.
~Identify any specific information you want regarding the house. Your Realtor can coordinate or provide resources to have any questions answered.
~Do your own investigations of the neighborhood and city amenities. Talk with neighbors and checkout any neighborhood common areas such as pools, parks, trails etc. Visit local stores and restaurants. Drive by at different times of the day and on weekends. Checkout your driving commute to work or school.
Step 7 | Steps After an Offer has been Accepted
• Get the process started. Submit earnest money as required. Ask your Realtor to send the contract to your lender and a title company of your choice. Contact your loan officer so they can begin the loan process and order an appraisal. Confirm they have received the contract. Be responsive to the lender and submit documents and information promptly. Delayed documents/information to a lender can result in a delayed closing. Talk with lender about locking your interest rate and funds needed to close. Your lender has deadlines that must be met so stay in contact to ensure your file is progressing to closing on time.
• Review all available documentation about the home and neighborhood. Review homeowners association (HOA) documents, Seller’s Property Condition Disclosure Statement and lead paint disclosure. If you plan to add a pool, have livestock or major remodel, contact City/County/ HOA governing entities to ensure your plans for the house are allowed.
• Get a Professional home inspection. Ensure all inspections are completed as outlined in the contract. Ask your Realtor what is the deadline for completion. Start with a general and termite inspection of the house. Order specialized inspections as recommend by your Inspector or as needed, such as roof, pool, structural, HVAC. Review all inspection findings carefully and ideally print for reference to negotiate repairs and for use after purchase. Even if contract is an AS IS sale, it is best to perform inspections.
• Repair Negotiation. It is common for a Buyer to ask the Seller to make repairs. The request for repairs to be performed by Seller is a formal negotiation. The contract outlines when repair terms have to be agreed upon by Buyer and Seller. Your Realtor can guide you on repair negotiations. Repairs must be related to malfunction or damage, not cosmetic. Once your repair agreement is achieved move on to making arrangements for possession i.e., initiation of utilities in your name, moving plans, mail service arrangements etc.
Step 8 | Closing
Closing at a title company is your final step in the home purchasing process. Your Realtor will coordinate closing details including scheduling a time that accommodates all parties i.e., Buyer, Seller and Realtors. Your contract specifies a date the closing has to take place. If this date is not met, both parties have to agree to extend. There is a risk of losing earnest money so talk with your Realtor if closing is not going to occur as specified in contract.
• Funds to Close. Your Lender and Realtor will report funds needed to close. Ask your Realtor for a copy of the settlement statement prior to closing. A lender approved statement is typically available the day before closing. This will allow you to review expenses and ask questions as needed.
• Closing Documents. If you desire to read all closing documents, contact the title company for a copy. The time allotted for your closing, does not include enough time for you to read each document. In a typical closing, the title company “closer” will summarize each document that requires your signature. If you want to read the docs, obtain a copy before closing.
• Funds to close. Funds can be submitted by certified check made out to the Title Company or by wire. If you desire to wire funds contact the title company by known phone number to arrange. FRAUD ALERT: be aware that there have been reports of Buyers receiving emails requesting money for a transaction from illegitimate sources. Any requests for funds to be wired/mailed should be verified by phone (using a known phone number) with Your Lender and Title Company.
• Schedule a walk-through of property. Immediately prior to closing, Buyers have a formal step where they visit the property to ensure it is in the same condition of contracting. Do not skip this step. This is a quick walk through, not an inspection, just to ensure there has been on vandalism or damage from Seller moving. If damage is found, your Realtor will provide notice to Seller and negotiate a resolution.
• Questions to the Seller. Ask your Realtor to submit your questions to Seller before closing. It is not uncommon for a Seller not to be present at closing.
• Attend Closing. Be sure to obtain keys, remote controls and alarm info if needed. CELEBRATE!
• JUNK MAIL: You will receive a lot of junk mail after closing. Some mail will look like it is from your lender. Confirm any mail r/t to your loan with the lender. Most of this mail is junk and best ignored, but if you have a question ask your resources: Realtor, Lender or Title Company.
Sign in with your email address
Enter your email address
