STEPS TO BUYING A HOME
In today's real estate and mortgage market, buying a home is not as easy as 1,2,3... but it is not that much more difficult either as long as you follow the steps laid out below. There are many factors that can affect your transaction, however, if you adhere to the steps below, you will be way ahead in the game when you get excited to start looking for your new home or investment property.
- Determine your Readiness: If you’re reading this, it’s likely that you’ve already tackled the first step of deciding whether purchasing is a good option for your finances and your family. Obviously, your current financial situation will be a major factor in this decision. Understanding the costs of home buying and homeownership are vital steps in determining whether you’re ready to “take the plunge.” Factors that determine your financial readiness include your current income, savings, fixed expenses, and debts.
- Become Optimal Mortgage Candidates: With lender requirements stricter than ever, you’ll need to make sure your credit and finances are in excellent condition. Try to pay off or pay down outstanding balances on credit cards, car loans, etc. This will help improve your income-to-debt ratio, which will in turn improve your credit score. A credit score higher than 700 will help you get the best rates.
- Get a Pre-Approval Letter: Getting pre-approved for a mortgage means that a loan officer has reviewed your finances and credit report and believes you qualify for a specific loan amount for one or more mortgage programs. The lender will then offer you a pre-approval letter, which will be a testament to your buying power when you are ready to make an offer on a home. TIP - Even better is finding a loan officer that will do a full approval for you with property TBD.
- Determine Your Budget: Your pre-approval letter will tell you how much the bank is willing to lend you based on your credit, income, and other factors, but how much you can really afford is a personal decision. The bank will take your fixed expenses into consideration when determining your pre-approval amount, but you will need to determine what you’re comfortable spending each month.
- Find a Professional Real Estate Agent: With access to multiple listing services and insight into the market. A real estate agent can help you find the home you’re looking for as well as facilitate the negotiating and closing process. While you don’t have to use an agent to purchase a home, it can make the entire process MUCH easier for you.
- View Homes for Sale: With your real estate agent (or without), narrow available properties by determining what you really want in a home. Your agent will help arrange home viewings for properties that suit your preferences. Once you’ve selected the right home for you and your family, it’s time to make an offer and close the transaction.
- Make an Offer: Placing an offer can be a delicate process. The current market condition, time of year, work needed on the home, and the length of time the home has been on the market can all affect your offer – not to mention your own budget. The price is not the only factor within an offer, either; you can also negotiate closing costs, necessary repairs, etc.
- Negotiate Counter Offers: If a seller refuses your initial offer, be prepared for a counter offer. Keep in mind, a seller is not always obligated to respond to an offer. The negotiation will continue until a mutually acceptable price is determined.
- Make an Earnest Money Deposit: When your offer is accepted, you'll need to deposit your earnest money check into escrow (California is an escrow state). The offer should have contingencies that will protect your earnest money deposit should you decide to cancel the contract.
- Open Escrow / Order Title: The listing agent will open escrow and title through a transaction coordinator.
- Order Appraisal: Your mortgage professional will require payment for the appraisal of the property. The appraiser's analyst will determine the value of the home. This value can further determine how our team will negotiate on your behalf. (Should it come in lower than the contracted price, we go to work trying to get you that lower price). Remember to ask your lender for a copy of your appraisal.
- Fulfill Lender Requirements: Your mortgage professional will require more information from you. While in escrow AVOID major credit related activities and purchases, as it may affect your loan. When the file is complete, your mortgage professional will submit it for final underwriting approval.
- Approve Seller Disclosures: Review disclosure items such as the TDS, Seller Property Questionnaire, Natural Hazard Report, Pest Inspection / Completion and other documents such as the preliminary title report. Review evrey document and ask questions about anything you don't understand.
- Inspect the home: Once your offer is accepted, it’s customary to schedule a buyer’s home inspection. This is when you have the opportunity to get a professional opinion on the condition of the home and determine any red flags (like damage, pests, structural issues, etc.).
- Issue Request for Repair: Should there be any issues with the home inspection, such as building code violations, safety hazards, etc. You can ask the seller to address the issues prior to the close of escrow, whether it is through a credit or repairing the specific issues. Think of it as your "wish list" because the seller does not have to comply or fix anything (but most sellers will fix safety hazards, etc.)
- Remove Contingencies: A standard default in the California Residential Purchase agreement gives you 17 days to remove contingencies. Be certain that the loan is solid and your appraisal is an acceptable number. After this 17 day period, the seller has the right to issue a notice to perform, meaning they can cancel the contract if you do not adhere to the terms. Only when contingencies are passed and signed off by the buyer, can they call for your Earnest Money Deposit should you wish to cancel.
- Do the Final Walk-Through: This step is very important, inspect the home and make sure any repairs the seller committed to are completed. In short be sure that the home is in the condition you agreed to buy it in.
- Sign Loan & Escrow Papers: In San Diego County, as a rule you’ll sign general escrow documents early into the process; with your loan documents coming near the end of the escrow. You will require valid identification to sign.
- Deposit Funds: Use a certified check making it payable to escrow. Bring a certified check payable to escrow. Expect Escrow companies typically pad the amount required to close, this will be re-funded shortly after. The easiest way to get monies to escrow is through a wire, it’s cheap, and saves you time.
- Close Escrow: The property deed, seller’s conveyance and deed of trust will be record in the public records. The title company will let you know when this occurs. Once this happens, enjoy your new home, as you are the legal owner!