Steps in a Home Purchase
The Borrowing process
Shop for a Lender
A lot of first time home buyers only inquire with their own bank for loan rates and wrongly assume that they will be competitive in the marketplace. In addition to checking rates with the institutions you have a relationship with it is beneficial to talk to an independent residential mortgage broker.
An independent broker will shop the whole marketplace and find a loan that suits you while your bank will be limited by their current offerings. Another big downside with the major banks is that many do not have a local loan officer, this restricts your easy access to information and also makes the overall process more difficult because your ‘team’ does not know your local market.
We can’t stress enough how important it is to get pre-approved for a home loan with a lender before making an offer. The market is very competitive and a pre-approved letter is expected to accompany any offer where there will be a mortgage. Attaining your pre-approval requires much of your financial information be verified so it takes time. As part of your pre-approval the lender will verify your income, assets, debts and credit score so the result reflects your actual ability to get a loan for the value of the home.
In contrast, a pre-qualification is a done quickly and and is more of a tool for a lender to determine your general financial position so they can find the best loan type for your situation. Pre-qualifications are usually done over the phone or on the internet and typically does not include the analysis of your credit report or take an in depth look at your ability to buy a home.
Find your home
Choosing a Realtor
Choosing a Realtor with experience in your market is key to a successful purchase, working with a dedicated team is even better. In our complex and changing real estate market working with a team of licensed Realtor’s is a tremendous benefit. In the case of the Shepherd Gotfrid Group, our team brings contracting background and the willingness to climb, crawl, research and explore any potential defects. In addition we are skilled negotiators with decades of practical experience. While sales statistics are a good indicator of a Realtor’s ability having an advocate with the on the ground skills that will help you as a buyer understand every aspect of the home you are purchasing is a powerful asset.
Do your homework on neighborhoods
A good Realtor will be able to identify suitable homes based on your input but it takes time to determine what neighborhoods might be suitable or unsuited for your individual tastes. Its a great idea to make a list of your most important criteria then investigate the areas that meet your needs. Are schools the most important thing to you? Is city water and sewer a requirement or would you be comfortable with a septic system and well? The more you look at neighborhoods, the more questions you will ask (and hopefully answer) so your house hunt will be productive.
See properties in person
There is no substitute for viewing homes in person. Pictures can be very misleading for the better or worse and they can’t tell you if there are barking dogs next door or other negative conditions that might impact your decision. Walking through the front door and experiencing each home with your broker is invaluable. Seeing multiple homes will also give you a better idea of value and an understanding of what your budget will get you. While you are focussed on the livable aspects of the home a good broker will pay extra attention to the structure, the roof and all of the homes features and defects.
Make an offer
Making an offer to purchase a home is very exciting but also very stressful since its the largest purchase most of us will ever make. This is where your broker will start to earn their fees. Your broker will use current market data to evaluate the asking price of the home and will also use the empirical data from the tour of the home in helping you determine your offer price. Included with your offer will be the Pre-Approval letter explained above and an earnest money deposit, usually in the range of 1% of the asking price. Any other conditions of the purchase will also be included in the initial offer.
The Purchase Process
It is very common for a seller to reject a buyer’s initial offer and reply with a counter offer. Your broker will help you evaluate the counter offer and determine if the terms offered are acceptable. In many cases some of the conditions in the counter will not be ideal or simply unacceptable. At this point, you as the buyer have two choices, you can reject the offer and walk away or prepare a counter offer of your own and try to negotiate a middle ground that is acceptable to both you and the seller. Once all parties have agreed on the terms of the purchase you are officially under contract and the purchase process can move forward.
Preliminary Title Report
A critical piece of buying a home is making sure that the seller has the legal right to sell the property and identifying any restrictive covenants or easements on a property. The Preliminary Title Report will include all of the historical details of the property including any liens on the property, encroachments, easements and anything else recorded against the property. There are also listed ‘exceptions’ to the title insurance. These items can be confusing but the Title Company will be able to explain each item as it pertains to your legal rights and the marketability of the property. The Title Company will usually assign a Title Specialist and a separate contact related to the Closing of the transaction. You have hired this team and they are there to assist you.
Once you enter a Residential Real Estate agreement it is important to immediately order a general property inspection. Your contract will include a period of time for you to hire professionals to evaluate the condition of the property. Our team has several licensed inspectors we have worked with in the past and know who’s skills are appropriate to the property. We will gladly recommend inspectors based on the type of home and your individual situation. You can also research and select an inspector on your own. In either case it is important to talk to your inspector prior to the actual evaluation of the property so you can share your specific concerns. It is also ideal if you can meet the inspector on-site at the end of the inspection to review results and see first hand any defects that are of concern.
The general property inspection is just that, a general inspection. The results of this inspection will help determine if there are problems in the home that require evaluation by a specialist. If evidence of pests is found for example you will want a pest inspection, the same is true of most other specialist trades including electrical, plumbing and roofing. While a General Home inspection will identify a leaky pipe under the house, they will not be able to determine the extent of damage or cost of repair.
Once your inspection(s) are complete you may choose to ask the seller to repair specific items (typically related to health and safety) or possibly ask for a concession at closing so you can carry out repairs yourself.
Your home Appraisal
The appraisal can be a frustrating experience for home buyers as well as sellers. Since your loan will likely be dependent on an appraisal “at value” and without defects needing repair. The appraiser will use industry standards to determine that the home is actually worth what has been offered and that there are not material defects that will adversely effect the safety and livability of the home. If a home comes in “under value” the purchase price will often need to be renegotiated and if their are “conditions” then those items will need to be repaired prior to closing. A leaky roof or non-functioning plumbing are examples of typical conditions and depending on the type of loan, especially VA or FHA there may be more stringent requirements.
Prior to closing both the buyers and sellers receive a closing statement that breaks down the costs associated to each party and the net result. Each party will meet with the Title Company prior to closing to sign documents. Once the documents have been signed by both the sellers and buyers the funds are transferred. Once that is complete the title company with record the transaction with the county and transfer ownership.
It is standard that the possession of a property by the new owner happens at a pre-defined time on the day the transaction has been recorded. In some cases the seller may require additional time to vacate the property and have a rent back agreement. It is important to realize that even if you don’t have possession of the property once transfer of ownership has been recorded you own the property and it must be insured to protect both your asset and the banks interest in it.