This is the first in a series geared to help homebuyers better understand home loans and homebuying in order to reduce their stress level and help them realize that they are in control of the process.
Homebuying Simplified: Understanding The Homebuying Process
Buying your first home can feel like scaling a Mt. Everest-sized learning curve. The process involves so many variables, options, and people that it’s enough to intimidate any first-time buyer into staying at basecamp — but it doesn’t have to be that way.
Homebuying is a process, and like any process, the more that you know how each of the steps work, the less intimidating and confusing it will seem. In fact, each step in the process has a good reason for being, and the various people involved in that process are there to shepherd it — and you — along.
Start with a home loan consultant.
One of the very first missteps that new homebuyers take is that they start by talking to real estate agents about what they want, without first determining what they can afford. By first meeting with a lending professional, you can be pre-qualified, and then pre-approved* for the loan amount that makes the most sense for your income and future plans. Your loan consultant should be only too happy to go through various lending and financial scenarios with you to determine the optimal loan programs for you. Also, you will want to work with your lending professional to ensure you have the required paperwork and documentation ready to go, so that when it is time to actually receive your loan, your lender will be able to move as fast as possible.
*Stay tuned to imortgage impact to learn the difference between pre-qualified and pre-approved.
Identify your real estate professional. You will want to find a buyer’s agent in the area you want to live who will act as your main representative through the home search, negotiation and purchasing processes. This agent is usually compensated based on a percentage of the purchase price, although there are some who are paid a flat fee or hourly rate (this is uncommon). Talk with your lender, friends, and other contacts in the market for agent references. Given the magnitude of buying a home, good real estate agents tend to earn their reputations and recommendations.
Begin house hunting.Your agent will work with you to understand the features you want from your future home, and will begin to research the properties for sale in your target market that possess those qualities, as well as meet your budget. Then the agent will take you house hunting. Take care to ensure that you are considering all the factors that might come into play during your ownership. For example, you might not have children currently, but might plan on starting a family in the future. You’ll want to know whether or not the schools in the area are reputable. You might move five years from now, but always think long term.
Make an initial offer.
Once you find the ideal property, you will work with your agent to shape an offer that will entice the seller, but still remain within your budget. This is where having the pre-approval will come in handy as it is a statement from the lender saying that the bank has determined it will definitely lend you the money to purchase the home, which should instill a considerable degree of confidence in the seller. When the seller and buyer are happy with the initial offer, they can then enter a contract that is contingent on the buyer having funding and the home not having any previously unknown problems or flaws.
Inspection and final negotiation. If the buyer is interested in the initial offer, the buyer can then pay to have a home inspector professionally assess the home to ensure that it is safe and has no major repairs needed or similar issues. You’ll want to be there for the inspection so that you can learn about any key concerns. If any issues arise, these can be addressed during the final negotiation phase. For example, if the inspection uncovers needed repairs, then the buyer’s and seller’s agents can come together to determine who should pay for what and how much. Once each party is satisfied with any final tweaks to the agreement, they can move forward with the actual real estate transaction and close the deal.
Obtain the loan. Hopefully you prepared early in the process to have all your paperwork ready to go. At this point, a home appraiser will come to professionally assess the home’s market value as an independent third party. Assuming no surprises and the appraisal is in line with the purchasing terms, the lending process will swing into action. You can expect to pay for the appraisal, credit checks and other related fees during this time. You will also need to obtain homeowner’s insurance at this stage of the process.
An escrow will be established with an escrow company that will act as an impartial holder of all funds as the real estate transaction unfolds. The process can take some time, so the impartial escrow company is there on everyone’s behalf. The title company issues title insurance and reviews the property to ensure there are no previously undiscovered issues with the home, such as liens or unpaid taxes. Then the process to transfer title of the property begins.
Closing paperwork. At the final closing of the deal, you will need to sit down with a public notary for a couple hours to sign all the documents related to the loan. The paperwork is considerable and you’ll likely have writer’s cramp by the end of it, but pay attention to the instructions you’re given, as any mistakes in the way that you sign the various documents can cause problems with the close. At the close of escrow and the actual transaction, the process is finished — and you’re a homeowner!
And there you have it: the homebuying process. Now that you have some solid information, it doesn’t seem as forbidding as it did at the outset, does it? Bearing that in mind, now’s the time to get started. Reach out to a loan consultant and find out what homeownership possibilities await you.