We hear about buying real estate all the time in the newspapers, and our parents tell us it is a great investment. In addition, our friends talk about owning a home. But few people really have any idea about what the home-buying process entails. Let’s run through that today.
The first item you need to determine is what you can afford. The way you do this is to go to a bank, mortgage lender, or direct lender and get qualified for a loan. They will take your pertinent financial information, run it through their computer, and let you know the price range where you should be shopping. Read this previous post for more information about that: "How A Bank Determines How Much You Can Borrow For A Mortgage"
Next, you should solidify what real estate sales professional you will use to assist you in your property purchase. You should interview at least three and pick the one that you best think can represent you in the transaction. Experience is key! And now that you have a real estate agent and you know how much you can afford, it’s time to work with your agent and determine what areas, locations, neighborhoods, and communities are within your price range. Hopefully, the areas where you would like to live and the type of property you would like to own are within your reach.
Now, it’s time to shop for property. Spend at least two to three months going to open houses, previewing online listings, touring properties for sale with your sales professional. This will help you understand what is available in the marketplace and at what price. Keep in mind, by the way, that you will never find a perfect property. Instead, try to find one that you love that's also close to what you desire and need in a home.
When you find one you love, make an offer. You should have already read through the standard state association's purchase offer and already know the general terms. Don’t be shy about offering. The vast majority of contracts allow you 10-17 days to inspect the property and cancel the purchase if you decide it’s not for you after all, but make sure to read the contract terms to verify this.
If your offer is accepted by the seller, you are now in escrow (some states may term this differently, but either way, you have the right to purchase the property subject to your contract provisions). You will put down your earnest money (good faith) deposit of somewhere between 1-3% of the purchase price to “hold” the property for you.
At this point, have a home inspection done, review the title report, drive the neighborhood, meet your neighbors, review the seller’s disclosure, and generally continue to move through the loan underwriting process and all the other tasks, issues, and procedures you need to do to get closing escrow. Closing escrow, by the way, is the term for taking title and officially owning the property.
One thing to mind is that there are something called "contingencies" in your contract. They are items like home inspection, financing, and appraisal, and there are dates in your contract that state the deadlines for when those need to be completed. Make sure to keep track of those dates and move forward quickly to satisfy each contract term.
Also, do not go out and make big purchases or forget to pay bills during the process. If you add loan payments or bad credit marks to your credit profile during the process, your loan might be rejected at the last minute. Then, if you fail to close escrow, you'll lose your earnest money deposit (sometimes) and won’t get the property either.
Keep the process moving smoothly by working with your lender, your title insurer, and maybe a contractor or two. There will be some hiccups along the way as real estate transactions are very complicated, but keep cool and focus on satisfying any document, bank statements, signature, etc. requests from any of the service providers helping you keep on track for closing escrow. Escrows rarely close on time (they usually take several extra days), so be prepared for this and don’t stress out!
When all is in order, you will sign loan documents and finalize the purchase deed documents. Then, the escrow officer or lawyer will receive your downpayment, the mortgage lender’s funds, record the transfer of the deed and title, and disperse all the funds in according with the transaction terms.
And that’s it — you’ll own the property! It’s a pretty complicated, stressful, and trying process of finding and buying a good quality property that you'll love. So talk to your family, friends, and real estate agent, and read some books, articles, and magazines on buying property. Hopefully, the process will go relatively smoothly and you’ll get a great home!