Home Buying Process
Below is an overview of the home buying process. Every topic is discussed in greater detail on the following pages.
- Obtain Credit Report - Go to CreditReport.com
to find out what your credit score is and what is showing up on your credit report from the 3 major credit reporting agencies (TransUnion, Experian, Equifax). Read your credit report carefully to check for any errors. Contact the 3 credit reporting agencies immediately to find out how you can resolve the errors. If everything is fine, add up all the monthly debt and total debt to calculate what your current debt to income ratio is since this is exactly what lenders will do. Checking your own credit will not lower your credit score as this is not a lender checking to determine your credit credentials.
- Pre-qualify for a loan - Find out approximately how much lenders are willing to lend to you for the purchase a home. Many websites such as Bank of America will give you a pre-qualification letter based on your credit report, (i.e. excellent, good, poor, 600-650, 650-700, etc) total income and debt (which you will have from your credit report) so that you will have a general idea of your buying power. You should not have to provide your social security number at this point as you are not applying for a loan or getting your credit checked. Your credit check should occur when you apply for a pre-approval letter or loan application.
- Location and Features - Determine the areas you want to live in and separate what you want and what you need. A good idea would be to create a checklist with 2 sections, one for all the items you NEED and the second section for items you want, and then discuss this with your buyer's agent so they can help you find exactly what you are looking for.
- Mortgage Broker / Bank Loan Officer - Find a good mortgage broker for your real estate team to help you with the loan process. A mortgage broker's best asset is their knowledge of different loan products lenders are offering and their advice based on your financial profile and goals. One of the best ways to find a good mortgage broker is to ask friends, family, colleagues and real estate agents for recommendations. If you wish to speak with a bank's loan officer to get quotes on interest rates, do not let them convince you to put in an application. They should be able to give you quotes without having to run a credit check. Having several credit checks by lenders will lower your credit score. Recommendations from people who have actually used the mortgage broker or loan officer they are referring can be extremely valuable. ALWAYS be careful with who you are working with as your sensitive information can be solicited or sold to 3rd parties. ALWAYS do your research on the lender or mortgage broker such as checking the Better Business Bureau www.bbb.org and google searching (i.e. "LendingTree Complaints"). Feel free to use the Mortgage Broker Evaluation Form in the Free Tools section to help with your selection process.
- Buyer's Real Estate Agent - Find a good buyer's agent for your real estate team to help with the home buying process, even if you are not a first time home buyer. Their main objective is to help the buyer find and purchase a desirable home for the best price. Their knowledge of the local area as well as knowledge shared among other agents are extremely valuable and often cannot be found by searching the internet. Ask friends, relatives and colleagues for any recommendations on real estate agents. You can download the Real Estate Agent Evaluation Form in the Free Tools section to help with your selection process.
- Real Estate Attorney - It is suggested to have a real estate attorney assist with the purchase and sale contract and preside over the closing. While attorneys may typically charge a fee of around $500 to represent buyers, if you ask around and inform the attorneys which lender you will use and that you will select them as the closing agent, they will most likely reduce the cost (i.e. $250), since you are giving them the business of acting as the closing agent. You can use the Real Estate Attorney Evaluation Form in the Free Tools section to help evaluate attorneys.
- Property View - View as many properties as you can with your agent and websites such as Foreclosure.com
or Craigslist.org that meet your minimum criteria (location, price, size, bedrooms, bathrooms, etc) and fill out the Property Walkthrough Checklist which can be found in the Free Tools section for each property you visit and add them to your home buying folder.
- Making an Offer & Pre-Approval - After determining which home you are interested in purchasing and the amount you wish you offer, apply for a pre-approval letter from your mortgage broker or a lender. Have your agent present the offer letter with your pre-approval letter and earnest money / good-faith deposit, typically $500, $1,000 or 1%, which will be held in an escrow account (escrow is a legal arrangement for money to be held by an independent third party and not the seller).
- Offer Status - Seller will accept, refuse or counter-offer in which case if the seller counter-offers, you can accept the seller's counter-offer or negotiate further and counter-offer again.
- Home Inspection - If an offer is agreed upon by both the buyer and seller, the buyer will arrange for a home inspection. While this is not always done, it is highly advised. Ask around for recommendations on home inspectors and check the Better Business Bureau www.bbb.org to see if the company has had any major issues or complaints.
- Purchase & Sale Contract - After the home inspection, if the buyer does not cancel the purchase and an agreement is made on the terms of the purchase, both parties will sign the purchase and sale (P&S) contract. The purchase and sale contract overrides the initial offer contract and will detail the total purchase price, down payment, amount being financed, important dates such as last day to notify seller of cancellation or requests for extension on important dates. The buyer will also need to make a payment for the remaining down payment, which will be held in escrow.
- Financing - Unless buyer is paying with all cash, he or she will need to apply for a mortgage and provide necessary paperwork for the lender's underwriting department such as previous tax returns, recent pay stubs and bank statements.
- Home Insurance - If buyer is not purchasing a condo or co-op, which has a master insurance policy for the entire building, home insurance will need to be purchased with sufficient coverage which will be stated by lender (i.e. flood insurance required).
- Closing - After the lender's underwriting department has all the necessary information (appraisal of the home, home insurance information, title check, final qualification of buyer's profile, etc), a date, time and location will be agreed upon by both parties to sign all necessary paperwork. Buyer should perform a final walkthrough of the property and if everything is satisfactory, all paperwork will be signed by both parties and filed with city's registry of deeds, which is the last step for the buyer to become a new homeowner!
