How the HomeBuying Process Works
1. The most important thing to do, before even looking at homes, is to speak with a lender. Why? Well, you need to find out:
a. If your credit rating is sufficient, or what you may need to do to get it there. Ask them how to fix credit report errors & how to raise your score.
b. How much house you should be looking for; taking into account your current debt and income as well as your cash availability. Having this initial conversation with a lender before looking at homes will ensure that when you find the home that suits you best, you are ready to move forward with the process of making it yours. Buyers who wait to talk to a lender until after they have found a home risk losing that home to another buyer who has already done their homework.
2. Pre-Approval vs. Pre-Qualification
a. A pre-qualification is quick and simple. Basically a credit checkis done to be sure your score is sufficient. Your income and debts are taken to be sure your ratio is at a level that would allow you to afford a monthly mortgage payment.
b. A pr e-approval is obtained from your lender by taking the prequalification process a step further with verification of your income through submission of your tax returns for the last two years, pay stubs and bank statements for the last two months. This is what you need before home shopping. Pre-approvals are what sellers are looking for from someone who presents an offer to purchase their home.
It may sound like a lot of work just to get ready to look at homes, but serious buyers know that they will need to go through this step anyway.
c. Cash buyers may take out equity in another property or pull funds from investments. These buyers must show their account statements to assure the seller of their seriousness and ability to purchase.
3. FINALLY! The search for your new home begins.
a. Have a conversation with your Realtor® about your wants and needs in a home, your intended time frame, your current living situation, and any future life-changing events you anticipate.
b. Check your personal website and choose the homes you want to visit.
c. Visit homes with your Realtor® so they can offer advice and guidance.
d. Find the home that suits you best and move forward with your purchase.
4. When you are ready to make an offer you will need 2 things:
a. That pre-approval letter from your lender.
b. Earnest Money Deposit - Remember your offer, if accepted, is a BINDING CONTRACT. You are showing the seller that you are serious by offering the Earnest Money Deposit up front. Sellers need to feel comfortable with taking your offer because they will not be marketing the home during your contract period. Your deposit is accounted for at settlement, so don’t worry that you are paying anything above the agreed purchase price.
c. Due Diligence – this amount is completely negotiable, made payable to the seller and is non-refundable, but will be credited to you at closing.
5. Negotiate any counter offers from the seller until everyone is comfortable, happy and the sales agreement is signed.
Believe it or not, you are now only part of the way through the home buying process. During your contract (escrow) period for the next 30 to 45 days (or longer) your agent will be working hard to manage all the players involved in your home purchase transaction. These include your lender with their loan processors and underwriters, the attorney, the sellers and their agent, any home inspectors, appraisers, surveyors, insurance companies, etc. It is only when everything has been completed that settlement occurs, and you receive the keys to your new home.