The first step in the home buying process is NOT finding your home. You cannot submit an offer on a property without submitting a preapproval from a lender, or proving that you have cash funds to buy the property.
Step 1. Get A Mortgage Pre-Approval
If you are a cash buyer, figure out how much money you want to spend on the property and move on to step 2. Once you start looking at properties, you may decide that you want a mortgage so that you can get a bigger house, different location, or upgrades. If that is the case, you will need a preapproval to cover the difference between the cash you have available on hand and the purchase price of the house.
For those who need a mortgage to buy a home the first thing to do is to get a pre-approval from a Loan Officer or a Mortgage Broker. What is the difference? A Loan Officer works with one bank, and will only offer you a loan product from their bank. A Mortgage Broker works with several lenders and will present your information to different lenders to find you the best rate and mortgage product possible. It is a good idea to call a few Mortgage Brokers because not every Mortgage Broker will have access to every lender and be able to offer you their products.
Once you have your pre-approval it is important that you do not open any credit cards, lines of credit or apply for any loans. A change in your credit score can change your loan terms, and worst case scenario, forfeit your loan.
Step 2. Think about what you want in your home
After you are pre-approved you should start to consider the specifics of the home you want to buy. What town do you want to live in? How many bedrooms and bathrooms do you need? Is a big yard important to you? Make a list of the features for the home you want to buy.
Step 3. Contact a Real Estate Broker or Agent
Once you have a solid idea of where you want to live and the features you want in your home, then it is time to contact a Real Estate Broker or Agent to represent you for the purchase of your home. Keep in mind that you do not pay your Real Estate Agent, the seller of the home that you buy does. Your Real Estate Agent will represent your best interest, and try to get you lowest price possible for the property you are buying. Your agent will be the intermediary between you and the seller and/or their Attorney and/or Real Estate Broker or Agent, passing back and forth documents such as the Offer and Purchase and Sales Agreement, collecting and delivering deposit checks and making sure that you are informed of all of your options regarding the purchase of the home, such as inspections, contingencies, etc.
Step 4. Submit An Offer
Once you find a home and decide that you want to purchase it, your Real Estate Agent will submit what is called an offer to purchase, more commonly known as an Offer. This document is an important document that will control the deal and it is important that the offer is completed correctly. The offer will detail the price of the property, the date that you will sign the Purchase and Sales Agreement, whether or not you have a mortgage contingency, If you are going to have inspections and how long you have to get them completed and respond regarding the results, the amount of money that you will put down on the property and the dates the deposits are due, and most importantly your closing date-the day you buy the property. A deposit is also required with the offer, even if you are able to find and qualify for 100% financing.
Step 5. Inspections and Decide whether or not to hire an Attorney
After the offer is accepted by the seller, if you included it in your offer, you will then have your home inspection. Inspections are usually 7-10 days after the offer is accepted. The purpose of the home inspection is to alert you to defects in the home, so that you can make an informed decision about whether or not you want to continue with the purchase of the property. Sometimes the home inspection will reveal problems that the seller is willing to fix prior to your purchase. Other times the home inspection can reveal a problem that will convince the seller to take a reduction in the purchase price. This is why inspections are done prior to the Purchase and Sales Agreement being signed, so that if there is a price reduction or there are to be repairs made to the property, these stipulations can be included in the Purchase and Sales Agreement.
Once your offer is accepted you will need to notify your Loan Officer or Mortgage Broker. This is the point where you will need to make your formal loan application for the purchase of the specific property. It is important that this is done quickly, because the return of your deposit money-in the event that you cannot get the loan-is also contingent upon you filing your mortgage application by a certain date.
You will also at this point need to make a decision as to whether or not you want to hire an Attorney. An Attorney will be involved in the purchase of the property if you have a loan. Your lender will hire an Attorney, at your expense, to prepare the loan documents and notarize and witness your signatures at the closing. The Attorney for your lender is not your Attorney unless you hire them specifically to represent you as a buyer. Sometimes Attorneys for the lender will represent you for free, as they are collecting a fee for completing your closing, and as your Attorney their only additional role will be to prepare and/or review your Purchase and Sales Agreement. You should ask your Loan Officer or Mortgage Broker who will be your closing Attorney and then talk to that Attorney about fees for representation. Sometimes a lender will allow an Attorney of your choice to do the closing for you, so if you have an Attorney in mind that you want to work with, talk to your Loan Officer or Mortgage Broker about that Attorney acting as your closing Attorney, you will save money having one Attorney instead of two.
Step 6. Purchase and Sales Agreement
The next step is the Purchase and Sales Agreement also known as the P&S. If you decide against an Attorney for personal representation, then your Real Estate Broker or Agent will review the document with you. It is important that this document is accurate as far as dates, price, money down, repairs, etc. Verbal agreements are not valid over this document. Any changes or additions after the document is signed must be documented in the form of an addendum and signed off on by both seller and buyer. Also your mortgage contingency clause is something that needs to be paid attention to. This clause ensures that you receive all deposit money back in the event that your lender cannot issue you a mortgage commitment by a certain date. The mortgage commitment is a document that basically states that the lender is going to lend you the amount of money to purchase the specific property on the closing date.
Step 7. Property Appraisal
After your purchase and sale agreement is signed you and your Loan Officer or Mortgage Broker will be setting up a property appraisal. This is when the lender sends out a licensed appraiser to give his or her opinion of the value of the property. The lender wants to make sure that they are not lending more money than the property is worth in the event that they have to foreclose on the property. Sometimes the appraisal can be paid for at closing, but usually it is paid for prior to scheduling it. The property usually has to have the appraisal completed before the mortgage commitment is issued. Otherwise, your mortgage commitment is no good as it will be subject to the property appraisal.
Step 8. Get your Mortgage Commitment on Time
Once you receive your mortgage commitment, it is important that you look it over carefully and fulfill any conditions listed. These may be things as simple as providing a copy of an unexpired ID, or a letter of explanation regarding employment or money deposited in your bank account. It is important not to wait until the last minute to fulfill your conditions, as things come up and some things may take time.
Step 9. Final Walk Through
Immediately prior to your closing you will have a final walk through of the property. This is to make sure that any personal property not included in the sale has been removed from the property and to make sure that any repairs that were to be done have been completed.
Step 10. Closing and Recording of the Deed
Finally you will meet with your seller(s) and/or their and your Attorney(s) for the closing, which is where you will sign your mortgage documents and deliver any remaining money to the seller that you owe for the property. The closing will take place at the registry of deeds in the county where your property is located or at the office of the closing Attorney. Once your deed, mortgage and other documents are recorded the property is now legally yours and you will be given the keys to the property.
Summary of steps
1. Get Pre-approved***Do not open any lines of credit, credit cards or take out any loans.
2. Think About What You Want In Your Home
3. Contact A Real Estate Broker or Agent and Search For Homes
4. Submit An Offer
5. Inspections, and Attorney Decision
6. Purchase and Sales Agreement
8. Mortgage Commitment
9. Final Walk Through
As a final note, please keep in mind that in order to purchase your home, you will need more money than just the purchase price of the property. There are costs associated with the purchase of a home such as attorney fees, loan origination charges (the charge to obtain your loan), your appraisal, insurance, title insurance, recording charges, charges associated with your loan such as doc prep fees and your credit report, and if your lender is going to pay your taxes and insurance you will be required to put a sum of money into an escrow account.
For example the purchase of a $300,000.00 home may, after all closing costs are paid, cost you $306,000.00.
So, If you are putting 3.5% down on the property:
Your Loan Amount will be $289,500.00
Your Down Payment will be $10,500.00
Assuming Closing Cost are $6,000.00
You will need to come up with $16,500.00 to purchase the property.
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