When you are buying a home, especially if you are a first time home buyer, it’s very important that you are aware of the different stages of the home buying process. From start to finish, I’ve put together a 9-step process that will walk you through the key milestones of purchasing a home. This will take you from the day you first decide to buy a home to the day you close escrow and pick up your keys. Having this information will help ease you through the process and better equip you so you know what to expect along the way and stay ahead of the curve.
1. Obtain Buyer Agreement
– This is similar to a listing agreement when a seller hires a REALTOR® to sell their home, except in this case, the buyer agrees to work exclusively with the agent of their choice. The benefit to the buyer is that their agent knows that their client has made a commitment to them. The REALTOR® understands the level of trust their client is putting in them and has the incentive to perform at their absolute best. If there is one REALTOR® that you are willing to work with, you will be better off by having an exclusive agreement.
2. Obtain Pre-Approval Letter from Mortgage Lender
– A pre-approval is an application for credit and a lender’s written commitment of how much they will let you borrow. Getting a pre-approval is how to demonstrate to home sellers you are a serious buyer. TIP: In order to make your offer competitive, especially if you are in a hot sellers market, be sure to ask your lender to provide a pre-approval letter instead of a pre-qualification letter. A pre-qualification is more of a verbal agreement from your lender based on some general information you have given them. The pre-qualification is useful when you are at the very beginning stages and you want to know how much you can afford, however this will change drastically when you are ready to actually start shopping for a home. When you are out shopping, you should already have a pre-approval from your lender which indicates you have filled out an application, your credit has been reviewed, all income and assets have been verified, etc.
3. Start Searching for Properties
– The best way to narrow down the search is to see as many homes as you can. Your REALTOR® will help you narrow your search. It is an unfortunate fact that up to half of the homes that look good online in fact have problems that make them unacceptable. TIP: Being more specific with your criteria in terms of home characteristics and location is absolutely critical. If you are uncertain about location, take the time to visit neighborhoods during the day and at night and learn as much as you can about the community. Also consider your work commute and check Sigalert.com or Google Maps during times you’ll be commuting to work to see if you’ll be driving with or against traffic.
4. Find Home and Present Offer
– Once the perfect property has been found, work with your REALTOR® to determine an initial offering price. Your REALTOR® will assist you in completing the Residential Purchase Agreement which you will need to sign and your agent will then present your offer to the seller’s agent for review with the seller.
– Your REALTOR® negotiates on your behalf, and once price and terms are agreed upon, escrow is opened and the earnest money deposit is due, usually 3 % of the negotiated selling price. This deposit is typically wired directly into an escrow account within the first 3 business days of the acceptance date of the offer and held in escrow until closing. NOTE: Please discuss with your REALTOR® the issues of bank wire fraud and ways you can protect your deposit money.
6. Meet Any Necessary Contingencies
– Some of the more commonly used contingencies would include:
7. Title Work
- Home Inspection: The home inspection contingency, or due diligence period, begins on day one of opening escrow. It’s important to have a home inspection appointment set up as soon as possible with a reputable home inspector so that you receive the inspection report prior to the end of the inspection period. Keep in mind, this contingency also includes receiving a home insurance policy quote, reviewing the title report, reviewing all seller disclosures and HOA documents to name a few. A typical home inspection contingency period is 10-17 days but it can be done in less time if needed.
- Appraisal: The appraisal of the property is ordered as required by the lender. The appraiser will visit the house to evaluate the home and will also consider sale prices of comparable houses in the immediate area. The purpose of the appraisal is to establish a general sense of market value but most importantly, it is a measure of risk to the lender. The percentage of your down payment is all based on the appraised value of the home. If you happen to be paying all cash, an appraisal is not required and you can waive this contingency. This will make your offer more attractive especially if you are in a multiple offer situation. A typical appraisal contingency period is 17 days.
- Financing: Once a purchase and sales agreement is signed by both buyer and seller, the buyer has a certain number of days to receive their mortgage financing commitment. If any conditions need to be met, upon meeting the required conditions, the lender will then authorize loan documents to sign. These are distributed to escrow and signed when escrow calls you in to sign “closing documents” including loan documents and all other required escrow documents. A typical loan contingency period is 21 days however it can take 30-45 days for a buyer to receive a commitment letter from a lending institution which is why it is crucial to have a pre-approval completed much earlier in the process (see step 2).
– The title company will do a preliminary title report on the house to ensure the seller and property information is correct, identify any encumbrances on the property, and make sure it is clear title for issuing a title insurance policy. The title company will also run another title report prior to closing to make sure nothing has changed. The preliminary title report is typically ordered through the escrow company once escrow has been opened.
8. Final Walk Through
– After all contingencies have been removed, the final walk through is scheduled to take place within 5 days of closing escrow. This is done to be sure that all personal items of the seller have been removed (other than agreed upon items and fixtures), that the property is in “broom clean” condition, and that nothing has happened to the property since the last visit. This is not a contingency of the sale.
– All parties agree on the closing date and time. You will meet with your escrow officer to sign all closing documents (loan documents, escrow documents, etc.) and funds for the final down payment and buyer’s closing costs are wired into the escrow account. Once loan documents are signed, the lender will fund the loan within 24-48 hours. After the loan is funded the title company will record the deed and confirm recording within 24 hours. Upon confirmation of recording, ownership is transferred and escrow is officially closed and keys can be delivered. NOTE: In some cases, possession of the property can take place after close of escrow and is sometimes negotiated between buyer and seller.
Congratulations on the purchase of your home!
There are always variations and it will depend on your specific situation, but this should give you a good idea on the process of purchasing a home. If you can keep the big picture in mind while knowing what steps lie ahead, it will help you keep your sanity and better ensure a positive experience.
If you have any further questions or would like a free buyer consultation and receive a list of homes that meet your exact requirements, please fill out the information below and we will get back in touch with you immediately.