The home buying process can seem overwhelming at times. After all this is most likely the largest purchase you will make in your lifetime.
So where should a home buyer begin?
The first step is to have an honest, and complete evaluation of your finances, and corresponding purchasing power. You don’t want to fall in love with a $200,000 home only to find out that you only qualify to purchase a $125,000 home. Any good real estate agent can recommend a good loan officer to you. It is important that you sit down with this lender and have them pre-qualify you for a home loan. There is no cost to get pre-qualified by a lender, and it is in my estimation the most important first step.
What should you bring to your meeting with the lender?
- Previous two years tax returns
- Previous two years W2’s
- Previous two paycheck stubs
- Previous two bank statements (all pages)
The lender will also run your credit to determine your FICO score. Based on your FICO score, and the documentation that your bring to your meeting with the loan officer, they will determine how large a loan you qualify for. Worried that you won’t qualify? You should still meet with a lender. They can tell you the steps you will need to take to qualify at a later date. Remember that knowledge is power.
The next step is a personal decision that you will have to make. Do you want to buy a house that will require you to use the largest loan that you qualify for? Or do you want to have a smaller loan and compromise on your choice in homes? This is really a personal decision that only you can make.
The next step is to get a feel for what neighborhoods that you like. Is it important to be close to work? Close to the freeway for your commute? Close to a specific school? Close to certain amenities? Take a drive around these neighborhoods on different days and at different times.
Once you have identified your target neighborhoods, I recommend that you try to see as many listings in those areas as possible. Don’t worry about the amenities that each house has, the idea here is to get a feel for what is available. You might think you dislike two story houses, but once you start looking at houses you could determine that a two story home would be just fine if its in your target neighborhood. I also suggest that you do not place too much importance on any photos that you see of potential houses on the internet. Photographing houses can be tricky and you should not make any decisions about a house until you see it in person.
So you have found the house that you want to place a bid on. Your real estate agent will help you determine how much your offer should be for, and what the terms and contingencies of the sale should be. The offer along with a copy of your lender pre-qualification and earnest money deposit will be submitted to the listing agent for presentation to the seller. The seller then has a set period of time to respond to your offer. If the seller does not respond to your offer in that time frame, that is the same as the offer being rejected.
Your offer has been accepted! Now what is this earnest money deposit? This is money that you as the buyer deposit with the title&escrow company when your offer is accepted. This money is put towards the down payment of the home – it is not lost to you. This earnest money deposit is what makes your purchase offer a valid contract.
“Earnest Money: The deposit given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money usually is refundable to homebuyers in the event a contingency of the sales contract cannot be met.” from the California Association of Realtors web site (www.car.org)
During the escrow period you will need to stay in close contact with your lender. They will need your signatures on applications and disclosures, and for you to provide specific information in order to obtain your loan approval and order your loan documents.
During this time, any inspections that are a contingency of the contract will also be ordered. Some examples include a roof inspection and a termite inspection. Once these contingencies of the sale are meet you will be asked to waive your contingencies. This is a crucial step. Once you have waived your contingencies the earnest money you deposited into escrow is no longer refundable to you the buyer. If you decide to cancel the contract after you have waived your contingencies the earnest money deposit is given to the seller. Of course if you proceed with the purchase after waiving your contingencies the earnest money deposit is simply part of your required downpayment.
Once your loan has been underwritten and approved, your loan officer will order loan documents and have them sent to the title company for you to sign them. These signed loan documents will then go back to the lender for review. You will also need to bring a cashiers check to the title company for the money required to close escrow. In other words the balance of the downpayment and closing costs. Once the lender deems the loan documents to be correctly signed and everything in order, they will the “fund” the loan. The money is wired by the lender to the title company for dispersal. The grant deed that was signed by the seller transferring title to you is then sent to the county recorders office for recording in the official records of that county.
Once confirmation of recording is complete, you will be given the keys to your new home!
Ways to get your offer accepted!
Are you placing offers on multiple properties only to be turned down time & time again?
Here are some strategies to get your offer accepted.
Get Pre-approved by a direct lender.
Don’t have your pre-approval letter ready to go? Don’t bother submitting your offer. These days, without a strong lender pre-qualification letter your offer will not be considered and most likely won’t even be submitted to the seller for consideration.
Increase your earnest money deposit.
The standard deposit in this area is 1% or $2,000 whichever is greater. By increasing the deposit amount you are demonstrating to the seller that you are a serious buyer.
Do not ask for closing cost credits from the seller.
Only ask for closing cost credits if you really need them – your offer is much stronger if you pay your own closing costs.
Let the seller choose the title company.
Doesn’t cost you any extra money but makes the listing agent happy.
Increase your down payment.
The larger the down payment that stronger your offer is.
If the price is already right – don’t negotiate it even lower.
Properties that are priced correctly are receiving multiple offers in this market. If the house is already corectly priced, it will get a full priced offer – make sure that offer is yours.
Focus on HUD and Fannie Mae properties.
These sellers give priority to owner occupied buyers – if that’s you, these properties should be a stong consideration for you.
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