Step 1 is now complete and now you’re wondering, what’s next? Well, I’m glad you asked! It’s time to start putting things in motion.
Link Up with a Lender
Now you’ve interviewed at least 3 lenders and you’ve now picked the one you feel most comfortable with and ready to move onto the next steps…. Pre-Approval.
I require my buyers to obtain a Pre-Approval Letter before scheduling showings, here’s why.
Starting your home buying journey without first getting a Pre-Approval Letter is equivalent to walking into the grocery store without bringing your wallet.
As a listing agent, I always recommend to my sellers that a Pre-Approval Letter be included with any and all offers. This shows that the buyer, in this case yourself, is not only ready and willing but also able to make this purchase.
Pre-Qualification vs Pre-Approval
What is the difference? Pre-Qualification is just a general idea, best case scenario, nothing specific or exact and nothing for sure. I’ve met plenty of potential buyers that think they are set with a Pre-Qualification letter, only to find later that they can’t obtain financing.
To get a Pre-Approval Letter, your trusted lender verifies your provided information and documentation to determine exactly how much you qualify to borrow. This also includes running your credit. This Pre-Approval is good 60-90 days and for any property within certain requirements and price-point.
This is such a crucial step in the process. Once pre-approved, your lender will explain out-of-pocket expenses for closing costs, down payments and your approximate monthly payment. Remember, just because you qualify for a certain amount, doesn’t mean you must spend that much. Keep it where you are comfortable!
Expected out of pocket expenses include but are not limited to Escrow (good faith deposit), home inspections, home-owners insurance, appraisal, closing costs and down-payment.
Let the Search Begin
And now we start searching! Remember that handy wants and needs list now is when it comes in handy. This list has likely evolved a bit over time and likely may continue to do so until you find “the one.”
Along with your wants and needs, the requirements when it comes to financing will also be part of the search criteria. Different financing has different home requirements when it comes to the age and life left of certain items such as roof, AC, etc.
Usually, your first search is broad and includes many many options. I find it better to start broad and then narrow accordingly. Sometimes seeing what you thought you wanted in-person changes things. Maybe areas, floor plans, and square footage isn’t what you thought it would be, this is why the search continues to change.
Most people know as soon as they walk in to a home that it’s “the one”, sometimes this happens early on and sometimes it doesn’t happen until 30 or more homes later. Be patient, it will happen!
Once we find “the one”, I will run the comps for the area to help come up with an offer price. We will go over some specifics and I will write up the offer, typically all documents can be signed electronically. The offer is written and submitted with your Pre-Approval letter to the listing agent, and patiently wait for a response, which is typically 24-48 hours, although every situation is different.
Making an Offer
There’s always a chance, that when you find a home you absolutely love, someone else may love it too. So, it’s important to act quickly and make an educated offer based on a rational approach to pricing and negotiating. To start the process rolling, I will draw up a contract that includes your offering price and other terms and contingencies. It is important to remember that the more competition there is for the home, the higher the offer should be – sometimes even exceeding the asking price. Remember, be realistic. Make offers you want the other party to sign!
Things to Consider
- What is the seller’s motivation?
- Do you need concessions for closings costs?
- Closing costs such at title, escrow, and lender fees usually cost between 1-3% of the sales price.
- Are there other offers on the home?
- Is it priced right for the market?
- What has sold recently in the area?
- How long has it been on the market?
- Are there multiple offers on the property?
(This is not uncommon for homes priced right for the market and in great condition. Often the seller will ask for your “highest and best” offer. This is when you put in your best offer – leaving no regrets behind because you gave it your best shot!)
After we present your offer to the listing agent it will either be accepted, rejected, or the seller will make a counter-offer. This is when we will negotiate terms of the contract if necessary.
When the seller accepts an offer, it becomes a legal contract. Once you’re officially under contract, you should be prepared to pay an earnest money deposit, within 3 business days (this check will be cashed, and funds will be held by the title company, you will receive a credit for this amount at the closing table). Think of this as your good faith deposit, to guarantee that your intention is to purchase the property.
Specifics for the offer include the following:
- Escrow amount: typically, 1-2% of purchase price (minimum of $1,000) that’s due to the title company within 3 days of an accepted offer
- Inspection period: typically, 7-15 days and will need to be paid at the time of completion $300-$600
- Closing Date: typically, 30-45 days from the offer date
- Any Contingencies: required for specific financing types, if you need to sell a home to purchase and other similar circumstances.
After we have an accepted offer and are under contract » escrow is delivered to title » you complete your loan application » inspections are completed » any inspection concerns / repairs are addressed » financing documents are gathered and submitted » appraisal is completed » survey of property is completed » file submitted to finance underwriting » clear to close is given » final walkthrough is completed » closing » moving!
Sounds simple right? Don’t be overwhelmed, this is precisely why you have me working on your side! This guide is simply to provide a broad overview and give you an idea of what to expect during the home buying process. Questions are expected and encouraged!