I’ve written various posts on this topic before, but it’s so important I thought I would write another one.
I’m a huge believer in the term “managing expectations”. Being in the business of providing a service, too often we tend to assume that the client is educated or informed on the process of buying a home. Just because we’ve been around the block a couple of times does not mean the client knows their way through the intricacies of buying a home. Educating the client up front eliminates frustrations and especially surprises in the future. When representing a buyer, I try to give them as much information about the process as possible. Here’s what to expect when buying a home. For those who are analytical, you can download a spreadsheet to keep track of the home buying process.
Get pre-approved. This is key as it will help your agent understand what you can afford. More important than knowing how much you qualify for, is knowing what your monthly payments are going to be for the amount you have been approved for. This includes mortgage payments (principle and interest) PLUS taxes PLUS home owner’s insurance. These four numbers are also known as PITI. Too often I found that after having negotiated a price for a home, the client was not fully aware of what their monthly payments were going to be. Needless to say, they were not comfortable with the monthly payments and had to back out of the deal.
Find a house. Looking for a home, especially for the first time, is a process. After viewing a few homes, you start to realized what features you are willing to give up or trade. The perfect home does not exist. Compromises will have to be made. You may find the house in the ideal condition, but the yard may not be as big as you expected. The home may be the right size, but not in the right condition. The schools are just right, but the house is not a colonial. You soon will begin to prioritize. The features that seemed important in the beginning may be traded in for other features that you were not aware were even an option. For example, you may have not realized it, but you now prefer an open floor plan or having central air. Those features were not on your original “must have” list.
Inspections. Once you find the right house and the price is negotiated to a comfortable price, it is customary to perform inspections within the first 48 hours. Why? Because up to this point all agreements have been verbal between you and the seller-nothing has been signed. Yes, you can walk away without any recourse, however, so can the seller if they receive a better offer. What if you negotiated a great price for the home (say 10% under asking price), and the seller now decides to drop the price to the new negotiated price to see if they can get a bidding war going? I’ve seen it happen more than once. This may seem unethical, but the sellers are simply trying to get the most money for their home.
Contracts. Assuming nothing major came up during the inspection, within the next 24 hours, you move to the contract stage. The seller’s attorney will draw up contracts and send it over the buyer’s attorney for review and signatures. Buyers sign contracts first. At this point a deposit is(usually half the down-payment) but the number is negotiated a between the agents or/and attorneys. Keep in mind that if you don’t get approved for a mortgage by your bank, you will get your down payment back. The seller then signs contracts. The home is now “under contract” and should be removed from the Multiple Listing Service as an “Active” listing. All future offers are held as back ups. This process takes any where from 1 to 2 weeks.
Commitment. Over the next 3-4 weeks, as the buyer, you’ll work with your mortgage banker to get all the documentation the bank requires. This includes W-2, tax returns, bank statements, letters, etc. Once the bank receives all the necessary documentation it will issue a Commitment Letter indicating that the loan has been approved. The commitment may be clean, but sometimes the letter may have some open contingencies such as homeowner’s insurance and updated bank statements, or employment verification.
At the same time the bank will be ordering an appraisal of the home in question. The bank needs to make sure the home is actually worth the amount you’re borrowing. This step does not require your attention. The real estate agents will be contacted directly.
Cleared to Close. This is when all the contingencies have been satisfied and the bank is ready to schedule the closing. At this point you’ll be contacted by your attorney to determine a closing date. The date needs to be coordinated between you, the buyer, the sellers, the bank attorney, and the buyer and seller’s attorneys. Real estate agents are not required, but some reason they like to show up.
Closing usually occurs within 1-2 weeks after Commitment has been issued.
Close. This is IT! Day of closing your attorney will contact you to finalize your closing cost numbers. You will be asked to bring certified checks to the closing.
LAST TIPs: Remember to make sure that you change the utilities to your name and complete your STAR application.
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