How The Home Buying Process Works
DECIDING TO BUY
Why Do You Want to Buy?
Are you tired of paying rent? Have you decided to pay your own mortgage and not your landlord’s? Have you outgrown your current home? Are you looking for an investment portfolio? Are you looking for a rental or second home property? Would you rather live in a different area? Do you want to shorten your commute? Having a clear sense of your reasons for buying will help you choose the right property.
Has Your Income Grown?
Property ownership is an excellent investment; whether you are looking for your dream home, a rental or second home property, or to expand your investment portfolio. Owning real estate is one of the least risky ways to build equity or to obtain a greater return on your initial investment.
Preparing to Buy - Build Your Green File.
Before you start shopping for your property, it is a good idea to make some preparations.
A green file contains all your important financial documents. You will need it to secure financing for your property. The typical green file should contain:
- Financial statements
- Bank accounts
- Investments
- Credit cards
- Auto loans
- Recent pay stubs
- Tax returns for two years
- Copies of leases for investment properties
- 401K statements, life insurance, stocks, bonds, and mutual account information.
Remember to keep your green file updated regularly, especially if there are significant changes to your financial situation. Having a well-organized and up-to-date green file will not only make the loan application process smoother but also demonstrate to lenders that you are financially responsible.
Check Your Credit Rating.
Your credit score will have a huge impact on what type of property you can buy, and at what price. It is first recommended to check your credit rating with an experienced lending institution so that we can determine what you can afford. The lender will research your credit ratings from the three credit reporting agencies Equifax, Experian and Trans Union. We will be happy to recommend experienced, knowledgeable lenders in the residential, construction, and commercial and investment real estate fields.
Be Careful with Your Finances.
You want to approach your property purchase from a position of financial stability. Here are some additional considerations specific to the home-buying process:
- Stable Employment: Lenders often prefer borrowers with a stable employment history. Sudden career changes may impact your ability to secure a mortgage or influence the interest rates offered.
- Future Expenses: Consider potential future expenses related to homeownership, such as maintenance, property taxes, and insurance. Make sure you have a realistic budget that includes these ongoing costs.
- Avoid New Debt: Refrain from taking on new debt or making large purchases on credit during the home-buying process. This could affect your debt-to-income ratio and impact your mortgage eligibility.
By approaching the home-buying process with financial stability, you increase your chances of a successful and sustainable homeownership experience. If you have specific questions or concerns, it's always a good idea to consult with a financial advisor or a real estate professional.
CHOOSING A REAL ESTATE AGENT
Buying a property requires making many important financial decisions, understanding complex issues and completing a lot of paperwork. It helps to have an expert in your corner when undertaking such a large purchase. We can guide you through this process, and also provide you with access to property listings before they hit the general market.
Here are some factors to consider when choosing your real estate professional:
- Look for a full-time agent – one who has experience completing transactions similar to yours.
- Interview a few agents: Are they familiar with the area in which you are interested?
- Ask how much time the agent will have for you, and if they are available at night and on weekends.
- Ask about their credentials and education: A good agent will continually strive to improve and gain knowledge of the latest real estate trends and hold the highest designations in their respective fields of expertise.
- Does the agent return your calls promptly? Time is money when attempting to buy a property.
- Ask for a list of properties they have sold or a list of references.
- Choose an agent who listens attentively to your needs and concerns. Pick an agent, with whom you feel comfortable.
- Choose an agent who will REPRESENT your Fiduciary interests as a BUYER. Listing agents represent the seller’s interests, not yours. Experience True Representation. We Serve YOU.
TIME TO GO SHOPPING
Once those preparations are out of the way, it is time to find the right property for you.
- Take a Drive.
Get to know the neighborhoods, complexes, or subdivisions, which interest you. Drive around and get a feel for what it would be like to own a property in the area. Start getting a sense of the properties available in those areas.
- Narrow Your Search.
Select a few properties that interest you the most and have your real estate agent make appointments to visit them. Ask your real estate agent about the potential long term resale value of the properties you are considering.
- Time to Buy.
Once you have picked out the property you want to purchase, your real estate agent can help you make an offer that the seller will accept. A good agent will investigate the potential costs and expenses associated with the new property. An agent can also help you draft your offer in a way that gives you the advantage over another offer.
Escrow, Inspection and Appraisals
The Process, Step-by-Step / The Initial Agreement and Deposit.
An effective agreement is a legal arrangement between a potential purchaser and the property’s seller.
Some important tips to keep in mind to streamline the process:
Keep written records of everything. For the sake of clarity, it will be extremely useful to transcribe all verbal agreements including counter-offers and addendums and to convert them into written agreements to be signed by both parties. We will assist you in drafting all the paperwork for your purchase and make sure that you have copies of everything.
Stick to the schedule. Now that you have chosen your offer, you and the seller will be given a timeline to mark every stage in the process of closing the real estate contract. Meeting the requirements on time ensures a smoother flow of negotiations so that each party involved is not in breach of their agreements. During the process we will keep you constantly updated, so you will always be prepared for the next step.
The Closing Agent.
Either a title company or an attorney will be selected as a closing agent. The closing agent will hold the deposit in escrow and will research the complete recorded history of the property to ensure that the title is free and clear of encumbrances by the date of closing and that all new encumbrances are properly added to the title. Some properties are subject to restrictions which limit various activities such as building or parking restrictions. There may be recorded easements and encroachments, which limit the rights to use your property.
How to Hold Title.
You may wish to consult an attorney or tax advisor on the best way to hold title. Different methods of holding title have different legal, estate and tax implications, especially when selling or upon death of the title holder.
Inspections.
Once your offer is accepted by the seller, you will need to have a licensed property inspector inspect the property within the time frame that was agreed upon in the effective contract to purchase. You may elect to have different inspectors inspect the property, if you wish to obtain professional opinions from inspectors who specialize in a specific area (eg. roof, HVAC, structure). If you are purchasing a commercial property, then you will need to have an environmental audit done on the site for the lending institution. We can recommend several different inspectors.
Depending on the outcome of these inspections, one of two things may happen:
- Either each milestone is successfully closed and the contingencies will be removed, bringing you one step closer to the close, or
- The buyer, after reviewing the property and the papers, requests a renegotiation of the terms of contract (usually the price).
Appraisal and Lending.
It is imperative that you keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution, via a third party. This is done so that the lending institution can confirm their investment in your property is accurate. Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. When you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.
Association Approval.
If the property that you are purchasing is conditional upon an association approval, request the rules, regulations, and other important documents from the seller as soon as you have an effective agreement to purchase. Make sure that the application documents and processing fees are submitted to the appropriate person at the association by the required time. Fill out all of the information completely and legibly so there is no delay in processing the application. If you are required to meet with the association for your approval, make an appointment as soon as possible for the interview. Most associations require a certificate of approval before move-in. Your closing agent will request that the original copy of this approval letter be brought to the closing, so that it can be recorded with the deed in the county public records.
Property Insurance.
If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. You may be able to save hundreds of dollars a year on homeowners insurance by shopping around for insurance. You can also save money with these tips.
Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
Ask your insurance agent about discounts. You may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials. Persons over 55 years of age or long-term customers may also be offered discounts.
Insure your house NOT the land under it. After a disaster, the land is still there. If you do not subtract the value of the land when deciding how much homeowner’s insurance to buy, you will pay more than you should.
We will be happy to recommend experienced knowledgeable insurance agents for every property type.
MOVING IN
Closing Day
If you have come this far, then this means that it is almost time for a congratulations, but not yet. Do not forget to tie up these loose ends:
Final Walk-Through Inspection.
More of a formality than anything else, the final inspection takes place a day before, or the day of the closing. You will visit the property to verify that all is in working order, everything is the same as when you last viewed the property, that there are no extra items left behind, and that everything included in your purchase is still at the property.
Home Services and Utilities.
We will provide a list of useful numbers for the activation of home services and utilities after the closing occurs.
Be Prepared.
We are ready to assist you should an unforeseen glitch pop up, even at this last stage. Something at the property breaks down, or some other minor detail – no need to worry. We have encountered these problems before so we know how to handle them efficiently and in a stress-free manor.
Closing.
The closing agent will furnish all parties involved with a settlement statement, which summarizes and details the financial transactions enacted in the process. You and the seller(s) will sign this statement, as well as the closing agent, certifying its accuracy. If you are obtaining financing, you will have to sign all pertinent documentation required by the lending institution. If you are unable to attend the scheduled closing, arrangements can be made depending on the circumstances and the notice that we receive. If you are bringing funds to the transaction, you can elect to either have the funds wired electronically into the closing agent’s escrow account, or bring a certified bank check to the closing in the amount specified on the settlement statement. The seller should arrange to have all property keys and any other important information for you at the closing so that you may receive these items at this time.
