Buying a home is exciting as it marks another milestone in one’s life, but it is not as easy as it seem. There are a lot of things to consider such as where you want to move, and that means understanding pricing trends, crime statistics, and school ratings. Even if you know where you want to live, you have to learn the basics of home construction so you can be sure you buy a well-built house. Also, you will want to learn about secured debts so you can secure financing at a decent interest rate and understand the terms of your mortgage.
Every state requires slightly different steps to buying a home, although they are basically very similar. Since I am most familiar with the way Texas does it, here is the path to home ownership in Texas, broken down into simple steps:
1) Hire a Buyer's Agent
•A buyer's agent will represent only you and have a fiduciary responsibility to look out for your best interests.
•Buyer's agents may ask you to sign a buyer's broker agreement, but it is the seller who pays the commission.
•Interview agents until you find an agent you trust and with whom you feel comfortable.
•Once you have settled on an area, try to hire a neighborhood specialist.
2) Get Pre-Qualified / Pre-approved
•Order a free credit report online and fix mistakes, if any.
•Ask your agent for a referral to a mortgage broker, but also compare rates offered by your own bank and / or credit union.
•Ask the lender to give you a loan preapproval letter, which means it will verify your income and pull a credit report.
•Determine your maximum loan amount, but choose only a mortgage type that you understand and a payment level with which you feel comfortable, which may very well be less than the maximum for which you are approved.
3) Look at Homes for Sale
•Ask your agent to look at homes for you before showing them to you.
•Narrow your search to those homes that fit your exact parameters to find that perfect home.
•Ask your agent to give you MLS print-outs of comparable sales in your targeted neighborhood.
•Consider all homes on the market, including fixer-uppers, REOs, foreclosures, short sales and those overpriced homes with longer DOM.
•Observe open house etiquette.
•Tell your agent which online home listings you are interested in previewing and ask for additional input.
4) Write a Purchase Offer
•Consider writing seller's market offers in sellers markets and buyer's market offers in buyer's markets.
•Select a home offer price based on the amount you feel a seller will accept or counter.
•If you are considering a lowball offer, ask your agent to substantiate this price for you.
•Prepare for multiple offers if the home is considered desirable in a hot location.
•If your offer is rejected, ask your agent to explain why and don't repeat that mistake with your next offer.
5) Negotiate and Write Counter Offers
•Expect the seller to issue a counter offer.
•If the seller counters at full price, continue to negotiate.
•During offer negotiation, share personal information about your family to give the seller a reason to care about you.
6) Make an Earnest Money Deposit
•When your offer is accepted, deposit your earnest money check with the appropriate party.
•Do not ever make your check payable to the seller.
•Your offer should contain contingencies that will return your earnest money deposit to you if you cancel the contract.
7) Open Escrow / Order Title
•Your agent or transaction coordinator will open escrow and title, if the listing agent hasn't already done so.
•Ask for the escrow officer's name, phone and escrow file number.
•Give this information to your lender and your insurance agent.
8) Order Appraisal
•Your lender will require an advance payment for the appraisal.
•If you receive a low appraisal, discuss options with your agent.
•Ask for a copy of the appraisal.
9) Comply With Lender Requirements
•Lenders may ask for additional information.
•Do not make home buying mistakes such as altering your financial situation while in escrow.
•When the file is complete, the lender will submit it for final underwriter approval.
10) Approve Seller Disclosures
•Read and question items you do not understand on the TDS, Seller Property Questionnaire, natural hazard report, pest inspection / completion and other documents such as a preliminary title policy.
•Realize you have 10 days to cancel if lead paint is a health hazard.
•Read every document in its entirety; ask questions about all seller disclosures.
11) Order Homeowner's Insurance Policy
•Order your homeowner's insurance early.
•Sometimes previous claims by a home owner can make it difficult to get insurance.
•Get replacement coverage.
12) Conduct Home Inspection
•Hire a reputable home inspector.
•Bring a home inspection checklist with you.
•Attend the home inspection.
13) Issue Request for Repair
•If the home inspection turns up health and safety issues, issue a request for repair by asking the seller to address those issues or give you a credit for them.
•Realize no home is perfect, and the inspector will find faults.
14) Remove Contingencies
•By default, Texas C.A.R. contracts give you 17 days to remove contingencies.
•Make sure your loan is firm and the appraisal is acceptable before removing your loan contingency.
•If you do not remove contingencies, the seller can issue a request to perform and then cancel the contract, on top of demanding your deposit.
15) Do Final Walk-Through
•Do not pass up doing a final walk-through.
•Inspect the property to make sure it's in the same condition as when you agreed to buy it.
•If you find a serious issue, address it now before you close.
16) Sign Loan / Escrow Documents
•In southern California, you will sign escrow documents shortly after opening escrow.
•In northern California, you will sign escrow documents along with your loan documents near closing.
•Bring a valid picture ID.
17) Deposit Funds
•Bring a certified check payable to escrow.
•Expect escrow to pad the amount, so you will receive a refund after closing.
•Consider asking your bank to wire the funds to escrow, saving you the hassle of waiting in line at the bank.
18) Close Escrow
•Your property deed, seller's reconveyance and deed of trust will record in the public records.
•Title will notify you and your agent when it records.
•After recordation, unless your contract specifies otherwise, the property is yours -- change the locks immediately.