Buying a home can often be a stressful or daunting experience unless conducted with a professional knowledgeable of the industry, process, area, and necessary steps. We have broken down the process into eight necessary steps, which are outlined below.
HOME BUYING STEPS
STEP 1 Deciding to Buy a Home
STEP 2 Finding Professional Representation
STEP 3 Get Financing Pre-Approved
STEP 4 Researching & Home Search
STEP 5 Making an Offer
STEP 6 Solidifying Financing Terms
STEP 7 Conducting Due Diligence
STEP 8 Closing
STEP 1
Deciding to Buy a Home
So you are tired of renting or you simply want to move into a different home. Maybe you need more space. Perhaps you want to upgrade into nicer finishes. Maybe you are relocating. Or maybe you simply want to downsize now that the kids have moved out. Regardless of the reason, there are several factors that should be taken into consideration. Are you going to be in the area for several years? Will your income support a mortgage payment? Have you saved enough for a down payment? What tax implication may you face by selling the first house? This step may be determined on your own or in conjunction with various professionals including a real estate agent.
STEP 2
Finding Professional Representation
Using a professional agent can be extremely helpful because they understand detailed specifics about builders, neighborhoods, price points, marketing strategies, staging strategies, negotiations, and the closing process. They are aware of the local home pricing trends and can explain the specifics of buying a home in that area. They may have inside knowledge or be aware of homes that will become available before they are formally marketed for sale. An agent will help guide you through the entire process. When you are ready to pursue a home, your agent will make sure proper paperwork is in place with the seller, lender, and title company.
STEP 3
Getting Pre-Approved for Financing
The next recommended step is to secure financing pre-approval as you will need it when submitting an offer soon, unless the home is being purchased with cash. Your agent will have multiple relationships in the lending industry to help you shop for an appropriate mortgage and necessary pre-approval letter. The lender will be interested in total income for all parties to be involved in the purchase, assets currently available, and your desired leverage interest. Pricing of a loan is generally based on three factors: loan to value (LTV), debt to income ratio (DTI), and personal credit scores (the higher of the two middle FICO credit scores when being purchased by two individuals).
STEP 4
Researching & Home Search
Ask your professional agent to establish an ongoing search through the multiple listing service (MLS) system that will automatically send you new available homes that match your criteria. Determine your price range, number of bedrooms, number of bathrooms, size, acreage, construction year, etc. Finally, tell your agent which homes you want to visit in advance of your desired time so adequate plans can be made. It is not uncommon for an agent to set up multiple showings during the timeframes you may be available to maximize your time together.
STEP 5
Making an Offer
A professional agent can add tremendous value to your home search as they understand the area and market trends well. They will be able to guide you through comparable sales in the neighborhood or vicinity, and will be helpful in making your offer the most relevant one the seller evaluates. Many items in the offer are negotiable, and our well-trained professionals will help you navigate counter-offers and highly competitive market dynamics.
STEP 6
Solidifying Financing Terms
You are now under contract to purchase a beautiful home. Importantly, interest rates will move around with market changes until you lock in your rate. Depending upon the market volatility, you can wait to lock in your interest rate closer to closing. This is when the lender actually wants to see all of the details you may have verbally told them upfront to generate a pre-approval letter. Ultimately, your loan may be bundled with other loans and sold as a pool to investors. As a result, your lender will require specific debt-to-income ratios, credit scores, leverage metrics, and adequate physical condition.
You will be asked to sign a formal application and provide a number of detailed documents. While every transaction may be different given the borrower’s financial position and income generating activities, the below standard list of financial documents is required by most lenders. Depending upon your lender and whether the loan purpose shall be for a refinance or acquisition, requested documents may include, but shall not be limited to the following:
Lender Requested Documents
- Two most recent years of personal tax returns including all schedules
- Two most recent years of business tax returns including all K1s, if applicable
- Last two years of W2s
- Most recent paystubs covering 60 days of pay
- Two most recent bank, investment, and retirement statements (all pages regardless of content)
- A copy of your driver’s license
- A copy of the executed purchase contract (when you find the right home)
- Certificate of Homeowners Association, if applicable
- Evidence of Homeowners Insurance
- Most recent mortgage statement and payoff letter (if refinance)
STEP 7
Conducting Due Diligence
The buyer evaluates all known data from hired third party inspectors in order to determine next steps. At this point, the buyer frequently requests repairs, credits, or other modifications to existing terms to address the physical condition of the home. Once all legal documents and amendments reflect the respective changes to the contract, if any, it is time for the lender and title company to close the transaction. Importantly, choose a professional agent that understands the closing process extremely well. They will be needed to help manage and oversee the transaction through the closings steps. It is necessary to find a professional agent that understands due diligence, lending, negotiating, and closing.
STEP 8
Closing the Transaction
After the inspection and final negotiation period concludes, there is a lot of paperwork the title company and lender will exchange. The main item you will need to provide are insurance policy details (researched and determined by buyer), which can generally be paid for outside of closing or through closing on the settlement statement, and a home warranty plan, if previously negotiated with seller. The lender will ultimately provide the title company with the necessary closing documents, verify your settlement statement for accuracy, and provide closing instructions to the escrow officer.
You are generally provided three options to close: (1) in person at the title company, (2) via mail which requires a few days prior notice as original signed documents are required back at the title company, or (3) via approved Power of Attorney such that one party may sign on the other’s behalf. After all documents have been signed and funds have been dispersed and wired appropriately, the home is yours! Congratulations!
