The Purchase Process
So, you have decided that you want to buy a home. Take the next step and get a general understanding of how the home buying process works by reading this article. The following information has a definite tilt toward buying a re-sale home. If your goal is to buy a new home, read this to get acclimated with the buying process, then go to "Buying New Construction" for all the particulars on buying a new home.
Step One : Loan Pre-qualification
This is the first step and a very important one. In this step, you will talk to a lender, allow them to pull your credit report, and let them know how much you make - the lender will then be able to give you a price range in which you should be able to qualify. The pre-qual letter is quick and relatively easy to get, but is not worth the paper that it's printed on - the lender is rendering a decision based on the most basic of information - often times this information does hold up, but as you progress, the lender has to dig deeper and this is where rates can change, loans can be denied, or timeframes can be delayed. The pre-qual lets you know that "YES", you are a viable candidate to get a loan. It also helps you to gauge your price range and gives you a good idea of monthly payments. While your ultimate goal is the pre-approval letter, the pre-qual letter is a start - now that you have this out of the way, you will still have work to get to the pre-approval, but you can also temper this with the fun part - shopping for a home.
Step Two: The Search
This is the most exciting part of the process! I'll e-mail a you a bunch of properties, but you can also search on your own (use the search on this web-site to find a multitude of possibilities). I can set up e-mail alerts, or you can do that - either way, we are now seeing a bunch of homes that meet your basic parameters. Is there a typical amount of homes to see before making an offer? This varies with the buyer and what they happen to be looking for....if you have a very specific neighborhood that has few homes for sale, then you will see a whole lot fewer homes than someone whose parameters are a bit looser. There is no magic number - the house that you ultimately make an offer on is the one that gives you goose bumps upon viewing. Nothing more scientific, just goosebumps - that's just what I normally see. Also, understand that I am extremely laid back - not pushy in the slightest - if you can't find the right house, then we wait, or re-evaluate....the bottom line is that if you are going to buy a house, it has to be the right house. While I am not proud of this, I have worked with a few buyers for over a year before finding the right house. If the house is out there, we'll find it. If not, we'll wait.
Step 2 and Step 3 (Loan Pre-Approval) often go hand in hand meaning that as we are looking at properties, you are still working on getting the lender what he/she needs to render a pre-approval letter.
Step Three: Loan Pre-approval
This second step makes you a strong buyer. This helps greatly in negotiations and may even be the sole reason you beat out another party bidding on the home of your dreams. This step assures all parties you are serious about buying a home. Once this stage is complete (7 - 21 days, $40-$70 for a credit report and a $450-$550 appraisal fee) you are approved for a loan, pending finding a home. There are many types of loans available from fixed-rate, adjustable rate, interest only mortgages, and so on. There are many benefits / disadvantages to the multitude of mortgage products out there, but don't discount one over the other until you have the facts - the lender will prepare what is called a good faith estimate for as many scenarios as you'd like to take a look at - consult w/ your lender, your realtor, your accountant and family to get the pro's and con's of each potential scenario.
Understand that you will have time to make a decision on which loan is right for you, and that may change back and forth all the way up to making the offer. So, hand in hand with Step 2 ( The Search ), we have been simultaneously looking at homes while making you the strongest buyer possible. Then, the day comes when you find the house that gives you goosebumps - the next step is The Offer....
Step Four : The Offer
The day has come and you find the home that excites you to no end. At this point, we discuss all the pro's and con's of the home - the construction, the location in the neighborhood, the neighborhood and much more. The goal here is to make sure that there are no major flaws that will affect re-sale value down the road. I want you to be as protected as possible should there be another downturn in the market. After we decide to move ahead, then we'll do our due diligence and make sure we don't pay too much for the property. I'll pull comparables so we know what values have been like in the neighborhood. Also, hopefully, we'll have seen a few others in the neighborhood/area to give us a better feel of what kind of an offer we should make. Next, we make the offer which will naturally be strong since you are pre-approved.
Step Five: The Negotiation
Our offer is in and we are awaiting the response from the Sellers at this point. There are three main sellers in the market today and three distinct response times. 1) Banks - they are looking to unload houses that they have foreclosed on and sometimes are responsive - typical wait time for a response is 1-14 days with 10 -14 days being more typical, and 2) Short Sales - these are regular sellers that are forced to try and sell their home for less than they owe on it - these are the slowest as the bank and sometimes more than 1 bank need to agree to the short sale - typically 60 days for a response and then another month or three to get the home closed, and 3) Regular Sellers - just regular folks looking to sell their home - typical respnse is 1-3 days.
Obviously, the best response is an accepted contract without a counter, but that is a fairly rare occurence. Most probably, we will get a response in the form of a counter proposal. Counters usually are on price, but can include just about anything - time frame, inclusions, exclusions, possession, etc....It is at this point that we really need to take a solid look and make a decision as to whether or not to move forward.
Often times when making an offer, we will structure it such that we will expect a counter and write it with hopes of splitting the difference. If we get what we were hoping for, then we can move forward and just accept the counter and move forward with the deal. Other times, we are just not able to make a deal happen. The seller may just be stuck on a price and not willing to negotiate. If this is the case, then we can just walk away from the offer - no harm, no foul. If we run into someone that is not willing to dicker on price, then what will happen if we find major issues on the inspection?
Sometimes, it's just not worth it. Once we are Under Contract, then the fun really begins...
Step Six: Under Contract
Once we are under contract, there is more due diligence. In the most generic sense, we will be concerned about Four issues:
A physical inspection of the property to determine any immediate or long term repairs that need to be done to property. Inspection is huge as any/all future repairs could cost you a lot of money. You do not want to skimp on an inspector as this will be your one chance to get the Seller pay for some/ all defects found in the home. We basically enter an area of re-negotiation and put our requests in writing and there are 3 potential outcomes. a) Seller says "NO", b) Seller says "YES, I'll do it all, or c) Seller says "I'll do items 1, 2 and 3, but not 4 or 5". Depending on the response, we can accept their answer and move forward, continue to negotiate, or just walk away (you get your earnest money back if the contract fails due to inspection). The bottom line here is that I try and get you anything/everything that I possibly can to make this a better deal. We either reach an agreement and move forward, or terminate the contract and you get your earnest money back.
2. Title Work
The seller provides title insurance to insure that when you close on the home, all previous outstanding liens will be paid off. There is a bit more to this, but in the most generic sense, this is what title insurance provides.
3. Loan Approval
Now that you have found a home, we'll go from pre-approval to final approval. If your financials change, or are unable to fully qualify for the loan, this provision allows you to get out of the transaction and get your earnest money back.
The property needs to appraise for purchase price. If this does not happen, we can re-negotiate. If the Seller will not play ball, then we can terminate the contract and get your earnest money back.
The bottom line is that a lot can happen from going "Under Contract" to actually closing on the home. Actually, more than you can possibly imagine. This is one area where Real Estate Agents really earn their money as experience is worth it's weight in gold here. If things get bumpy, you want someone who can get the deal back on track and quick. Also, of note, there are more than the above mentioned 4 areas of due dilligence, but these 4 are the biggest areas of concern in the transaction.
Assuming that all has gone well, the next step is the Closing....
Step Seven: Closing
All the due dilligence is done - now is the time to just get this puppy closed. Closing is relatively painless - there are a bunch of documents to sign, but this typically only takes about an hour. Questions will be asked and answered. Cookies will be eaten. 90% of the time, it is just a fun cap to a fun experience. Once all the documents are signed and all the monies are where they need to be, the house is yours!!! Congrats.
This is a generic description of how the buying process works. Circumstances may dictate different paths. As your realtor, I will guide you through this process to make it as stress free and efficient as possible.
Sean Patrick Reilly
Cherry Creek Properties
Double Major - Real Estate and Construction Management - University of Denver '91
cell / text - 303.520.8700