Purchasing a home can be a daunting task, especially to the first time homebuyer. But it doesn’t have to be that difficult. Below are the 9 steps to purchase a home:
1. Get your finances in order:
Getting pre approved for a loan is the next step. Before you do that, it’s a good idea to take a look at your credit report to see what it says. If there are errors there, now is the time to get them fixed, before you apply for a home loan. You are entitled to one free credit report from each of the three main credit rating agencies once annually. To obtain your free report, go to annualcreditreport.com and take a look at your reports. Something seem awry? Here is an article detailing how to make changes to your credit report.
2. Learn about different types of mortgages:
There are a variety of different kinds of mortgages available to you. It is important that you have at least a little understanding about what the options are and what might work best for you. There are several articles at homebuying.about.com that may prove helpful. In California, we don’t actually use mortgages, but Deeds of Trust. While a mortgage is a two party instrument (lender and borrower), a Deed of Trust is a three party instrument (lender, borrower, trustee). There isn’t much difference to the consumer who is borrowing, but its important to know what exactly you are looking for. Want to read more about Deeds of Trust? Try here.
An overview of “conventional” or “conforming” loans – Basically “conforming” means that the loan conforms to the Fannie Mae or Freddie Mac guidelines. You can read more about conforming loans here.
An overview of FHA loans – FHA loans allow you to purchase a home with as little as a 3.5% downpayment. Read more about FHA loans here.
An overview of VA loans - Learn more about Veteran’s Administration loans here.
3. Get pre approved for a loan:
Now that you have reviewed your credit and learned a bit about the various mortgage types, you will want to get pre approved for a loan. Who you choose to work with is one of the most important decisions you need to make. Some lenders perform far better than others. Don’t know where to start? A real estate agent will have a list of lenders they recommend. Be sure to choose someone local, and who has a good track record getting deals closed. If you would like for me to recommend a lender to you, I am happy to. Just drop me a line in the contact box to the right. Once you are pre approved for a loan, you are ready to go shopping. You now know how much you can afford, and that information will inform where you can look and what you should be looking for.
4. Determine your wants and needs in your new home:
Do you need a garage, or just a carport? Can you not live without a fireplace? How many people will be living in the home? Are schools a consideration? When building a list of what you want and need from your new home, it is useful to divide you list into MUST HAVES, and WOULD BE NICE TO HAVE. A must have is anything that is a deal breaker. If the home does not have this feature, then you are not willing to buy it. Nice to have items are required, but desirable. Having this list filled out before you select an agent will put you one step ahead of most buyers.
5. Choose a real estate agent:
It is always advisable to interview at least a couple of real estate agents, so that you can find the one that you feel most comfortable with. Ask friends and family if they have recommendations, check Yelp, or just take a look at what signs you see around the neighborhoods you are interested in. Call the agents and make an arrangement to meet them. Here are some questions you might consider asking the agent during the interview. Please keep in mind that your agent will only get paid if the sale is completed. Therefore, you should choose only one agent to represent you. Homebuying.about.com has a great guideline to working with real estate agents here.
I work with a lot of homebuyers, and am happy to sit down with you for an interview. Contact me in the right hand sidebar, and let’s sit down!
6. Start shopping!
Now that you have gotten the preparation work done, you are ready for the fun part: shopping for a home. Your real estate agent should set you up with a “listing watch” so that you can see any new properties that match your criteria as they come on the market. Your agent should also be touring new listings to see which listings will work for you and which won’t. Ideally, your agent will have previewed the properties they intend to take you to, to make sure that they are likely to be workable for you. That saves you and your agent time over the long run. With both you and your agent searching for homes, you are more likely to find the perfect home sooner rather than later. You can begin searching for homes right now!
7. Make an offer:
Once you have selected the property you are interested in, your real estate agent will get you a disclosure package for the home. The disclosure package will detail what the current seller knows about the property, provide you with a Natural Hazards Report, and will help to guide you in how much to offer for the property. Your real estate agent can show you comparable properties that have recently sold, and that information can also help to inform your offer price. Your agent should also go through the paperwork with you in great detail so that you fully understand the contractual obligations of the offer package, and what your rights and duties are as a buyer.
8. Perform home inspections and other escrow period tasks:
Once your contract has been accepted by the seller, your agent will open escrow with a third party escrow company. In Northern California an escrow company is typically a title company, while in Southern California it is more typically an insurance company. Escrow will hold the funds necessary to complete the transaction until the transaction is ready to close.
During the escrow period, you as the buyer have an affirmative duty to investigate the house and develop a comprehensive understanding of its condition and features. Your agent should be able to recommend you to general home inspectors, structural pest inspectors, and any other specialty inspections you may need or want – structural, roof, fireplace, etc. Likewise your agent should educate you about contingency periods, and how to negotiate the best purchase price based on new findings during inspections.
Also during the escrow period, your agent will coordinate the appraisal requested by your lender, and will assist you in working with your lender to get them any information they may require in order to finalize the loan.
9. Finalize the purchase:
Once contingencies are removed, and your loan docs are in escrow, its time to sign your documents. Your escrow company will make arrangements for you to sign all of the documents necessary to finalize the transaction. Namely you will need to sign your loan documents and all of the paperwork to convey title to the property from the seller to you. Once you and the seller have both signed, the loan documents go back to your lender, they fund the loan, and the escrow company transfers all the money to the appropriate parties. After the transfer, the escrow company records a change of ownership with the county. Once that change of ownership is recorded, the house is all yours! Your agent will get you the keys and should provide you with the contact info for changing utilities to your name, and any resources you might need now that you are a new home owner.
Have questions? I am happy to help. Just drop me a line and I will do my best to answer your questions.