How Do I buy a Home? (Part 2)

From Pre-qualified to closing- we have your step by step guide to how the process works to answer the question- How do I buy a home?

  • Finding the right agent
  • Finding the right house for you
  • Contract
  • Earnest Money and Option Fee
  • Inspections
  • Appraisal
  • Approval
  • Conditions
  • Close
  • After the close

 

Buying a home for the first time can seem like a really daunting process.  Last week I wrote about the importance of getting qualified and explained how you can know you are ready to buy a home financially.  Once you’ve done that, however, you’ve taken only the first step on the road to home ownership.  This week we are going to talk about the nuts and bolts of how to go from financially ready to buy a home, to king of your castle

Finding the right real estate agent for you

Everyone has a different idea about what they are looking for in a real estate agent.  Should you get the top producer in your town? In your neighborhood?  The agent your mom and dad used?  The agent who has the best looking picture on the bus stop advertisement?  Decisions, decisions, decisions.

No matter how you initially find an agent to talk to, you should talk about the following with them:

  • Availability:  Are they going to take your phone calls, emails or texts? Are they going to show you properties when you want to see them?  Do they have a network of people around them, that can help you if they are tied up on other business? Are they responsive to your calls
  • Local Knowledge:  Do they know the area locally?  Can they tell if a house is priced right?  Can they recognize a good deal?  Will they put you in the neighborhood/school system/community that best fits your lifestyle and needs
  • Personality:  Do you mesh with this person?  You are going to spend a lot of time looking at houses, talking about houses, talking about offers, negotiating and working toward closing over the next 30 days to 6 months- you should probably prioritize being with someone you enjoy
  • General industry knowledge:  You want an agent that not only knows you, and the area, and can help you make the right decision, you also want an agent that knows the real estate world in general.  Lots of stuff can come up that is confusing, difficult or unique in a real estate transaction- it’s valuable to have someone you know will have your back and has been through this before in their professional life
  • People skills:  Your agent will have to negotiate with the other agent for the seller, and will have to deal with you, the title company, the lender, the appraiser, the inspector and a host of other people along the way. You want someone that will always have your best interest in mind and be a good representative of your point of view, at all times. Ideally, they will have a team and system in place so that you can rely on the expertise of a lot of different people.

Once you’ve satisfied yourself that you are working with an agent that is the best choice for you, then you have to pick a house

Finding the right house for you

I can’t tell you what house you should buy or what’s right for you, I can just tell you if you qualify for the mortgage payment.  But I am going to listen to you!  So will your agent if you’ve picked a good one.  You should now have figured out how much money you can spend every month on your house, so in conjunction with myself and your agent you can set a price range that you are looking at.

You can go to open houses, cruise the neighborhoods that you are interested in viewing, look at the mls in your area or tell your agent what you want and let them find likely candidates.  Likely, you will do a little of all of these activities while you look around, waiting to see the house that’s going to feel like home for you.  Once you’ve figured out which house is home, I’m going to tell you if you can afford it, and your agent is going to get the best deal for you that they can.  Which leads us into…

Contract

Real Estate Contract

Everyone has a different negotiating style. I personally put forward my bottom line number in as generous a way as possible because I hate negotiations, but everyone has their own negotiating strategy. This is probably something you should talk to your agent about, and differs greatly by location and type of market.  Whatever the case may be, your agent will walk you through this process so that there is a meeting of the minds between you and the seller. You will figure out who is going to pay for what, when you are going to close and when you are going to take possession of the property.  It gets exciting, and now it’s time to start writing some checks for:

Earnest Money and Option Fees

Earnest money is, generally speaking, 1% of the price of the house you are buying, and it’s placed with the title company in order to show that you intend to buy the house and the seller intends to sell it to you.  If you don’t go through with buying the house, generally (there are exceptions that we will talk about in a later blog post) the seller keeps your money. If you do go through with buying the house that money gets credited to you at the time of closing. This check is made out to the title company.

Option fee checks (generally $50-$250) are written directly to the seller and they get to cash the check immediately.  An option fee gives you the right to cancel your offer (and have your earnest money returned to you)  at any time during the option period (typically 5-10 days), no questions asked. IF you go through with the purchase this typically will also get credited to you on your closing statement.  During the option period, it’s a really good idea to:

Get your house inspected

Preferably by someone who knows what they are talking about.  The inspector is going to go through the house with a fine tooth comb and look for anything they can think of that might be wrong with the house.  The list they are going to come back with is very long.  He is going to tell you everything that is wrong, might be wrong, or could go wrong.

You are going to get that report and you are going to huddle in a corner and say- “I can’t possibly buy this house- look at everything that’s wrong with it- there’s probably 50 things that are wrong or could go wrong in the future.”  Relax- this is pretty common.  It’s why you need a good agent that’s been there before. These reports read like a nightmare many times.  Even for perfectly dependable houses.  A good agent can help you identify what’s important, what matters, what is costly, versus stuff that’s typical and not a big deal.  Seriously though, the first time you read an inspection report it will freak you out.

After inspection, both the buyer and the seller will have a better idea of what the state of the house actually is. Many times specific repairs are negotiated.  Sometimes, money is offered in lieu of repairs.  Personally, I like closing cost contributions, which we will flesh out later in a blog.  Once the inspection has been dealt with, however, it’s time for

The Appraisal

This is merely a 3rd party professional that is going to go out and tell you how much your house is worth in the open market.  The appraisal will need to be paid for up front (typically around $500) most of the time (not in VA, but in almost all other cases), and then you wait a week or two for it to come back.  The appraiser will look at other houses in the neighborhood that have sold recently and figure out if your sales price matches what’s going on in the neighborhood.

Since no two pieces of property are alike, this is almost as much art as science.  They will figure out an average price for square foot and then make additions for cool things in your house, or subtractions from value for stuff your house might not have that the comparable house does.  Then, they will try to put a number on that.  Hopefully, the number will be at or higher than you agreed to pay. If not, we have a problem that we will talk about in a later blog that’s going to involve some negotiation and compromise, somebody writing a check, or the deal falling apart and you getting back your earnest money.

while we are waiting for the appraisal you will get some happy news,

Congratulations- your loan is approved!

If we went to the trouble to get pre-qualified at the beginning of the process we will get approved.  My rate of prequals to approvals is 98+ percent.  If I tell you you are going to get approved it’s really, really, really likely that you are going to get approved. If I don’t know, I get you approved before you offer.

But, we’ve got just a couple of conditions for you:

Conditions could be anything from “give me another bank statement and paystub b/c the other ones got stale,” to “write me a letter explaining why you had a late payment on your credit card in 2017″ to all sorts of things in between.

One condition you will always get is “show us the appraisal so that we can make sure the house is worth what we are lending you money for.  While we wait for the appraisal we collect conditions so that when we get the appraisal back in we are ready (in a couple days) to

Closing!

You will get your final figures from the lender 3 days prior to close.  There is a federally mandated waiting period before you are allowed to close in which none of the costs can change. It is at this time that it’s very real- you almost own a house.  Go get a cashiers check to the title company for the final figure when you are told to do so for how much you are told to do so (if you are going to send a wire be veeeery careful- wire fraud is running rampant) and be prepared to sign 100 or more documents at the title company.

As a former escrow officer myself I can tell you there’s a ton of stuff going on with title, and I’m sure someday we will blog about this extensively, but suffice it to say they are going to make sure everyone signs the documents, lender approves the signatures of documents, and then cut checks to pay everyone involved in the transaction.

If all goes well sometime between 15 minutes and an hour from the time you finished signing documents you should be given the keys to your brand new house.  There are only a few things left to do

After closing:

Celebrate.

Store all your paperwork somewhere safe especially the survey and CD as you will want that stuff later

File your homestead exemption to save on your taxes after the first of the year (in Texas)

Tell all your friends and family that Gabe Winslow helped you buy your house, did it on time, got you a great deal, and they’d be crazy not to talk to him if they were thinking about getting a mortgage now or in the future.

How Can I help you?

I taught school. I’ve been in the real estate industry for 15 years. I’ve got my law degree. I can spell cat if you spot me the c and the a, I want to help you, it’s what I do. If you have ANY questions about if you are ready to buy a house financially, or how the process works, please email me at gabekmg@gmail.com or call me at 832-557-1095.  Thanks,

Gabe Winslow