If you are a first-time homebuyer, or have not bought a home in a very long time, perhaps you need a refresher on the basics of buying a home. Here are the general steps that apply to most home purchases. Your Buyer’s Agent, Mortgage Lender, and Attorney will be working with you throughout the process to meet all deadlines, protect your deposits, and ultimately assist you in the successful purchase of the home. So let’s get started…
- Obtain Pre-Approval Letter. You should always obtain a pre-approval letter from a bank or mortgage company before beginning a serious home search. This will confirm how much home you can afford and will enable you to make an offer on a home when you find the right one. If you are planning to pay cash for the home instead of obtaining a mortgage, you will need “proof of funds” (copies of bank statements confirming that you have the requisite funds at your disposal).
- Find a Home. Prepare a list of your needs and then a list of your wants. Be sure to distinguish between them. Consider such attributes as pricing, location, home size, lot size, condition, room layout, garage, expansion possibilities, and others. Your Buyer’s Agent can then send and show you properties that most closely satisfy your requirements.
- Shop for a Mortgage. While you’re shopping for homes, begin comparing mortgage products offered by different lenders. Your Buyer’s Agent can provide you with the names of trusted, local lenders. This will help expedite the mortgage selection process when you find the right home. Also begin to prepare your “green file”, which contains all the financial documents your Mortgage Lender will need in order to process your mortgage application. By doing this in advance, you won’t be rushed when you find the right home. Your green file should contain at least the following:
- Copy of your driver’s license.
- Most recent 2 consecutive months’ worth of statements from each of your financial accounts, including checking/savings, investments, IRAs, 401(k)s, CDs, etc.
- Proof of down-payment and closing costs. Lenders will want to follow the paper trail of any and all monies you’re using at closing, including the down-payment. It is best to have this money in a single liquid account for at least 2 months prior to your mortgage application. If all of the money cannot be traced in the above-referenced accounts, you need to account for it. If some of it is a gift from a relative, you need to provide proof of where it came from and also proof that it does not need to be paid back (via a Gift Letter).
- 2 years’ worth of W2s and tax returns.
- 2 months’ worth of most recent pay stubs.
- Make an Offer. Once you have made the decision to buy a particular home, your Buyer’s Agent will assist you in completing an Offer to Purchase which will be accompanied by your “good faith deposit” and pre-approval letter. Your Buyer’s Agent will assist you in reaching an agreement on the price and terms of sale. Once your Offer has been accepted by the Seller, you are ready to satisfy the contingencies included in your offer such as financing and inspections.
- Retain a Real Estate Attorney. A home purchase is one of the largest and most important purchases you’ll ever make. It involves numerous legal contracts, processes and obligations. With all the money you’re about to invest, doing so without proper legal counsel is risky. If you have not done so already, you should choose a Real Estate Attorney to represent you. Your Buyer’s Agent will assist you in finding a reputable, local Attorney.
- Financing. If you will be obtaining a mortgage to pay for the home, you will need to submit the official mortgage application shortly after your offer is accepted to satisfy the mortgage contingency in the offer.
- Inspections. The offer form contains dates by which all home inspections must be completed. Be sure you are aware of these dates and make plans to meet them. Your Buyer’s Agent will assist you in arranging all home inspections.
- Purchase and Sales Agreement. Once all inspections are completed and assuming you have decided to proceed with the purchase of the home, you and the Seller will sign a Purchase and Sales Agreement (aka “P&S”). Your Attorney will work with the Seller’s Attorney to draft this. Upon signing it, you will typically pay an additional deposit (usually 5 or 10% of the purchase price), as specified in the original Offer agreement.
- Mortgage Commitment. Once the P&S is signed, you will be waiting for the final mortgage commitment from your Mortgage Lender. As part of this process, your mortgage company will order an appraisal of the property to be sure the money they are lending you is secured by the value of the home. You may also be waiting for the Seller to fulfill his/her obligations such as septic inspection, smoke detector inspection, and possibly others.
- Closing Preparation. With the mortgage approved, it is now time to prepare for the closing. Most importantly, you will need to obtain homeowner’s insurance and send a copy of the binder to your Mortgage Lender. You may also need to arrange for movers and to order electric, telephone, and other pertinent utilities and services. You should be making plans to transfer any required funds to an account where you can quickly and easily obtain a bank or certified check for closing day. Your Attorney will tell you exactly what funds you need for closing day. You should also receive a copy of the “Closing Disclosure” from your Mortgage Lender at least 3 business days prior to closing that outlines exactly what you will be paying and how all the funds are being applied. If you have difficulty understanding this document, your Attorney, Mortgage Lender, or Buyer’s Agent can assist you.
- Closing Day. Be sure to arrive promptly with your bank or certified check and your driver’s license. It is also wise to bring a blank check or two in case there are miscellaneous items to be paid. Your Attorney will walk you through potentially dozens of documents that require your signature. After an hour or so, the transaction will be nearly complete and the Seller will hand you the keys. Congratulations! Now comes the fun of cleaning, furnishing and decorating!
This post is intended to provide a general overview of the home buying process. However every transaction can have its own special situations or circumstances and might not be covered in this document. This post is intended for general use only. Always seek legal counsel during the purchase of a home.