The process of buying a home is simple. In many cases it’s even easier that renting an apartment. The hardest part is finding a home that you like. This guide is perfect for first-time homebuyers, and covers the basics you need to know to get started. You will get involved in more detail as you go through the process, with professionals helping you along the way. Other things happen behind the scenes that you don’t need to worry about. The key professionals who will be guiding you along are your real estate agent, your lender, and the title company.
1. Talk to a few mortgage lenders
Talk to the bank you bank with first. Banks love to do mortgages. Their rates are usually better than mortgage companies, but mortgage companies have more options for people with less than perfect credit. You can find plenty of mortgage companies online. We also have lenders we deal with who we know will get the deal closed on time.
What house can I afford?
Lenders will ask you some questions, take your application, and run your credit. Then they can tell you how much of a down payment you will need and what loan amount you are approved for. They will also tell you the fees and interest rate they will charge you. Make sure they give you a prequalification letter for you to submit with the offers you will be making on various properties.
You don’t need to settle on a lender at this point. You need the prequalification letter to make offers on properties, but you will still have time to shop for better loans and rates. You are not required to ultimately use the same lender who gave you your prequalification letter.
Potential pitfall: Some lenders will want to charge you a big application fee up front which includes appraisal fees and other charges. Talk to several lenders, including a bank, before paying any lender anything. Your real estate agent will give you guidance as well.
2. Find a home
There are plenty of online property search websites, with Realtor.com and Zillow.com being the biggest. The problems with Realtor.com and Zillow are that information is often inaccurate, out of date, and you can end up being bombarded with all kinds of real estate agents bothering you if click on any of the “Contact Agent” buttons.
Try the Property Search options on our website. The listing information comes directly from the MLS instead of being fed through a third party (such as Realtor.com and Zillow). Information is current, searches are faster, and you won’t get harassed by lots of agents.
Potential pitfall: DO NOT get involved with investors or owners who want to give you a rent-to-own or seller financing deal. You will be better off just renting until you are in the position to buy.
3. Find a real estate agent
Almost all listing agents will offer buyers’ agents a 3% commission for finding a buyer. If RAIN Realty is your agent, we rebate 2.25% of that 3% commission back to you after closing. We keep 0.75% for handling the transaction.
4. Make offers on homes until one gets accepted
Your real estate agent will guide you, write up offers, submit them to the listing agents, and negotiate those offers until there is a contract. We have very experienced agents who specialize in property purchases, so you can be assured that the terms of each offer are appropriate and that your interests are protected. If you decide on another agent, we suggest studying our Transaction Guide so you will know what is appropriate in an offer.
5. Escrow Process Begins
The escrow process begins with the accepted offer (now referred to as a “contract”) being submitted to the title company by your agent. It is your responsibility to get the earnest money to the title company within 2 business days (standard earnest money amount is 1% of the purchase price). Either you or your agent needs to get the option check to the seller or their agent and get a receipt so you will have a valid cancellation option.
Note: If you haven’t decided on a lender yet, or think you can get a lender with better rates, shop around and make a decision as soon as your offer is accepted.
6. Property Inspection
One of the terms of a typical contract is that you will have an option period, usually 10 days from when the contract is executed, during which time you can back out of the contract for any reason and get your earnest money back. You need to find a property inspector to inspect the property during that option period. If any repairs are required, your agent will negotiate what repairs need to be done, or a credit amount for those repairs. An agreement for repairs needs to be made before the option period is over, but the actual repairs don’t need to be done until closing. We suggest using Yelp.com for finding a good, local property inspector.
7. Lender orders the appraisal
If the appraisal comes in below the contract amount, you can either renegotiate the purchase price, or get out of the deal if your real estate agent did the contract properly. This protects you from paying too much.
8. Talk to an insurance agent about homeowners insurance
It doesn’t typically take long to get insurance in place, but sometimes there can be delays in getting the insurance company to make the required visit to the property, and getting the property approved. The most common issue that comes up causing delays with insurance companies is prior hail damage to the roof. Since there are no costs involved until closing, it is wise to start looking for an insurance agent as soon as you get under contract.
9. Title company orders Survey
Both the lender and the title company need a survey to close the deal. Who pays for the survey depends on the contract terms.
10. Select a Home Warranty plan
This protects you from expensive repairs that the homeowner’s insurance doesn’t cover, such as if the A/C breaks down, or water heater gives out. There are various policies and types of coverage available. Who pays for the home warranty and how much depends on the contract terms your real estate agent negotiated.
The title company can give you a list of Home Warranty companies, and you can review the policies. It only takes a few days to get a home warranty ordered.
11. Steps to closing on a house
The title company is the key player who gets all the paperwork together to close the transaction. Title company does the following:
- Receives the contract and earnest money
- Verifies the survey
- Gives you a title commitment and guarantees good title
- Orders the title policy
- Gets necessary loan documents from the lender
- Prepares the deed
- Prepares the closing documents
- Sends you and your agent the Closing Statement
- Orders the Home Warranty of your choice
- Any other necessary paperwork
- Has you and seller sign all the final closing documents
- Collects the money from you and your lender
- Records the title in your name
- Pays all costs, fees, property taxes, real estate commissions, etc., and distributes the remaining funds to the seller
Your real estate agent reviews the closing statement to make sure everything is in order. Final papers are typically signed at the title company, but can be signed remotely if you are out of town. You need to let the title company know in advance if you need a remote closing. You get the keys when the lender funds the transaction, or after papers are signed, depending on what your real estate agent negotiated in the contract.
12. You get your 2.25% commission rebate!
Of course, assuming you used RAIN Realty to represent you.
