Pannell Real Estate, Inc.

The Home Buying Process

 

 

Decision to Purchase

Buying a home is a rewarding and exciting experience.  In addition to being able to maintain, change, and improve the home to make it your own special space, it is historically an excellent investment.  Real property has consistently proven to be a profitable asset, appreciating in value during the time you own it.  Further, if you were previously paying rent, your monthly payments will now go toward the equity in your home instead of your landlord’s pocket.  Congratulations on your decision to purchase your first home! 

 

 

How much can I afford?

If you have enough money in the bank, you can certainly pay all cash for your home.  If you are like most people, however, you will need to get a loan for some portion of the purchase price.  Therefore, the first step in the home buying process is qualifying for a loan to see how much you can borrow.  It is important that you seek a professional and reliable mortgage lender to assist you with loan approval.  You will initially meet with a “loan officer” that will gather your personal and financial information to see what type of loan you will be able to obtain.  There are many different types of loans available, and typically only a dedicated and knowledgeable loan officer will understand all of your options.  The loan officer will review the types of loan programs available to you, and discuss the differences between each.  There are many aspects to consider when determining which loan is right for you, such as:  amount of down payment, amount of monthly mortgage payment you can afford, interest rate, term of the loan, closing costs, points, early payoff penalties, and other miscellaneous fees.  Remember, not all mortgage lenders are the same!  Do not feel pressured to use any particular lender, and do not be afraid to shop around for the best deal.  You will have a great deal of contact with your loan officer during the loan process, so make sure you are comfortable with him or her.  Making some extra phone calls in the beginning to make sure you have a loan officer you can trust will save you arguments and headaches down the road.

 

Once you have met with a loan officer and determined the details of the loans available to you, a “pre-qualification” or “pre-approval” letter will be issued.  This letter will briefly advise that based on your financial information, you are pre-approved for a certain loan amount on certain loan terms.  Once you get such a pre-approval, discuss what your needs are with your Realtor.  The information received from your lender will help your Realtor better assist you in the search for your dream home.

 

 

Negotiating the Purchase

Once you have found a home on which you would like to place an offer, your Realtor will prepare a written offer to purchase.  This offer will outline the terms and conditions of the purchase agreement, usually to include (but not limited to) the following:  purchase price, personal property that stays with the house, closing date, financing contingencies, and inspection contingencies.  The offer will also include all of the normal and customary language to ensure that it conforms with the law, and places the appropriate obligations on the seller and you to complete the transaction.  If you have any special provisions or contingencies to include, your Realtor will draft the appropriate language and insert it into the offer or prepare a separate addendum to accompany the offer.  Typically, an “earnest money” deposit will be made with the offer, showing that the offer is being made in good faith.  While there are no requirements as to the amount of the “earnest money” deposit, it typically ranges from $500.00 - $5,000.00, depending upon the purchase price and the nature of the transaction.  This deposit will be held in an escrow account by your Realtor’s real estate firm, to be applied to the purchase price if the offer is accepted and the transaction is completed.  Otherwise, if the offer is rejected or the transaction is not completed through no fault of yours, the deposit will be returned to you.

 

 

Offers and Counteroffers

Your Realtor will present the offer to purchase to the listing agent for the seller’s consideration and approval.  Typically, one of three things will happen:  (1) the seller will accept the offer as written; (2) the seller will make proposed changes to the offer (this is called a “counteroffer”); or (3) the seller will reject the offer completely.  If the seller accepts the offer as written, they will sign, the offer will become a legally binding contract, and all parties must abide by the terms, conditions, and obligations described in the contract.  If the seller makes a counteroffer, you will then have the opportunity to accept the proposed changes or propose further changes (another counteroffer) back to the seller.  Once all parties have agreed to all of the changed terms and conditions of the offer to purchase, and all signatures and initials have been obtained regarding the same, the offer becomes a legally binding contract as described above.  If the seller rejects the offer completely, the parties will have no further obligation to each other, and the earnest money deposit will be returned to you.   

 

 

Contract Provisions

As described above, the contract will contain several provisions making it legally enforceable and placing obligations on both you and the seller.  Seller obligations will typically include keeping the property in good repair, keeping the property insured, ordering the wood infestation inspection, ordering the well and septic inspections (if applicable), and contacting an attorney to prepare the deed conveying the property to you.  Your obligations as purchaser will customarily be to diligently pursue your financing, order any optional inspections to which you are entitled, and contact a settlement agent to represent you at closing.  Standard contract provisions direct that real estate taxes be prorated between seller and purchaser to the closing date, indicate which party is responsible for certain costs, and control what happens in the event of a default by any party, to name a few.

 

 

Home Inspections

Most residential home purchase contracts will include a “home inspection” contingency clause for the protection of you as purchaser.  The legal principle of “caveat emptor,” or “buyer beware,” is alive and well.  What this means is that unless the seller tries to actively conceal something from you, the seller will have no liability for selling you a house with defects.  It is up to you to determine whether there are defects that are serious enough to warrant repair or cause a significant change in the value of the property. 

 

A home inspection contingency allows you to hire an independent home inspector of your choice (and at your expense) to inspect the property top to bottom and advise you of problems.  A good home inspector checks all of the structure, systems, and appearance, and issues you a written report detailing his or her findings.  A typical report will list things as minor as a dripping faucet, as major as a damaged roof, and everything in between.  Once you receive this report, you analyze it and decide if there is anything on it that you want repaired by the seller.  Your Realtor will prepare an addendum to the contract that itemizes all of the items you want repaired.  This addendum will be presented to the seller, along with a copy of the inspection report, for seller’s consideration.  Presentation of this addendum will operate much like presentation of the initial offer.  That is, in response to this addendum, the seller will typically either:  (1) accept the addendum, at which point the seller will have all proposed repairs made; (2) make a counter-proposal to repair some items but not others, or give you a credit at closing in lieu of making repairs; or (3) reject the addendum entirely.  If the seller rejects the addendum or makes a counter-proposal, it will be up to you to decide whether you want to agree and move forward or be released from the contract.  Your Realtor can help you make this decision by offering advice regarding the requested repairs.

 

The most important thing to understand about home inspection contingencies is that the contract will be extremely specific with regard inspection terms.  This will include when the inspection is performed, how long you have to request repairs from the seller, what must be presented to the seller, and what happens if no agreement is reached. 

 

If the terms of the contingency language are not followed exactly, you, as purchaser, may not get the protection afforded to you by the inspection contingency, and may end up contractually obligated to purchase a house that has significant defects.  Be sure that you understand how the inspection contingency works, and make sure all deadlines are met.  Again, your Realtor can help you understand this incredibly important provision.

 

 

Closing Day

“Closing” of the transaction refers to that time where you sign all necessary paperwork, bring your down payment and any other necessary funds to the table, and the seller delivers the deed.  Closing will occur at the office of your settlement agent, at a time mutually agreed upon by you, the settlement agent, and your lender.  You and the settlement agent are the only parties that have to be present; typically, your Realtor will also attend to facilitate the transaction and answer any questions that may arise.  Your loan officer may be present for the same purpose.  Customarily, the seller does not attend the closing.

 

The primary document that is reviewed at closing is the settlement statement, also known as a “HUD-1” statement.  This document itemizes all of the money changing hands in the transaction, and will be broken into two sides, one for purchaser and one for seller.  If you are paying all cash for your home, closing will be relatively short, as you will basically review the settlement statement to make sure all the figures are correct, and sign a handful of other minor documents to complete the transaction.  If you are obtaining a loan, as most purchasers do, your closing will be a bit longer, as you will have to review and sign all of the loan documents.  Your lender will coordinate with your settlement agent during the processing of your loan, and just before the closing date your lender will deliver all necessary paperwork to your settlement agent.  The settlement agent will review all of the paperwork on your behalf, and review all of the closing figures forwarded by your lender.  Typically you will be required to bring some amount of money to the closing, representing your down payment and any closing costs you need to pay.  Once the settlement agent has determined the exact amount you need to bring, he or she will contact you and advise you of the exact amount.  Be prepared – you must bring certified funds (cashier’s check, certified check, etc.) to the closing in order to comply with the settlement guidelines.  Personal checks are not acceptable.  Your settlement agent may accept cash or money orders, but do not assume – be sure to ask! 

 

Once you have reviewed the settlement statement and signed all of the necessary paperwork, your settlement agent will take care of preparing the deed and loan documents for recordation at the local courthouse, in the land records.  Depending upon the time of day you close, this will likely occur on the day of closing or the following business day.  Based on the provisions of your contract, your right to occupy the property will be granted at closing or after recordation of the documents at the courthouse – check with your Realtor or settlement agent to determine when you can occupy the property.

 

 

What’s next?

Enjoy your new home!  Have fun moving in and turning the house you just bought into your home.  Within a few months you will receive the original deed which was recorded at the courthouse, as well as your owner’s title insurance policy (provided you purchased title insurance – your Realtor and settlement agent will advise you).  Unlike a title to a car, the deed itself does not give someone the ability to transfer title to your house, so no need to safeguard it with any particularity.  Keep the owner’s title insurance policy somewhere safe in case you need to reference it in the future.

 

At this point, you will have just closed one of the best deals of your life – acquiring a home, and making a great investment.  Hats off to you…sit back and enjoy!!