Home Buying Process
Last week, we shared about our decision to buy a house. Luckily, we had been through this process before. About a year and a half ago when we were still living in San Diego (before we decided to move to Bend, Oregon), we had started looking for homes in the Poway area, which is in the north east part of San Diego. We had even made an offer on one and end up not getting it. I can’t tell you how many times since then I’ve said “can you just imagine if we would have gotten that house?” Sometimes God has such different plans for us than we have for ourselves.
So, when we were really going through the process for the first time we did what any other person would do… call Mom, right? But for us, that phone call was pretty informative. My mother-in-law has always been so helpful to us during the home buying process, so I knew just who I needed to call when I was thinking about writing a few posts about the home buying process on our blog. Martha Johnson provided her EXPERT TIPS last week and and is sharing more with you all today.
We’re going to start at the beginning and walk you from finding a Realtor to celebrating you first night in your home!
1. Find a Realtor
Since we were buying a home in Oregon and not California, Martha couldn’t be our Realtor, but we didn’t have any trouble finding our Realtor because it was one of Logan’s coworkers. I think it’s important that you feel like your Realtor is willing to move at the same pace you are. As first time home buyers, we required a little more “handholding” throughout the process. Our Realtor was great and willing to take the time to explain the forms we were signing and make sure we knew what steps were next throughout the home buying process.
MARTHA’S EXPERT TIP: It’s not a bad idea to “interview” a couple agents to see if you’re compatible to work with. Instead of just calling on a property, ask the Realtor if you can first meet and talk things over. But, I always say the very best way to choose a Realtor is to ask your friends for a referral.
2. Figure out what you want in a house (must-have versus would love items) and how much you can spend
One of the things we talked about last week was that whole “figuring out how much you can spend”, which can be tricky. Martha had some great advice: start with the lender to see how much you qualify for. For us, we didn’t want to spend any more on our mortgage payment that we were currently paying on our rent. We knew we were buying a fixer and would be pouring money into renovations. We decided what we were comfortable with and then we went to the lender to confirm we would be able to get a loan for that amount. To be completely honest, I would be careful asking a lender how much they will lend you. In many cases, this amount may be more than you’re ready to commit to or more than you’re used to setting aside for your home or rental payment. The last thing you want to do when buying a house is get in over your head.
After you know how much you’re willing to spend, one of the most helpful things you can do is to start making a list of the items you need and the items you want.
EXPERT TIP: 1. Know what you can spend before you even start looking otherwise you’ll just be disappointed that you can’t afford that house full of your “wants” not your “needs”. 2. Remember that location is very important for the future as regards schools, resale value, amenities. 3. Lastly, sit down and write a few things on a hit list that you just can’t do without, ie how many bedrooms, bathrooms, size of kitchen, yard size, one story, two story, pool, type of exterior, style of home, roof type, schools, near by shopping, how far to the closest grocery/convenience store, to name a few things.
- A Realtor can direct you to qualified lenders that won’t gloss over the truth just to make a deal.
- Realtors are so invaluable throughout the entire process and I mean that with all sincerity especially a regards location. A lot of wonderful homes are now located in extremely bad areas of town that will most likely not get any better. Realtors who care, know their city and will take care to help you not choose a home that will either be unsafe or have no future resale value. We are not allowed to discriminate in any way, but are also required to give our utmost care to our clients.
- Hit list, basically there are a few really big items that matter to people: bedrooms, bathrooms, kitchen placement, pool, and yard. What Realtors do is help you prioritize and then find you that home instead of looking at all the homes that don’t work for you. It won’t do any good to look at 2 bed/1 bath homes if you need 4 bed/3 bath.
3. Get a pre-qualification letter from a lender
We talked a little bit about pre-qualifications letters last week on our post about our decision to buy a house. When we had started looking at homes, we knew we needed to get a pre-qualification (aka “pre-qual’ or “pre-approval”) at some point, but we weren’t sure how soon. When we called Martha, she gave us the low down. Our Realtor echoed the same sentiments.
Martha, is a pre-qualification letter necessary at this point before you even start touring homes?Yes indeed, in fact a pre-approval with direct underwriter approval is now almost a requirement to write an offer.
EXPERT TIP: You really can’t write an offer without one these days. In fact, as a Realtor, I won’t even present an offer until I have a pre-qual letter and after I’ve talked with the lender to verify the information unless it’s a lender I know.
4. Start touring homes with your Realtor
Starting to tour homes is the fun part!!! We did a lot of our “shopping” online through our Realtor’s Instant Notification program and we could see the homes listed in our area. Don’t forget to keep an eye out for signs too! The home we ended up buying was one that we would drive by almost everyday and we noticed when the for-sale sign went up.
Martha, is there anything you do with your clients before you start touring houses? I always get them pre-qualified and keep them within their means. I take it a step deeper by asking what monthly payment they are comfortable with. Just because you can afford $300,000 on paper doesn’t mean you can per month with all the other expenses associated with home ownership. I often jokingly say “you still want to go to Disneyland once in a while.” (And guys, let me tell you that you haven’t been to DISNEYLAND until you’ve been with Martha 🙂 )
Do you have your clients look at the listings online before touring usually? Well, these days most of my clients have already looked online before they even call me so yes, I set them up on a Buyer’s Instant Notification program so they have good solid leads on homes instead of slightly outdated information they may find online. Zillow, Trulia and the like are good sites, but they still have a lag time and sometimes their info is not as up to date as a Realtor can provide.
EXPERT TIP: During the touring process, don’t be in a hurry and don’t let your Realtor try to talk you into a house you don’t want because they want to make a sale. In fact, if a Realtor acts like that, talk to them about it. At least give them a chance to change their attitude. If they don’t, go ahead and find another Realtor. You are the one spending a lot of money, not them and you need to be as sure as possible this is the home you can be happy in for a long time. After that, let the house “talk” to you. I know that sounds really strange, but most of my clients usually know within a few moments if they like the house or not. Then on the practical side, make sure it has most of the things on your hit list that you can’t live without.
5. Make an offer
This was the sort-of scary part for me. There was SO MUCH up in the air – the uncertainty killed me… and I only had to deal with it over a weekend before we knew we were moving forward. Be sure you know what all of the different documents mean that you are signing. If you don’t understand something, ASK. That’s what your Realtor is for. Ours was so great to be sure to explain everything in-depth before moving forward. When you go to make your offer, you will need to have your pre-qualification letter from the lender and a check for the deposit. Don’t worry though, the check won’t be deposited until you actually open escrow (no fear folks – we’ll talk about what the heck it means to open escrow on the next step).
EXPERT TIP: Be sure this is the house you want. Once you enter into the agreement, it is a bonafide contract and you can’t just change your mind, you really need to have a valid reason to break the contract. But don’t forget, you do have an inspection period of usually 17 days or so to withdraw your contract if you find a valid reason during inspection. Just changing your mind is not a valid reason. You have to remember the seller is trusting you to follow through on your end as they have taken their house off the market because you promised to buy it.
Great advice, what are the typical things that you always ask for on your offers for clients? It depends on the buyer and the market, but we usually ask for closing costs, home warranty, septic certification (if the property has septic), escrow fees to be split between buyer and seller, and if there are any specific personal property items that my buyer wants, I always ask about the refrigerator, washer, dryer on the contract. IMPORTANT NOTE: There are specific requirements in each state. For instance in California – a Natural Hazard Report is almost always required and I ask the seller to pay for it. Your Realtor should know what is required for your state – another good reason to use a Realtor.
6. Seller responds (acceptance or counter offer)
This was just more of the dreaded waiting game for me. In your offer, you will indicate a deadline for the seller to respond, so at least there is a light at the end of the tunnel!
If the seller accepts your offer, you are off to the races ! Woohoo….
If the seller “counters” you (sends you a counter offer, which just means that there is some more negotiating to do on price or terms) then you will have a specific time that you will have to respond back. At this point in the process, it is important that you know your limits. Don’t let yourself be roped into a bidding war and get to a place where you are making an offer at a price higher than you are comfortable with.
7. Counter offer or acceptance
8. Apply for loan
As soon as you have an accepted offer, you can go ahead and apply for your loan. You can just go back to the lender you got the pre-qualification letter from to apply for your loan (I wrote some tips about choosing a lender here). Again our lender was SO GREAT to explain everything to us in detail because we were first time home buyers.
9. Open escrow
Story time. If you didn’t know, I work in commercial real estate for my “day job” and someone that I work with shared with me a funny story about his understanding of “opening escrow” that I can’t help but share with you. He was a young guy and working on his first real estate sale as a broker. They found a buyer for the property and his boss told him to open escrow. He had no idea what that meant, so he headed down to the escrow office and asked for escrow officer and told him he needed to open escrow. Meanwhile in his mind, he was literally thinking that he was going down to the office to GO OPEN A DOOR. He thought it was a ceremonial thing he needed to do. Haha! But, seriously… I had no idea what opening escrow meant for a long time.
Opening escrow means starting the closing process on the property.
You can start ordering any inspection that you want to have done. You hand over your deposit money to your escrow company (at this point, that check you gave them when you wrote your original offer is cashed!).
10. Schedule inspections
The most obvious inspection that buyers will almost always get is the home inspection report. The company will go inspect the house and give you a detailed report of anything that you should be aware of.
As you know, we were buying a fixer upper. And goodness gracious, I was terrified when I got that home inspection report back. Luckily, I had level-headed Logan to calm me down. Logan has been working on messed up homes for years and knew exactly how to interpret the inspection report (lucky for me, part of his expertise is estimating costs so he was able to tell me how much he thinks each item would cost to fix ourselves). Once he talked me off the ledge, I was able to think logically about the home inspection report.
In addition to the home inspection report, we also had a septic inspection done.
Inspections are optional (but it may be a requirement for your lender) and the costs of any inspections are covered by the buyer.
If you’re looking for more information about home inspections, I love this article with 10 things every buyer should know about home inspections from freshome.com.
11. Present repair addendum
If there are things that you learned on your home inspection report that you would like the seller to fix before you purchase the home, you will present a repair addendum to them. Your Realtor will help you with this and will probably have some great advice for what you should ask for. When we were purchasing our home, the market was very competitive. We were definitely a bit worried about asking for too much and risking the seller saying no or getting defensive. Again, this is a time that I was so lucky for Logan. He went through the home inspection report and figured out what he felt comfortable doing ourselves and what he wanted them to take care of.
In the end, we didn’t end up asking for much on the repair addendum. We did find out through our septic inspection that we would have to decommission our septic and get hooked up to our city’s sewer system in the next couple of years due to the deteriorating condition of the septic tank. We did some research and found out how much that would cost and asked for the seller to reduce the home price by about half of what that is going to cost us. Along with a couple of other small things, we more-or-less ignored a lot of the things found on our home inspection report knowing we could fix them ourselves.
Now, I’m not necessarily recommending that you do the same. Everyone is going to have different thoughts on this. Do WHATEVER you feel comfortable with here.
12. Ensure all repairs have been made by the completion date and await bank’s appraisal
On your repair addendum, you will indicate a date that you would like all of the repairs to be completed, ours was a couple weeks before our scheduled closing date.
During this time, your lender will also order the appraisal.
13. Sign all loan documents
When it was time, our lender called us back into their office to sign our final loan documents. Sometimes a few things will change during the closing process that you’ll need to resign. Be sure to always ask questions if you don’t understand what you are signing.
This signing is just a good warm up for your hand for all the signatures that will be required next!
14. Schedule closing/signing at Escrow office
On the day of your closing (sometimes the day before), you will go to your Escrow office and sign ALL the remaining documents. Be sure to grab a cup of coffee first and stretch out that hand! Our stack of paperwork was about 2-3 inches thick.
Both our lender and Realtor came to the signing as well. The seller had already signed all the documents earlier in the day.
15. Loan is funded
After all your paperwork is done and filed, your lender will fund the loan. Once you receive the confirmation that your loan has been funded, you get the keys!!!
16. Home is yours!
You made it. Congratulations!
Logan and I had pizza and some bubbly on the floor of our new house the first night we had our house. It was so nice to celebrate together and give ourselves a pat on the back for making it before the moving or renovation madness began.
The celebration was quickly followed by a trip (or ten) to Home Depot with multiple carts.
I’d love to hear your home buying stories!
Here’s where I party each week!
Ready for more? Read up on the rest of our home buying process posts: