Purchasing a home can seem like a daunting task. However, it can be broken down into different stages, taking some of the mystery out of the whole process.
Stage One: Getting Pre-Approved for a Mortgage Whatever type of house you are looking for; a condominium, a multi family, or a single family residence, you will want to know if you will qualify for a mortgage. Most people do not have the large sum of money required to buy a property sitting in a bank account or under a mattress somewhere. Instead, they are going to borrow the money.
A Mortgage Prequalification (or Pre-Approval) means that a representative from a lending institution or a mortgage broker has reviewed information about your income, employment, credit history, etc. and determined that you have the qualifications to purchase a property. We will explain the difference between a lender and a Broker later. This person will work with you to determine how much you can afford, or how much you would like to spend. Just because you can qualify for a specific amount does not mean you should spend that much.
Stage Two: Finding your Dream Home Whether you choose to use a Realtor (benefits discussed on another page-click here) or to look on your own, this is now the time for you to see what is available in the market. By looking in the newspaper, finding Real Estate books in convenience stores, watching home shows on television, or looking online, you will be able to compare what you are looking for in a home with what is in your price range. You can find “fixer-uppers”, huge yards, beach front properties, whatever you want. This is a great time to check out open houses. Take the time to walk through houses below, in, and above the price range you were looking to spend. This will give you a good idea of a good deal when you find one.
Stage Three: Making an Offer/Acceptance of Offer So you found your perfect home. You now have to convince the current owner that you are the right person to purchase it from them. You must submit, in writing, and offer detailing the price you want to pay, the legal time frames and details of the transaction. This includes pest inspections, which party is paying which costs, what is included in the purchase, etc.. Once you have put your offer in to the seller, they have the choice to either agree to the offer, counter with a different offer, or refuse your offer. Sometimes, there are multiple offers on the property. In this case a “Bidding War” can occur , where all parties wishing to purchase the home make another round of offers, trying to get the seller to take their offer above everyone else’s. Should you have chosen to work with a Realtor, this is one time their services may come in extremely handy.
Stage Four: Mortgage Paperwork/Inspections At this time, you would get together with the individual who is assisting you with your mortgage. You would complete all applicable paperwork, provide your documentation as requested by the lender involved, and the paperwork would be processed. Your mortgage professional would assist you with scheduling the appraisal. Click here to learn about the mortgage process
If you are working with a Realtor, at this time they would help you schedule your home inspection, any pest inspections, etc. If you are doing this yourself, you would need to track down and schedule a home inspector. Although not always required by all mortgages, a home inspection is a chance for you to find out what you are really buying.
A home inspector is a licensed professional that specializes in reviewing the condition and prior maintenance of buildings. They do not establish the value of a property, but do review the condition of the building. They will be able to show you issues that will need repair, give you advice on fixing and maintaining the property, they can even show you changes in the design of the house that have occurred over the years. They provide you with a written report on what items will need to be fixed, and the time frame you would be looking at. They can check the mechanicals of your house, as well as perform Radon Tests. The appraiser is the person who determines the actual value of the home. They will do a physical review of the property and then establish the value based on comparing it to houses of the same style, size, and quality in the same general location. You will obtain a written report comparing your potential house with the others the appraiser finds.
Stage Five: Commitment As part of the Purchase and Sales Agreement you make with the seller, there will be a date called the Commitment date. This is the day you need to provide documentation to the Seller that your mortgage has been approved. Mortgage Lenders have a few different ways they do this. Some have a nice letter that says something like “Congratulations! Your loan has been approved.” Some just issue an approval document with loan size and general terms. The approval will also have conditions (also called stipulations, or “Stips”) for the final closing. These may included requirements for the attorney, copies of updated bank documents, or other items like this. Your Mortgage Broker or banker can review these items with you, and will request any documentation needed to clear the loan to close.
Stage Six: CLOSING!!! Congratulations! You are finally taking ownership of the property. At this point you will be signing all the documentation for your mortgage, including the Note, Mortgage, Deed, and many of the same documents you signed during the application process.
Note - Please remember your loan is not official until this point. Make sure you don’t change your financial picture before now. Buying the $50,000 convertible with a $600 a month payment is not a good idea, as this can change your approval of the loan. Quitting your job is also not a good idea. Even if you take a job making the same, or more money, this can still create an issue for the mortgage to close. Follow this link to learn about credit.
