Take these steps through the home-buying process.
Editor’s note: This is Part 3 of a 3-part series on the home-buying process.
You pay your bills on time. You exercise your credit (but not too much). You monitor your credit score and it’s looking good. You have a stellar “Important Papers” filing system. Now, you’re ready to begin the home-buying process!
You’ve already done the hard part. It’s time to apply for mortgage preapproval. In a competitive market, this is especially important. Homeowners get multiple offers on one property. They will consider those buyers with cash or a loan preapproval more favorably than a potential buyer without one.
Step 1. Get a Letter of Preapproval
Your mortgage lender will generate a Letter of Preapproval when the lender determines you are creditworthy. The lender you choose will evaluate your application, check your credit report, and review your debt-to-income ratio. The lender might ask for some verification too. If your financial life appears to be in order, the lender will give you a Letter of Preapproval. The letter should also state the type(s) of loan(s) for which you qualify and the amount you can borrow for a home.
A Letter of Preapproval does not guarantee your loan. Circumstances change, and sometimes information is unverifiable. Failure to prove you have the funds to make a downpayment and closing costs can be a deal-breaker (and a heart-breaker). Always tell the truth when filling out an application. Never overstate income or understate debt.
It can take an hour to months to get pre-approval. Your’s will move fast because you’ve got all your ducks lined up, and you have dealt with the Ghost of Credit Past.
Don’t worry it is good to know all these steps, but you won’t have to do the leg work. That’s what your professional Realtor does.Joel Carson, Utah Real Estate
Step 2: Find a Realtor
With your letter of pre-approval in hand, interview three Realtors. Ask about their experience in your market. Compare their gross sales in the last year. Compare the number of transactions they closed during that time. Also, check reviews online. With 269 reviews on Zillow, I maintain a 5-star rating in local knowledge, process expertise, responsiveness, and negotiation skills (a 5-star rating overall). The pressure is on agents today more than ever. Their commitment to serving buyers and sellers is frequently reflected in their reviews. Choose wisely.
Step 3: Shop until you drop
By now you have a Letter of Preapproval and a great Realtor. It’s time to look at homes! Shop for homes in your price range and chosen location. Not all homes qualify for all loans, so clarify whether yours will be a conventional, VA, FHA, or another type of loan. They all require different down payments.
Your Realtor will help you with this process. It is your agent’s job to
- help you find homes for sale
- contact the seller’s agent and make an appointment to show you the home
- make a timely offer
- negotiate directly with the seller’s agent
- oversee the due diligence process while making sure all deadlines are met
- work with title companies, inspectors, and other support professionals
It’s fine to shop for homes on your own. If you are working with an agent (and who wouldn’t, it’s free?) provide him or her with the address of the home, and the Multiple Listing Service (MLS) if you have it.
The seller’s agent and the buyer’s agent will divide the commission for the home
In most cases, the seller pays a percentage of the gross sale to the seller’s agent. From there, it is divided according to the agents’ agreement. In other words, the seller has professional representation. You should too. The seller pays the commission, but the buyer does not.
If you are represented by a professional Realtor, don’t contact the seller’s agent directly. That’s the buyer’s agent’s job.
Step 4: Make an Offer
When you find the home you want, your agent will help you make an offer on the home. He can help you settle on a competitive offer price. An expert negotiator will give it to you straight. He or she will lay out and evaluate your options. Often a seller will counter-offer. Your agent will present counter offers to you, and counter the counter if appropriate. Normally this process takes 1-3 days.
Step 5: Apply for a Mortgage
Because you secured a mortgage prequalification before you started shopping, you are already knee-deep in the process. You will be asked for more verification and documentation. This is when you will find out exactly how much the loan will cost you and how much cash you need to close.
The Truth in Lending Act (TILA) requires that all costs associated with the loan be spelled out to you. If you are counting on only bringing the amount of your down payment to closing, I have some bad news. There are many document fees, filing fees, pre-tax payments, mortgage insurance payments if you are using a Federal Home Administration (FHA) loan, and more. Your agent can ask the seller to pay part of the closing costs during Step 4. Some sellers will pay upfront for a home warranty policy.
This process can be a little nerve-wracking. But if you have your ducks lined up, it will be much easier. The lender will disclose and itemize every expense. Review that disclosure carefully.
Loan processing usually takes three to four weeks. During that time your Realtor will be busy lining up inspections, requesting repairs, and completing a due diligence process that guarantees you know exactly what you’re getting.
The lender will also order a formal appraisal to make sure the bank knows exactly what it is getting. A title search will be completed and title insurance will be purchased.
Don’t worry, it is good to know all of these steps but you won’t have to do the leg work. That’s what your professional Realtor does.
Step 6: Close and Par-tay!
With four hours before closing, you and your Realtor will do a final walk-through. If there are any unresolved issues, new damage, or items removed from the home that are supposed to be included in the sale, this is the time to speak up.
On closing day, you will meet with representatives of the title company you choose and your lender. You will pay the amount required (check with the title company to clarify acceptable methods of payment before you go). You will also sign many documents. Make sure you understand their contents.
After signing, the lender will transfer the funds to the home seller and initiate your loan. This can take a couple of hours. In some states, it can happen the day after signing.
You will get the keys and enter your new home as arranged in the final documents.
Call me, maybe!
I’ve thrown a lot at you in the last three segments. It makes sense that you will still have questions. Give me a call at 801-673-3333 and I will get the answers for you or direct you to someone who can!