The process of buying a home can feel overwhelming - whether you’re a first time homebuyer or you’ve done it before. There are so many steps, documents, and things to remember that it can be daunting. My goal as a buyer’s agent is to help you understand the process and to also help keep track off all of the important details from start to finish.
1. Get Pre-Approved with a Lender
Before the fun of looking at houses begins, the best place to start is with a lender. The reason you start here is because a lender will let you know exactly what you can afford. There are mortgage calculators online that will give you an idea, but a loan officer will discuss with you all the details – the loan amount you are qualified for, the amount of down payment you will need, and the amount of closing costs you will need to pay (this is typically 2-3% of your home price). They will also give you a pre-approval letter to attach to the offer you will write when you find the right house. This letter shows you have done your homework and are a strong and serious buyer.
There are many lenders out there that do a great job. Choosing one can be difficult. As an agent, I prefer mortgage companies that have all of their departments here locally. They typically have a much more streamlined process and close loans more quickly and efficiently than large out of state companies.
2. Decide What you Want in a Home
What do you want you house to look like? Brick, stucco, log cabin, condo, townhouse, etc.? How many bedrooms, how many bathrooms, a garage? Do you want a fixer-upper or a home that is move-in-ready? Do you want a big yard or something small with less maintenance? Where do you want to live? Millcreek? Herriman? Downtown? How close to your work do you want to be? What are the schools like in the area? Is it a walkable neighborhood to restaurants, parks, shopping, etc?
That’s a lot to decide. Some of it you will know without hesitation, others you may need to consider a bit longer. It’s a great idea to make a list of your “must-haves” and also your wants. This list may morph a little – or even a lot – over the course of your search. As you get out and actually see houses you’ll better understand what you really like and need. That’s okay, but it’s nice to have a starting point too.
3. Choose A Real Estate Agent
It’s important to work with an agent you like and trust. You’ll be banking lots of hours with me and you want to get along. As a buyer here in Utah you won’t typically be paying the agent’s commission. That comes out of the seller’s proceeds at the closing. You essentially get the trusted help of a professional with no out of pocket expense.
4. Start Looking!
Finally, the fun part. Together with your agent you get to head out and look at homes. This time will be used to hone the list you wrote a couple of steps previously. And when you find the “one” you’ll be ready to make your offer to the seller.
5. Make an Offer
Filling out the Real Estate Purchase Contract (REPC) brings up a whole new set of decisions to be made: What price will you offer to pay, will you ask for a home warranty, what personal property will be included or excluded from the sale, how much earnest money will you put down, what should your deadline dates be, when can you move in? Your agent will walk you through all of this and make the choices seem easy.
A note on earnest money – Earnest money is money that buyers put down with their offer. It shows that you are “earnest” in your offer, but it also becomes liquidated damages if either party defaults on the contract. There are specific ways that you are allowed to cancel your contract and get your earnest money refunded. If you cancel the contract outside of what is allowed in the contract, you could lose your earnest money. When the contract is completed at closing that earnest money will become part of your down payment or closing costs.
Earnest money is typically 1% of the purchase price of the home, but this can be different case by case. It’s absolutely not a number set in stone. It’s more of a guideline. Earnest money must be a liquid asset. The check you give to your agent will be cashed and held in a trust account until closing or you cancel the contract. There are very strict laws governing how your earnest money is handled. It’ll be safe during the transaction.
6. The Under Contract Time Period
Once the Seller accepts your offer the home is considered “under contract.” As a buyer much of the responsibility of getting to closing rests on you. You have three contingencies or “outs” in the contract. They are Due Diligence, Appraisal and Financing. You must get your inspection done, appraisal completed and loan approved in order to close. You may go to the seller to renegotiate and fine-tune some points, but much of the driving is done on the buyer’s end.
7. The Due Diligence Contingency
Your Due Diligence is essentially your inspection of the property. You have a deadline, typically 2-3 weeks after the contract is accepted, in which to complete this portion of the contract. The Purchase Contract states that you are buying the property in its “as-is” condition. As a buyer you are allowed to inspect what that condition is. That can be the physical condition of the property, the zoning of it, the presence of hazardous chemicals, the amount of property taxes, etc. If you find something that may make you decide against buying the house you have three options available to you. First, you can choose to buy the house anyway, or you can negotiate repairs with the seller, or, finally, you can cancel the contract. All of this must be completed before the Due Diligence Deadline written into the contract.
The cost of the home inspection is something you will pay for out of pocket at the time of the inspection. It can range from $300-$500 depending upon the inspector you choose and the extent of your inspection.
8. The Appraisal Contingency
The appraisal is next after Due Diligence. When you buy a home you want it to be valued at least at what you are paying for it. Your lender also wants it to appraise for at least what they are lending you. It protects their investment. For example, if you are purchasing the house for $200,000 and are putting $20,000 down, you want the home to appraise for the $200,000 you are paying. The lender is lending you $180,000 so that is the minimum number they want to see on the appraisal.
If the appraisal comes in under the purchase price of the home, the buyer again has three options – first, you could buy the home anyway (if it’s more than the loan amount, but less than the purchase price), second, renegotiate the purchase price with the seller, or third, cancel the contract. And again, this needs to be done by the Appraisal Deadline written into the contract.
The appraisal deadline is typically 2-4 weeks after the contract is accepted. It is ordered by the lender and paid for by the buyer. The cost on an appraisal can vary as well, it’s typically $350-$550. The buyer usually pays this to the lender at the time of the appraisal.
9. The Financing Contingency
The Financing Contingency is the final contingency in the contract. The deadline is typically the same day as the Appraisal Deadline. The contract states that if the buyer is unsatisfied with the terms and conditions of the loan that the buyer can cancel the contract prior to the deadline. It’s a pretty broad statement. Essentially, if your loan falls through, you can cancel without losing your earnest money if you cancel before the deadline. If you’ve done your homework prior to now, obtaining the loan should be the easiest part of this transaction. Speaking to a lender before you even start looking for a house will help to keep surprise rejections from cropping up at the last minute.
10. Settlement and Closing
You’ve made it through all of your contingencies and you’re ready to buy this home! The Settlement Deadline is typically 1-2 weeks after the Financing and Appraisal Deadline. Settlement is when you will go into the Title Company and sign all of the loan and title documents. It is also when you will bring your down payment and closing costs in. They are typically wired to the title company who will disburse them appropriately after everything is signed. The seller will also go into sign their portion of the documents. Often times here in Utah this is done at separate title companies. Each party can choose where they close the transaction. Your lender and agent typically have title companies they work with often and can help you choose this.
Closing is separate from Settlement. Closing happens after settlement once everything has been signed, all monies from all required parties (usually the buyer and the lender) have been received by the title company and the new deed in your name has been recorded on the property with the County. Once all of that is done the transaction is considered “closed” and you are the official owner of the home.
11. Moving In!!!
Yay! You’ve made it through the process and you are a homeowner! The Purchase Contract has a section that says when, after closing, you get possession of the home. Sometimes this is right at closing. It can also be days or hours after closing.
That’s the nuts and bolts of it. There’s a lot to it, but it can certainly be a fun and exciting process. It’s one I enjoy a lot. If you have any questions about what I wrote above or anything else, for that matter, please let me know. I’m also happy to help you in the purchase of your next home. Just give me a call or send me a text or email and I’ll get back to you soon.