The Home Buying Timeline

So you’re thinking about buying a home, but you’re not quite sure what all it involves. Well, here’s a “Home Buying Timeline” that outlines the various steps to buying a home…

1) Get Pre-Approved – This step involves contacting a lender to find out what types of financing options are available to you and what amount you qualify for in order to purchase a home. The lender should discuss with you different loan programs and how these loan programs fit your needs. Be sure to tell the lender and your Realtor if you qualify for a VA or FHA loan. You will then receive a letter that states the amount of a loan you qualify for (aka “approval letter” or “lender letter”). Important: This letter does not guarantee you a loan and is why you always include a financing contingency in your offer (more on this later). Also important: Make sure you work with a direct lender, not a mortgage broker.

2) Find a Realtor – It is best to get your own representation when buying a house. Be sure to discuss agency with your Realtor. Be sure that the person who is showing you homes is a Realtor, not just a licensed salesperson; yes, there is a difference. Make sure that you are confident that the Realtor you have picked is working in your best interest. Interview several Realtors that specialize in the area(s) you’re looking in and don’t hire someone as your Realtor just because they’re a friend or family member - this is business and involves hundreds of thousands of your dollars so make a good business decision. Tell your Realtor what you are looking for and get them to provide you with active listings that fit your specific needs. This can help narrow down your search and weed-out any homes that you are not interested in.

3) Look at Houses! – You may want to prepare a “Want List” prior to looking at homes. List things that you do want and things that you don’t want. Having said that, keep an open mind. Many Buyers end up purchasing a home that has many of their original “Don’t Wants.” The more information you give your Realtor, the better they will be able to sift through all the “noise” and narrow down the playing field to the homes that best suit your specific needs.

4) Prepare an Offer – in our area, the purchase agreement addresses issues that may arise when purchasing a home. These issues include financing, home inspections, appraisal, default, earnest money deposits and settlement. It is very important that you understand these terms and their significance. Once a contract is ratified (all parties agreeing, in writing, to the terms listed in the contract) the contract is legally binding. This agreement must be in writing to be enforceable. Be sure you understand what you are signing. Keep in mind that your Realtor is not an Attorney; they can not offer you advice or interpret the contract.

5) Contingencies - Basically, contingencies protect you in case you cannot perform or choose not to perform on a promise to buy a home. If you cancel a contract without having built-in conditions and contingencies, you could find yourself forfeiting your earnest money deposit and potentially facing liquidated damages. Common contingencies are Home Inspections, Radon Inspections, the Sale of the Purchaser’s Home, Appraisal Contingency and Full Loan Approval (aka Financing Contingency). These items are included in your purchase agreement, but are not addressed until after ratification. These items can help you discover more information about the home and you can use that information in helping you make your decision to go through with the purchase. These contingencies do not mean that the Seller has to renegotiate the sales price if you are unhappy with information you have received. They do mean that the Buyer and Seller can come to terms on how the information should be addressed. If the Buyer and Seller can not come to terms in the allotted amount of time, the contract can be voided. Sometimes the Seller may elect to offer money to the Buyer in lieu of fixing a problem discovered during a contingency period. Be careful with this, not all lenders allow a Buyer to receive money from a Seller over a certain amount. If the Seller has already agreed to give you closing cost assistance, you may not be able to accept any more money from the Seller. Lowering the price of the home may not be a good solution either. It is best for all parties to get the Seller to fix the problems before Closing.

6) “AS-IS” Contracts – So, you’ve decided to write on an “AS-IS” house. This means you are either getting a really good deal from a Seller, you are writing on a house that has an “estate” as a Seller, or you are writing on a Short-Sale or Foreclosure/Bank-Owned property. All of these types of contracts are a little different from a regular sales contract. The main difference is the “Seller” has no obligation to fix any items that need repair in the house. This includes the treatment and repair of termite damage. There are safeguards that can still get you out of an “AS-IS” contract, but you and your Realtor need to write them into the original offer. Most of the time you can still do a home inspection on an “AS-IS” home, but the home inspection will be for informational purposes only. It is extremely important that you thoroughly understand the Short-Sale and Foreclosure process. Ask questions and make sure you are comfortable with the risks.

7) Offer is Ratified - Congratulations, you have a Ratified Contract on a house! – Again, Ratification is when all parties have come to an agreement to the terms of a purchase contract, the agreement and associated paperwork has been signed by all parties and all paperwork has been delivered to both the seller and the buyer.

Formal Application to Lender – A Buyer has 7 days from the date of ratification to make formal application to the lender. This means that the first thing you should do after the contract has been ratified is contact your lender and provide them with a copy of the ratified contract.

9) Home Inspection/ Radon Inspection/Lead Based Paint Inspection – These are a few of the Contingencies discussed while writing the Offer to Purchase. Each of these Contingencies has a time deadline that the Buyer set while writing the Offer to Purchase. It is very important that you adhere to this timeline. If you neglect to give the Seller the Addendums regarding these Contingencies, you could be forfeiting your right to void the Sales Contract based on the findings. It is best to order these inspections and tests as soon as the contract in ratified. If you don’t know of any contractors/companies that do these types of inspections/tests, ask friends who have bought a home before or ask your Realtor for a list of Home Inspectors, Radon Inspectors and other vendors. Be sure you choose someone who is reputable, licensed, bonded and insured. (P.S. This is not the time/place to try to save a buck - it’s extremely important that you hire the best inspectors/contractors you can for these inspections/tests)

10) Appraisal – This is a professional estimate of the current market value of a home. The lender will call out an Appraiser after you make formal application for a loan. The Appraiser works for the Lender, not the Buyer and not the Seller. Typically, the Buyer pays for the appraisal. You need to ask your lender for a copy of the appraisal. However, they may not give it to you until after closing. If the appraisal comes in low, there are several options for the Buyer all of which are listed in the Contract. The Seller may choose to lower the sales price to the appraised value; but if you have asked for closing cost assistance, you may lose that assistance. The Buyer can choose to come up with the extra money to buy the house if the Seller does not want to lower the sales price. The Buyer and Seller could come up with a suitable sales price. Or the Buyer can void the contract.

11) Home Owner’s Insurance – Home Owner’s Insurance (aka Hazard Insurance or Property Insurance) is mandatory as part of your financing. Call around and get rates for Home Owner’s Insurance. You need to give your lender this information in advance of the settlement date so do this as soon as possible. Home Owner’s Insurance has become difficult to obtain in some cases. You may want to get your Realtor to ask the Seller who they have as an insurer.

12) Loan Approval – The lender will send a letter, when requested, that states that all conditions of the loan have been met and that the loan is ready to close. Essentially this means that you can buy the house! Your Realtor needs to get a copy of this letter to the Listing Agent within the specified amount of time (part of your Financing Contingency), which you determined when you wrote the Offer to Purchase. This letter may not be ready until the day of closing, or it could be ready weeks in advance. It is important to stay in contact with your lender and ask questions!

13) Termite Inspection – Many lenders require a termite inspection in order to approve a loan. Who pays for this inspection is addressed in the purchase agreement. If the home is being sold “AS-IS,” the Purchaser typically pays for the termite inspection and the Seller may not be responsible for treating a termite infestation. Talk to your Realtor about “AS-IS” houses. The termite inspection must be performed within 30 days of settlement. This means that it is usually not ordered until 2 weeks before closing, just in case closing is delayed. I always recommend that the Buyer pay for their own termite inspection to insure that a reputable pest company is employed. The Seller is still responsible for the cost of treatment and repairs if termites are found, unless it is an “As-Is” contract.

14) Settlement – You will choose a settlement date at the time you write your Offer to Purchase. It is very important that you actually close on the loan on this date. If the Buyer is unable to purchase the home on this date, the Buyer can be found in default and the Seller may be able to keep the Buyer’s earnest money deposit and/or sue for liquidated damages. If the settlement date needs to be changed for any reason, get it in writing and have all parties sign off on it! The Buyer needs to bring an ID with photo, down payment, and closing costs to the Settlement table. All funds from the Buyer must be certified - no personal checks are allowed, no exceptions. You can also wire the money to the Settlement Company. You may not find out how much money you need to bring until the day of closing, so leave enough time during that day to get certified funds. And remember – don’t be late to your closing!

Congratulations! You made it through the process and you now own a home! There will be bumps in the road during this process. The best advice I can give is to ask questions. The only stupid question is one that goes unasked. Your Realtor should help you avoid some of these bumps and should also help you deal with them once they occur.

If you’re wondering how long the process takes from start to finish, check out this article over at Loudoun Foreclosures entitled, “The Type of Property You Can Buy May Depend On the Time You Have”

Buyer Resources

Thinking about buying a home? Check out the Buyer Resources section of Loudoun Scene. You’ll find several years worth of posts filled with information, resources and tips to help home buyers like you navigate througout the entire real estate search and purchase process. Check them out and let me know if you have any questions.