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”

Thursday Poll – The Fed’s Rate Cut and Your Decision To Buy A House

The Fed recently cut their rate by 50 basis points and the cut has had mixed reviews.  Although many say that the cut wasn’t due to slowing buyer demand, we’re curious as to whether it has had any impact on your decision to buy a house.

The Real Estate Buyer’s Guide To The Home Buying Process-Part Two

To use or not use a Buyer’s Agent, finding the right home for you and preparing and negotiating an offer in your best interest. Part two of a three part series. (If you missed Part One, click here )

So now that you’ve finished digging through boxes to find all the necessary paperwork the lender required, finished filling out the long application, looked over all the Good Faith Estimate and finally secured financing, what is the next step?

If you haven’t already decided to utilize your own Buyer’s Agent, now is the definitely the time to decide. 

• What are the duties and responsibilities of a Buyer’s Agent
• Why should you have your own Buyer’s Agent?
• What are the laws regarding agency and how do they effect you as a buyer? 
• What happens if you don’t use your own Buyer’s Agent? 
• Do I need a Buyer’s Agent when buying a new construction home?

You’ll be able to check out the answers to these and other questions in a "white papers" post coming in the near future. In the mean time, feel free to check out my previous post regarding whether you need your own Buyer’s Agent or not when purchasing a new construction home. For the sake of this discussion, we’re going to assume that you’re using your own Buyer’s Agent.

Though inventory levels have dropped drastically over the last 18 months, there are still hundreds of homes on the market to choose from and builders are constantly making changes to their new home communities including incentives, available lots, etc. To go through all of them would waste hours and hours of your time, energy and gas money and drive you crazy. The MLS, local agent’s web sites, Realtor.com, Homesdatabase.com, Zillow, Trulia  and other sites in general and are not very good at painting a true picture of a property nor the neighborhood. You may think you like a property, but it may be much different in person and you may not like it after all. On the flip side, you may think that you don’t like a property only to find out you really do once you’ve seen it in person.

That’s where an experienced and knowledgable Buyer’s Agent comes in. Part of what your Agent does is to sift through all the properties on the market including new construction lots, homes and communities and find the top 10 that best fit your criteria and are of the best value. They accomplish this by constantly previewing the market inventory and knowing the area that you are looking to move into. While previewing the market, they will know with much more certainty what properties fit your needs because they’ve seen the homes first hand.

But, in order for your Agent to know which properties best fit your criteria, you need to provide your Agent with the most accurate and complete information possible regarding what you are (and are not) looking for in a property. The best way to do this is to compile a list of "Must Haves", "Would Be Really Nice To Haves" and "Nice, But Just An Added Bonus" and provide that to your Agent.

Start with the "Must Haves", the things that are certain deal-breakers if the property does not have them. List the 5 or so things you must have in a property. For example:

1. one car garage
2. four bedrooms upstairs
3. walk-out basement
4. not a corner lot
5. certain subdivision and/or school district

Then move on to the "Would Be Really Nice To Have", the things that are not necessarily deal breakers, but you would really like to have. List the 5 or so things that you would really like to have in a property. For example:

1. center island in the kitchen
2. kitchen flowing into the family room so that you can watch your kids while you’re preparing dinner
3. first floor study because you work from home a lot
4. large walk-in closets for all the outfits and shoes
5. fenced backyard for the kids and/or dogs

The move on to the "Nice, But Just An Added Bonus". The best way to explain this one is that you wouldn’t mind if the property did not have these things if the price reflected it so that you could put them in later and still have the property be of great value.

1. upgraded light fixtures
2. deck already present
3. neutral paint throughout
4. finished bathroom in the basement versus a rough-in
5. finished basement versus unfinished basement

If you’re having a hard time figuring out which category to put each criteria in, rate each of your criteria on a scale of 1 to 10, 10 being the most important. You’ll more easily determine which category each criteria falls in once you’ve done that.

Once you’ve compiled the lists, give them to your Agent and go over them in detail. Explain each category in detail so that they fully understand what you mean and your personal taste. The better your Agent understands what your looking for and need, the more efficient and effective they will be in narrowing down the playing field to the properties best suited for you.

Your agent should then provide you with a a list of the top 5 to 10 properties for your review. Set a time to preview these properties in person and with your Agent. Your Agent will take care of efficiently routing and arranging the showing times for you. Please keep in mind that usual showing times are 9:00AM to 6:00PM. Some are available to be previewed a little earlier and a little later in the day, but that’s the exception. And make sure that you see the home while the sun is still up in order to clearly see the property and to see how much daylight is present inside the property without the lights on.

Important note: It’s strongly suggested that you do not preview more than 5 to 7 homes in one day. If you do, they will all start to blend together and you will forget the differences between them. One of the only exceptions to this is if you are relocating to the area and will only be in town for a day or two and need to see all 10 properties in the limited time you are in the area.

The typical buyer takes about 20 to 30 minutes to preview one property. If you are previewing 7 properties that are all within a short distance of each other, give yourself about 3.5 to 4 hours, including travel time. Make sure that you have something to drink with you and that you’ve eaten something recently or have a snack in your pocket/purse.

If you know you will need more than 30 minutes per property, let your agent know so that they arrange the showing times with the Listing Agent and/or sellers accordingly. Most buyers are uncomfortable with the sellers being home so help alleviate that situation by letting your Agent know that you will need more than 30 minutes to preview each property. There’s nothing worst than showing up later than expected to find the sellers at home and trying to be sales people and give you a "tour of the property".

Now, if you’re looking at 6K to 8K+ square foot homes, that’s a different story. The average time for buyers in that category is 45 to 90 minutes and your Agent should already know that.

Make sure you bring the following things with you while previewing the properties:

• a comfortable pair of shoes that you will easily be able to take off and put back on (you’ll be walking through homes a bit and many sellers wish for people to take their shoes off)
• a note pad and pen/pencil to take notes of the properties as you’re going through them
• a camera to take pictures of properties so that you can remember them later (the pictures online and in the brochures are not always accurate or of high quality)
• if you have a significant other that will be helping you make the decision, make sure that they are present.

Once you’ve seen all the properties, you will probably know which one is the most appealing to you. If you’re waivering between a few, go back to your lists (see above) and rate each one of them on a point system to see which one is at the top of the list. Some people know the second they see a property whether they want to place an offer on it while others like to sleep on it. Whatever works for you is what you should do.

But keep in mind that you are not the only one that may know that these are the best valued properties in that price range and that there may be other interested buyers looking to place on offer on the same property. This is not meant as a sales pitch to get you to rush in and buy something. It is simply a disclaimer so that you don’t yell at your Agent (or me) for not warning you beforehand. I’ve had competing-offer situations many times even in this market because I’m always looking for the best value and typically not the only one doing so.

After deciding that you want to move forward with presenting an offer on a property, you’ll need to figure out what strategy to take with this particular seller. A great Buyer’s Agent will have great negotiating skills and know what to look for in order to negotiate in your best interest. But here’s the "Catch 22"…if you’ve already found the best/under valued properties to begin with, their may not be much room to negotiate on the price so keep that in mind.

But price is not the only thing that you should consider. That’s where the terms and contingencies come in. Here’s a list of some commonly seen terms and contingencies that you may consider:

1. Do you wish to have a Home Inspection?
2. Do you wish to have a Radon Inspection?
3. What is your preferred settlement date?
4. Do you wish for the seller or you to pay for a Home Warranty Policy?
5. Do you wish to have a copy of the seller’s Owner’s Title Insurance Policy in order to save money on your Owner’s Title Insurance Policy?
6. Do you need a pre or post-settlement occupancy agreement for you or the sellers?
7. Do you wish for your closing costs to be paid for by the seller in the form of a seller concession?
8. Do you wish for the seller or you to pay for the termite inspection?
9. What amount will your Earnest Money Deposit be?
10. What personal property and fixtures do you wish to convey with the property?
11. Do you wish to have an appraisal contingency?
12. Do you wish to have a financing contingency? 
13. Are there any other terms or contingencies you wish to have a part of the offer (Sale Of Home Contingency, Coinciding Settlements, etc)?

These are all contingencies and terms that will effect the amount of leverage you have while negotiating. As a general rule, the more contingencies you have and the impact of the particular contingencies on the seller, the less leverage you have when negotiating on the price. You and your Agent should also go over the comps when deciding on a price to offer. "Comps"  are comparable/similar homes in the same and possibly neighboring community that have sold as well as gone under contract within the last 3 months along with comparable active properties. You should also review the latest market conditions in detail.

Once you have agreed on the offering price and terms, your Agent will prepare the offer, review it with you and have you sign and initial where applicable. Your Agent will need to have the Earnest Money Deposit check and lender letter in hand in order to make a copy of them and submit them with the offer. This is to strengthen your leverage as a buyer and necessary in today’s market.

And in case you’re wondering, the new Regional Sales Contract is 10 pages; the Virginia Jurisdictional Addendum is 5 pages; the Disclaimer is 2; the Contingencies and Clauses addendum is either 2 or 3 pages depending on which ones apply; the Buyer’s Agency Agreement is 3 and the Disclosure Of Brokerage Relationship is 1 (if you haven’t already signed them) and it typically takes 45 to 90 minutes to go over all the paperwork. It’s not as bad as you think, either.

Once you’ve got the offer finalized, your Agent will either hand-deliver, fax or email the offer to the Listing Agent or seller (if FSBO). They should call the agent before delivering it as a professional courtesy and what we call "Registering An Offer" in Agent lingo. This makes it so the Listing Agent can contact the sellers and make themselves as well as the sellers available to review your offer. The typical response time is within 24 hours though it may be longer if the sellers are out of town, had an emergecny, etc. But the Listing Agent will usually make your Agent and you aware of that ahead of time.

So now the nail biting and possible sleepless night begins. You’ll probably be thinking to yourself:

                                 "What will the sellers response/reaction be?"

            "Will they accept, counter or reject my offer?"

                         "What if they counter or reject – I really like the house!"

It’s not fun, but every buyer goes through it. But keep in mind…Sellers usually want to sell their home as much as you want to buy it so they will want to get a response back to you as much as you want a response back.

The sellers have the option to accept, reject or make a counter-offer. If the reject it, you have to evaluate why and if it’s worth presenting an offer higher in price and/or with better terms. That’s something you have to decide along with a discussion with your Agent.

If they make a counter-offer, that’s better than a rejection! And they’ve already shown you that they are willing to negotiate. You have the option of accepting their counter-offer, rejecting it or making a counter-offer of your own. Typically, you end up meeting somewhere in the middle and everyone is happy. But once again, thats something you have to decide along with a discussion with your Agent.

Hopefully, you’ll have your offer accepted in its entirety. There may be some slight clerical or administrative changes, but they’ve accepted the price and terms. It’s been delivered to both parties and is now a Ratified Contract – congratulations!

So now what? What do you next? How does the Home Inspection work and when is it? Who notifies the appraiser to get the appraisal complete? What about the title search and survey? What about packing and hiring movers? What is settlement like? What all do you have to do before settlement date/moving in?

Ah, the suspense continues… We’ll cover this and more in Part Three-"From Ratified Contract to Settlement Date". Check back shortly!

Click here to request a free copy of the Real Estate Buyer’s Guide To The Home Buying Process to be sent directly to you via email.

Related Articles: The Big Picture: Rules For Real Estate Agents

Additional Resources:

• Official Loudoun County Web Site
• Loudoun County Public Schools
• Official Fairfax County Web Site
• Fairfax County Public Schools
• Loudoun County Real Estate Market Update-March 2007
• The Ashburn Community Blog