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”

5 Things Not To Do Before Buying a Home

There’s a great article over at The Consumerist on 5 things you should avoid doing before buying a home. It’s a definite “must read” for all those considering buying a home.

Here’s an excerpt:

1) Don’t apply for new credit – When you apply for new credit, the creditor will do a “hard” inquiry (aka pull your credit). An inquiry will lower your credit score by as much as 5 points. The offer you just got in the mail or sitting in your inbox may be great, but it will cost you in the long run.

2) Don’t increase your debt – Taking on new debt will affect your debt-to-income ratio as well as your credit score. This translates into a higher interest rate.

3) Don’t accept any “same as cash” offers – “Same as cash” is basically a short-term or new loan as far credit scoring companies are concerned and will hurt your credit. Even if you save some money short-term (the “0% for 6 months” deal), you’ll pay a higher interest rate because your credit score is lower.

And I’d like to add a number 6…

6) Don’t forget to check with your loan officer first - Don’t restructure current debt, sell your car or move around large amounts of money between accounts, your spouse, family members, etc., without consulting your loan officer first. You’d be surprised at the impact something that you consider “logical” or ”small” may have.

New Home Buyers: What You Don’t Know Can Cost You

So you're thinking about moving and you're considering buying a brand new home directly from the builder. You go out one weekend and visit a few builder's sales offices and tour their model homes. 

While at the model home, the salesperson asks you to register. They may say something like "fill out this card for a chance to win _____" or, "Fill out this card in order to get information about future sales specials and promotions" or they may ask you a few questions about your situation and for your contact information. 

Seems harmless enough, right?

Wrong.

On the registration card is a spot where you put in your agent's contact information (name, brokerage, phone number). You should be filling out that spot on the registration card or if, the salesperson is filling out a card for you based on your answers to their questions, they should ask you if you're using an agent and fill out that part of the card as well. Funny thing is that they hardly ever ask, "Are you working with an agent?"…

Why is this point/question so important? 

If you don't register your agent and/or they're not with you on your first visit to the builder's sales office/community, the builder will not honor your agent, nor any agent you try to bring into the mix at any point in the future. That means that you are on your own with no one to look out for your interests.

In addition, the builder has already priced in up to 3 percent in commission to pay for the buyer's agent/broker. If you have an agent representing you, the builder doesn't lose any money. But if you don't have an agent, the builder actually makes money because they take that commission amount and just put it back into their profit margin.

And in case you're wondering…

• No, they won't refund you the commission amount if you don't have an agent
• No, they won't lower the price more or give you more options for free if you don't have an agent

Here are some more reasons why builders love it when you don't have an agent…

1. The builder's sales rep doesn't have to worry about someone who knows what they're doing looking out for the buyer and getting in their way
2. Many builders give their salespeople bonuses if there's no agent involved so the salesperson is making more money
3. The builder makes more money because they don't have to pay commission to an agent/broker

Why do you need an agent anyway?

Perhaps you've bought a new construction home in the past or do contracts for a living. But, no offense, you've got nothing on a builder's sales rep/manager who's been doing this full time for years and knows the ins and outs of their contract and how to get the most out of a new home buyer while putting the most into their own pockets. They use their experience against your inexperience to increase the profits of the builder and their own paychecks – just check out what happened to this new home buyer who went at it alone.

Perhaps the salesperson tells you that they'll get you a better price if you don't have an agent  in an effort to cut out your agent… (this is where you go back up a few paragraphs and re-read numbers 1 thru 3). If you still think it's worth not having your own agent, negotiate the price down as far as you can and then ask them to slash an additional 3 percent off of that price – see what happens.

In reality, you may not know that you could get a better price and the builders know that. But a good and experienced Buyer's Agent knows what others have recently paid and what added incentives are available that may not have been available to the general public (builders have "insider mailing lists" plus knowing the sale staff well helps).

In addition, agents often talk amongst themselves about what deals they've been able to recently negotiate even though the settlement date and the "sold" information won't be made public until the home is delivered 3, 6, sometimes 9 months from now (if at all).

Remember, builders are in business to make money. Since the salesperson typically receives a bonus for writing a Purchase Agreement that doesn't include an agent, they are inherently trying to find ways to cut them out. And the builder loves adding 2 to 3 percent to their bottom line. Who wouldn't?

So be careful and hire an experienced Buyer's Agent to guide you and represent you throughout the entire new home search and buying process. If you'd like to chat with me about my new home purchase and negotiation experience as a Realtor here in the area, feel free to email or call me any time.

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Home Buyer Tip – Do Your Homework and Ask If You Don’t Know

As of recently, more and more buyers have been asking questions on Trulia Voices that pertain to how to get out of a contract for reasons that should have been addressed well before they wrote the offer. In some cases, the issues should have been addressed before even starting to look at homes for sale.

Here’s a recent question posted by a buyer on Trulia Voices:

"Can I back down on a house contract after an inspection on the house and finding out the crime rate?"

Doing research on the crime rate is something a buyer should do well before writing an offer on a property. In fact, it should be done before the buyer starts looking around at properties in the first place.

I can’t say whether this buyer can get out of their contract for other reasons/contingencies because I’m not privy to the details of this transaction, but, in my opinion, they can’t get out of a contract solely due to the crime rate.

By not doing their homework beforehand, this buyer could potentially be legally bound to buy the property and lose their earnest money deposit and be sued by the seller(s) if they don’t move forward with the purchase.

Buyers – do your homework (and make sure you have a good buyer’s agent on your side if you’re using one) so you don’t get caught in a situation like this. If you don’t know what to do your homework on – ask. If you don’t know where to find the information you’re looking for – ask. It never hurts to ask, but it hurts bad to lose thousands of dollars and/or get sued.