Let's take you through the home buying process from start to finish!
Home buying can be exciting and miserable and rewarding and stressful all at the same time. It will be your job to keep a level head through the entire process. Knowing what to expect up front will help to keep things in check!
Meet with a Real Estate Professional
When you meet with an Agent for the first time, you will discuss the type of home that you're looking for, including the style, price and location. Buying a home is like buying a car. You go into it thinking you want one thing but end up buying something completely different. Keep your 'must have' list short and focus on what's most important to you. For example, is the school system most important or that there's enough room for everyone or that the home has a yard for your dog?
As a buyer, the commission earned by your Agent is paid for by the seller which means your buyer/Agent representation costs you nothing. Even though it doesn't cost you anything, keep in mind that your Agent is working hard to earn their commission. Just know that your Agent is working hard for you so be sure to stay committed to the home buying process.
Get Pre-Approved For a Home Loan
Getting pre-approved for a home loan is he next step. This will tell you how much house you can afford based on your credit score and debt-to-income ratio. A 660 credit score or better is preferred although you can get pre-approved with a credit score as low as a 580 but you will not benefit from many down payment assistance programs. In order to get pre-approved, your lender will need some documentation from you:
Last 2 pay stubs
Two months of bank statements
Two years of tax returns
If you have student loans that are not on a payment plan and are in default, then consider contacting your lender now to set up a payment arrangement or get your student loans deferred. If you are on a current payment arrangement, getting your student loans refinanced into a lower payment will also help getting you pre-approved.
Search for Homes
Let the fun begin! Together with your Agent, you will begin to search for homes. Your Agent will send you homes that will meet your search criteria. Your Agent will try to narrow things down for you as much as possible to try and cut down on the home searching process. Make sure the search isn't too narrow because you may not be able to find a home! Your Agent will send you homes but you will need to search for homes too. Be sure to look out for these terms when searching for yourself online:
All of these terms means that the home that you are looking at, whether you are on Zillow, Realtor.com or Redfin, is not available. The home is under contract meaning that the seller of the home has accepted an offer from a buyer just like you who intends on buying the home from them. If you really like a home that has just gone under contract, be sure to ask your Agent to check the status after 10 days because sometimes homes come back onto the market after the due diligence period (more explained below).
Make an Offer
Once you find a home, your Agent will work on preparing an offer for you to sign before sending it to the listing agent and seller for their review.
The first step is for your Agent to review the area sales that happened within the last 6 months to make sure that the asking price of the home is in line with the area sales. The reason why this is important is because your Agent wouldn't want you to pay for an appraisal on a home that they don't think will appraise for the agreed upon sales price (more on appraisals below).
After your Agent has prepared the offer, he or she will review it with you and ask that you sign.
The listing agent will present the offer to the seller and your negotiation will begin. You may not get everything that you asked for in your offer but that's ok. Both parties need to feel like winners! Allow your Agent to negotiate what he or she thinks is in your best interest based on your needs.
Once you and the seller agree on the price and terms, you will then be under contract. Congratulations!
Once you go under contract, you will need to pay attention to certain important dates:
The date your earnest money deposit is due: The earnest money is a good faith deposit which tells the seller that you intend on buying the home. It is generally due within 3 days of the binding agreement date (the date when all parties sign off on the offer making it a binding agreement). Without the earnest money, there is no contract. In the state of Georgia, the common earnest money deposit is $1000. In our Agency, the closing attorney is the one who holds the earnest money on behalf of all parties. In the end, the earnest money deposit will be credited to you as a part of your down payment and/or closing costs.
Your due diligence period: Due diligence is a period of days in the beginning of your contract where you can inspect the home and terminate the agreement for whatever reason or no reason at all. Generally it is the first 10 days of the contract. In some very competitive markets, shortened due diligence periods help to get offers accepted. Your home inspection will be completed during this time. Home inspections cost $350-400 on average. If you don't like what you find on the home inspection, you can negotiate repairs, a reduction in the sales price or terminate the agreement and receive your earnest money deposit back. More on home inspections below.
Your financing contingency period: This is the final period in which you can get your earnest money deposit back. If your lender is not able to provide you with a home loan for whatever reason then you will need to know prior to the last day of your financing contingency period. It is also important that your lender order and receive your appraisal back during this time period as well. If the home does not appraise for the agreed upon sales price, then you will need to either negotiate the price down with the seller or terminate the agreement. The average cost of an appraisal is $400 and that will need to be paid up front prior to closing. More on appraisals below.
The date you will receive your closing disclosure: You will receive a closing disclosure statement from your lender three days prior to closing; it is a federal rule under the Truth and Lending Act (Regulation Z). The closing disclosure will outline your final mortgage terms, how much your mortgage payments will be, how much you will need to bring to closing for your closing costs and down payment.
The date of your final walk through: Try to schedule your walk through a day or two before or on the closing date (you may even want to swing by there the morning of closing). Make sure the house is still standing, that it hasn't burned down and that any repairs that you asked for during the due diligence period have been completed.
Your closing date: Yay! You've made it! Your lender has given you a clear to close and now you are ready to sign on the dotted line. You will arrive at the closing attorney's office. If you are making a down payment or paying closing costs over $1000 chances are that the attorney will require you to wire the money to their office so be sure to get the wiring instructions for the closing attorney prior to the closing date. The closing will take about an hour. You will be signing documents that the closing attorney will explain all of the ways that you can default on your mortgage and how the bank can foreclose on your new home with little notice. Be sure to ask as many questions as possible. If you don't understand something, just ask.
Home Inspection: Home inspections are a very important part of the home buying process. Skipping a home inspection is not an option. It will tell you everything that you need to know about the home that you are buying. You may have heard this before but you are making one of the largest investments that you will make in your lifetime. It is important that you know exactly what you are buying!
When the home inspection report returns, your Agent will review it and let you know if there is anything that you should truly be concerned about. If you are buying a resale home, meaning a home that was previously lived in and is being sold again, chances are that there may be some things that have shifted over time. It is important that you focus on asking for the repairs that would prevent you from obtaining financing on the home. If you are obtaining an FHA loan, FHA requires that you are able to take possession of home and move in right away. If there is an issue with the electrical system, the HVAC system or the plumbing, you may not be able to move in right away and it may prevent your loan from funding. This is why appraisals are generally not ordered until your Agent tells your lender that the home inspection was clear.
If your home inspection uncovers waterproofing issues or major foundation issues, consider moving on and finding another house. Foundation issues will continue to deteriorate over time. Inheriting this issue is not something that you want to take lightly. Discuss this with your Agent.
Appraisal: Getting an appraisal tells both you and the bank the value of the home. The bank doesn't want to lend more than the home is worth and if you are getting an FHA loan, you won't be able to pay more than the home is worth. Prior to this step, your Agent should have already performed a market analysis to determine the amount of your offer before you even go into a binding agreement with the seller.
What happens when a house doesn't appraise for the agreed upon sales price? You will need to know the appraised value before the expiration of your financing contingency period. A part of your financing contingency is an appraisal contingency that says that you are not obligated to buy the home if it does not appraise for the agreed sales price and the seller is also not obligated to sell. If you don't get the appraisal report in before the end of the financing contingency and the house does not appraise then you may be obligated to still buy the home at the agreed price. If you do not then the seller can keep your earnest money and sue you for not performing under the contract.
If the house doesn't appraise for the agreed value and you have an FHA loan, then the appraisal will be put into a database where other FHA lenders will see the prior value for a period 6 months. In a cool sellers market, your Agent may be able to force the seller into lowering the price and moving forward with your offer on the simple fact that when another FHA buyer comes along your appraisal will still show up to where the new lender will be notified of the previous appraisal. If you are in a hot seller's market, this strategy may not work.
If you are getting a conventional loan and the house does not appraise then you can pay the difference between the appraisal and the agreed sales price. Your lender will only lend up to the appraised value. If the house doesn't appraise, it will be up to your Agent to renegotiate the sales price or terminate the agreement, again, prior to the expiration of your financing contingency period, so that you can get your earnest money deposit back.
This was a lot of information! If you have additional questions, please feel free to contact us.