Purchasing a property is most likely one of the biggest financial decisions (if not the biggest) you will ever make. Whether this is your first purchase or you are an experienced buyer, these are the necessary steps for a successful transaction.
1. Build Your Green File
A green file contains all your important financial documents. You will need it to secure financing for your property. The typical green file should contain:
- Financial statements
- Bank accounts
- Credit cards
- Auto loans
- Recent pay stubs
- Tax returns for two years
- Copies of leases for investment properties
- 401K statements, life insurance, stocks, bonds, and mutual account information.
Be Careful With Your Finances
Now is not a good time to make sudden career changes or large purchases. You want to approach your property purchase from a position of financial stability.
2. Get Prequalified and Preapproved for Your Mortgage
Before you start looking for a home, you will need to know how much you can actually spend. The first step is to get prequalified for a mortgage. To get prequalified, you just need to provide some financial information to your mortgage lender, such as your income and the amount of savings and investments you have. Your lender will review this information and give you a loan limit. This will tell you the price range of the homes you should be looking at. Later, you can get preapproved for credit, which involves providing your green file so your lender can verify your financial status and credit. If you don’t have a preferred mortgage lender, let me know and I can put you in contact with a well-qualified, Senior Loan Advisor.
Lenders generally recommend that people look for homes that cost no more than three to five times their annual household income if the home buyers plan to make a 20% down payment and have a moderate amount of other debt.
For a monthly mortgage estimate, use this: HOME AFFORDABILITY CALCULATOR
3. Find the Right Real Estate Agent
Real estate agents are the most important partners when you’re buying or selling a home. Real estate agents provide you with helpful information on homes and neighborhoods that isn’t easily accessible or well-known to the public. Our knowledge of the home buying process, negotiating skills, potential pitfalls, and familiarity with the area you want to live in is extremely valuable. And best of all, it doesn’t cost you anything to use an agent – we’re compensated from the commission paid by the seller of the house. Whether you decide to use me or another agent to represent you as your buying agent, the most important aspect to vet agents with is to determine who will act as your fiduciary in the fullest sense.
Fiduciary: An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit above their own.
4. Time to go Home Shopping
Now that you know your price range, it’s time to start touring homes and doing research. Online searching and MLS results from your agent are a good first step, but nothing beats actually walking through a potential property. In addition to getting to know the specifics of a particular home, learning different neighborhoods and communities is crucial to making a decision on where to purchase. Simply driving various communities and streets is highly advisable.
Once you are familiar with the type of home in the neighborhood you desire, a good agent will have helped you establish what are the best values for potential homes. Since the real estate market is constantly changing, having the ability to closely track home values is crucial to make the best decision on which property to purchase and at what amount.
5. Make An Offer!
Once you have found the property you want to purchase at the right price, your real estate agent will advise you on making an offer to the seller. A good agent will evaluate your chosen property’s current condition and will assist in incorporating the proper concessions and conditions into your offer that work most in your favor. In the event of multiple offers, your agent will aid you in drafting the most competitive offer while protecting you from getting swept into a bidding war.
6. Secure the Property
Once your offer has been accepted by a seller the clock starts to open escrow, perform inspections, and release contingencies within the specified time periods outlined in the purchase contract. A licensed Home Inspector will identify existing and potential problems with the property in question and advise on further consultation from specialized professionals if needed. Any requests for repairs or credits from the seller need to be decided upon during this phase of the transaction.
It’s time to get in touch with your Lender again. Now is your opportunity to actually choose which loan product best suits your needs. Your loan advisor will direct you on how to secure your best options based from what your priorities are in a mortgage.
Your Lender will arrange for an appraiser to provide an independent estimate of the value of the house you are buying. The appraiser is a member of a third party company and is not directly associated with the lender. The appraisal will establish what is the current, fair price for the home.
If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. You may be able to save hundreds of dollars a year on homeowners insurance by shopping around for insurance. You can also save money with these tips.
7. Close the Transaction
As you can imagine, there is a lot of paperwork involved in buying a house. Your lender will arrange all the documents you have to sign for your mortgage and request all relevant personal information. A title company will handle all of the paperwork to make sure that the seller is the rightful owner of the house you are buying and ensure the transfer of ownership to you will be unimpeded. An escrow company manages the holding and transfer of funds as well as coordinating all the traffic of contracts and communication between the involved parties. With the high degree of activity involved in closing a transaction, an experienced realtor with high attention to detail in your corner is invaluable. A good agent will stay abreast of how every individual tied to the transaction is performing and take the necessary steps to ensure a sale recording on time.
Once all required documents are signed and your loan funds, the sale is finalized at the County Recording Office and the property is now yours! Your agent will hand you the keys over a bottle of champagne and it’s time to move in!