Congratulations! You've finally found the perfect house and now you're ready to make an offer. Unfortunately, this is not Amazon...you can't just buy the home with one click and the keys show up at your front door in two days. So then what has to happen in order for you to purchase the house? The points below will give you a good idea of what to expect between now and when the home is finally yours.
Offer to Purchase
Once you have decided on a home, your agent will work with you to draft an Offer to Purchase the property. There are many possible ways to structure an offer, and a competent real estate agent should be well versed in every aspect. Structuring an offer in the right manner can save you time, energy, and money. Be sure you choose an agent that can adapt to every unique situation and suggest ways to improve your offer to increase the value you receive. While there are many different parts of an offer, we will focus on the most common components.
- Purchase Price- This is the total amount that you will agree to pay the seller for their home. The offer will also specify when this total amount is due (typically at the day of closing). Don't over think this one.
- Earnest Money Deposit- This is an amount of money deposited by the buyer, at the time the contract is signed by both parties, to show the buyer's good faith intentions of buying the property. This money will be credited toward the purchase price at the day of closing so long as you go through with the purchase. In the event that you back out of the contract (outside of a certain period of time), the earnest money deposit would go to the seller. Think of it from the seller's standpoint; if your property is off the market for 25 days and then the buyer backs out, should you not be compensated for the amount of time other buyers could have been viewing your property? You are not required to make an earnest money deposit, but for the prior mentioned reason it will strengthen your offer and show your level of commitment.
- Due Diligence- This typically consists of a due diligence period and a due diligence fee.
- Due Diligence Period- This a defined amount of time in which the buyer has the right to investigate, inspect, and inquire about the property. During this period, you can back out of the contract for any reason and receive your earnest money deposit back.
- Due Diligence Fee- This is a deposit that is paid directly to the seller that they keep in the event you back out of the contract. The fee will be credited toward the purchase price at closing.
- Closing Date- This will be the date that all of the appropriate investigations have been completed, the loan is ready and the monies/ownership change hands. Typically, lenders ask for 30 days for the effective date (day the offer was signed by both parties) to close on the property.
- Closing Attorney/Escrow Agent- Most every residential transaction uses the services of an attorney to prepare the closing documents. You will need to select an attorney to handle the closing. The attorney will conduct title research on the deed (the paper recorded with the government to show the owner of the property) to ensure that you are protected as a buyer when you purchase the property. They will also prepare all of the closing documents, work with the lender, and disperse all of the money involved in the transaction.
- Fixtures and Personal Property- Not everything you see in the home when you view it will automatically become yours when you buy the house. You may not expect the furniture to be there when you move in, but what about the refrigerator? Technically, the refrigerator is personal property and, therefore, is not part of the home purchase unless it is explicitly stated in the contract. Any items that you are expecting to receive with the purchase of the home needs to be included in the contract.
Ask your real estate agent different ways that you might structure an offer to make it more appealing to a seller or provide you with risk mitigation. A good agent should be able to provide you with multiple examples. Hopefully, the seller will accept the first offer that you send over, but be prepared to go through several back and forth negotiations prior to your offer finally being accepted!
So, after a couple of back and forth negotiations, you and the seller have finally agreed to terms and they accepted your offer! Now you just have to twiddle your thumbs and wait until closing, right? Wrong! There are still some steps that need to happen before the home of your dreams is finally yours.
- Due Diligence- In the contract, you specified a period of time known as the due diligence period. This period has now started, and you should act as quickly as possible to discover anything about the property that may make you second guess your purchase.
- Home Inspection- You may want to pay a home inspector to come out (ASAP) and inspect the property thoroughly (heating and air, electrical, plumbing, etc.) to determine if anything is in need of repair. Your agent should be able to help you find a creditable home inspector that you will schedule directly to inspect the property. Home inspection fees vary based on the size of the home and scope of the inspection, but they are typically between $350-$600. This generally takes three days from date of scheduling to receiving the report.
- Appraisal- Your lender will require an appraisal of the property to determine that the value of the home is in-line with price you agreed on with the seller. You will have to sign-off on the appraisal (after the inspection) and pay for it out-of-pocket (some lenders let you delay the payment until closing). This fee is usually between $300-$450 and takes about four days.
- Negotiate Repairs- Don't freak out, your inspection is going to come back with some items that the inspector recommends that you get repaired. This is totally normal. Keep in mind there is a difference between the inspector noting that the door knob is loose (you can fix this with a screwdriver) and noting that the A/C unit doesn't work (a multi-thousand dollar repair). Once you get the inspection report back you have the following options:
- Proceed toward closing without asking for any repairs or closing credit.
- Negotiate and ask the seller to make repairs to the property prior to purchase, or to offer you a credit at closing.
If you choose to negotiate, the following scenarios may occur:
- The seller agrees to make the requested repairs or offer the closing credit. In this case, you proceed toward the closing as planned.
- The seller refuses to make the repairs or offer the credit. If this occurs, you can either terminate the contract (you would forfeit your due diligence fee and any other out-of-pocket expenses, but would get back your earnest money deposit), or proceed toward closing accepting the property as-is.
- Loan Underwriting- Once your lender has received the signed contract, they will immediately begin the underwriting process. This is the process by which the lending company verifies all of your information and documentation to ensure that you are capable of fulfilling the requirements of the loan. If you have already been pre-approved by the lender, this is typically a hassle-free process. It is not unusual for the lending officer to ask for additional documentation from you (get it to them ASAP). Also, keep in mind that the lender will be contacting your employer to verify your employment status and history.
- Miscellaneous- After you have completed your due diligence, you will usually have a period of time when you do not have to actively do anything related to the closing of your contract. During this time we suggest you:
- Contact utility companies to ensure that you have service as soon as you move in.
- Contact an insurance agent to write a home owners policy (this will protect you in the event of natural disaster or injuries that occur) for your home.
- Contact a moving company to line-up a date to move into your home after closing.
- Pick out new furniture, but we do not recommend making any large purchases prior to closing. (A large debit out of your bank account could cause the lender to pause on your loan).
- Final Walk-Through- As you get closer to the closing date, the sellers will be moved out of the home, and you will get an opportunity walk-through the home one last time to ensure they left the property in an acceptable condition.
Hopefully, everything went smoothly during the due diligence period and underwriting process! Once all of the necessary paperwork has been completed, you are almost a homeowner...almost. Below are the final steps in the home buying process.
- Loan Closing Package- The closing attorney will receive the closing package from your lender and verify that all of the information is correct. Once it has been verified, the documents will be sent over to your real estate agent for a final review. The documents will include all of the closing costs, and the amount of funds you will need to produce at closing (*). You will need to arrange to have the funds wired to the closing attorney's escrow account prior to the time of the closing (speak directly with your attorney to ensure that you are wiring the funds to the correct account). Alternatively, you could produce a certified check at the closing.
- Closing- You will arrange a time and location (usually the attorney's office) for where the closing will take place. Your real estate agent will be present with you at the closing. During the closing, the attorney will walk you through all of the various parts of the closing documents, ensure the appropriate funds have been received, witness you sign the documents, and answer any final questions you may have.
- Deed Recording- After your closing meeting, the attorney will record the deed with the appropriate authorities.
- Ownership- Once the deed is recorded, the funds will be dispersed, the keys will be given to you, and you are officially a homeowner! Congratulations!
Ready to buy a home?
Reach out to Mr. First Time today!