The Roadmap of a Real Estate Transaction

The Roadmap of the Home-Buying Process – Part 1

When buying your first home, it is easy to let your emotions take over. It is very important not to rush into something as substantial and life-changing as buying a home. Are you ready to buy or are you comfortable renting?

1. Hire a Real Estate Professional – An important step in the home-buying process is selecting a professional to help you fine-tune your financial expectations and find the home of your dreams. Working with a Real Estate Professional is worth the consideration because he or she is legally responsible for representing the clients’ best interest in a real estate transaction. An initial meeting with a Real Estate Professional can eliminate confusion and instill a sense of comfort when venturing off into the marketplace. He or she will guide you through the process of a transaction – from financing to closing.

2. Shop for Mortgage Rates, Terms and Brokers - As a first time buyer, you are not expected to know everything about the home-buying process thus, creating the need for an expert. Just as a Real Estate Professional is an expert in the home marketplace, a Mortgage Broker is an expert in the mortgage marketplace. If you happen to know someone that can discuss financing with you, by all means, talk to them. If you don’t, I have an agent that I use regularly and trust with my business and would be happy to refer you to her.

When shopping around for rates, don’t feel like you have to run yourself ragged trying to find someone. In general, rates are about the same from lender to lender. Don’t interview 30 lenders; three or four is ample and should give you a good idea of what to expect.

A difference of even half of a percentage point can mean a considerable savings over the life of a loan. For example, the difference in monthly payments on a $100,000 mortgage at 7% and 6.5% is about $35 per month, which equals $12,600 over the life of the loan – 30 years. That is not chump change.

3. Pre-Qualify for a Loan - Once you have shopped around for someone who will offer the best rates and services, it is time to get pre-qualified. This allows you to see what you can afford and will provide a range of prices for you and your Real Estate Professional to search within. Once you find the home you are looking for, being pre-qualified allows you to move more smoothly through the process. It is also a good indication to all involved parties that you are serious about buying a home and can afford to do so.

4. Make a Checklist of Your Needs and Wants - If you decide that you are ready to buy a home, take some time to figure out what you “need” and what you “want”. Begin with what is a necessity to you (1 or 2 baths, 3 or 4 bedrooms, good schools, certain area of town, etc.). Next, consider what your “want” (hardwood floors, storage shed, fenced yard, etc.).  Once these two checklists have been created, consider what would be nice to have, but is not a “need” or a “want”. The goal is to start by searching for homes that fit your “needs.” Then, we can expound on that by adding the things that you want in order to narrow down the choices. If the options are still abundant, you will need to narrow them down by what you feel would be nice to have. Now you have a list of homes to start to have your Real Estate Professional show you.

5. Visit the Homes - You are pre-qualified and have a list of “wants” and “needs” together. Now it is time to have a consultation with your Real Estate Professional again to go through your checklist and match your criteria with the homes available in the marketplace. The Real Estate Professional will then schedule showings for the homes that fit your needs.

Generally speaking, seeing more than 10 houses in a day becomes very overwhelming. By the time you see the 10th house, odds are that you will not remember the 1st, 2nd, 5th, etc. Take notes on the homes you see. If need be, take a camera and snap a couple shots, so you can remember the homes when you get back home and start discussing what you saw.

Once you find a home that you think may fit, pursue it. Human nature tells you to keep searching, but why? As a first time buyer, you may feel the need to see every home in your price range in that market. But, if you find a home that you like a lot, go for it. In so many cases, the buyer finds the home that fits but wants to keep looking. By the time the buyer and Real Estate Professional looks around at everything else, the original house that the buyer liked has offers on it.  Believe it or not, there is a lot of competition in the marketplace in price ranges for first time buyers. Aside from other first time buyers in the market, you are competing with Investors and other buyers for that price range. My advice to the first time buyer – when you think you found the home that you are looking for, act on it. Don’t wait. But, on the flip-side, don’t feel like you have to rush into something if the houses you have seen don’t work for you.

6. Rate the Homes You Have Seen - Develop a rating system that you use when you visit each home. For example, pick the house that you like the best on Day 1. Then compare the homes you see on the next viewing days to the first home. If you see a home on Day 2 that you like better than the one you liked on Day 1, throw the Day 1 home out. Then use the new “favorite” home as your benchmark for following days of viewing.

7. Making the Offer – Now that you have pin-pointed the home that is right for you, it is time to get serious about the financial and contractual side of the purchase. Your Real Estate Professional will guide you through the process, as this can become overwhelming too. Because you and the seller have different goals, rely on the expert to bring order to the process. The goal is to come to an agreement where both parties feel like they have “won”. It would behoove you to ask for a copy of a contract before you get into the offer process. I will give you a copy of the contract on the first day of consultation for you to become more familiar with it before having to fill it out.

The offer process can take as little as one day or it can take weeks. Most times, the Real Estate Professional will put a time limit on when the seller can respond back. If the seller is an individual, the process may not take as long as if the seller is a bank (REO or Foreclosure). Your agent will explain this to you when you make the offer.

Once the offer is accepted by both the seller and buyer, the buyer will be asked to provide Earnest Money – money given by the buyer, held by the real estate company, which ensures that the buyer will follow through with the rest of the contract and binds the seller to the contract. If, for some reason, the contract does not work out and it is because of the buyer’s default, the money would be given to the seller. If the seller defaults for any reason, the earnest money would be returned back to the buyer. Ideally, there would be no defaults and you would proceed with the next step: the home inspection.

8. Get a Home Inspection – Once the offer is accepted by the seller and buyer, it is up to the buyer to have a home inspection. Personally, I would not buy anything without an inspection. It is the best $350-$500 you will ever spend. Your Real Estate Professional can recommend some inspectors for you to use, or you can find one on your own. It is the inspectors’ job to find all the faults in the home. Don’t be overwhelmed as the list may be large. Usually at the end of the inspection report, the inspector will spell out what he feels is minor and major.

The buyer would then get together with their Real Estate agent and come up with a list of repairs, to be done by the seller. Negotiation is ongoing right now – it is not a done deal.   Both the seller and buyer have the ability to go back and forth on what they are going to do and what is acceptable to both parties. In some cases, a home may be sold “as-is, where is, with no warranties”- meaning the seller will not do repairs and you are buying the home as it sits. This does not mean that you shouldn’t get an inspection. Get the inspection and create a list, as a buyer would do in normal transaction. But instead of listing what repairs the seller is to do, make a list and put a monetary value on the repairs. Then deduct the cost of repairs from the purchase price (unless the home is priced according to the repairs needed).

If terms cannot be met by the seller and buyer, the contingency for the home inspection is not met and therefore the contract is void. The buyer would be refunded his earnest money and would be able to begin shopping for other homes.

If terms are met – contingencies for the home inspection are dropped – the contract is valid and the seller and buyer are now bound to the contract. It is now time to ensure the financing is solid and wait for the final inspection.

9. Final Walk Through – Once the seller has completed repairs, the buyer and agent will visit the property and make sure everything was done correctly and to the buyers’ satisfaction. This is usually done within a couple days of the closing date, or even on the day of closing.

10. Closing – The process is so close to being over! Before closing day, make sure all the necessary deposits and paperwork have been completed. This includes the mortgage, title work, home owners’ insurance, and any other documents needed to complete the transaction. (I will provide you with a checklist of what is needed in order to prevent any unnecessary hold ups for closing). You deserve to enjoy every moment of the home-buying process. It may become hectic at times, but that is why you have hired a Real Estate Professional, like myself, to guide you through the deal and represent you in the transaction.

11. Prepare for Your Life in Your New Home – Before rolling out the welcome mat, consider some moving basics: arrange utilities (gas, water, sewer, electric, trash pick up, etc.). Before moving your furniture in, replace/clean carpet, hardwoods, or any other area covered by furniture. Keep in mind, the best time to renovate, deep clean, or install new things to your home, is before you move in. Your furniture is out of the way and you have a clean slate to work with.  I can provide you with all the utility companies you will need to contact.

Congratulations! You made it through. It is time to invite your Real Estate Professional over for dinner and drinks and celebrate a new beginning!