The Home Buying Process

Pre-Approval should be the first step you take before looking at a home.  Your lender will pre-approve you based on your current income, debt and savings.  You may select a lender from my list of preferred lenders or you may select a lender of your choice.  If you select your own lender, please provide me with his/her contact information so that I can keep them up-to-date about the status of your purchase. 

Your lender should be able to provide you with a pre-approval letter within 10 days.  Loan officers will ask you for a lot of information and documentation.  It’s essential to the process for you to provide them with whatever they need promptly.  Just remember that they are taking up a 30-year relationship with you!

A pre-approval letter from your lender is an absolute necessity in today’s real estate market.  Because of the uncertainty in the financial market, sellers want to know that you have been pre-approved by a reputable lender before they begin the negotiation process with you.  Alternately, in a hot real estate market, there may be times that you are in competition with another buyer for the property, having a pre-approval letter in that situation will give you an advantage over the other buyer.

Keep in mind that your monthly payment will include the loan principal payment, an interest payment on the loan, property taxes and insurance.  You can use this calculator to estimate your PITI monthly payment:  http://www.realestateabc.com/calculators/PITI.htm  (A good rule of thumb is to estimate 2.75% of the loan value for property taxes.  The average annual homeowner’s insurance policy in the state of Texas is approximately $1,400.00)

Once you are pre-approved you can start the process of house hunting. 

The easiest way to start the home search process is to complete the “My Home Wish List” form.  This form asks a number of questions about the type of home you want and helps me customize a home search just for you.  When filling out the form, be as specific as possible so that we can focus on only looking at homes that really meet your needs.

Once your search criteria has been defined, you will receive a daily email from the MLS that will include new listings meeting your search criteria as well as older listings that have been reduced into your price range.  If you receive a notification about a property that you want to see, let me know.  I will preview the property for you to verify that it fits with the items on your wish list and then we can set up an appointment to see the property together.

Once you have selected the home you want, it’s time to complete due diligence on the property.  I will research the history of the property (how long it has been on the market, when it last sold, etc.) and research the comparable homes that have recently sold so that you can make an informed decision about what you are willing to pay for the property. 

I also encourage you to check out the following prior to writing an offer on the property:  traffic patterns in the morning, afternoon, evening and on the weekend.  We may see the home at 5:00pm when the street is quiet, but you should drive around the neighborhood at different times of the day to see if there is a church, school or nearby business that changes the traffic patterns in the neighborhood at certain times of the day.  I also encourage you to research the crime statistics for the neighborhood and the sex offender database if either of these items is of interest to you.  Only you can determine the type of neighborhood you are comfortable with!  When looking at both of these databases, it’s always a good idea to also research your currently address to see how the data compares. 

After the due diligence has been completed, we will write an “offer” to purchase the property.  This offer will contain the terms under which you buy the home.  This includes the amount you want to offer, if any appliances are to remain, any special financing you require, and dates for closing and possession.  In most transactions the buyer will write an earnest money check for 1% of the offering price made payable to the Title Company.  This money is used to show the seller that you are serious about the offer you have made.   In addition, you will write an option fee check to the seller.  The amount of the option fee check varies, but is typically under $200.00.  I, as the Selling Agent, will forward the offer and a copy of the checks to the Listing Agent.  Once the Seller has reviewed the offer, he or she can do one of three things:  1) accept the offer exactly as you have made it, 2) counter the offer making changes to the terms under which they will sell the home to you or 3) reject the offer.

If the Seller counters the offer, you will have the same options the Seller did when you made your offer to purchase.  You can accept the terms the Seller has offered, counter the offer again, or reject their offer.  Since the Seller has made the changes to your offer, you are under no obligation to buy the home even at the terms you originally offered.

Once you have an executed contract (signed and agreed upon by all parties), I will send a copy of the contract to you, to the listing agent (with your option fee check), to your lender and to the Title Company (along with your earnest money check).  YES THE CHECKS ARE CASHED.  At this point, three things begin simultaneously.  First, the loan process begins (you have already made loan application, hopefully), the title company begins the “title search” and you can begin your inspections.

Your contract allows you the choice of accepting the property as is with no inspections or inspection of the property with a clause called “right to terminate”.  This means you have a set period of time (usually 5-10 days) with in which to have the property inspected, this time period is often referred to as the “Option Period”.  During the option period, you  may terminate the contract for any reason.  Should you decide, based on the inspection, that you want the seller to make any repairs to the property, these will need to be negotiated and agreed upon during the option period.  If you are comfortable with the results of the inspection and want to continue with the contract, you may proceed to close the transaction as per the contract.  If you proceed with the closing, your option fee will be credited toward your closing costs at closing.  If you decide to terminate the contract during the option period, the seller will keep the option fee, but your earnest money check will be returned to you. 

The Mortgage Company usually does not require mechanical and structural inspections, but most often they do require termite and wood destroying insect inspections. 

Inspectors that are licensed by the Texas Real Estate Commission do inspections.  The tests and inspections will cover plumbing, electrical, appliances, roof condition, and overall condition of the home.  An inspection will normally run $250 to $450 depending on the square footage of the home and any additional items (pool, cabana) you may want checked.  Most of the time inspections reveal information about the home that even the homeowner is unaware of.

Also during the option period you will want to contact your insurance company and begin getting quotes for homeowners insurance.  Should you determine that the home is not insurable or that your insurance premium is beyond the amount budgeted, you can terminate the contract during this period. 

Once the option period expires, you will want to start preparing to move to your new home!  For your convenience, I have provided a Moving Checklist. 

Loan Application requires that you bring a number of items for the loan officer.  At the time of application (or pre-approval) you will be asked for approximately $75 for a credit report (per applicant)  and another $395 for the appraisal.  This is also the time for you to “lock in” your interest rate with the loan officer.  Rates change daily.  You can usually lock your rate for 30 to 60 days.  Be sure and ask your loan officer about this.

During the loan application, the loan officer will give you a Good Faith Estimate.  This will be an estimate of your closing costs, which includes your down payment, taxes, insurance, etc.  The purpose is to estimate your total cash to close as well as your monthly payments.  Keep in mind, that most lenders require several months of prepaid taxes and insurance, which can dramatically affect the funds necessary to close.

Processing a loan can take anywhere from 2 to 4 weeks depending on the loan program you select.  The Mortgage Company will mail verifications to your bank(s), employer(s), and current landlord to verify the information you have given the loan officer at application.  All the information must be filled out on the sheets that they have sent and returned to the Mortgage Company.  Sometimes these get lost in the mail, lost on someone’s desk or ignored.  On the off chance the mortgage company has not received these back within two weeks, you may be asked to make a phone call or two.  Check in with your loan officer once a week (or loan processor) to see if there is any additional information they might need.  I will do the same. 

The appraisal will be done within one to two weeks of your having received an executed contract.  The Mortgage Company hires the appraiser to give his/her opinion of value based on the comparables or “comps”.  After the research is completed, the appraiser will generate an appraisal giving his/her opinion of the value.  If the appraisal comes in below the contract price, I will contact the appraiser and discuss the comps used and determine if there is anything else that can be done.  Many times, we can provide additional information to the appraiser to assist in the evaluation.  This is particularly valuable in a changing market (up or down).  The appraisal will cost you $325 or more (for a larger home) and is to be paid for when you make your loan application.  It is a non-refundable fee.  On 95% conventional loans, FHA or VA loans, the appraiser may require some repairs if the property does not meet their guidelines.  In negotiations, you and the seller should take this into consideration.  Either the Buyer or Seller, if required, can do these repairs, but most are done prior to the closing.

Once all the verifications are in, your loan will be assembled in the proper format to be submitted for approval.  Once it is assembled it goes to underwriting.  An underwriter takes the packet and goes through everything you have provided on the application, matches it up to the verifications and reviews the packet to make sure the loan conforms to the guidelines set forth by the government or institution doing your loan.  Underwritingcan take up to 48 hours (business hours) to complete.  Underwriters are the people who say YES or NO to the loan.  On most transactions, the underwriter will say yes.  Sometimes they have certain requirements that must be met before they will give final loan approval (i.e. payoff a credit card, gift letter, verify where funds came from).

When your loan is ready to be submitted, the loan processor will have a pretty good idea of whether we have challenges to face or if it will go through quickly.  If there does not appear to be any problems, I suggest you finalize the arrangements for your homeowner’s insurance, utilities and movers.  I have provided some of the most common utility providers contact information for your convenience. 

One of my favorite phone calls is to say, “Congratulations!  Your loan is approved”.  Once loan approval is obtained the lending documents must be drawn.  This includes the Warranty Deed, Note, Deed of Trust, and all other forms the lender requires in order to make the loan.  It usually takes 48 hours to get these to the Title Company once we have loan approval.  At this point, the Title Company has the necessary information to generate the Settlement Statement (HUD-1) which shows how much money you need to bring to closing.  When the HUD-1 is generated, I will have a copy emailed to me so I can compare it to my figures, The Good Faith Estimate from your lender, and the contract.  The Title Company will also send you a copy for your review.  The money you bring to closing will need to be in “good funds” meaning cashier’s check or money order made payable to the Title Company.  You will also need to bring a form of identification with a photo in order to close. 

Additionally, once the lender documents have been sent to the title company, we will schedule a final walk-thru on your new home.  This allows you to verify that everything is as it was when you contracted to purchase the property and that all of the agreed upon repairs have been completed. 

Because there are so many steps at which the closing process can be delayed, I always suggest that clients schedule their movers for the day AFTER closing.

It’s the day you thought would never arrive!  We will meet at our office or the Title Company to sign the closing paperwork. 

Closing will take approximately one hour.  Be prepared to sign and sign and sign.  After both the Buyer and Seller have signed, the Title Company will get approval from the Mortgage Company to “fund” the transaction.  This means all the money is dispersed to the proper parties and the home becomes yours.  Funding can take several hours depending on how busy the lender is on the day you close.  The title company will not release your new keys to you until the loan has “funded”, so please plan accordingly.

When a Realtor puts a home on the market, they have entered into an agreement with the seller regarding the amount of compensation the Realtor will receive when the home sells.  The Realtor then offers a portion of that commission to the agent that brings a buyer to the home and sells it.  As a result, I will be compensated by the listing broker, but my fiduciary duty is to you and I will be working ON YOUR BEHALF!

At RE/MAX Urban our Buyer Commission Fee is based on 3% of the Sales Price.  Occasionally, a listing broker will offer less than our fee as compensation (generally in the case of short sales or foreclosures).  When I come across a property where my entire commission is not paid by the listing broker, I will inform you and let you decide if you still have an interest in seeing the property.