Never Bought a House? Want To? Read This First
You've found the house. The bank is in your corner. You've got a top notch real estate agent watching your back.
It's time to pull the trigger. It's time to buy your house.
Until you've been through the homebuying process a time or two, the jump from "prospective buyer" to "buyer" can seem confusing. The process, so long as the bank is in your corner from the start, is actually pretty straightforward.
To whom should I make the check out?
If you've hired a good real estate agent, which I'm sure you have, the process will be even easier. Your real estate agent will be your guide as you navigate this jungle.
The first step is to make an offer to purchase. The exact rules and contracts can vary, so lean on your agent to guide you. If the form is endorsed by the National Association of Realtors, then odds are you're good to go.
Because there is so much variation from state to state and so much nuance to the "Offer to Purchase Contract," I'll speak only generally here. Rely on your agent. Remember, the agent is financially rewarded when the house sells. Your agent wants your offer to be accepted, and he or she wants you to be able to afford it. If the bank says no, the agent doesn't get paid.
The seller will probably negotiate with you. That is to be expected and is totally normal. Remember to stay calm and negotiate from strength. You've done your homework, and you know what the home is worth.
Its easy to become emotionally attached at this point. But you have to stick to your financial plan. If the seller is unreasonable, you must be willing to walk away from the deal.
With a little luck, you're offer will be accepted. Congratulations!
The next step is to notify the bank and formally apply for your mortgage loan. The sooner, the better, as the bank has a multi-step process it must begin and complete before your offer to purchase expires.
The bank will ask you to sign a smorgasbord of government-required disclosures, although the changes in bank regulations over the past few years makes this part of the process much easier.
Pay attention to the disclosures. They are important. Do not let the banker rush you to sign. You're on the cusp of borrowing a huge sum of money. Understand fully what you're signing up for.
Other people in the process you'll need to know
There are a handful of other professionals who will play a part in your journey to homeownership. Again, lean on your real estate agent for help; think of him or her as your project manager.
Your agent can make recommendations of whom to hire and what prices are reasonable, and he or she will coordinate everyone's schedules.
First, you'll need to buy insurance for your new home. This is as simple as calling a few insurance agents to price-compare. When you've selected one, just notify your bank of your choice, and it will coordinate from there. Pretty simple.
Your real estate agent can also help you select a licensed home inspector to inspect the property for damages, structural integrity, termites, and other issues hiding behind the walls. When the inspection report is finished, there will invariably be something the inspector found that he or she recommends fixing.
The choice is up to you, but it's usually worth going back to the seller to negotiate for most or all of the fixes to be done before closing the loan. Again, to beat a dead horse, your real estate agent can help you assess the report and advise you on the best course of action.
Your real estate agent can also help you select a lawyer to close the loan for you. The lawyer will take care of filing all the paperwork properly with the government and ensuring that all the loan documents are correct. You will need to notify the bank of your choice so it can coordinate the loan closing with the lawyer.
Meanwhile, back at the bank
While you and your real estate agent are making things happen out in the real world, the bank is hard at work behind the scenes.
The bank will order the appraisal, which generally takes two to four weeks to complete. The bank will give your financial statements and application a final review. They'll communicate with the insurance company and tax assessor's office to determine your obligations there.
The bank will ask you if you would like to escrow the payments for insurance and property taxes. What this means is that you will pay the the money to cover insurance and taxes to the bank monthly with your loan payment. The bank holds the money and pays the insurance and property taxes when they are due.
The downside is that you're giving the bank your money and sacrificing the interest or other value that money could bring to you if it were not escrowed at the bank. To each his own. However, I recommend escrowing. The peace of mind is worth more than the small amount of opportunity cost.
The bank will also calculate all the sources and uses of cash in the loan closing. This includes all the taxes, fees, and other monies you will be required to pay at closing. These fees vary substantially by state and bank, but the bank will disclose an estimate to you upfront. So pay attention to the disclosures!
When the appraisal is complete, the bank will give your loan package one final review and, hopefully, approve the loan.
The closing table
When closing day finally arrives, you will head to your lawyer's office to sign all the paperwork and receive the keys to your new home.
The lawyer will walk you through all the paperwork and ensure that you fully understand everything you're signing. If you have questions, ask! You are paying him or her, so don't get shy. Get your money's worth!
If you will be bringing any money to closing, such as your down payment, fees, or other closing costs, make sure to bring a certified check from your bank. Most lawyers won't accept a personal check or card transaction.
When everything is signed, witnessed, and ready to go, you can proudly call yourself a homeowner. The lawyer will file everything officially at the Register of Deeds office for you a day or two later.
Hey, homeowner! Don't neglect your investments while you're mowing your new lawn!
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