The home buying process: What every home buyer needs to know

The home buying process: What every home buyer needs to know

I have been representing home buyers and sellers as both a lender and/or a Realtor for about 15 years in the Stockton / Sacramento area. Whether you are a seasoned buyer closing your 10^th home or a first time home buyer (FTHB), knowing the inside secrets of real estate can save you thousands of dollars, remove the stress of buying, and give you an edge over other buyers.  There is an old saying, ‘you don’t know what it is you don’t know’.  The purpose of this series to help educate you, the buyer, on the home buying process and give you the secrets you need to know to save money and get the home of your dreams.

The process of buying a home is rather complicated and filled with industry secrets, and to make matters worse, popular TV shows have made the process appear much different than it really is.  I wish I could just show you three homes and then have you take a week to think about which one is best, write a low offer and have the seller counter you back in your budget.  But, that’s TV, it’s entertainment not reality (even though it is called reality TV). 

Over the next several weeks I will be discussing the top 10 things you need to know as a home buyer.  I will be sharing industry secrets and tricks I have used throughout my career as a real estate broker to help you.  This week I will giving you a 30,000-foot flyover of the process, but in the following weeks I will go into much greater depth into each area.  Buying a home is much different than buying anything else.  It is not like what you see on TV, it is not like buying a car, and it certainly is not like buying something on Craigslist.  I have seen far too many people try these tactics and lose big while making a fool of themselves.

The absolute first thing you need to do when buying a home is to get your financing in place!  In subsequent weeks, I will teach you how to find a lender and negotiate the best rate.  I will also explain the difference between the loan pre-qualification, pre-approval, and approval.  But, for now, you need to know that you need to talk to a reputable lender who will look at your credit, income documentation, and tax returns.  Do not settle for a lender that will just take your word; you must have a lender look at your documents and properly calculate your usable income.  I have seen far too many people surprised at the last minute because overtime and 2106 expenses were not taken into consideration.  How many lenders should you call?  My advice for now is just one but I will explain more on why I say that in a later post.

Once you are properly qualified by a lender, it is time to pick a real estate agent.  There are real estate salespersons and there are brokers.  A real estate broker has more education, must meet minimum education and/or experience requirements as well as additional testing by the Bureau of Real Estate.  A salesperson must work under the supervision of a broker.  In California, there are over 400,000 licensed real estate agents (brokers and salespersons).  A Realtor (pronounced: real-a-tor, but you can say it any way you like around me) is a real estate agent or broker that belongs to the National Association of Realtors.  Finding a real estate agent is easy, finding a good real estate agent is not so simple (more on that later).

Having found a real estate agent, he/she should set you up for a search through the agent’s local Multiple Listing Service (MLS).  Yes, you can use Zillow, Realtor.com, or any one of thousands of search engines on the web but there is a reason why you want to use an agent provided MLS search.  With a rare exception, homes are listed first and in real time through MLS while most all other sites take a feed from MLS.  So can be days or weeks behind MLS.  Keep in mind that searches are more objective (area, square footage, bedroom count, etc.) and less subjective (open floor plan, light, updated kitchen, etc.).  It is best to have a search that gives you too many homes to sort through than too few.

I recommend you look through the homes in your search results and then notify your agent which homes you would like to view.  I also suggest you use Google street view and do a drive-by each home before you ask to view the inside.  Agents are supposed to take photos that make the house look great and hide the neighbor with junk cars in the front yard.  Taking time to preview the street can save everyone a lot time.  It is also a great idea to stop by the nearest grocery store to see if you feel safe going out at night for a gallon of milk.

Once you have identified your dream home it is time to write an offer.  This is where a great agent can save you money and an inexperienced agent can cause you to lose the house to another buyer.  You don’t always need to be the highest bidder, just the best (more on that later).  When you write an offer, you will be expected to offer an earnest money deposit (EMD); you will not provide the money now.  If your offer is accepted, you will have three days to deliver your deposit to an escrow company or your agent.  The money must be “good funds” which means the money must come from an account that you disclosed to your lender.  Never use a credit card check, cash, or money from an undisclosed account.

Most offers allow the seller 3 days to respond to you, but sadly, this timeframe is not often respected in the industry; so be patient.  The seller has the option of accepting your offer as written, sending you a counter offer, or rejecting your offer with no counter.  If you receive a counter offer, you have the option of accepting the seller’s terms or sending the seller a counter of your own.  Keep in mind that while you are going back and forth with counter offers, the seller has the ability to accept another offer.  

After the contract has been accepted by both parties, congratulations you are in escrow!  You will now begin your contingency period.  You have 3 days to deliver your EMD to your agent or the escrow company.  Make sure you immediately notify your lender you are in contract.  Your lender will likely ask for updated income and asset documentation and will be ordering the appraisal. 

The contingency period is the time allowed in the contract for you to inspect the house.  The seller has 5 days to prepare seller disclosures for you to review.  The seller must disclose any know defects or problems about the house.  You will also want to order appropriate inspections on the house.  There are more than two dozen different inspections you can order, but the most common are: whole home, pest, and roof.  Based on these findings or the condition of the home, you may choose to order additional inspections (well, septic, soil, chimney and mold to name a few).  Buyers usually have 17 days to order and review the seller disclosures, inspections, and appraisal.  At the end of 17 days, your inspection contingency is due.  You need to either accept the home in its current condition, ask the seller for repairs, ask the seller for a credit for repairs, or request a reduction in price.  The seller has the option to accept, deny, or counter your request.  At the end of 21 days, your loan contingency is due.  As each contingency period comes due you will be asked to remove that specific contingency in writing.  WARNING – once you remove a contingency you will lose your deposit if you back out of the contract for that reason,.  As an example, on day 17 you remove your inspection contingency and then a few days later decide to ask the seller to fix the dishwasher.  The seller replies that they will not fix the dishwasher so you decide to back out.  In this scenario, the seller can keep your deposit.  Take your contingency removals very serious (I am happy to say that I have never had a client lose a deposit).

After the inspection contingency period, the entire transaction falls on the shoulders of the lender.  The lender has been working hard the past 3 weeks to get your loan package through underwriting and most likely has asked you for “one more document” every few days.  When the underwriter is finally satisfied, you will be sent the Closing Disclosure (CD), which is an estimate of your loan fees and down payment.  It is important to acknowledge your CD as soon as possible because there is a 3-day waiting period from the time you acknowledge the CD until the day you can sign your loan documents.

The big day will finally arrive when you can sign your documents in escrow and bring in your down payment.  Sadly, even after signing the documents the transaction isn’t finished yet.  The completed documents are usually sent back to the lender for review where they may pull your credit one last time to make sure you didn’t buy anything on credit and call your employer one last time to make sure you are still employed.  Typically, three days after you sign, your loan is funded.  Funding means that the money from the lender is sent to the escrow company.  The escrow company audits the file and releases the transaction to be recorded with the county.  It depends on the county, but some counties record the day after funding and some record the day of funding.  Once the escrow company receives confirmation the transaction is recorded, the house is yours!  Most often your agent will meet you at the house to hand you the keys.

I hope you found this brief overview helpful.  Look for additional information coming soon.  You may also leave me a comment or contact me for more information.