Start out strong by getting your financing pre-approved! When you meet with lenders, you will be informed about the variety of loans available on the market. After you submit all needed paperwork to your lender (W2/tax returns, pay stubs, residence and employment history, bank and investment statements, and driver's license) you will receive a pre-approval letter describing the loan amount and type of financing you are pre-approved for, and what sort of documentation the mortgage loan officer reviewed to come to that conclusion. If your credit score is not quite excellent, or you have a unique finance situation, I can suggest a lender who's specialized in dealing with those situations.
Understanding your budget will help you narrow down the search for your ideal home. Additionally, a pre-approval letter will strengthen your offer. Get with your lender to find out how much exactly your payments will be, including any foreseeable closing costs and loan processing fees that you might overlook. These costs are due in full at consummation, unless they are included in your loan. Ask your loan officer lots of questions so there are no surprises later on!
Three criteria are assessed to evaluate loan qualification: the down payment, the ability to qualify and the closing costs associated with your transaction. Minimum down payments of 3.0/3.5-5% are required for most loans depending on the type and terms. However, if you are able to come up with a 20-25% down payment, you may be able to take advantage of special programs and avoid paying mortgage insurance (PMI). Your ability to qualify depends on the ratio of debt versus gross monthly income. Most lenders require a front-end ratio of 25-28%, meaning that your monthly payments (PITI) should range between this percentage of your gross monthly income. The payment includes principal (P) on the loan, the interest (I), property taxes (T), and homeowner's insurance (I), if applicable. Your total monthly PITI and any other debts together, should range between 33-38% of your gross monthly income (i.e., back-end ratio).
If you are not familiar with the local broker commission customs, don't hesitate to ask your realtor. A benefit of having a realtor represent you is that the seller pays the buyer's broker a commission for bringing a buyer, meaning you receive your realtor's service at NO COST TO YOU on the buying side.
Creating a checklist before viewing homes will keep you on track with your wants and needs. Start by making a list of your top priorities and try to remain focused on those. Be sure to inform your agent which items would be considered a deal breaker for you. Since no home is 100% perfect, expect to make some trade offs - unless you have an unlimited budget!
When viewing homes, it is important that all decision makers get the opportunity to visit. Be honest with your agent to provide a clearer picture of your preferences. This will enable your agent to help you search for homes you want to see. Your realtor is also an asset for dealing with builders and FSBO's!
Scheduling showings is luckily your realtor's responsibility, but be cognizant of the fact that it can be a complicated task, especially when done at short notice or with last-minute changes, and when there are a lot of them in a given day. Sometimes showings are not automatically approved through the scheduling service, in which case the seller will have to confirm the showing. Typically showing windows are limited to 1 hour per house, and when your realtor schedules many consecutive ones, we may have to pick up our pace... or wait around a short while until the showing window starts, particularly with occupied homes and those with an alarm which is armed/disarmed remotely by the seller.
OFFER & CONTRACT
A comparative market analysis (CMA), based on your search criteria, will be provided to you by your realtor, which will enable you to make an informed decision about your offer. Together with your realtor, you will thoroughly review the contract terms and complete the offer. Often times it takes a while to hear back from sellers, so please be patient during this time. Your realtor will contact you immediately when they're notified of an accepted offer. Negotiations are in order until both parties agree on all terms and have signed all the necessary documents. When both parties agree and the contract is signed and dated, there is an executed contract.
Completed documents will be sent to the title company for further review, and property tax information and a title commitment will be requested. Be prepared to pay an earnest money deposit (and option fee, if applicable) when you write an offer. The earnest money and option money have to be delivered to the respective parties within the first few days after execution of the contract. It's time for inspections!
Immediately upon receiving confirmation of an executed contract, select a licensed inspector to conduct a general home inspection and other inspections of your choice such as pool/spa, or wood-destroying insects. It's also encouraged to hire a licensed professional to inspect any large systems such as HVAC, plumbing, roof, structural, electrical,... as you deem necessary. Be present for the conclusion of the inspection (review meeting) as your inspector can help you fully understand the report and answer any questions you may have. Remember that no home is perfect, so it's important to focus on the big ticket items, especially safety hazard related defects, to avoid costly repairs down the road.
As soon as you have an executed contract, get with your lender to submit a formal loan application if third party financing is applicable. Don't make out-of-the ordinary changes (large purchases, new loan, new job...) leading up to the closing of your new home. This could jeopardize your loan approval, even if you have already obtained pre-qualification. Your lender is required to provide you with a Loan Estimate within 3 days after you submit the loan application.
Your lender and title company will be in contact with you from the moment we have an executed contract. The title company will make arrangements for the survey (if a new one is to be ordered) and provide you with the Title Commitment, while the lender will order the appraisal for the property and finalize underwriting of your loan. You will receive a a copy of each of those documents from the respective party. Carefully review the Title Commitment for any liens or exceptions that may hinder the sale of the property.
It is your responsibility to obtain homeowner's insurance and your lender will ask you for proof of insurance before approving your loan. Your insurance agent will communicate with the closing officer at the title company. If home warranty (i.e., residential service contract) was a part of your contract, it will be your responsibility of choosing a provider and plan, and informing your realtor/title company of your choice. The title company will order the home warranty for you and any excess costs (if your plan exceeds the contracted amount) will typically be settled on closing day. Prepare for moving arrangements, and set up utilities ahead of time to lessen stress.
Before closing, your lender and the title company will be in communication while they are preparing the final closing documents.
The lender will provide a Closing Disclosure, no later than 3 business days prior to the closing date. Review this document closely with your loan officer, as the final closing disclosure will spell out exactly what amount of certified funds are needed from you on closing day. Be prepared to obtain a cashier's check or wire the money before closing can take place. Together with your agent you will conduct a final walk-through inspection of the property just before closing.
Your agent will set a closing time with the title company, upon consulting with your schedule, probably no later than a week before closing day. You will need to make sure to bring your valid driver's license, and a cashier's check or follow wiring instructions for all closing costs and the balance of the down payment. Also due at closing, is the payment of accrued expenses related to closing (taxes, attorney's fees, professional real estate fees and title company fees). Signed closing documents will be sent to your loan company for approval and funds will be disbursed. Once we receive notice of funding, you are officially a homeowner!
Legal documents will be recorded in the office of the county clerk and mailed to you. The title company prepares and issues the title policy, which will be sent to you and the lender. Your lender will inform you when your first mortgage payment is due, so relax and enjoy your new home. Mail forwarding and updating your driver's license should probably be some of the first tasks on your to-do list. Your realtor will remind you of filing for a homestead exemption the following calendar year. Don't forget to thank your realtor for their hard work, and let them know when you were satisfied with their service by referring them to your friends and coworkers!