Home-Buying 101

Okay, you’ve thought it through carefully and made the decision - you’re ready to buy a house! But where do you start? How do you know what your price range is? Where do you get the money? Relax… it’s easier than you think! Let’s start with some things you should know before you begin.

 

Important People

 

There are two main people with whom you should consult before you begin your home-finding journey. It doesn’t matter which one you contact first, and each should be able to refer you to the other if you’re having trouble.

  1. Your lender - If you don’t have thousands upon thousands of dollars in liquid cash sitting around, chances are you’re going to need a lender. Sitting down with your lender accomplishes several things. First of all, the lender will be able to tell you if you qualify for a potential home loan. They will also give you a general idea of how much you can afford (or, more specifically, how much they’re willing to lend you). Additionally, when you do go house-hunting, you will need proof of this pre-approval to go with your offer. This prepares you to put in an offer the minute you find your dream home!

  2. Your REALTOR® - You could do this all on your own, but why would you? Using a REALTOR® is free to you, plus the REALTOR® will use their expertise to help find you the right home, draw up contracts and addenda, negotiate any issues on your behalf, and guide you through the entire process. Of course, I would be honored if you chose me, but you need to find the person that’s right for you! No matter who you choose, make sure they are knowledgeable, trustworthy, and communicative. If they lack just one of these three traits, you could be in for some headaches. I’d like to think I’m all three - to find out, contact me to set up an appointment to chat! Once you’ve found the right one, you’ll sign an Exclusive Buyer’s Agency Agreement. This allows the REALTOR® to work exclusively on your behalf. Believe it or not, if this is not signed, state law dictates that the REALTOR® is working for the seller!

 

Things You'll Need

 

When making an offer, there are four things you are going to need in order to make your offer look the strongest:

  1. The Purchase Agreement - Your REALTOR® will draft the purchase agreement for you, making sure that the offer is exactly as you want it to be. It outlines terms of the agreement such as purchase price, approximate date of close, and when you get possession, among many other details.

  2. The Earnest Money Deposit (EMD) - Think of the EMD as a security deposit. This is a small amount of money you pay when the purchase agreement is accepted. It’s typically about 1% of the purchase price. This money goes into a separate account, where it is held until one of the following occurs:

    1. Everything goes great, the contract is executed, and this money gets applied toward the total cost of your house.

    2. Something goes wrong that is no fault of your own (maybe there’s a giant leak in the roof that the seller isn’t willing to fix). In this case, you get the money back.

    3. You decide, “Nah, I like a different house better. I want out of the deal.” In this case, the seller gets the money, since they took their house off the market to reserve for you.

  3. Seller’s Disclosure and Lead-Based Paint Disclosure - These two items are helpful for both you and the seller. The seller will provide a Seller’s Disclosure, telling you everything they know that is (or isn’t) wrong with the house. You must read this and sign to show you’re aware of any problems they may have known about. The Lead-Based Paint Disclosure informs you that structures built before 1978 may contain lead paint… don’t lick the walls!

  4. Letter of Preapproval - Remember the lender we discussed above? They will need to provide a letter telling the seller that you are approved for the amount you’ll be offering. This assures the seller that you will be able to pay when the time comes.

 

Process

 

So, what are the steps here? You found a lender and a REALTOR®, you’re aware of what you’ll need to provide to make an offer - now what?

 

  1. Look for homes - Yes, obviously, we need to find one! The majority of homeowners in 2019 found their homes online through a house search app. My broker, Keller Williams, offers a fantastic option. You can create collections to share with friends and family, search for locations like a specific landmark or workplace, search by school, and share anything you want with me via the app. It also has clear buyer and seller timelines, much like this one, and checklists so you know which step we’re on. You can download it here. Regardless of the path you choose, your REALTOR® should be right by your side, supporting you in your decisions and offering advice as needed.

  2. Look AT homes - Once you’ve found some that look worth investigating, your REALTOR® will contact the other agents to set up times to look at the properties. Be prepared - you might fall in love with the first home you see, or it might be the tenth. Your REALTOR® will point out any issues with the home so that you can have as much knowledge as possible when deciding to make an offer. 

  3. Make an offer - You found one that tickles your fancy. Excellent. Discuss the terms of your purchase agreement with your REALTOR®. Once you’ve worked out all the details, you will need to provide the items listed above under “Prerequisites.” Your REALTOR® will send these over to the listing agent. Now, we wait to hear back! Three things could happen here: 

    • They reject your offer and you go back to step one. 

    • They counter your offer. You accept or reject it. 

    • They accept your offer!

  4. Moving forward - If your offer is accepted, the clock starts ticking. You have 2 days to get your REALTOR® the actual EMD (a picture of the check may have sufficed when you wrote the offer). You have 5 days to apply for the ACTUAL loan (not just the preapproval). You have 10 days to schedule your home inspection (assuming you didn’t waive it… I highly recommend you don’t waive it!).

  5. Inspections - At this point, you will pay a licensed inspector about $300 to come look at your soon-to-be home. They will check over all the little nooks and crannies and make sure everything is working as it should. Be aware that they will likely come back with a list of dozens of items - many of these are simple homeowner issues that can easily be fixed (and sometimes don’t even need to be). Your REALTOR® will be able to tell you if there’s anything major. If there is, there may need to be some negotiation. Maybe the seller will fix some issues. Maybe the seller will drop their price. Maybe not - and maybe you have to walk away.

  6. Appraisal - Assuming inspections went well and/or were negotiated into going well, you’re on to the next step - having your home appraised to make sure it’s worth what you’re paying. You might not care; after all, you offered what you thought it was worth! But the lender does care - they want to make sure the money they’re putting down is worth it. An independent appraiser will come in, write up a report, and give it back to the lender. If it appraises at or above value, we’re set to move on to the next step. If it appraises below, negotiations will need to occur.

  7. Underwriting - Here’s where another party comes in - the underwriter. He or she will likely request more documents from you to gather all the information to be absolutely SURE the lender wants to approve you for the loan. Once it has passed through underwriting, you will get the clear to close - three very exciting words!

  8. Clear-to-close - You made it! At this point, all that’s left to do is schedule the closing date, attend it, and get the keys to your new home. 

  9. Closing - You’re going to sign what feels like a billion papers, but luckily, a closing agent from the title company will be able to tell you what everything is. Your REALTOR® should be there right by your side, celebrating with you. Depending on what was decided, you may get the keys here, or they may leave them in a secure location. They may have given them to your REALTOR® to hand to you. In any event, the day has come - this house is yours!


 

A+, homeowner. Congratulations on a job well done!