Are you a Home Buyer? Here's the Process
Do you want to buy a home in Brentwood, Livermore, or Pleasanton CA? We walk you through the process below.
1. Qualifying for a Loan.
Unless you’re one of the lucky few who can afford to pay cash for a home, you will most likely be applying for a loan. This is how that process will typically unfold…
First, you will need to choose a loan officer to work with to secure your loan. It’s always a good idea to select your loan officer based on personal referrals and based on their experience. A loan officer doesn’t charge an up-front fee for their services, and will only be paid if they actually help you buy a home.
To kick off the process, the loan officer will need you to complete a “pre-approval application” that will ask for personal information such as your income, credit history, current assets, current debts, etc. As part of the application, you will need to submit several documents such as paystubs, tax returns, and bank statements.
Based on the results of your application, the loan officer will attempt to find a loan that is a good match for you in a range that you can afford. The types of loans available to you will depend on a variety of factors, such as your credit history and the amount of your down payment. A good credit history and a higher down payment will translate to a better loan (i.e., a lower interest rate and lower monthly payment).
Also, be aware that so-called “closing costs” will be figured into your loan. These are extra expenses to close the deal and they will usually be around 2% of the overall purchase price of the home.
Ultimately, you will need to decide what your budget is (that is, make sure you can realistically afford your monthly mortgage payments) and then your loan officer will do their best to try and stay within your parameters.
If you qualify, then you will be preapproved for a home loan.
2. Hire a Realtor.
The next step is finding a real estate agent who will help you find your dream home (or at least an affordable version of your dream home). They will be your agent to negotiate the home purchase on your behalf. Again, since this person is a crucial member of your house hunting team, you should ask your friends and family for referrals and look at their history. The upside is that, just like loan officers, realtors work on commission, so they don’t get paid unless they help you successfully buy a house.
3. Start Looking.
You and your realtor will then start scouring the area you want to live in for any listings that meet your criteria. During this time, you’ll likely visit a lot of open houses. Experienced realtors will also have connections to other agents and will likely get tips on homes that may be right for you.
4. Submit an Offer.
Once you find a home you like, you and your realtor will submit an official offer to the seller’s agent. The preapproval letter from your loan officer will accompany this offer as proof that you can actually afford the purchase price.
5. Purchase Process.
If the seller accepts your offer, then the purchase process begins. This is a critical time and you as the buyer must be sure that you don’t alter anything about your financial situation (for example, don’t go buying a brand new Maserati) since your loan approval was based on the representations you made earlier.
A. The Option Period. During this time, you will pay the seller an amount (usually 1% of the purchase price) to prove that you’re serious about moving forward with the deal. In exchange for that money, the seller will give you about 5-10 days to complete certain steps, including…
B. Inspection. You will have the chance to inspect the house to make sure you want to go through with the purchase. For this you will want to retain a professional inspector to ensure that the home is safe, everything is up to code, and there are no big expensive problems looming. If you find a problem (such as a leaky roof) you can request that the seller fix the issue prior to the sale, or give you a discount in the purchase price.
Assuming the option period concluded without a hitch and you still want to continue with the purchase, your loan officer will turn your file and information over to an underwriter who has the ultimate approval of your loan in his/her hands. They will look into your file and background to try and make sure you are a reliable person who will make their mortgage payments. Along the way, the underwriter will very likely have additional questions for you, so it’s vital that you send any additional requested documentation.
If the underwriter approves the loan, then your loan officer can calculate the amount you will need to pay up front and breakdown of all the costs involved.
7. Title Company.
When you’re ready to close your purchase, you will then enlist the services of a title company whose primary responsibility is to pay out the various parties that are supposed to receive funds from your up front payment.
Also, you will need to sign a ton of papers at the title company’s office, which are then forwarded to the mortgage company.
8. Hello, Homeowner!
At this point, congratulations, you’re officially a homeowner! However, make sure you keep current with your monthly mortgage payments. The initial payment is usually due a month or two after you close on the property.
Also, you now have the (oh, so fun) task of planning the big move to your new home, which will of course cost a few bucks. So, make sure you budget for those moving expenses.
Most mortgages are usually 15 or 30 years in duration. However, if you’re especially motivated, you can pay them off in a shorter amount of time without penalty. Also, don’t forget about property taxes. Many mortgage companies will require that you pay them taxes owed on the property on a monthly basis and then they will in turn pay the local taxing authority on your behalf.
Lastly, in situations where you’re unable to afford a 20% down payment, you will very likely need to pay PMI (a/k/a “private mortgage insurance) which will kick in if you default on the loan. However, the PMI requirement usually goes away once you reach a certain debt-to-equity ratio (which is just a fancy way of saying you paid off a large enough chunk of the loan – usually 20% - 25%).