Just the very fact that you have clicked on this link and begun reading this blog, you are taking the first steps in making one of the most important decisions of your life! It can be quite exciting for some, while nerve-racking for others. For many, it is the combination of the two. Every situation is different, and every home transaction has its own hiccups. My job, and that of other realtors, is to make this process as efficient and emotionally-manageable for you as possible. Taking the right steps, at the right time, will land you the house that is perfect for you and your family to live and/or invest in.
This blog is dedicated to first-time home buyers (FTB) that are in need of some guidance in this somewhat trivial process.
I've broken this process into a series of 5 Steps:
STEP 1 : FINANCE
Before spending every weekend at open houses, figure out how you are going to pay for the house. Trust me, this is going to save you time and heartache. Unless you are planning to pay all cash for the property, many FTBs apply for a loan through mortgage lenders. Lenders usually ask for your 2 most recent pay-stubs, 2 months bank statements, and your last 2 years tax returns. They will check your FICO score and past credit history, and then indicate the amount you are qualified for. Many buyers have concerns that their credit score might be too low. Never fear! You can actually obtain a loan with a credit score as low as 580, and in some cases even lower. For more info, please read it here.
There are generally four different types of loans you can obtain. FHA, VA, conventional, or a hard money loan. I've broken them down in another blog and you can read it here. The lender will review your finances and decide the amount you are qualified to borrow (let's say $500,000). During this process, the lender will tell you how much liquid funds you need, your monthly mortgage, and your interest rate on the loan- just so you know exactly what you're getting yourself into. Once this step is complete, you can now house hunt!
STEP 2 : Home Hunting !
Figure out WHAT and WHERE. Have you ever heard that real estate is all about "location, location, location"? Well it's true. $500,000 can get you a two story house with 5 bedrooms and 4 baths in Vallejo, CA, but it can barely afford you a two-bedroom cottage in San Francisco. Do some research. Popular websites include Zillow, Trulia, Realtor, Redfin, Movoto, and many more. Some of these websites include an "estimate" of how much they think the house is worth. I would say 95% of the time it won't sell for that price. Most of the time these websites won't (and can't) take into account the current condition, any renovations, the surrounding neighborhood, and, most importantly, the current situation of the sellers. If sellers are motivated to sell and can't wait for offers to stroll in, the house may sell for less. If sellers want to accept as many offers as they can and potentially causing a bidding war, the house may sell for more. Remember, everything is negotiable. Figure out what you and your family want, but also remember to stay within what you can afford. Consult with a realtor in your area, they will be able to guide you through approximating the appropriate value of the property.
STEP 3 : Writing the offer
As a realtor, I've learned to write an enticing offer that makes it hard for sellers to refuse. This means putting together an irresistible offer packet that includes: the offer, a personalize letter from the buyer(you), proof of liquid funds for closing costs, signed disclosures(if any), and a calendar of proposed dates to wire deposit, remove contingencies, and close escrow. I have helped many buyers get their offers accepted by using this very simple, yet effective, packet.
Side note: it may take some negotiating before an offer is actually accepted. There may be counteroffers or addendums added before everyone is satisfied. So don't get discouraged!
STEP 4 : Accepted offer!
Once your offer has been accepted, and all parties agree to the terms, your contract is now in escrow. In escrow simply means you are now in contract to purchase this house, but the transaction can only be complete if you fulfill all conditions (example: getting approved for the loan). As soon as your offer gets accepted, you have 3 days to wire the initial deposit to a title company (a third party), and usually the amount is 3% of the purchase price. This lets the sellers know that "hey, I am a serious buyer".
Now moving forward, we will go through the process to find out if this is the right house for you, and whether or not the bank will approve the loan for this particular house.
i. INSPECTIONS - Order your inspections! I can't emphasize this enough. Many buyers buy houses that they are not aware of the condition. It may look nice cosmetically, but structurally there may be problems that arise. For your own protection, order a home, termite, and roof inspection. These inspections will give you a very good idea of the overall standing of the house. There are hundreds of other inspections you can get, but these are the most common inspections I have advised my clients to get. Depending on the area and the company, in the EastBay these inspections (all 3) can cost between $400-$1,500, give or take. Call your local companies to get a more precise estimate. If you personally know someone that is an experienced contractor or roofer or engineer, and you trust their judgement, you don't necessarily have to hire a third party. But as a professional, I always advise my clients to order the inspections from a licensed home inspecting company. If you find that the foundation needs $40,000 work of work, trust me, that $400-$1,500 will be worth the risk.
ii. APPRAISAL- If you are buying with all cash, you can skip this step. For those who are taking a loan from a mortgage lender, the bank will send an Appraiser to appraise the house. In short, this person will decide if the house is worth the amount you've offered. The Appraiser will usually take into consideration the houses in similar conditions that were sold in the last 6 months (usually less), within a one-mile radius (usually less).
iii. LOAN- The last contingency that needs to be removed is the loan. Whether the lenders will follow through with the loan. This is where step 1 is really important. A good lender will notify you if there is anything you have to clear before they can write you a check. This can include paying certain credit cards off completely, eliminating some bills, remove anything held against your credit score, etc. Having a good lender will make every step after STEP 1 that much easier for you.
STEP 5 : Close of escrow
Once the bank approves the loan and sends the agreed amount to the title company, you will "sign docs" with a notary to finalize the purchase and transfer of ownership, and then funds will disperse to the sellers, brokers, title company, and any other third parties.
As a realtor, I believe the most rewarding aspect of my job is handing a set of keys to my clients. It gives me a warm and fuzzy feeling. It is an honor to be able to be a part of a process that can change a family's life. Thank you for taking your time to read one of my Good Reads. If you have any suggestions to make these blogs more helpful, please don't hesitate to contact me here. If this blog was really helpful, I would love to know about that too! I wish you and your family a great experience in purchasing your first home. Happy House Hunting!
P.S. This blog's sole purpose is to provide a diluted version of the overall process of what you can expect. I've left many details out for the sake of making this blog bearable to read; your realtor (or myself) will be able to fill in the missing pieces during the actual process. There is a plethora of situations that can happen that may deviate from these guidelines. In a perfect world, the purchase can go rather smoothly. And it does happen, sometimes. But most of the time, there will be special attention that's needed to complete the transaction. If you have questions on any specific situation, you can email me at firstname.lastname@example.org.