How to Buy a Home

BUYING A HOME

Real estate ownership is a concept as old as recorded history itself. Over 90% of all cash transactions that require some form of collateral (security) involve real property. Owning real estate provides us with everything from the pride of ownership to the necessary basis for nearly every large financial transaction we make.

The process of buying real estate has become more complex over time. Many first-time buyers are quite intimidated by the exhaustive paperwork involved. Understanding the process in advance can make the different between a positive and a negative experience.

The following sections describe the chronological process of buying real property from the initial decision to buy through closing. You can view the entire process section by section or go direction to the area about which you have specific questions or concerns. You can also always talk to us directly by phone (760-947-3621), or email.

AGENT OR NO AGENT

Why Use an Agent?

As a buyer, there are no additional costs to you for using the services of a licensed agent, because the cost of an agent's services is paid by the seller. An agent should protect you from as much headache as possible during the home-buying process. Every transaction is different. The ability to handle complications and tension that may arise during the process are the mark of a good agent.

Wide exposure to all available listed properties can be best accomplished by conducting your home search through a multiple listing service. Setting up appointments to see available properties and coordinating inspections, appraisals, and financing can all be accomplished by a competent buyer's agent.

The purchase of real estate has become an increasingly complex transaction. An agent who is well versed on the paperwork involved in closing your transaction can be an invaluable source of information. He or she can also help you avoid costly mistakes and legal entanglements.

Laws Regarding Agent/Client Relations

Most states have enacted specific laws describing real estate agents' obligations to their buyers. Briefly, these duties include:

• to be loyal to the buyer by taking no action that is adverse or detrimental to the buyer's interest in a transaction,
• to timely disclose to the buyer any conflicts of interest,
• to advise the buyer to seek expert advice on matters relating to the transaction that are beyond the agent's expertise,
• not to disclose any confidential information from or about the buyer.
• If you would like a brochure fully explaining buyer's agency, please e-mail us for a free copy.

Worldwide Directory

Thinking of moving out of the area? We have direct links to the best available agents throughout the United States and abroad. Just let us know where you are going and a well-qualified agent from that area will contact you directly.

THE LOAN PROCESS

Pre-Qualification/Pre-Approval

Before the active search for a home begins, it is important to schedule an appointment with your banker or a mortgage broker. Your buyer's agent can help with this, if necessary. Many sellers will request that you present a letter of pre-qualification along with your purchase offer. You have a much stronger offer if you are pre-qualified. The process of getting pre-qualified is reasonably simple and very inexpensive. If you are seriously interested in purchasing real estate, pre-qualification is a must.

If you are completely sure that you will purchase a home within a 2-3 month period or less, you should consider the pre-approval process. This, simply stated, is getting your mortgage loan completely approved, pending the successful appraisal of a home you decide to purchase. This eliminates any question of financing that may arise from a seller. Pre-approval is considerably more complex and expensive than pre-qualification; however, the time and money will be spent at some point during the home-buying process anyway. By getting this done in advance, you are able to present a considerably stronger offer to a seller. If, however, if you do not find a home within 2 -3 months of getting pre-approved, a lender may require you to update your pre-approval status, which will require additional time and expense.

Resolving Credit Issues

If you are considering buying a home but do not think you can qualify for a loan because of credit issues, it's still a very good idea to consult your buyer's agent. Your agent can direct you to the right source to find out exactly what needs to be done to get you back on track. Chances are, you could be a lot closer to home ownership than you think.

Quite often lenders will consider legitimate explanations for late or missed payments. Every case is different, and it is important to find out where you stand and what steps are required to get your loan approved.

Loan Types

Loans can have a fixed interest rate or a variable interest rate. Fixed rate loans have the same principal and interest payments during the length of the loan. Variable rate loans can have any one of a number of "indexes" and "margins," which determine how and when the rate and payment amount change. If you apply for a variable rate loan, also known as an adjustable rate mortgage ("ARM"), a disclosure required by the Truth in Lending Act will further describe the terms of the ARM.

Most loans can be repaid over 30 years or less, or 15 years or less. Most loans have equal monthly payments. The amount can change from time to time on an ARM depending on changes in the interest rate. Some loans have short terms and a large "balloon" payment at the end of the term.

You should shop for the type of loan that best suits your needs. You may be eligible for a loan insured through the Federal Housing Authority (FHA) or guaranteed by the Department of Veterans Affairs. From time to time the State of Washington offers the "State Bond" loan program to first-time home buyers who meet its qualifications. These programs usually require a smaller or, in some cases, no down payment.

Down payment and Closing Costs

Down payments are based upon the total sales price of the home and quoted as a percentage of that amount. Most lenders will require at least a 5 percent down payment, but many will allow 3 percent with some conditions. FHA (Federal Housing Authority) loans typically require 3 percent and VA (Veterans Administration) loans can be secured with no down payment. Some more aggressive loan products can reduce down payments, but usually carry a higher interest rate on the loan.

Often the price of a home mortgage is stated in terms of an interest rate, points and other fees. A "point" is a fee that equals one percent of the loan amount. Points are usually paid to the lender or mortgage broker at completion of escrow (closing of the loan). Often you can pay fewer points for a higher interest rate or vice versa.

A document called the Truth-in-Lending Disclosure Statement will show you the annual percentage rate (APR) and other payment information for the loan you have applied for. The APR takes into account not only the interest rate, but also the points, mortgage broker fees, and certain other fees that you have to pay. Ask for the APR before you apply to help you shop for the loan that is best for you. Also, ask if your loan will have a charge or a fee for paying all or part of the loan before payment is due (a pre-payment penalty). You may be able to negotiate the terms of the pre-payment penalty.

Settlement Costs

Your lender may require you to obtain certain settlement services, such as mortgage insurance or title insurance. It may also order and charge you for other services, such as an appraisal and/or credit report. Other possible fees include loan processing, document preparation, underwriting, flood certification and/or application fees. You may wish to ask for an estimate of fees and settlement costs before choosing a lender. Some lenders offer "no cost" or "no point" loans, but often cover these fees or costs by charging a higher interest rate.

Where to Get a Home Loan

Nearly every major bank can provide home loans as well as credit unions and community banks. Using a lender with adequate home loan experience can limit the headaches of the loan process. While credit unions often offer home loans to their members, many are unable to be competitive with banks that have large, experienced home loan departments. If you are unsure about where to begin the loan process, we can help you get started. Simply fill out the form below and email it to us.

FINDING A HOME/MAKING AN OFFER

Agent Responsibilities

Most people's perceptions of a buyer's agent is someone who will drive them around to look at houses. In this age of technology, many hours of wasted time and effort can be avoided. If you have an e-mail account, you can receive up-to-date listings of new homes, including a color photo to help you quickly narrow your search. You can then visit only those that look interesting to you. A buyer's agent will coordinate scheduling of appointments and access to those homes. If you do not have e-mail, you can still receive information via fax, or we will hand deliver it to you. When you do purchase a home, the buyer's agent will also help you select the best lending institution for your situation, coordinate your inspections, the appraisal and other visits to the home as necessary. Finally, the buyer's agent will assist you through the closing process, and, of course, always be available for questions or issues that may arise after your home closes and you move in.

The Search

As previously discussed, searching for a home has changed dramatically over the years. Technology has streamlined the process and made finding a home more pleasant and less time consuming then it was in the past. Narrowing your search via e-mail has become the most commonly used search tool. Realizing that not everyone has e-mail, faxed materials are still available, and many clients still prefer weekend "tours," physically driving to each available listing.

We can accommodate your search regardless of which method makes you most comfortable. If you have a particular area in mind in which you would like to begin your search, go to our home search page and complete the electronic form. We'll begin sending you available properties with your criteria right away.

Purchase and Sale Agreement

Once you have identified a home you would like to make an offer on, it's time to sit down with your buyer's agent and complete a Purchase and Sale Agreement. You will need to have your checkbook (for an earnest money deposit) and your letter or pre-qualification or pre-approval. Your buyer's agent will explain each item of importance in the agreement as it is completed. This can be a very long and complex process. The following is a copy of the standard purchase and sale agreement with a brief explanation of each item. This should help you get through the process with less confusion.

Negotiating the Terms of the Sale

Once your offer has been presented to the seller, there is a specified period of time (usually 1 to 2 days) in which the seller may respond. Any changes to the offer that the seller decides upon are made during this period. The most common changes are price and closing date. When the buyer receives these changes, he or she then has the option of making further changes. This back and forth process (counter offers) continues until both parties agree to the same terms, which is known as mutual acceptance. It is on this date of mutual acceptance that the time allowances for contingencies such as inspections and financing begin to run. For instance, if the buying and seller agree that the buyer shall have 10 days during which to inspect the property, this 10-day period does not begin until both parties have reached mutual acceptance.

Negotiating the terms of the Purchase and Sale Agreement can be an emotionally difficult process. Your buyer's agent will help you make these decisions and provide you with historical information on other sales in the area. This will help you determine what you feel to be fair and beneficial to both parties. Once the terms have been successfully agreed upon, the process of completing and closing the sale can begin.

CLOSING THE SALE

Inspecting the Property

Once the transaction has been reviewed and agreed to by both parties in writing, the allotted time to satisfy and remove contingencies begins. By the time, the initial application for a home loan has been completed and it is time to schedule a time to inspect the home. The typical amount of time in which to complete the inspection ranges between 5 to 10 days. The inspection process is an opportunity to see the property again and look at its characteristics in greater detail. It is also a time to fully inspect for any potential, future problems and for the conditions of major systems and components, such as plumbing and electrical systems as well as the conditions of the roof and crawl space, if applicable. You are not required to conduct your inspection using a professional home inspector. If, however, you decide to conduct the inspection on your own, any problems discovered after this inspection contingency is removed may not be subject to the responsibility of the seller.

A professional inspection costs between $250 and $400 and is well worth the cost. We can assist you in finding a reputable inspector or you can find them in the yellow pages. When the inspection is complete, your buyer's agent will assist you in deciding if there are any items that you want to request the seller to complete or have completed. The seller then has the option of completing the requested items, completing only certain items, or denying your request altogether. If the seller's response is unsatisfactory to you, you may make a "counter offer" or simply decide to void the entire transaction. As long as this process is completed within the agreed upon time frame and conducted according to the terms written in the agreement, the buyer is entitled to the return of all earnest money if the buyer decides to void the agreement as a result of this inspection process.

Completing the Financing

After all documents have been submitted to your lender, the underwriting process typically takes between 10 days and 3 weeks. Quite often the lender will have some last minute requirements for additional documents just prior to loan approval, so it is a good idea to keep all of your financial records close at hand until your loan closes. The Purchase and Sale agreement specifies a time limit during which your financing must be approved. Your lender can also guarantee a particular interest rate for only a specified period of time. For these reasons it is important to secure loan approval and lose the sale in a timely manner. Your buyer's agent will assist you in keeping within time constraints.

The Appraisal Process

One of the final elements of the home-buying process is the appraisal. The lender will order the appraisal for you and coordinate with your buyer's agent to schedule a time for the appraiser to see the home. The appraiser's job is simply to confirm that the sales price of the home is reasonable by current market standards. This process gives some assurance to the lender that the home's value is equal to or greater than the amount of the mortgage on the home. The appraiser does have the option of requiring work orders (items to be fixed or corrected) prior to the closing of the sale. The lender will follow these recommendations and will not close the loan until these issues have been resolved. At this point, your buyer's agent needs to work quickly to resolve these issues with the seller.

Signing Closing Documents/The Escrow Process

Once the loan documents have been processed and the inspection and appraisal have been completed, your lender will send the loan documents to escrow, a neutral third party responsible for distributing funds and preparing the necessary documents for transferring ownership of the subject property. A representative from the escrow company, "a closer," will contact you regarding a time for you to come in and sign your loan documents. The closer will schedule a separate appointment for the seller to sign its portion of the documents prior to the buyer's signing appointment. You will most likely receive a copy of escrow instructions in the mail. This is a description of the responsibilities of the escrow agent or closer and the limitations of liability accepted by the escrow company. These documents need to be reviewed, signed and returned. Your buyer's agent can help answer any questions you may have regarding the escrow process.

Once all the loan documents have been signed by the buyer and seller, they must be returned to the lender for final review. The lender will then, in turn, forward the necessary funds to escrow to close the loan.

Recording the Sale

Once escrow has disbursed all funds, as specified, the ownership of the property must be transferred to that of the buyer. This is accomplished by recording the new deed of trust with the records department located in the municipality (usually the county) in which the property is located. The date on which recording takes place is the official closing date.

Moving Day ... and Beyond

Often, the Purchase and Sale Agreement specifies that the buyer may take possession on the second or third day following closing. Your buyer's agent will help coordinate the actual moving date. Your first mortgage payment is typically collected at closing as a part of your closing costs. You will not need to make another payment for 45 to 60 days. Following closing, escrow will deliver a complete set of documents to you. Check your loan payment information to ensure that you know when and where payments are to be made. Your buyer's agent will always be available to answer questions you have regarding your loan or other aspects of your purchase.

If you have any questions regarding any of the preceding information, please feel free to e-mail us or call 760-947-3621. We look forward to being of service.

9748 Rose Drive Oak Hills, California 92344 U.S.A. Tel: (760) 947-3621 T/F: (866) 826-1128 Fax: (866) 826-1128