I Want to Buy a Home...Now What?
Last summer, Melissa Imo Moffitt, one of our all-star Mortgage Loan Officers shared her expertise in the 5-part series “I want to Buy a Home…Now What?” Check out the full series below:
Purchasing a home can be a very smooth easy process if you follow a few rules. Call the loan officer at your Credit Union and ask to get pre-approved. This is the first step in the home buying process. The mortgage loan officer will ask for your employment information. I would have your most recent W2 and your most recent two pay-stubs handy. We will also ask you where your down payment is coming from? Do you have a savings account, checking account, 401k, gift, etc...? It is a good idea to print out your last two bank account statements. You need to count on having a least 3% down and about 2% in closing costs. So if you are purchasing a $200,000 home you will need to have access to around $10,000.00. You can use gift money from a relative or the seller can contribute a certain amount to your closing costs so it is possible to get into a home with just 3% down.
The loan officer will look at your credit report to determine if you qualify to purchase a home and use the credit report to determine what your debts are and how much you can afford. It is a good idea to know what is on your credit report. Regulations that came out a few years ago allowed consumers to get a free credit report every year. If you haven’t looked up your credit report I suggest you go to www.freecreditreport.com and to see your score, and what else appears on your credit report. No one wants any surprises when it is time to buy a house!
If everything falls in line and you are pre-approved the mortgage loan officer will give you a pre-approval letter. This letter is based on your credit report and the information you provided to the loan officer. There will be some stipulations in the letter like we will need to order an appraisal, you will have to have title insurance, you will need to stay employed (imagine that!), your debts and income need to stay the same, so don’t go out and buy a car after you get pre-approved, make sure you speak to your loan officer before making any big purchases!
Now you have a pre-approval letter, it is time to find a Real Estate Agent and go shopping!
Step 2: Find a good Real Estate Agent
I have had the pleasure of working with some really good real estate agents. But, how can you recognize the better agents? They know their clients and work for their best interests.
Many people do not know that when you buy a house the seller pays your Real Estate Agent’s commission. Yes, that’s right, you don’t pay for your agent, so go out and get a great one! Arm yourself with a personal advocate who works for you. A good agent will sit down with you and get to know you. He/she should ask about your family, where you want to live, what your wants and needs are and how much you want to spend. A good agent will also walk you through the home-buying process. A good agent will never allow you to sign a contract without explaining what you are signing. When it’s time to make an offer on a home, a good agent will research comparable sales to make sure you are not overpaying and will complete the legal documents that you have to sign. A good agent will negotiate a purchase price, any seller credits and home warranties. A good agent will also review the inspection with you and will go back to the seller if there are things that must be fixed.
So, where do you find a good agent? Ask your family, your friends and your loan officer. If someone has had a really good experience, it will be clear! And if their experience was not on par with their expectations, they will let you know as well. So go out, find an agent and interview them. Ask where they specialize and what the process is like. If you click and the agent is very knowledgeable, you have found yourself a professional who will help you purchase your dream home. Of course, one of the first questions you’ll be asked is if you have been pro-approved and to that you can say yes! “I am pre-approved with my credit union and my loan officer would love to send you a copy of my pre-approval letter!”
Step 3: Inspections and Appraisal
You did it! You got pre-approved, you found a real good Real Estate Agent, and you put an offer on a home. What’s more? Your offer was accepted! Now it is time for the nitty gritty inspections and appraisal. As I write this blog, my husband and I are in the middle of the process so I know it can be daunting. Finding a house is kind of like finding a mate. He/she may not be perfect, but rather is perfect for you. A house may have some issues that you are willing to put up with but you want to know what they are up front. This is where the inspections come in. Your agent will give you a list of inspections that are available-home inspection, gas inspection, termite inspection, radon inspection, sewer, etc. Depending on your mortgage loan type, you may be required to get these inspections or you may not. I suggest you get them all!
My husband and I are buying a fairly new home and i thought, “Why would I need a radon inspection?” My agent said, “Melissa, you better get a radon inspection; you never know!” Good thing I listened. The radon levels were very high. Inspectors will look for major and minor problems associated with the home; they will give you a detailed report of the issues and usually ways to remedy them. If the foundation is cracking, it may be time to rethinking your purchase. If the roof is peeling, the seller might fix it. It's not the end of the world. There are always going to be things that show up on your inspection, but this is the time to ask yourself if you can live with it, will the sellers fix it, or can I fix it? In our case, we requested that the sellers fix the radon issue and they did. Yay for us!
The next step after resolving any inspection issues with your agent and the sellers is the appraisal. Your credit union Mortgage Loan Officer will order the appraisal. The appraiser will go to the home, take pictures of the property inside and out, then measure and collect comparable sales. Then, a fair market value will be determined. The value should be at least at purchase price because who wants to pay more than a home is worth? I know I don’t. This is a vital step in the home-buying process: everyone making sure the home is worth what you’re paying. If the home comes in above your purchase price, SCORE! You’re getting a great deal. The appraisal can come in lower than the purchase price; if this happens, then it’s time to put your rockstar agent to work at negotiating. Hopefully your seller will lower the price, but they’re not required to. If both parties can’t come to an agreement, then it’s time to look for another home. In the long run you’ll be happy that you didn’t overpay for a house; it’s a big investment!
Step 4: Loan Commitment
What is loan commitment? This is the final date that your Credit Union has to have your loan approved. We need to have your appraisal, title work and insurance in and we need to have your income and assets verified and approved. The only condition or stipulation we can have on your approval letter is proof that you are still employed which we will do right before closing.
Now that we have issued your loan commitment there is no turning back, this is the last step in securing the loan. Your Real Estate Agent will need a copy of the final approval letter so that they can let the seller’s agent know that everything is approved and that the closing will happen on time. If there are any issues or if the loan officer has not received everything that was requested from the borrower loan commitment can be missed and the deal can fall through so it is extremely important to get the loan officer everything that is requested in a timely manner.
The next step is closing and becoming a home owner!
Final Step: Closing Day
A few days before closing your loan officer will send you a copy of your closing disclosure. This will show your purchase price, all of the fees and any credits that you may receive. It will also show how much you need to bring to closing. This is the day, time to go to your credit union and request a cashier’s check for the amount that is on that closing statement. If your funds for closing are held at the Credit Union we could also wire the funds, so just ask your loan officer if that is a possibility. You will go to the Title Company for your loan closing. The closing appointment will be set up by your Real Estate Agent. Most likely your Real Estate Agent, Loan Officer and Title Agent will be at the closing table. You will need to bring the cashier’s check made out to the title company and your driver’s license. I suggest that you start doing wrist exercises because you will sign a bunch of documents at closing! Once you are done signing and you hand over the chunk of change you have been working your tail off for you will be a home owner! Your Real Estate Agent will need to wait to give you the keys to the home until they have verified that the seller has signed their documents and have received their funds. It could take a couple of hours to receive this info so hang tight and wait until you hear from your Agent before going over to the new home. Your Real Estate Agent should also have a list of utility companies that you need to contact so that you have gas, electric, water and trash service at your new home.
CONGRATULATIONS! This has all been worth it because now you own a piece of the American Dream!