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Steps to a Smooth Buying Process
1. Obtain Mortgage Pre-approval Before You Begin House Hunting
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Find out how much loan
you will qualify for and
the type of loan that best meets your needs. A pre-approval will also
strengthen your bargaining position with the seller.
2. Work with a Real Estate Agent -
Your
agent will help you determine your needs, select an area, and understand
the buying process.
3. Find the Right Home, and Make an Offer -
Your real estate agent will present your offer to the
seller who will either accept, counter, or reject it. Your offer contract
will specify contingencies such as financing and home inspection, the
down payment, and settlement time frame. You are generally required to
deposit a portion of your down payment with your contract.
4. Your Offer is Accepted -
Your offer, now accepted, becomes a contract. At this time, order a home
inspection, the title search, and survey through the settlement agent.
5. Lender Orders Appraisal and Credit Report
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An
appraisal is a formal written estimate of the home’s current market value
and must support the price.
6. Obtain Mortgage Approval
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Once
the credit report, appraisal, and all application documents are received,
the lender can submit the loan for approval. The loan decision is made by
either an underwriter, loan committee, or an investor. This process
usually takes 2 to 5 days, but if independent confirmation of any facet of
your application is required, this process can take longer.
7. Settlement Preparations-
Upon loan approval you must prepare for settlement. Buy a homeowner’s
insurance policy, a termite report, contact utility companies, and arrange
a pre-settlement walk-through.
8. Your Loan Is Approved
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Before settlement, a number of important steps need to be completed. Your
real estate Agent will help you in this regard.
9. Buy Your Homeowner's Insurance
Policy
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Your
insurance must cover the loan amount. You must provide your lender with
the original copy of the insurance policy and a paid receipt one to
two weeks
before closing.
10. Arrange for Inspections
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All lenders will require a termite inspection to
assure the property is free of insects. A well & septic inspection is
required if the property is serviced by a well or septic field. New
construction properties must be inspected by the municipality for code
compliance. The property appraiser expects that the house has been
completed according to the plans.
11. Settlement Agent Prepares Title
Work
- The settlement attorney, escrow/closing agent, title
company or
escrow company will prepare a report on the title to the property. In
addition, they will procure a location survey to assure that property
lines have not been violated. The lender must receive all closing
documents no less than three to five days prior to closing.
12. Your Closing Costs -
In
addition to the down payment, you will need to pay for closing costs.
In case of a "no cost" loan, the lender or the broker will cover
your costs in exchange for a higher interest rate. Weigh this option
carefully before making a decision. There are 4 basic components of closing costs:
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"Hard" Closing Costs:
These are transaction costs borne by
the purchaser which generally will not vary. These charges include title
insurance and title search, survey, document preparation, appraisal and
credit report charges, notary and courier charges, municipal recording
charges, title insurance, and termite inspection.
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State and Local Taxes:
Taxes charged when a property
changes ownership.
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Loan Origination & Discount Fees:
Commonly
known as points, these fees will vary depending on your interest rate.
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Prepaid Items:
Fees
paid on the closing date to cover future costs.
Pro-rated real estate taxes,
homeowner's and flood insurance, PMI, and interim interest are among the
most common prepaid items. To ensure that their investment is secure,
Lenders may
require you to deposit a sum of money in an escrow account to prepay
recurring costs, such as:
(1) your first six months of property taxes
(2) your first two months of hazard insurance
(3) your first two months of mortgage insurance
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If
required, the lender will also collect the interest you owe for the period
between the closing date and the end of the month. So, if September 3 was
your closing date, you would have to prepay the interest that is due through the
end of September. Your first
monthly loan payment would be due on November 1,
13. Settlement Day –
The lender will send the
closing instructions to the settlement agent who will prepare a settlement
statement. This statement will show the exact amount you will be required
to pay at closing. You must bring a certified check for the remainder of
your down payment (if any) and closing costs. Make sure that you leave
yourself enough time (2 hours) for a satisfactory review of all documents
at the closing table.
14.
Congratulations!
The House is now yours
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The lender has sent the loan
instructions, the title company has prepared the title work, you have
inspected the property again, and it is time to prepare to move in.
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