The buying process can seem overwhelming but flows smoothly if working with the right agent. With certain purchase-specific changes and tailored to an individual transaction, the buying process follows these general steps.
Getting a formal pre-approval from a lender of your choice should always be the first step in a buying process. Online pre-qualifications are often tens of thousands of dollars off and sometimes the buyer is not qualified to buy at all. A formal pre-approval, is a thorough look at a buyers financial situation; it can be done at any bank location, at a mortgage company or over the phone with a mortgage professional.
Banks are more strict with qualifications, whereas mortgage companies work with multiple lenders and often are able to qualify a buyer that a bank has denied. Shop around. If one place denies you, call us, we’ll direct you to several contacts. If those loan officers are not able to help, they will recommend what needs to be done to qualify. Important note: do not make any changes to your financial situation while getting pre-approved; no large purchases, no cash deposits, no financed purchases of any kind… All of these factors may affect a buyers pre-approval.
Another important reason to get a pre-approval is to determine purchase price range with consideration to property taxes and home insurance. Property taxes vary by city; if looking in Parma, property taxes are very different from Strongsville, Pepper Pike or Solon. A buyer may obtain a lesser loan based on property tax obligations in a particular city. In other words, a buyer is not necessarily qualified for a ‘purchase price’ but rather for ‘monthly payments’ with regard to property taxes and insurance.
It is important to know what type of loan is being applied for. A conventional loan is more lenient with some necessary repairs. FHA and VA loans are very strict with condition of home – no peeling paint, no unfinished projects, no missing floor coverings etc. Some homes will not pass FHA and VA inspections so those homes are not a possibility for that buyer.
Finally, the market is ‘hot’ right now. Some sellers request that their home is only showed to pre-approved buyers. Often a home comes on the market and is in a multiple offer situation within 12 hours. If a buyer does not have a pre-approval, they cannot submit an offer. Sellers do not consider offers from buyers who do not attach a pre-approval letter.
BEGIN LOOKING AT HOUSES
With a pre-approval, we can now begin looking at houses. We will go over what is important to have in a house – what are the “musts”, what are the “wants” and what are the “wishes”. We’ll tour a variety of homes – ranches, split levels, colonials or different variations of condos like a townhome or others. This is the fun part. Soon you will know what you want and what you absolutely don’t want. We’ll find you a home!
MAKE AN OFFER AND REVIEW DISCLOSURES
The seller is required to fill out Property Disclosures at time of listing their home for sale. They are legally obligated to disclose any issues or concerns that they know of in regards to their home. With few exemptions like an estate sale or a bank owned house, the seller is required to disclose any leaks, foundation issues, problems with roof, heating/cooling elements and any other components inside or outside the home experiencing issues. The buyer reviews these disclosures and if everything looks acceptable, we proceed with making an offer.
Once we find a house you may want to call a home, we will put together offer paperwork. It is a legal document stating intention to purchase a house with specifics on type of loan, closing dates, inspections, items to be left in the house, etc.. We will go over the paperwork in detail and discuss every nuance. Once the buyers sign, the offer is sent to the seller’s agent, who presents it to the sellers. Although it rarely happens, if the sellers sign, we have a legally binding contract. Most of the time, the buyer and the seller go back and forth verbally with counter offers until a mutually agreeable price is reached. Then buyer re-signs offer with newly negotiated details and it is sent to the seller for signatures. Once seller signs, we have a contract and proceed with inspections.
In our contracts we request for earnest money (a safety deposit) to be remitted at inspection time. Earnest money is held in an escrow account and is part of buyers purchase price. It shows intention to buy and is a necessary component of every purchase. The earnest money is treated very fairly – if a buyer is not satisfied with inspection results, the house does not appraise or the buyer does not qualify for a loan due to no fault of that buyer, the deposit is returned to buyer. If the buyer negligently compromises the deal – changes their mind, or buys a car in the middle of obtaining the loan, misses a credit card payment, etc; the seller will pursue the deposit to compensate for marketing time lost while being off the market.
Depending on offer terms, buyers have five to ten days to complete home inspections. Inspections are paid for by the buyer. The inspectors work for the buyer and have the buyers best interest in mind.
General Home Inspection – exactly what it sounds like; a general home inspector looks at all components of a home from outside to inside. He/she evaluates safety hazards, major concerns, minor concerns and general maintenance items. Everything is looked at – condition of roof, vents, flashing, skylights, chimney, gutters; siding, possible issues in the yard, fence, overhead wires, etc… Heating and Cooling systems, visual plumbing examination, electrical system review; kitchen, laundry, bathrooms, interior rooms, garage, attic, foundation.. Everything is looked at. If the general home inspector sees an issue he/she feels needs to be looked at by a specialist, he/she will recommend inviting a professional in that field. General home inspection cost ranges in $325 – $400
Radon – a colorless, tasteless, odorless and chemically inert radioactive gas that may be present in a home. There is no way to know if it is present except to test for it. “Radon is formed by the natural radioactive decay of uranium in rock, soil, and water. “ (Read more here)
According to Surgeon General, radon is the second leading cause of lung cancer in US. We recommend testing your home at purchase and every two years thereafter. Things in the earths crust shift and radon levels may change throughout the years. Radon inspection cost ranges from $100-$150. We recommend a Continuous Radon Monitor vs. the canister method.
Water Potability – a test looking at well water quality. The test checks for presence of harmful bacteria typically found in private water sources such as Coliform, E-coli, Fecal Coliform; it can be very comprehensive, looking at radon in water, pH, hardness, minerals, etc. The testing is done in an EPA approved laboratory. The cost of water potability inspection is around $100.
Well Flow Rate – a test to determine water supply capacity; an approximate amount of water that a private water well can deliver and the flow rate measuring the gallons per minute coming out. The cost of well flow rate inspection is around $100.
Mold – there are numerous types of mold inspections – visual and observatory, dust collection and a 24 hour air sampling among others. Costs vary substantially. Majority of the time, a buyer chooses to see if a general home inspector will find any signs of mold before proceeding. Some mold cannot be seen because the mold spores are airborne. Ideally, mold testing should be done by a third party, and not by a mold-mitigation company.
Pest/Wood Destroying Insects – very much what it sounds like, an inspection looking for any pests or insects that destroy wood such as termites, carpenter ants, powder post beetles, carpenter bees and other pests. It is typically declined as a stand-alone inspection and if the general home inspector sees any signs of pests/insects present, then the professional pest inspector is called. This inspection is mandatory for a VA loan and is typically covered by seller. Cost is around $130.
Lead-Based Paint – every house built prior to 1978 has a very fair chance of having lead based paint. Like many outlawed chemicals today, lead-based paint was considered safe and was used widely. It is very dangerous if swallowed or inhaled in the form of lead-paint dust. The inspection is performed by a certified inspector or risk assessor.
The inspection is a surface-by-surface investigation to determine if lead-based paint is present in a home or outside of a home. Inspection costs vary based on inside, outside or both. The cost starts around $500 for both inside and outside of the home, plus cost of testing collected samples. 3M Lead Swabs are also somewhat effective to test peeling paint or any areas of concern. 3M Lead Swabs will NOT pick up lead on walls that have been re-painted.
In conclusion, home inspection report is not a ‘to-do’ list for the seller. We absolutely will use it as a negotiation tool if there are serious issues like un-safe radon levels or safety concerns or immediate and expensive replacement requirements but we cannot come back with a list of 23 items we would like the seller to fix.
Inspection is for information purposes, so that the buyer knows exactly what he/she is buying. Every home has a pool of problem and issues – big or small. It is a matter of which pool of issues you would like to take on. A home may have some maintenance issues or major concerns like roof/HVAC or foundation.
Depending on the purchase price and market conditions, it may be worth it to buy a home with older roof and budget for replacement. Every buyer is unique in their preferences and every home presents its own matters that need to be addressed.
Once we review what kind of issues we are dealing with, there are three options:
Buy as-is. Typically in multiple offer situation, this would be the only option. If we try to re-negotiate, seller may refuse and choose to accept one of the other offers.
Ask Seller to Fix/Repair/Replace. If there are safety issues, we can request the seller to correct those issues at sellers expense. The seller may agree to correct all issues, some or none. This option is widely used with FHA/VA mortgages – the house must be in certain condition for the loan to be approved.
Ask for a Price Reduction. Our go-to option. Ask for money back and fix it on buyers terms after closing. This option is fantastic but may or may not work with an FHA/VA loan.
MAKE LOAN APPLICATION
Once the inspections are finished and buyer understands the condition of the house, we sign a ‘contingency removal form’. It states that we release contingencies of inspections; the buyer accepts the condition of the home and chooses to move forward with the purchase.
The next step is to contact buyers chosen lender and make a formal loan application. There is a fee for a loan application and it varies from lender to lender.
If any portion of the purchase is financed through a bank or a mortgage lender, an appraisal will be a requirement. The appraisal cost is part of lender fees and is paid for by the buyer. The lender hires an independent, third party licensed appraiser that performs a detailed market analysis and issues a “value” for the home. If this value is equal to or above the purchase price, the lender will agree to lend money for the home. If the value is below the purchase price, the bank may deny the loan or change the loan’s terms.
OBTAIN LOAN COMMITMENT
A loan commitment, or a full loan approval is issued once the lender thoroughly reviews all necessary paperwork with the buyer – credit report, financial obligations – payments, outstanding debt, etc; income history and any other cash inflows or outflows. In addition to a thorough review of the buyers personal financial situation, the bank will review the title work from the title company making sure there are no ‘clouds’ on the home’s title – no liens, judgments or defects. Once the loan commitment is issued, the loan is guaranteed IF, and only IF the buyers situation stays in that current condition. This is not the time to finance anything or buy a car. The bank WILL run the buyers credit one last time before closing. If there are new financial obligations, missed payments or any changes to the presented information, the bank can and WILL deny the loan. This has happens too often in our business and buyer loses out on the house of their dreams. It is very important to hold off on buying that perfect couch or that fantastic washer and dryer until after title transfer into your name.
FINAL WALK THROUGH
As the closing date approaches, we schedule a final walk-through. Typically arranged a day or two before closing date; we come back to the house to make sure everything is in the condition it was at time of inspection. It is a quick 5-10 minute walk-through visually inspecting for leaks, structural issue development, absence of heat or cooling; missing appliances that should have stayed etc. If there were items that seller needed to fix prior to closing, we make sure those have been completed.
SIGN CLOSING DOCUMENTS
Hooray! The closing is typically scheduled several days in advance although if the loan is difficult, can be scheduled less then 24 hours in advance. It is held at either a place of buyers choice or title company’s office. Title company will provide via mail wire transfer instructions with dollar amount and account number. Buyer transfers money prior to coming to sign the documents.
For a financed purchase, plan for an hour to an hour and a half. Cash purchases takes 15-20 minutes.
If documents are signed in the morning, the title will transfer around 3pm – 5pm on the same day. If documents are signed in the evening, title will transfer the following business day.