THE BUYER’S CHECKLIST
a guide to the soon-to-be home owner
You’ve decided that someday soon you’ll buy a new home – how exciting! Whether you’re ready to make a move next month or next year, there are a few things we’d like you to know up front so your buying experience can be as smooth as possible!
Let’s break down the process step by step, and at the end we’ll discuss a few pitfalls and things to watch out for.
Before Starting Your Search
The very first and most important thing on your checklist (even before looking for houses) is to chat with a few good lenders! Ask your agent for a few lender recommendations that they think will fit your needs best. Then, call the lenders to find out how much house you can afford. You’ll want to compare lenders to find out who has the most attractive terms. Once you pick your lender, you’ll need to send them tax returns and pay stubs and let them run your credit. Once they do this, they will be able to write you a pre-approval letter. This will tell you how much you can afford, and it will be very important to have before you start to make offers on houses!
It’s also important to make sure that you have your economic house in order before starting the search – pun intended! Once you buy a house, you’re on the hook for repairs that come up. Air conditioning goes out? There’s no landlord to call anymore. You’ll need to fix that, either by coming out-of-pocket a few thousand dollars or getting a loan to finance the new air conditioner. I recommend that every would-be new homeowner have a cushion of a few thousand dollars in a savings account if at all possible, or buy a house cheap enough that they will be able to save a few hundred dollars every month. Typically a mortgage will cost less every month than rent, so most buyers will be able to do this.
During The Search
The first thing you’ll want to do is have your agent set you up on what we call a Multi-Listing Service (aka “MLS”) email drip. This will be an auto-email that goes out on whichever schedule you choose, telling you exactly what houses have recently hit the market that generally meet your criteria. If you haven’t already, call your agent and have a discussion about what your house-hunting criteria are – how big, how many beds, what location or how many minutes’ drive from where you work, etc.
When you see a home you like, you can “like” it in the MLS portal and your agent will see that. If you see homes that you want to look at, call or text your agent and let them know! They will schedule showings with the sellers’ agents, and it’s important that you and your agent move quickly to schedule showings in a hot market like we have now!
As you view homes online and in person, it’s likely that your preferences will change. Maybe there’s a neighborhood that you’re not interested in anymore, or maybe you’ve decided that you’ll definitely want to have that 4th bedroom. Just remember to keep your agent in the loop with how your criteria might be changing.
Making an offer
Congratulations! You’ve found a house that checks a lot of your boxes, and you’re ready to make an offer. You’ll have to decide a few things before putting the offer on paper, and your agent will help you to craft a good offer. Here’s some of the things you’ll need to decide:
1. What price to offer
2. Whether you want to have the seller help pay your closing costs
3. How long of an inspection period you want
4. How much earnest money you want to deposit
5. How long you want your financing and appraisal contingencies to be
6. When you’ll want to close and what closing attorney you want to use
7. What special stipulations you want to include in the offer
If you’re a first time buyer or haven’t bought a home in a while, you might not know what some of these things are, and that’s okay! Here’s a quick rundown.
Seller-Paid Closing Costs
Before the market got hot, it used to be common to have sellers help with the buyer’s closing costs. That’s not so common now, but it does still happen. Depending on the type of loan you are using, you can ask for two to four percent of the sale price in seller-paid closing costs.
Earnest money is a deposit you make when you go under contract. It is typically due within three days of going under contract, and it’s customary that the deposit is equal to 1% of the purchase price, but going above 1% is recommended when trying to win a competitive bidding war.
Inspection Period (AKA Due Diligence Period)
During your due diligence period, your earnest money is fully refundable and you may terminate the contract for any reason or no reason at all. These are typically 7-14 days, though it’s better to be at or below 7 days during a bidding war.
Financing and appraisal contingencies
These contingencies protect your earnest money deposit in the event that you’re not approved for the loan or the appraisal comes in low. For VA loans, there is no end to the appraisal contingency. Typically we want 18-21 days for a financing contingency and 21-24 days for appraisal, but sometimes we make these shorter to win in a bidding war.
These are some common special stipulations that we sometimes ask for:
– For a property with a tenant when we want the tenant to stay, we will ask for security deposits and prorated rents to transfer at closing. We will also ask for a copy of the lease.
– For a property with a tenant when we want the tenant out, we will stipulate that closing will not occur until the tenant has moved out.
– We commonly ask for a clear termite letter, and sometimes will ask for a termite bond as well.
– We sometimes ask for a one-year home warranty, though this is less common in a hot market.
While You’re Under Contract
You won! Awesome! Let’s take a look at the next steps.
First, you’ll want to pay the earnest money. This is typically held by the seller’s broker or closing attorney – whoever holds the money is who you’ll make the check out to. At closing, that deposit will be applied to your down payment.
Next, we’ll do the inspection. Your agent will be able to recommend a few good inspectors. The inspection typically takes about an hour and will cost, on average, $400. The inspector will check everything that he or she can get their eyes on, but cannot look inside walls or otherwise damage the property during the course of the inspection. A day after the inspection, you should receive a very detailed report – these are typically 20 to 40 pages long, and your agent can help sorting through it and picking out what’s important.
Once the report comes back, we might find ourselves in another negotiation with the seller. Did the inspection find a roof leak that we didn’t know about? Maybe there’s a plumbing problem, or some foundation problems. We may want to ask the seller for some repairs or a price concession before the end of our due diligence period. If the seller says yes, then great! We move towards closing. If they say no or offer to meet somewhere in the middle, then you’ll have to decide whether you want to carry on or terminate the contract.
While all of this is going on, you’ll also be working with your loan officer. Once you go under contract, there will be a flurry of documents to sign. It’s very important to do everything your loan officer asks of you in a timely manner. You might be asked for bank statements, or to explain large transactions. You’ll probably be asked for the same document twice – try not to get frustrated.
You’ll also order an appraisal. Typically, we don’t like to order the appraisal until we complete the inspection and know we’re going to move forward, but if we’re on a tight timeline, we might order it sooner. A good loan officer will know how long appraisals are taking and be able to guide you through the process.
We’ll want to get an appraisal in hand before the expiration of your appraisal contingency, and you’ll want to get a conditional approval from the lender before the end of your financing contingency. If the appraisal comes in low or with lender-required repairs, it will trigger another round of negotiations with the seller.
Moving Towards Closing
No later than three business days before closing, you’ll need to sign a closing disclosure from the lender. The closing disclosure will detail exactly how much money you’ll need to bring to the closing table and exactly what your monthly payment will be. It’s a legal requirement that closing cannot occur unless this document has been signed at least three business days prior to closing.
Your lender will also run your credit one last time before closing, and if there is any new debt on your credit report it could delay your closing or permanently end it. Do not take out any new loans before closing! Do not run up your credit cards before closing! Your lender will also verify that you’re still employed, so don’t quit your job either!
The day of or day before closing, you’ll need to send a wire transfer with your down payment. Be very careful when sending this wire – once you send it, it’s gone. And if you accidentally send to the wrong account, you can’t get it back. There are also wire transfer scams where you’ll get an email that looks like it’s from the closing attorney, but is actually from a scammer. Always call the attorney’s office number that’s listed on google to confirm the wiring instructions before sending any money.
Closing Day and Beyond
The day of closing is easy – you’ll go to the attorney’s office and sign a bunch of documents. Closing typically takes between 30 and 60 minutes. Then you get the keys, and are officially the owner of your new home!
If you buy with a loan, your lender will take care of paying property taxes and insurance for you. If you bought cash, make sure to set reminders for you to pay these bills in the future!