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Dave Wallace,
Broker Associate
2542 E. Main Street
Ventura, Ca 93003
Direct: 805-207-5131
Office: 805-643-1234
Cell: 805-207-5131
Fax: 805-643-3338
Email
DRE: 00922339
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The Home Buying Process
At this point you've narrowed your possible choices to one specific home. You're ready to make your first offer, negotiate with a seller, sign a contract, secure the best mortgage loan and actually buy your home. An agent knows the way, and with that experienced assistance you can navigate with confidence. Remember, you and the seller want the same thing: a smooth and satisfactory transaction. With that understanding there's rarely an obstacle too big or too complicated to keep a qualified home buyer from the ultimate goal--home ownership.
What is in a sales contract?
Your signed offer to purchase is the document you draft which presents your price and terms to the seller. (The name of the document varies. Ask an agent what it is called in your area.) This purchase offer must be complete because when the seller signs it, the document becomes the binding "sales contract" which contains the conditions of the sale. If you forget something in the offer, you usually can't add it to your sales contract later. Terms and conditions of the contract vary depending on the situation.
Following are typical matters you and a seller may negotiate and agree on:
- What items convey with the home, such as chandeliers, appliances, personal property, swimming pool chemicals, etc.
- The sale price.
- The amount of your deposit ("earnest money").
- The amount of your down payment and/or the amount of mortgage loan you intend to obtain.
- The date, time and place of settlement and when you take possession of the home. Be sure you and your seller have a clear agreement about the date of occupancy.
Any contingencies (agreed upon by you and the seller) which must be met before settlement can take place, such as improvements (painting, roofing, etc.); termite inspection; proof of clear title to the home; legal review of the contract by either or both buyer's and seller's lawyer(s); your ability to obtain a specified mortgage loan within a specified time at agreed-upon interest rates and points and/or specified seller financing.
- Your signature and that of the seller. (Remember, you can always withdraw an offer until the seller has signed it.)
How do I make an offer on a home and negotiate with the seller?
You, as potential buyer, start the process by putting an offer with price and terms in writing and presenting it to the seller through an agent. Buying a home is probably the biggest financial investment you will make. Only you can decide which home you want, and the price is up to you and the seller.
Understand that the seller has three basic options: to accept your offer, counter offer on specific details or reject your offer. If there is any negotiation, it usually takes place by trading counter offers, if the seller doesn't immediately accept or reject the offer. Keep up the dialogue until you arrive at the price you can pay and the price and terms the seller can accept.
This is where an agent's help is invaluable. The agent keeps the negotiation process running smoothly. With a knowledge of both your situation and the seller's, plus a complete understanding of financing options, an agent can suggest strategies that bring about a satisfactory transaction.
How do I shop for a mortgage?
An agent can help you compare interest rates and terms to find out which mortgage plan is best for you and can refer you to lenders in the area. However, each buyer's circumstances are unique, and once you've narrowed the field, you will want to discuss your case in detail with the lender. You'll determine, for instance:
- What kinds of loans the lender offers (both fixed rate and adjustable rate).
- What terms are offered on adjustable-rate loans: rate adjustment frequency, maximum limit on each rate change, frequency of monthly payment adjustment, ceiling on payment adjustments, possible extension of the length of time on the loan pay-off, life-of-the-loan interest rate cap, conversion privilege, positive or negative amortization, etc.
- What amount of investment is required for a down payment.
- What is the term (length of time) to repay a loan, and whether there is a prepayment penalty if you pay off your loan before its due date. In some areas, pay-off penalties are illegal, while in other areas common. Ask an agent for the local practice.
- What fees are involved (credit report, appraisal, survey, legal costs, "points," title insurance, etc.).
- Whether the lender can furnish you a second mortgage, if needed, at a pre-determined interest rate.
- How long it will take to process your application.
- What inspections the lender will require.
- What kinds of insurance and how much coverage you will be required to carry.
What information will the lender ask for specifically when I apply for my loan?
Lenders' loan application questions vary, but, in general, they will include:
- The kind and amount of mortgage loan you wish to obtain.
- The verifiable source of your down payment money (bank account statement, gift, etc.).
- The length of time you wish to borrow the money for.
- Your current address and the length of time you've lived there and at your previous address.
- Your employment history, you current employment and income, and your employer's name and address.
- Your Social Security number.
- Your assets, including your gross monthly income, your bank balance(s), your possessions (car, furnishings, jewelry, etc.).
- Your debts and account numbers (including car payments, credit cards, etc.).
- A copy of your sales contract.
What does the lender do to approve my loan?
Typically the lender will give or send you an application "package" with instructions and necessary forms. You complete these in detail, including the financial data and account numbers, and present them to your loan officer when ready. A loan application fee will be required by most lenders to cover credit report and appraisal fees. A lender takes several steps in processing your application, and different procedures exist in different areas. Primarily, your lender is busy:
- Getting an appraisal of the home you want to buy, to determine if it's worth the price you are paying.
- Getting reports on your employment, income and debt-paying ability, to determine if you are a good credit risk.
- Verifying bank deposits to satisfy down payment and closing cost needs.
- Ordering inspections, such as:
- Housing or building code compliance.
- Completion of repairs the seller agreed to make.
- Termites or other wood-boring insects.
- Ordering the title search (sometimes by the lender's lawyer, your lawyer or a title insurance company), to determine if the seller can convey a clear title to you.
Once all the documents are assembled, a review of your application by the lender's loan committee will determine whether or not your loan is approved. When your application is approved, your lender will send you a loan confirmation letter to put the loan amount, interest rate and monthly payment in writing.
How long does it take to get a mortgage approved, and can I do anything to speed up the process?
How long it may take before your loan is approved depends on what king of loan you apply for, the efficiency of your lender, the lender's workload and your own diligence in supplying required information.
Here again is where an agent's knowledge of what your lender needs and where the information comes from can help prod the process along--even to carrying papers from one place to another. From experience, we know that the process works best when you rely on an agent, and lenders appreciate the agent as a single source to turn to for answers. An agent will keep tabs on the different sources of information:
- Have your credit card companies produced reports?
- Will your insurance policy be guaranteed to be in effect by settlement day?
- Have your parents, relatives or friends provided the "gift letter" that must accompany cash donations?
- Has your employer verified your income?
- And many other sources.
What kind of home owner's insurance should I carry?
Your lender requires you to carry a homeowner's insurance policy (also "hazard insurance"), protecting your home (and the lender's money) against such hazards as fire, smoke, wind, hail, explosion, riot, theft, glass breakage (if the glass is part of the home) and damage caused by aircraft, vehicles or vandalism. A basic policy also protects you against injury to a visitor on your property. An "all-risk" policy reimburses you for the major hazards plus damage due to lesser catastrophes such as burst water pipes. But, to insure all your equity and personal property, you may still need additional coverage. A "guaranteed replacement cost" policy covers your home and contents for the full replacement value, rather than the actual cash value (the replacement cost minus depreciation). Consider a policy with an "inflation guard" to adjust the amount of coverage based on the inflation rate.
What are "closing costs," and how much should I expect to pay?
Depending on your area, the price of your home, your lender's terms, and other factors, your closing costs will vary. An agent can provide a rule-of-thumb figure for your situation, Also, your lender will give you a pre-settlement "good faith" estimate of specific costs. This estimate is sometimes low. Take extra funds just in case. Closing costs typically include:
- Loan origination fee: usually 1% of your mortgage amount.
- Discount point (or points): each point is 1% of your mortgage amount.
- Assumption fee if you assume the seller's loan.
- Cost of a title search.
- Lender's title insurance fee.
- Owner's title insurance fee (optional but advisable).
- Survey fee (if applicable).
- Transfer tax (state and/or local tax and tax stamps in some areas, sometimes split with seller).
- Lender's appraisal fee.
- Recording fees for settlement documents.
- Prepaid interest on your mortgage, covering the time between settlement and your first monthly payment.
- Prepaid mortgage insurance premium.
- Homeowner's hazard insurance premium.
- Property tax escrows.
- Lawyer's or escrow company's fee.
What happens at settlement?
In some areas, you and the agent meet with the sellers, their agent, a settlement officer (either a lawyer or title company representative) and often attorneys representing the seller and/or you, to settle the transfer of the property and close the transaction. In other areas, an escrow officer does all the preparations for closing and contacts the buyer and seller to come individually and sign their respective documents.
At the settlement, be sure to bring:
- Your homeowner's insurance policy and paid receipt for one year's coverage, sometimes paid at closing.
- A certified or cashier's check (payable to yourself and ready to be endorsed to the seller, attorney or escrow company) for the balance of your down payment and closing costs.
- Your regular check book so that you can pay any incidental costs.
Typically, all closing costs are calculated in advance, and your certified check is usually sufficient.
You go over a list of adjustments presented on government-standard "Settlement Statements," to settle what you and the seller owe one another in cash, taxes, etc. You sign the mortgage and a mortgage note (denoting your monthly principle and interest payments). After recording all signed documents, you then pay the seller, and the seller gives you the title (or deed).
Finally, you pick up your keys. The home is yours!
Congratulations!
My staff and I are here to answer your real estate questions.
Please feel free to contact us.
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