ABC’s of Buying a Home
“I found the one, now what do I do next”
MAKE AN OFFER:
- THE OFFER (RPA)
The Residential Purchase Contract (10 pages) lays out the timeline for the entire transaction. (see below for details)
- Proof of Funds (POF)
Most recent bank/401K/Investment statement(s) showing enough funds to close (down payment + closing cost)
- Pre Qualification letter (PQ)
Your lender contact info & pre approval letter stating your fico score.
- Earnest Money Deposit (EMD) due within 3 days, typically 3% (max) of the purchase price, can be lower but the higher it is, the more appealing your offer looks to a seller. You may ask “why?”…..because the Seller is entitled to that money (to keep) if you do not complete the offer in the timeline laid out in the contract AND you have released your contingencies in writing. EEK! Right? No, you can still cancel the purchase (and keep your deposit) during your contingency period and if you have a hiccup along the way the Seller is required to give you a Notice to Perform (NBP) which gives you an extra 2 days (before they can cancel on you) to get your affairs in order or cancel. PLUS if everyone is talking and has best intentions we all work toward the main objective of completing the transaction together.
..and what are contingencies? (starts from day of acceptance = sellers signs your offer)
- Appraisal Contingency this is the amount of time it takes for the lender to order the appraisal, appraiser to come out to the property and complete his report and return it to the lender. Remember your loan is based off loan-to-value. Default time in the contract is 17 days, which is usually enough.
- Inspection Contingency this is the amount of time you get to “do your due diligence”, typically that involves hiring a Home Inspector. After the report is made you can choose to hire specialists if something needs further investigation. With the results you can A) move forward with the purchase “as is” B) request Seller do repairs C) request a credit and/or price reduction. The default time in the contract is 17 days, which is usually enough.
- Loan Contingency this is the amount of time it will take for your lender to “give their blessing the loan will go through”. Big picture you are taking out a loan for (likely) the largest amount of money you have ever taken out, so this is a lengthy and very invasive process. It may seem you have given your lender all the paperwork needed, however, unless your lender has submitted to an underwriter and/or processor they will be asking for more. Your lender will need an accepted contract (signed by seller) to “lock your rate” (please make sure you are aware when your rate is lock). Next you will sign disclosures with your lender (usually via encrypted email) which initiates the order of the appraisal – needs to happen quickly as we are now on the clock. Your lender will then collect all docs he/she thinks they need to submit to the underwriter (or processor is the go between), the underwriter will review and A) approve (rare) B) conditional approval (needs some easy to get supporting docs for final approval) C) reject (also rare – means your lender did a bad pre qualification and you can not get the loan). Default time in the contract is 21 days, most listing Agents will request this to be shortened (so don’t be surprised) in a counter offer.
- Contingency Release (CR) this form is filled out every time you release a contingency above, contingencies are ONLY release in writing (you will know when you are releasing them). If the time period in the contract has passed this DOES NOT mean you have released your contingency (for your protection – it must be in writing). Once ALL contingencies have been released, your deposit is now at risk if you do not complete the purchase….so this a pivotable point where all signs point to “you are buying this home”.
…when can I move in?
- Close of Escrow (COE) (1-2 days after you sign loan docs) this is when all monies have been transferred from you, your lender and all liens (if any) paid by the seller….then some magic happens and the home is legally recorded in your name. This timeframe is limited by your lender: typically Big Banks (Well Fargo, B of A…) take 45-65 days, Direct Lender/Brokers (Alpine, New American Funding..) take 21-30 days & Loan Brokers (Numerous ones out there…) take 30-45 days. In most cases the faster you can close the more appealing your offer to the seller. I have some reliable options if needed.
- Possession (POSS) (get the keys!) this is typically 5pm on the day the home is recorded in your name…however, in some cases the Seller may ask for a few days to move out after COE (1-3 is standard). In rarer cases the Seller may ask to “rent back” from you and stay in the home for 30-60 days, this MUST be cleared with your lender and the rent is negotiated before the offer is accepted and escrow handles the collection and disbursement.
…who is involved in the process?
- Buyer; YOU (and whomever is on the loan)
- Buyers Agent; if you are reading this…I hope it is me 🙂 I juggle the timelines and keep in close contact with all parties below and answer ALL your questions along the way! I am your advocate and to toot my own horn I am one of the best!
- Seller; the current legal owner of the home.
- Listing Agent; sometimes this is me too 🙂 I do all of the above and I am also the Sellers advocate….I have a fiduciary duty to serve you both and it’s easy because I can talk to Buyer/Seller myself. However, sometimes this is another Agent and I talk to them instead of the Seller directly.
- Lender; this is usually your Loan Officer, but keep in mind once the offer is accepted you are usually talking to a underwriter via a processor and the Loan Officer drops out of the process.
- Appraiser; You may never meet this person, but the lender orders the appraisal and the Listing Agent typically meets with him at the home. Out-of-Pocket expenses avg $500
- Escrow; escrow is a neutral 3rd party. It is their job to do A LOT but some of the items are: sending out estimates to buyer/seller with transaction fees, collecting buyer/seller data verifying identity, coordinating with Agents on timelines and preparing your loans docs. Seller typically gets to pick this company.
- Title; is the party that legally records your home into your name among other things…but escrow handles all communication to them. Seller typically gets to pick this company as well.
- Home Warranty; this is a company that covers all major systems (heating, hot water tank…) in your home for the first year. I like to negotiate the Seller pay for it when possible.
- Termite Company; these are getting phased out…previously the seller was to deliver the home Wood Pest free now it is negotiable…so some do and some don’t.
- Home Inspector; company of your choice comes to inspect the home and will compile a written report including photos for you to review during the inspection period . Out-of-Pocket expense $300-$400
Basically it takes a team to make a Home Purchase a smooth, enjoyable and easy process!
949-363-3125 always reachable