What are the steps to buying a home?

Why do I need to be pre-approved by a lender?

I'm very wealthy; Why do I need to be pre-approved by a lender?

What's typically needed with a loan application?

What's the difference between a "pre-qualified" and a "pre-approved" buyer?

What are the costs in buying a home?

What are the steps to buying a home?

Below is a general guideline of what happens during the process.



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loan application/pre-approval
The application gives the lender information to get started with to evaluate you as a borrower and will give you solid price range to start looking in.

find your new home
In a "hot" real estate market like we have experienced in the past few years, you may not have a lot of time to think about whether to make an offer or not. If you want a couple of days to think, the property may be gone. You need to have a clear idea of what you want. Be sure that you are clear about the most important things to you and your family in finding a home. Think about schools, travel distance to work, number of bedrooms, and the proximity to leisure activities you are interested in.

Seperate your "needs" from your "wants". Consider what you'd be willing to let go of under the right conditions such as, "I want a home with 4 bedrooms but if I find a home that I like with 3 bedrooms and a view of Puget Sound in my price range, that'd be great too." Having a clear understanding of what you need will help ensure you see all the listings that will work for you instead of having that "perfect-3-bedroom-with-Sound-View" slip through your fingers.

make an offer
We'll need a pre-approval letter stating you're pre-approved with the amount of the offer. The seller will also expect an earnest money deposit to effectively tie-up the property under contract. What's this mean to you?.. If we're out looking, have your checkbook with you; You'll need it if we find the right home.

The seller may counter your offer with some changes like the price, the amount of time to close or who pays what. Sometimes there are several counteroffers on the path to mutual acceptance. You'll want to have the property inspected and there may be further negotiations after inspection results have been reported or you may not wish to purchase property at all. The fee for this inspection is typically $300-$500 and is paid upfront by the buyer.

You'll also need to obtain insurance as the lender will require that the property be covered for at least the amount needed to replace the structure.

escrow is opened
An Escrow Officer handles all of the documentation and funds that come in from all parties-they act as a neutral third party in the transaction. In many cases, one company handles both the Escrow and the Title Insurance. Title insurance protects the buyer and seller against anything that might affect clear title. The buyer is usually unaware of most of what goes on in the escrow process but will, however, receive a Preliminary Title report that reveals details such as any easements from power companies.

appraisal
The appraisal is ordered by the lender and paid for usually by the buyer. The lender needs to be certain that the property is worth at least what the property is being purchased for. This fee is paid upfront because the transaction might not go through if the appraisal doesn't come in at value

loan commitment
Loan approval is based on having a qualified borrower and a qualified property. With pre-approval, you're credit approved before finding a property and your information has been verified by the Underwriter.

Information on the property must then be approved in order to get the final loan approval. If there are any loan conditions, these must be cleared up sometimes before the documents are drawn.

documents to title
When you first start the loan process, you sign the loan application and various disclosures to get the process started. Once there is total loan approval, the final loan documents are prepared for signatures. Most of the papers are for the buyer but the sellers sign some as well. These are the papers that commit you to the terms of the loan. The papers are then returned to the lender who reviews them and makes sure any conditions are met.

close of escrow
Once the funds are disbursed and the change of title on the property is recorded, the escrow is complete and the new buyer will receive the keys to the property in accordance with the contract.

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Why do I need to be pre-approved by a lender?

A pre-approval will tell you what you can afford. This will help you narrow your search by focusing on homes within your pre-approval amount that also match your wish list. And once you find a home you like, the pre-approval will immediately demonstrate to the seller that you're a qualified buyer. This can save you time and money, especially when you're competing with several other potential buyers. Because the local market has been so competitive, most sellers won't take your offer seriously if no pre-approval letter accompanies the offer.

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I'm very wealthy; Why do I need to be pre-approved by a lender?

Your financial position should remain confidential throughout the transaction; To disclose otherwise weakens your negotiating position. Due to the pace of our local market, a letter stating your creditworthiness is, for the most part, a "must-have" to have an offer taken seriously. Financially, the seller should only be informed of your ability to purchase the home.

So why not just have my accountant draft up a letter stating I can afford the home?
By submitting a letter from an accountant or other financial professional, you are sending up a red flag that announces your position. While ability to pay and willingness to pay are two different issues, few sellers will come far off their asking prices when they have an idea that the buyer is wealthy.

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What's typically needed with a loan application?

It's really not difficult to get the process rolling; A Loan Consultant will help you with the paperwork. You willl most likely need to gather up some information to submit with your application....

Information to have ready

W-2's for past two years
One month's worth of current paycheck stubs
Three months of bank statements
Most recent statements for stocks, bonds, 401K and/or retirement

If you are self-employed

Two years personal tax returns
Two years business tax returns
Year to Date Balance Sheet plus Profit and Loss Statement

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What is the difference between "pre-qualified" and "pre-approved"?

Pre-qualification is only a cursory look at your finances without a commitment from either the you or the lender.

Pre-approval, on the other hand, means that you've already gone through the application process and the lender has basically already given the you the loan. The loan is contingent only on the property appraising for the sales price.

Having a pre-approval letter accompanying an offer is a standard practice and let's the seller know you are truly able to purchase their home. It increases the likelyhood of having your offer accepted.

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What are the costs in buying a home?

Zero-down does not mean that moving into your new home will be free; It means zero-downpayment. Closing costs usually equal 2 to 4 percent of your home's sales price - plan for them. You'll also need a certain amount of reserves left over; That's money that you can actually live off of after the purchase closes.

For the most part, you have to pay these costs in cash in addition to the money you've earmarked for your downpayment. Your lender may agree to add the fees to your total loan amount - so you can pay them off in monthly installments.

Federal law requires your lender to provide a Good Faith Estimate (a detailed estimate of your closing costs) within three days after the lender receives your loan application.

Start planning for these costs now; If you want to minimize the amount of cash you need to close the sale, ask the lender to include them in your loan amount. To further cut your closing costs, close toward the end of the month to pay less in pre-paid interest. If your credit is good, expect to pay closer to the bottom range as a majority of buyer's closing costs are from loan fees.

Home Inspection – Since it is the homebuyer’s choice to obtain a home inspection or not, this cost is not usually reflected on a Good Faith Estimate. However, it is strongly recommended. The cost for a home inspection can range from $300 - $500 and the inspector will expect payment upon the completion of inspection.

What do closing costs include?

• Lender fees - charges for loan processing, underwriting, preparation and establishing an escrow account
• Third-party fees - charges for insurance, title search, and other inspections such as termites
• Escrow and interest fees - homeowner's insurance, loan interest, real estate taxes, and private mortgage insurance
• There will also be a fee for recording