Buying a home is a hard and treacherous road to travel. Not only is it complicated, it is time consuming, confusing with so many moving parts and there are deadlines you need to have on your mind constantly. Starting to sweat yet? Well, no need because I am only kidding. A sales transaction can be all of the above but with the proper communication between client and agent, buying or selling can be easier than you ever imagined.
Let’s take a look at what happens first and the best order to progress from where you are right now to getting you into your new home!
NUMBER 1
Get Pre-Approved with a Mortgage Lender. I have a handful of mortgage brokers I work with on a regular basis so if you are unsure where to start, I can help. When choosing a lender, make sure you use someone that answers their phone when you call or are quick to call back. And most importantly someone you feel comfortable talking with. There will be questions and you should have no reservations in asking questions. Next, you’ll head to their secure website and answer some simple questions regarding your assets, liabilities, income, debts. With that information, a lender will be able to tell you based on your debt to income ratio and back end ratio just how much you can afford. Once you have this number, the lender will send a pre-approval to your agent to be submitted with a purchase offer. This proves to any seller that your are qualified to purchase a house in that price range. Pretty painless right?
NUMBER 2
Now you’re ready to begin searching for a home: open houses, private showings, etc. Just be sure you include your agent to every showing including open houses. This will save you a lot of hassle along the way. While looking at houses, be honest with your agent. This will help guide us for future showings. If you don’t like the house, tell us! I guarantee, you will not offend or hurt your agent’s feelings. Shoot! We prefer it! Only this way will we learn what you like and don’t to help us in any future showings and email alerts.
Not to mention, this is the fun part! Not only are you possibly walking through your new home, but as your agent I will learn a lot about you. You’ll begin to open up pointing out what you like, hate or must have. I love seeing this side of my clients, being “real”. Buying and selling can be tense and confusing so I want to make this a fun experience for you and your family. Enjoy your walkthroughs!
NUMBER 3
Make an offer! Congrats, you found a house you can call home and you are ready to write an offer. Now that the social ice has broken during the showing phase, we’ll get down to business with the contract. Although it is 16 pages from front to back, it is much easier if you break it down by section. Honestly, a majority of our contract is pre-written filler. The contract we use has been approved and is revised often through the Ocean City Board of Realtors. Everyone in OC uses the same basic contract. The major items that you will dictate are the purchase price, earnest money deposits, mortgage amount, mortgage commitment due date & settlement date.
Yes, it is that easy! Once your agent put this all in the contract, you are ready to submit your first offer! Pair it with your pre-approval to show you are financially capable, and within a couple days, you should have a response.
NUMBER 4
Let the negotiations begin! There are many strategies you can take when opening negotiations. Most people try to knock as much of the listing price as possible. Although I don’t blame you, many times, the market doesn’t allow for low offers, in fact, it leads to making the seller less willing to negotiate moving forward. In a healthy market, you should be prepared to make a strong offer. This strong offer should be between 5% off listing price to above listing price. This should depend how long the property has been on the market and how many showings they’ve had. If it’s been on the market for more than 30 days, feel free to submit a lower price. But if it went on the market yesterday and you really like the home, offer listing price to incentivize the sellers to accept and take it off the market.
After you submit an initial offer, if you’ve submitted a reasonable number, you will mot likely be met with a counter offer. You can continue this back and forth until you come an agreed upon price both parties are happy with.
Keep in mind, price is not the only negotiating factor. You can also negotiate terms such as earnest money deposits, settlement dates, home inspection period, appraisal contingency. You can waive any of these items or adjust them to shorter timelines as that is usually more appealing to a seller. Ultimately leave your expectations flexible. I tend to be more willing to give what the sellers want because this good faith can go a long way down the line when discussing home repairs.
NUMBER 5
Offer accepted! Congratulations you have come to an agreement on price and terms! But we still have a ways to go. Once the contract is signed by both you and the seller, the contract is “executed”. Because I(an agent) drew up the contract and I am not an attorney at law, this contract is not legally binding…yet. In NJ, you are entitled to a 3 day attorney review period to consult an attorney before the contract becomes binding on all parties. During this period, the house may continue to be shown as it is not “under contract” yet. Even if you choose not to consult an attorney, everyone has 3 business days to back out, revise the contract or re-negotiate. You can even cancel the contract for any reason. Once the 3 day review period is over, the property will be marked “under contract” and both parties will be held to the terms of the contract.
Now that you are under contract, consult with your lender to begin the mortgage application if you haven’t done so already. Second, schedule your home inspection. We have a handful of inspectors we recommend but feel free to call around. Setup the inspection on your schedule and then we will consult with the seller to make sure their home accessible for the inspection.
NUMBER 6
After the mortgage process has begun and the home inspection is scheduled, your earnest money or good faith deposit will be due soon. In the Ocean City contract, your first deposit is due 7 days after all parties sign the contract. So 4 days after attorney review has expired, your first deposit is due to the title company. A second earnest deposit will come due in about another week. I try to make this second deposit due right after the home inspection. If you are happy with the inspection, send in the second deposit. But if you are unhappy with the inspection, you may void the contract and you only have to recoup the first deposit. The checks should be written to the title company and sent directly to them in reference to the property address. The more you put down, the more you pledge to follow the terms of the contract and the stronger your offer is. Should you ever fall outside the contract or learn you cannot follow through with the purchase, you may be forced to forfeit your earnest money to the seller. But this only happens in extreme circumstances. There are multiple contingencies built into our contracts that will protect you and your earnest money deposit should you decide to walk away. But if something catastrophic happens a few days before settlement and all contingencies have been met, you may be forced to forfeit the deposit. If you have questions, don’t hesitate to ask. It sounds risky but as long as you are familiar with the deadlines, you don’t have to worry.
NUMBER 7
Home Inspection time! In our standard contract, you have 15 days to complete a home inspection, receive the report and request any repairs or cancel the contract. Home inspections may need 2 days to complete your report so make sure you schedule sooner rather than later. During the home inspection is your time to ask any questions about the home. The inspectors are extremely knowledgeable and usually provide you with small improvements you can make to the home. As a first time buyer, take advantage of their knowledge. Stay for the inspection, listen and learn.
A couple days after the inspection, you should receive the home inspection report. Items will be listed by category(roof, electrical, plumbing, etc.) and marked inspected, not inspected, not present or in need of repair. Don’t panic! Some things will be marked in need of repair. I have seen this for items as simple as a bi-fold door or as large as foundation issues. So take your time and don’t panic. Take special note of any “safety” concerns in the electrical section. You should be prepared to ask that all such items be repaired by a licensed electrician. You can also ask for anything else to be replaced or repaired! I joke with my clients that you can ask for a bowl of blue M&M’s. It doesn’t mean the sellers have to do anything at all. They have a right to decline all of your requests. In most cases, you are buying a used home. Some things may need to be fixed or repaired but you want to try and limit your requests to items necessary to protect your safety and investment. If the roof is leaking, ask for a new roof! But if a bi-fold door is missing a knob, assume responsibility with the house. Be reasonable and the sellers will be reasonable in return. If neither party can come to an agreement, you are able to make the contract null and void! Negotiation is always a compromise, give and take. To get some repairs, you might have to give some repairs. But fi you are buying a new construction…that’ a different story but this home inspection section isn’t necessarily for you. Even though a home inspection is absolutely necessary for every purchase.
NUMBER 8
Mortgage Commitment Date & Appraisal. On every contract you have a mortgage contingency that gives you a determined amount of time to secure a mortgage. When you secure a mortgage, the lender will issue you a mortgage commitment. This means your application is approved. All your numbers, ratios and debts line up within the programs parameters. And the house appraised for at least the contract/selling price. The lender has “committed” to funding your purchase.
Why does a lender require an appraisal? In order for the bank to give you a mortgage, they will put a lien on your house as collateral. Should you default on the loan, the bank can take your home. So if a lender provides you an 80% mortgage on a $500,000 house, they will give you $400,000. If that house is only worth $350,000 and you fail to repay the loan, the bank cannot recoup all their money because they paid $400,000 and now own a house worth $350,000. Get it? So to ensure the bank’s risk, their lending program must verify the value of your purchase before loaning a mortgage.
So what happens if your home doesn’t appraise for the contract price? Well a couple things can happen. Your first option is to re-negotiate the contract price. This can work in the buyer’s favor by lowering the price to the appraised price. In a highly competitive market, the seller may not be willing to change the price because there were other offers on the table. So if the seller won’t lower the price and your lender couldn’t appraise the house, what happens? One, you can simply want away and deem the contract null and void under the mortgage appraisal contingency. Two, you can still get a mortgage but your terms will most likely change.
Let’s say you made an agreement to purchase a house for $300,000 with an 80% loan ($240,000) at 3.5% interest rate. Then the appraisal comes in at $285,000. If you want the same loan terms with 3.5% interest rate, the bank can only loan 80% of the appraised $285,000. which is $228,000. That means there a difference between the original loan amount of $240,000 and what the bank is willing to give, $228,000. So you have two options. ONE – You get a loan of $228,000 and come up with the original 20% down payment plus the difference the two loans amounts(240,000 original-228,000 appraised) of $12,000. That is the only way for you to keep the same interest rate of 3.5%. Now instead of a $60,000 down payment you need $72,000. Or TWO – you change the terms of your loan. You pay the original down payment (20% of $300,000) of $60,000. $15,000 of that $60,000 pays the difference between purchase price & appraised price($300,000-$285,000). The remaining $45,000 is calculated as a down payment of your bank’s approved mortgage amount of $228,000. $45,000 is only 19.7% of a down payment, not 20%. Because the banks have strict parameters, they can no longer give you a 3.5% interest rate. The rate is now 5% because you cannot put down the full 20%. Doesn’t sound like a big difference but over 30 years, its quite chunk of change. Clear as mud?
NUMBER 9
Settlement Day!!!! Holy cow that was a process! But honestly, 9 steps isn’t a whole lot, is it? Now about a week before the agreed upon settlement date, your agent should schedule an exact settlement time with the title agency. Then a few days prior to settlement, you should receive a preliminary ALTA, which is your final settlement sheet with every itemized credit or debit relating to the sale. This will also give you the dollar amount you need to bring to settlement. This final check must be a certified bank check or cashier’s check. Or you can wire the money a day before settlement.
The longest part of settlement used to be the signing of mortgage documents. Not any more! More lenders are sending these documents through DocuSign so you can sign digitally before you even get to the settlement table. Note that the mortgage docs must be signed the same day as closing.
Now that you signed your mortgage docs, before we get to the title agency, we’ll make a quick stop at your soon to be home for your final walkthrough. This final walkthrough is to verify the repairs were completed, furniture included in the sale is present and everything is in place. I have heard some crazy stories in the past from final walkthroughs. One time top of the line appliances were removed and replaced with dated appliances before new owners took ownership. So to ensure nothing like that happens, always schedule a final walkthrough.
Final step! It’s time to sign the title documents to take ownership of the property. Pretty painless, this portion is relatively small and easy to get through. Once that is done, congratulations! You are the new homeowners and the sellers will provide you with keys to your new home.
Congratulations! You are the owner of your dream home!
