We have a passion for helping people build wealth through real estate, and we understand that the education process is key for successful investments. So in this blog, we’ll walk through the basics of the home buying process, hitting each step of the way from deciding buying a home might be right for you — all the way up to getting the keys to your first home.
Some home buyers start their search on accident, while for others it’s a long and thought out decision to make the move. Regardless of if you’re certain about your home buying decision through months of careful thought, or if you walked into an open house for the first time ever today, the next steps are about the same.
You’ll want to assemble a team around you of competent people you trust that can help you through the process. These people typically are your real estate agent and your lender, but may also include a family member or friend that will be there for moral support and as a sounding board through the process. Be sure to check out our additional content on how to find and how to interview a real estate agent that’s the right fit for you.
However, in summary, recommendations from family and friends is a good place to start, followed by some interview questions to make sure they understand your needs and you’re a good personality match for each other.
Most people tend to find their lenders through their real estate agent. In Oakland and Berkeley, for example, the market is so competitive that having the right lender can actually mean the difference between an accepted offer and one that’s rejected. Also, some lenders offer advantageous loan programs that are specific to certain areas. So be sure to speak with your agent for recommendations on lenders that can both make your offers more competitive as well as provide good loan terms to potentially save money in the long run.
Once you find a good lender, it’s time to put that lender to work and submit a loan application for a mortgage, if needed. This process usually involves digging up a lot of paperwork and therefore does require some patience. You’ll potentially need to submit some tax returns, paystubs, bank statements, job offers, and much much more to get through the pre-approval process. Ideally, your lender is not only taking in all this information, but also having their underwriter review the documentation. Taking care of the underwriting process at this stage can allow you to submit offers without the need for a financing contingency–which we’ll talk about later. It can also help the lender close the loan quicker, which makes your offers more attractive to sellers and ultimately gets you into your new home sooner.
Getting through the pre-approval process early also helps solidify your budget for the new home. The lender will give you a rough number for the most you can possibly spend on your new home. This process also will help give you clarity on how much you WANT to spend as the pre-approval number may result in a monthly payment that is far higher than what you’re comfortable with.
You can now reconcile your budget with your list of wants and needs. For example, If you want a 4 bedroom house in neighborhood X, but your budget will only get you a 2 bedroom house, something’s got to give.
Usually this process with our clients involves prioritizing wants and needs to discover what is of utmost importance. In the example I just mentioned, some buyers may decide that having the 4 bedrooms is more important to them than neighborhood X, and therefore they may move their search to neighborhood Y instead. Others though require to stay in neighborhood X even if that means a much much smaller home.
Your real estate agent can help you through this process.
After you’ve established your priorities, it’s time to start searching for and looking at homes. Your real estate agent will set you up on alerts so you’ll be informed of new listings that meet your criteria right away after they become available for sale. They may also point out opportunities that are available off-market or before they become listed for sale.
You’ll then want to schedule a time to view the homes that appear to be the best matches. Give your agent a call so they can set up appointments to get you in the homes. I typically recommend not seeing more than 6 or so in one day as they’ll all start to blend together.
At the homes, take the time to consider what it will actually be like to live there. The home may be staged with borrowed furniture that perfectly accents the spaces, so bring a tape measure and consider how your belongings will fit.
Take in the surrounding area as well. Are there any neighbors that may be difficult to live near? Is there noticeable road noise from a nearby highway?
If you decide this is the house for you, let’s consider writing an offer. Before we actually put pen to paper, we’ll want to do as much exploration and investigation as possible. This commonly means two things specifically: reviewing disclosures provided by the seller and looking at market data to determine what the value of the home is to you.
In our market in the Bay Area, it’s common to receive a fairly complete disclosure package from the seller prior to entering into contract. These disclosures will contain any material facts the seller is aware of–that is, the seller is required to tell buyers anything they know that could impact the home’s value, such as anything broken, noisy neighbors, et cetera.
In addition to reviewing the disclosures that are provided, you’ll want to look at market data to come up with a price to offer for the home. Your real estate agent will find you sales that are comparable. That is, sales that are nearby, recent, and similar to the home you’d like to make an offer on. Looking at these sales and making adjustments for things that differ among the homes will help you land on a price that is attractive to the seller, likely to beat out the competition, yet is a fair price for the home in question.
Once you’ve determined your price, you can put pen to paper and draft your offer! In California, our offer to purchase becomes our purchase contract once it’s signed by all parties. This means–since it’s a contract–that you should understand all your obligations and be sure you can perform on the contract.
There are a few main terms that you’ll likely consider on any offer written. These are: the price, how quickly you’ll complete the purchase, how long you’ll need to investigate and inspect the property, what your loan terms will be, and who will pay for which closing costs. The contract is around 10 pages long, so there are certainly other things that need to be decided and agreed upon, though these are the main considerations.
Assuming your offer is accepted by the seller, it’s time to perform on your contractual obligations. This means putting in your initial deposit, scheduling inspections, and working towards closing. Your real estate team will make sure things with your loan progress, including ordering an appraisal and underwriting the loan. Additionally, the team will work to provide a report confirming you’ll be delivered unencumbered title to the property, and may provide insurance estimates to cover your investment.
Shortly before taking ownership, you’ll have the opportunity to walk through the property one last time to confirm it’s largely in the same condition as when you first make an offer on the property. This happens about the same time as when you’ll send in the rest of your downpayment amount and when the lender sends the loan proceeds to the escrow company.
You’ll also need to sign your closing documents. This happens in front of a notary often at the offices of the escrow company. Your closing documents largely consist of the loan papers, which is a large stack containing your promissory note, deed of trust, and full amortization schedule for your loan. It can be quite overwhelming for first time home buyers to see the giant stack of papers, so take a deep breath and do some hand stretches to avoid cramping!
After everything is signed and the lender sends in the funds, the transfer can be recorded. This happens when the escrow company sends the deed and deed of trust to the county to be recorded. Once we have confirmation of the recording, you’re officially a homeowner!
So there it is! That’s the homebuying process in a nutshell. There are of course many permutations to the process, and your experience may differ based on special circumstances or the area in which you’re buying.
Are you in the process of buying a home or considering it? Let us know in the comments below! We’d also love to hear from you if you have any questions about this process. We love to help!