Douglas W. Canipe (704) 915-5104 www.dougcanipe.com
Well, this is my first shot at blogging so I thought I would start with the basics and try to lay out a simplified version of what the process of purchasing a home is like.
It can be a little surprising sometimes to find out how little people actually know about the process and what to expect getting from pre-qualification to closing so I’m going to try to strip this down to the bone and make it as straight forward and simple as possible. Hope I can do it.
OK…so you want to buy a home. Where do you start?
First off, you want to make sure you have some cash on hand for due diligence and earnest money as well as to pay for an appraisal and order a home inspection. You are also likely going to need money for your down payment depending on the type of loan you are applying for.
Then, you will want to contact your bank or a local mortgage provider and ask to get pre-qualified or better yet, pre-approved for a mortgage loan.
What this means is that a loan officer is going to ask you for some information about your employment, income, and your monthly expenses as well as checking your current credit score. You want your credit score to be as high as possible but at least a 640. This entire process should take no more than an hour if not quicker. Your lender can go over the types of loans available for you so you can decide which direction you want to go in.
FHA loans are the most common and require you to put down 3.5%.
A conventional loan will require 5% down.
USDA loans require no money down but you need to be able to qualify based on income and not all homes can be purchased with a USDA loan.
If you are or were in the military, a VA loan may be the best loan for you.
VERY IMPORTANT!!!! Make sure all information you give your lender is 100% accurate and up to date. Do not leave out any expenses or stretch the truth about your income. During the entire home buying process, do not change jobs, do not make any major purchases on credit like a car, furniture, etc. Do not open any additional checking or credit card accounts. Any change to your income and monthly expenses can put up a red flag and result in your loan application being denied.
If everything checks out OK and your credit score is good, they will tell you the maximum amount you can borrow and what price range you should be looking at. I always suggest that you never go for the maximum amount….give yourself a little cushion because you never know when an unexpected expense like a car repair or doctors visit may pop up and put a strain on your monthly bill payments.
Once you are pre-qualified or pre-approved, the lender will issue you a letter saying that your are OK to begin the house hunting process.
That is when I get involved.
First, we will sit down and map out a strategy to determine what features are most important to you in a home. Location, size, number of bedrooms and bathrooms, age, size of the lot, school district, parking, etc.
Then we will try to locate a few homes that most closely match what you are looking for.
You can do quick ride bys of these homes to see what the surroundings are like. If you think a certain location might work for you, let me know and I can make an appointment for us to go view the inside of the homes. You always want to look at several homes in the beginning to give you an idea of what the market is like and get a sense of what is going to be available in the price range we are looking in. Sometimes people end up buying the first house they look at…sometimes we may have to look at 10-20 before making a decision.
My best advice here is to be focused on the things that are most important to you but don’t get discouraged if you haven’t found something after a week or two of looking. It can be a process and sometimes you might want to step back and refocus before making appointments to see more homes.
OK…we found the perfect home and want to make an offer….now what?
Well, we write up the offer and present it to the seller. With this offer we are also going to choose a closing date which is going to about 60 days from the time we actually get the offer accepted and signed by the seller. Before making an offer I’ll look into other recent sales of similar homes in the area to see if the house is priced correctly. If it is, and it’s a home that you love….chances are, there are other buyers who might feel the same way so we may have some competition…I won’t get into the multiple offer situation right now. Let’s pretend like you are the only one looking to buy this home. Some buyers insist on making a low-ball offer right off the bat. My experience says this is a mistake unless the home has been on the market for an extended period of time. Negotiations are going to go much more smoothly if your initial offer is reasonable and in the ball park.
No, you don’t need to go full price, but you want to come in with a number that is going to make the seller willing to negotiate with you on things like paying your closings costs and doing repairs. Closing costs are fees charged by the lender as well as the cost of hiring a real estate attorney to do the title work and conduct the closing. As a general rule of thumb, closing costs are going to be around 4% of what the purchase price of the house is. In this market, it is common for the sellers to agree to pay all or at least a portion of your closing costs but your offer is going to have to be reasonable for them to agree to do so because any amount they agree to pay is coming out of their proceeds from the sale.
OK…we agreed on a purchase price and the seller is going to pay $3000 of your closing costs. Now what? Well, in North Carolina there is now something called a due diligence period. This is a time of usually around 30-45 days where you get to inspect the property and work on getting your loan finalized and approved. The seller is probably going to ask for some due diligence money for agreeing to take their home off the market for this period of time. Expect this amount to be around $100-1000 depending on the price of the home. This money goes directly to the seller up front. It is theirs to keep whether you end up buying the house or not. However, if you do buy it, that money goes towards the purchase price of the house.
You will also have to put up some earnest money. This is basically money that shows the seller that you have serious intentions of buying the home. This money will go into a trust account and be held there until the closing. If you buy the home, this money also goes towards the purchase price of the house. However, if you decide to back out of the deal for any reason….or no reason…you will get this money back. Usually, earnest money will be around $250-1000 depending on the price of the home. Since the sellers aren’t going to get this money if you back out, it is less important to them so you may be able to get by with offering around $250 on most homes.
Now it’s time to have your home inspections done…we hire someone and they go out to look at the house, the well water, the septic system, active termites, anything that you want to have inspected or that the lender wants to have inspected. This will usually take them anywhere for 2 to 4 hours depending on the size of the home. Once the inspection is complete, the inspector will give you a report in writing and explain to you any serious and non-serious issues they found with the home. Based on this report we will make a decision on if to move forward or not. If we decide to move forward, we will present the seller with a repair request and negotiate concerning what they will agree and not agree to have repaired. It never hurts to ask them to repair everything if the list is small, but I always recommend that we focus on the larger items having to do with structural, mechanical, plumbing, electrical, well, septic, and roofing issues.
Usually, the seller has been made aware by their agent that they may be required to make some repairs and already have an idea of what those might be and we can always reach some sort of an agreement. Sometimes however, an issue might pop up that catches everyone by surprise and might involve some serious negotiating or bringing in contractors to look at the problem and offer up solutions and give quotes on the cost of the repairs. The seller could agree to make the repairs, we could wind up renegotiating the purchase price, or you could just decide to terminate the contract and move on. In my experience, that rarely happens unless the issues are just way too serious and costly to repair.
While this is all going on, your lender is working on your loan and trying to get final approval. This will require them ordering an appraisal which you will normally have to pay for out of pocket up front. The cost of an appraisal usually runs between $400 and $600 depending on the lender.
Appraisals are usually never an issue but sometimes you can be surprised. The way the market is right now, you will rarely see the home appraise for anything above the amount you offered…but sometimes it may come back lower that what you offered. If this happens, the lender will only lend on the amount the house appraises for. Normally, we can ask to have another appraisal done but in my experience, this rarely solves the problem and just takes more money out of your pocket. The best thing to do is go to the seller, show them the appraisal, and ask them to lower the purchase price. They may be agreeable depending on their circumstances, they may refuse, or they may be willing to come down halfway with you coming up halfway with out of pocket cash. Again, this is usually something that gets worked out one way or another…but if we can’t reach an agreement you can terminate the contact and get your earnest money back since the due diligence date has not expired.
Sweet…the appraisal came back good, the loan officer says everything is looking fine with the loan approval, and the seller agreed to make some repairs…..we are getting close. If you are comfortable with everything we can allow the due diligence period to expire without terminating the contact and move towards closing.
Basically at this point, we are just waiting for the closing attorney we have selected to do the title work on the house, declare that the title is free from any old claims or liens, prepare the deed and all final paperwork, and wait for your lender to tell us that the loan is approved and that we are clear to close. Then we will review all the final numbers to make sure everything is in order. We can also order a re-inspection of the home to make sure all the requested repairs were properly done.
Then on the day of the closing we will go to the house to do a final walk through, make sure no damage was done while the sellers were moving, go to the closing attorney’s office to sign everything…..and then…we hand you the keys to your new home! HOORAY!
Wow, that was a little longer than I thought it would be….but it is still a very stripped down and simplified version of what to expect. No two deals are ever alike and there can always been unexpected pitfalls and road blocks along the way. That’s what I am there for….to help you move over and around them and get you to the closing table to purchase your new home.
So….if you are ready to get started…get in touch and let’s get that ball rolling!!!
Call or text me anytime at 704-915-5104 or visit me on the web at http://www.dougcanipe.com
Thanks so much for reading my initial blog. I plan to update at least once a month for more helpful infomation. If you have any suggestions or questions, please let me know. Thanks!!!
Steps to buying a home in a nutshell!!!! Overly simplified version 🙂
1. Make sure you have cash on hand for down payment, appraisal, inspections, etc.
2. Select a lender or mortgage broker and ask to be pre-qualified or pre-approved.
3. Talk to your real estate agent and decide exactly what kind of home you are looking for.
4. Select a few homes, drive by them to see if they might fit your needs, have your real estate agent schedule a time to go look at them.
5. Locate a home you are interested in purchasing.
6. Make an offer, reach an agreement on price, due diligence money, earnest money, select a due diligence and closing date, have seller sign the offer. (45 days for due diligence, 60 days to close)
7. Inform your lender that you are under contract, select a closing attorney, schedule any home inspections you would like to have done.
8. Make repair request to the seller and negotiate repairs.
9. Once repair agreement has been reached, allow due diligence date to expire and move towards closing.
10. Have repairs reinspected.
11. Tell attorney to begin title work and preparing deed for closing.
12. Get final approval and clear to close from lender.
13. Do a final review of all closing documents to make sure all numbers are correct.
14. Go to closing, sign all required documents from lender and attorney, get your keys, MOVE IN!!!!