The Home Buying Process, Step-by-Step
Escrow, Inspections & Appraisals
The Initial Agreement and Deposit
Once you have found a property and through the work of a real estate agent, have an accepted offer, the transaction continues. You now have an agreement with the seller that is a legal binding arrangement. Some important tips to keep in mind to streamline the process are:
After your offer has been accepted, you will have to pay earnest money within a short time frame. This is like a deposit for the property and will be deducted from the final purchase price. The earnest money you pay will be determined when the real estate agent writes the offer and will be placed in the an attorney or title company's escrow account until closing. Once you put a deposit down of earnest money, you will not have access to it.
The Closing Agent
Either a title company or an attorney will be selected as a closing agent. The closing agent will hold the deposit in escrow and will research the complete recorded history of the property to ensure that the title is free and clear of encumbrances such as liens and violations. Some properties are subject to restrictions which limit various activities such as building or parking restrictions. There may be recorded easements and encroachments, which limit the rights to use your property. An attorney or title company spends time and resources researching this to avoid legal ramifications allowing them to present a clean title to you as the new property owner.
Once your offer is accepted by the seller, you will want to have a licensed property inspector inspect the property within the timeframe that was agreed upon in the effective contract to purchase. You may elect to have different inspectors inspect the property, if you wish to obtain professional opinions from inspectors who specialize in a specific area (e.g. roof, HVAC, structure). If you are purchasing a commercial property, then you will need to have an environmental audit done on the site for the lending institution.
We can recommend several different inspectors. As the future property owner, you will want to be present during the inspection to get on-the-spot advice and education about the property's condition. An average home inspection will take several hours so ask prior to the inspection how long it will take and afford yourself the time to be in attendance.
Depending on the outcome of these inspections, one of three things may happen:
- Either each milestone is successfully closed or the contingencies will be removed, bringing you one step closer to closing, or
- The buyer, after reviewing the property and the papers, requests a renegotiation of the terms of contract(usually the price).
- The buyer and seller are unwilling to negotiate deal is rendered null and void. If this cancellation occurs inside of the contingencies, the buyer should receive their escrow deposit back and the home is placed back on the market.
Appraisal and Lending
If the agreement is conditional upon financing, an appraisal will be arranged by your lender. This is to ensure both you and the lender that the property is worth the price you will pay for it and confirm to them that their investment in your property is accurate. An independent licensed appraiser will be sent by your lender to determine the value for the lending institution.
Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. After the appraisal is complete, your lender should contact you with the value of the home. If this does not happen, contact your lender immediately. During this phase, it is important to keep communication open to avoid any snafus that may affect closing on time. When you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.
Many properties are part of a larger organization such as a condo or homeowners' association who often have to approve the purchase. This is a good thing as it protects and preserves the integrity of the property by overseeing its maintenance and appreciation. Through your real estate agent, request the rules, regulations, and other important documents from the seller as soon as you have an effective agreement to purchase. Ask your agent to ensure that the application documents and processing fees are submitted to the appropriate person at the association by the required time.
Fill out all of the information completely and legibly so there is no delay in processing the application. Some associations require a personal meeting or interview. If so, make an appointment as soon as possible for the interview. Most associations require a certificate of approval before move-in. Your closing agent will request that the original copy of this approval letter be brought to the closing, so that it can be recorded with the deed in the county public records.
If you are obtaining a loan, you will be required by your lender to purchase a homeowners' insurance policy on the property. The value will depend on the lending institution and the purchase price of the property. It is wise to shop and compare rates and coverage with several companies. There are several ways to potentially save money on homeowners' insurance such as:
- Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
- Ask your insurance agent about safety and/or senior discounts. You may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials. Persons over 55 years of age or long-term customers may also be offered discounts.
- Insure your house NOT the land under it. After a disaster, the land is still there. If you do not subtract the value of the land when deciding how much homeowner's insurance to buy, you will pay more than you should.
We can recommend experienced knowledgeable insurance agents for every property type.
Final Walk-Through Inspection
More of a formality than anything else, the final inspection takes place a day before, or the day of the closing. You will visit the property to verify that all is in working order, everything is the same as when you last viewed the property, that there are no extra items left behind, and that everything included in your purchase is still at the property. In other words, this procedure ensures you that the property you purchased on paper is the same property that you will soon own in person. Your agent will arrange the final walk-though inspection but if you have not been notified a few days before closing, communicate promptly.
Home Services and Utilities
We will provide a list of useful numbers for the activation of home services and utilities after the closing occurs such as local utility providers, contractors, home building suppliers, pool companies, lawn service, alarm companies, etc.
The closing agent will furnish all parties involved with a settlement statement, which summarizes and details the financial transactions enacted in the process. You and the seller(s) will sign this statement, as well as the closing agent, certifying its accuracy. If you are obtaining financing, you will have to sign all pertinent documentation required by the lending institution.
If you are unable to attend the scheduled closing, arrangements can be made depending on the circumstances and the notice that we receive. If you are bringing funds to the transaction, you can have the funds wired electronically into the closing agent's escrow account in the amount specified on the settlement statement. The seller should arrange to have all property keys and any other important information for you at the closing so that you may receive these items at this time.