Congratulations for preparing to purchase a property! There are three main steps in the home buying process, and I will break each one down for you below.
Buying a house is a very large financial transaction. Before doing anything else, you should figure out how you will be paying for your new home. The two main ways are cash or a mortgage (loan). If you'll be paying cash, your Realtor will need to get a copy of your proof of funds (can be a bank statement with sufficient funds, with account number and personal info blurred out). If you will be obtaining a mortgage, see the information below.
First, you'll want to call a mortgage lender. You'll want a mortgage lender who has plenty of experience, great referrals, and is professional. Most buyers prefer to work with a local lender, because the local lender will know about the areas you are interested in buying in. This is especially important if you are considering a condo, because there is an added layer of complication when getting a loan on a property with an HOA (Home Owner's Association).
The lender you call with ask you a variety of questions. They will ask who will be on the loan docs, ask about your employment history, and discuss outstanding debts you have. They will also want to run your credit score, because banks are much more willing to loan money to people who have a track record of paying money back. You will need to send numerous documents to the lender, and they will tell you what exactly to send.
Your lender will discuss loan options with you. The most common types of loans are conventional, FHA, and VA. Each one has pros and cons, so you'll want to work with your lender to determine which is the best fit for you.
You will be paying a fee for the services of your mortgage lender, so you want to make sure to hire someone competent who you feel deserves the fee you will pay. Having a great lender on your side is essential in a real estate transaction. A solid lender will help the deal close on time by making sure our loan gets funded within the deadline stipulated on your purchase contract.
If you need assistance finding a lender, please let me know, and I'll be happy to refer you. Or, you can fill out my form on the page "Request a Pre-Approval."
Second, you'll want to determine your price range. The pre-approval you obtain from your lender will be the main tool you use to do so. In general, you can typically spend slightly more than the pre-approved amount, but not much. It's safer to stay within the pre-approved amount.
Just because you are approved for a certain amount does not mean that you have to spend that much. If you are pre-approved for $600K, there is nothing wrong with spending $500K. This is especially true if you have expensive hobbies, love to travel, or want to do some updates to the house immediately.
Sometimes, looking at a total dollar amount for your budget is confusing. It can be helpful to figure out how much you can afford to spend each month, and then figure out how much the total budget is based on that. You can play around with the mortgage calculator function on my website.
Once that budget is solidified, avoid the temptation to let it creep higher and higher. If you allow yourself to daydream about spending an extra $50K, it will be emotionally difficult to come back down to reality and look at homes within your budget. Know your budget, and stick to it! Your Realtor should encourage budget loyalty and should not tempt you to push the budget if you are unable to.
Third, save a copy of your pre-approval letter from your lender, and send it to your Realtor. It usually takes a lender between 1-2 days to obtain a pre-approval letter from your lender, if you qualify for a loan. Once you have it in your hands, send it to your Realtor. Your Realtor will need to attach the pre-approval letter (as well as proof of funds for down-payment) to the offer you make on a property. A pre-qualification letter isn't good enough. With a pre-approval, a lender has actually reviewed and confirmed your financial situation, so the pre-approval holds much more weight than a pre-qualification.
Sellers require that the pre-approval letter be attached to the offer because they want to know that you can actually afford the house, and that it is very likely that your loan will go through.
Hooray! You have your budget set! It's time for the fun part of the real estate buying process--looking at homes.
First, you need to find a solid Realtor that you trust. Your Realtor needs to understand the market, work hard, be available to you, and keep your best interests at heart. Your Realtor will be your ally throughout the entire process, so choose wisely.
Many people choose to work with a Realtor that is a family member of friend, or someone that threw a flyer on their door. I recommend working with a Realtor that gives you solid market information, has done plenty of real estate transactions, and works in the area that you're trying to buy in. These are the agents that are typically the most reliable, professional, and knowledgeable.
As a Realtor, I personally do not see my role as a salesperson. I see it more as being a presenter of all of the important information in a way that makes sense to clients, and then helping them navigate that information to arrive at a great decision. That decision may be to wait a few more years before buying, or to buy immediately. It may be to help lead buyers towards areas with the best resale value. In any case, my role is to support and advise, so that you, the consumer, benefits.
Next, now that you have a pre-approval and a Realtor, it's time to start looking at houses! Your Realtor will ask you for for some general information about what you're looking for (neighborhood, number of bedrooms, fixer vs. updated, etc) and will then send you some listings. Take a look at the listings online, and narrow it down to your favorites.
Keep an open mind when viewing listings online. It's important to focus on the key features of the home, such as size and location. The photos of the house may not accurately represent the actual house, which can be either better or worse than the pictures. If the house fits your general criteria, it's probably worth taking a look at in person.
Many buyers feel that they need to see a ton of homes to get a true feel for the market and for what they want in a house. I certainly advise seeing at least a handful of homes. However, when you start to see 10, 20, or 50 (!!!) homes, it can get confusing and overwhelming. If you love the third house you see, and it's within your budget, consider making an offer. If you continue viewing properties, someone else can come put an offer in on the house you loved while you're out seeing countless properties.
Finally, once you have looked at the homes you are interested in and know which is your favorite, it's time to write an offer. Your Realtor will help you navigate through the paperwork. You can either sign your offer in person or online with an E-signature (which is easier, in many cases). Make sure to ask all of the questions that you need to in order to feel comfortable signing your offer.
A common homebuyer mistake is to try and submit a lowball offer on their first deal. As a new buyer in the real estate market, you may feel as though you deserve a great deal. No one gives anything away in real estate. In San Diego, our list price to sales price ratio is over 97%. That means that a lowball offer of 90% of the list price would be very inappropriate if the home is priced at market value and in good condition.
Your Realtor will submit your offer, and if the sellers agree, they will sign the purchase agreement. At this point, your Realtor will work with the seller's Realtor to open Escrow. You will want to hire a home inspector and schedule a time for him to inspect the property. A few days after the inspection, you will receive a list of issues with the property. If the list is massive, don't freak out! You are paying them to find every tiny defect. Have the inspector point out any MAJOR issues to you, because those are the ones to be concerned about. Discuss with your Realtor which items, if any, you'd like to ask that the seller repairs or provides a credit for. For a more complete list of items to take care of after your offer is accepted, check out this article on my site with a checklist of things to do during the Escrow process.
Avoid the temptation to nit-pick through the issues of the property when negotiating the request for repair. If something will be a quick and easy fix for you to do, just do it yourself. Ask for repairs for issues that will be difficult or costly for you to do yourself. This will set the tone for the sellers that you are reasonable and easy to work with, which will work to your advantage should any further issues arise during the transaction.
At this point, you are heading towards the finish line! There are only a handful more details to work through before your Escrow can close.
First, verify that everything is going smoothly with the title insurance and your loan. Ask your Realtor for an update about the title insurance. She will be able to tell you whether the title of the property is free and clear of liens at this point. Call your mortgage lender and ask if they are still on track to fund your loan on time. Advise your Realtor if they say anything other than "of course!"
Your Realtor will have numerous documents for you to sign at this point, and throughout all steps of the buying process. Make sure to sign them quickly, because many of them have deadlines. If you have any questions about any form, call your Realtor for further explanation.
Next, you'll want to put a date on the calendar to sign your closing documents. The transaction coordinator I work with is also a Notary Public, so I recommend having her facilitate the document signing. Ask your Realtor which day would be appropriate for the signing; Escrow must have the loan documents before you can sign (or else you'll show up to the appointment and there will be nothing to sign!)
You'll also want to schedule a final walkthrough with your Realtor. There is normally nothing shocking that occurs during the final walkthrough. You just want to confirm that they property is in the same overall condition as it was when you put the offer in. If the seller has moved out and taken appliances they were supposed to leave, for example, now is the time to deal with that. Your Realtor can accompany you on your final walkthrough to make sure the condition looks satisfactory to her, too.
THE LAST HURRAH: It's time to show up to your appointment to sign the closing documents! This appointment typically takes about an hour. Once your closing documents are signed, they will be returned to Escrow, and Escrow will send them to your lender. At this point, the loan will fund. Escrow will transfer the title to your possession, and the home will become yours. You can pick up the keys and celebrate!
As a buyer, pay the most attention to:
Having a great team around you (Realtor and lender)
Purchasing a property with solid resale potential
Signing documents soon after they are sent to you
Asking any and all questions as they arise