The Home Buying Process
1. Today the process starts with determining your comfort level of a) monthly mortgage payment, and b) the amount of money that will be needed at the closing when you get the keys to the house. While you can estimate those yourself, a better way is to meet with a mortgage lender to obtain a “Good-Faith Estimate” which is a standardized format for lenders. That also allows you to compare lenders using that form. Another reason for starting the process with a lender is that in recent years a “pre-approval letter” has become a condition of a many sellers before accepting an offer on their property. If you don’t submit a lender letter with your offer they don’t consider your offer until you do.
We assist clients with the mortgage process if they want our assistance. Click on Mortgage Counseling Guidelines for our free article about how to evaluate and choose a mortgage lender.
2. Step two can be either doing research on your own or meeting with a real estate professional. If you choose to do research on your own you can drive the areas that you already know you want to consider (if you are already familiar with where you think you want to live) or you can meet with someone to discuss your objectives and preferences and let them suggest areas that fit you budget, preferred school district, preferred age of properties, size or other criteria.
a) If you drive around to find properties on your own you will likely find properties with real estate sign in the yard. That approach is good to ELIMINATE areas that you do not want to consider in the future (due to traffic, location, age of the houses etc.) but it is a poor way to EVALUATE the area. You can also do research on the internet (surfing real estate websites) which will provide more information on properties but now you are putting yourself in the position of being “sold” property by someone who represents the seller.
b) The other choice is to meet with a real estate professional. Now your choice is to meet with someone who is a “buyer’s agent” or someone who is an “exclusive buyer’s agent”. There is a HUGE difference (see our Glossary). Anyone with a real estate license can call themselves a “buyer’s agent” just as anyone with a medical degree can operate on your foot, your ears, or your brain. Another analogy would be that any “mechanic” could work on the transmission of our car. Is buyer agency that specialized? Yes, it is a different mindset than selling real estate. We buy every property as if our client is a brother or sister-in-law and if we make a mistake that we will hear about it at the family reunion for the rest of our lives. That is a different mental approach than agents who are interested in “selling” you a property, getting the commission, and moving on to the next commission as quickly as possible. Further, an “exclusive buyer’s agent” has made the choice (we believe the clear ethical choice) to only represent one party (buyers) in a transaction. Our reasoning is that if an ethical attorney or ethical CPA would only represent one party in a transaction to avoid conflicts of interest then real estate agents should follow the same ethical approach. Why don’t real estate agents? Money. Agents make a lot more money “selling” their own listings. So we suggest meeting with several firms to compare their buyer agency services (Click here for criteria to compare agents).
3. Once a real estate agent is selected then they can begin assisting with the home search. That assistance begins with a meeting wherein you outline your objectives, purchase-timing considerations (selling your present home, when your apartment lease ends, when you are relocating or changing jobs, when school is out etc.), your target price-range, preferred location, age of property and other criteria. From that an agent can develop a list of areas and specific houses that you might consider. Someone who lists properties will be inclined to look first to see if they can sell you one of their listings. Compromising YOUR interest is the fundamental conflict we avoid by not listing properties. Often our agents also preview properties to see if they meet your criteria of condition before showing them to you to save you time seeing properties that just don’t meet your criteria. For example a picture may not show that a property backs up to a major road or commercial objectionable property.
4. Next we show properties to keep refining your selection criteria. You may start out wanting a two-story house and end up wanting a one-story. Frequently clients will start out firmly wanting one neighborhood or area and end up somewhere else. As you see properties you may decide you want a “split-plan” with the master bedroom separated from the other bedrooms in the house. This is a process of narrowing down areas, narrowing down criteria such as floor plans until a good target property is determined. Now you may buy what is currently available or we have had clients wait for over a year until jus the right property is available. This is also another aspect where exclusive buyer agents differ from “selling” agents. Once you have narrowed your search we can look for For-Sale-By-Owner properties that meet your criteria. Traditional agents who are primarily interested in selling you property will first try to sell you their own listings, then try o sell you something currently available that is a reasonable fit (in their mind) and if nothing happens they will dump you to move on to a quicker commission with someone else. Our commitment is to YOU, not to making as much money as possible as quickly as possible.
5. Now you’ve found a property to want to purchase. We research the property itself and comparable sales just as if we were purchasing the property for ourselves. That means checking the history of a listed property to see what price changes may have occurred. That means finding out more information about the seller, their motivation, what they paid for the property (if available). We help you determine a negotiating strategy and a firm walk-away price that you are at peace with if you are not successful in buying the property. We also protect your interest in preparing the contract offer.
6. Assume that your contract is accepted. In your contract there will generally be an option period to perform inspections on the property. We assist you in finding qualified inspectors that protect YOUR interest in purchasing the property. If inspections identify repairs that would change the value of the property to you then we assist you in re-negotiating the contract. Sometime that means walking away when the seller will not make repairs or reduce the price in the contract. Then our role becomes protecting your financial interest (returning your earnest money).
7. After inspections and before closing is a time to shop for insurance, lock in an interest rate with a lender (if not already done), schedule change of utilities, and review the closing papers. The “Good-Faith Estimate” you received at the beginning of the process is now compared with the HUD Settlement Statement that documents the financial portion of the transfer of the property. We review that HUD Settlement Statement line-by-line to be sure that there are no surprises and that your interest is protected if any charges need to be questioned. We also generally do a “walk-through” the property with you the day before closing to be sure everything is the same as when you last saw the house (no fixtures changed, fire-place logs still there etc.)
8. At closing we accompany you to answer questions you may have and to again protect again there being any surprise disclosure or other forms presented to you to sign.
9. After closing we follow-up to insure that there have not been any surprises (something that worked during the inspection but not when you moved in). We coach you on forms that you will receive soon (there is a homestead form scam that is an official-looking service that asks you to send money to file for homestead when you cannot file until January of the subsequent year). We also assist you in knowing what to file (and when to file) with the local appraisal district to have the property ownership changed.
Years after the purchase of your property we continue to be available to answer questions what may arise. You cannot imagine some of the questions we have answered over the years but we are pleased to do so because it shows that clients still want and trust our counseling. We also receive a tremendous number of referrals of friends, family, and co-workers from maintaining client contact.