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Eight Simple Steps for home buyers

Purchasing a home is one of the biggest investments in our lives and understanding the process and preparing ourselves, will make an easier journey. Although buying our home may vary from state to state, due to real estate laws, we will be able to find some common steps to make it an smoother transaction.

Step 1: Gather general and financial information

The first step to purchasing a home is to gather some general and finance information. Following we will find a list of items that most finance companies will be asking to provide a pre-approval:

           - Complete 2 year tax returns (Sometimes lending institutions will accept W-2's)
           - 1 month of latest pay-stubs
           - 2 years residence history (Sometimes banks will accept 12 months of bank statements)
           - 2 years of employment history
           - Credit Score (Finance company should be able to pull your credit report)
           - Last 3 months bank statements (For down-payment purposes)
           - Determine the type of mortgage loan (Number of years, fix, adjustable, down payment amount,
             FHA,VA, Primary Home, Second Home, Investment Home)
           - Familiarize ourselves with the laws that protects us as consumers


Step 2: Shopping for the correct mortgage and "Pre-Approval"

This is the most important step of buying a home, as this will determine what our monthly payments will be. Therefore, choosing the correct lending institution is vital. Since there are many different types of mortgages available it is important to understand as how mortgage qualification works:

Assuming that lender accepts the provided information mentioned on "Step 1", a lender will determine if the subject property is a "Primary Residence", "Second Home" or "Investment property", based on the presented application. The lender will further calculate the qualified "Down Payment" deposit contributed by the prospect borrower. The lender will further determine the loan to value (LTV) and price the loan accordingly with an interest rate (The higher the LTV, the higher the interest rate). (for the most part, the rates and loan to value ration will be affected if is not a "primary residence").

(Base on this information, the financial entity should be able to provide us with a pre-approval).
After 3 days of the submitted application, The lending institution has to provide us, by law, the "Good Faith Estimate" (GFE).

In the GFE you will find important inform such as, loan amount, interest rate, term of the loan, closing cost charges, monthly payments, etc.

Please note: The "pre-approval" will contain main conditions that will be needed in order to the lending institution will "commit" to lend money (A/K/A "Loan Commitment").

Step 3: Obtaining the loan commitment

Once you meet all required conditions on the pre-approval, the lender will provide you with the "Loan Commitment". It is important to understand that the "Loan Commitment" has an expiration date, and you want to close on your property within the time frame provided. Failure to close on the provided time, may result of a term variation of the loan.

By now you will be able to search for your desire home, for the price that you are pre-approved or committed by the lender. A loan commitment in many occasions becomes the winning tool if the seller is presented multiple offers. Let me give you an example: Assuming that there are 3 offers on the table, for the same purchase price, and the seller needs to make a decision from the following:

          - Buyer # 1 makes and offer with out a commitment letter and requests, 45 days to close on the
            house (The buyer has to go through the pre-qualification process).

          - Buyer # 2 makes also an offer with a pre-qualification letter and requests 30 day closing.
            Buyer # 2 has to meet ALL pre-approval conditions to be granted the loan commitment.

          - You submit your offer and request to close in in less than 30 days, with your loan commitment.

Keeping in mind that the seller's main objective is to sell the property as fast as possible, the seller will very likely pick your contract as the lender has already received the required paperwork and has committed to lend you funds. The new buyer's bank has already committed to lend to the new buyer.

Step 4: Select a desired area and seek professional services from a Realtor

On a piece of paper write down exactly your priorities for what you need, not want, your prospect home to do for you. Start your list from the highest priority down to the least priority. (You will be amazed with your list).

You further want to seek professional services from a realtor.

Working with a realtor can be fun an easy, but understanding the realtor's duties is the key.

In order to qualify your realtor you want to test their knowledge. Here are some questions that you might want to ask:

           - How many years have you been in the real estate business?
           - Do you have your own website? How often is it updated?
           - How would you describe your strategy for making deals?
           - Are you a member of the MLS?
           - Will my calls get returned in a timely manner?
           - What are the pro's and con's of the area that I want to purchase?
           - What kind of experience and training do you have in negotiating?
           - Will you be able to provide me at least 3rd party vendors for each field (such as closing
             agent, insurance agent, appraiser's, surveyor)?

Step 5: Search for a home and making an offer on a desired home

It will be very likely that a realtor will provide you with a properties-list available in the desired area. You might want to consider to also pick real estate magazines or newspapers to narrow down your home buying search.

After searching for properties and selecting the desired home, consider making an offer. Assure to get plenty of time for due diligence period for the inspection, appraisal, title and survey of the property.

Step 6: Home Inspections

Be sure to hire a good home inspector; a person that will take time to explain the unknown. Test for radon Gas, Mold and Mildew, Lead Base Paint (if the home was built prior to 1978), plumbing, electric, roof, termites, A/C, etc.

The inspector should be able to provided you his opinion in writing, which may serve a negotiation if the property is badly damage.

Step 7: Pre-walk through

Upon successful agreement and acknowledgment you might want to do a pre-walk through. This means that within 3 days of closing you want to walk the property one last time prior to closing. If there was anything negotiated in the contract that does not appear to be within guideline, it is here where you want to discuss with the seller. Assure that all agreements were met and move on to the last step.

Step 8: Closing

In this step you will go through the lender's documentation. Assure that all of the terms and conditions of the loan are the same as agreed. Never hesitate to ask questions if you don't understand. Seller and buyers transfer the deed of the property and buyers become a homeowner.

Buyers