The Home Buying Process
The first step to thinking like a mortgage professional is to understand the home buying process. That is, the series of events that take place from start to finish. Once you gain an understanding of this process, you’ll start thinking like someone in the industry. It’s really not as hard as you think, especially when you’ve got people working hard for you on each front. Just make sure you choose the right people, and always shop around. And remember, if you put yourself in a time crunch, you’ll come out on the losing end.
All that said, the home buying process begins when a potential homeowner starts thinking about purchasing a piece of property. At this time, the potential homeowner would search available listings or hire an agent, and also figure out what is in their price range. Knowing what you can afford is a critical step in the process, and should be addressed long before the entire process begins. Otherwise you could just be wasting your time and money.
As soon as the potential homeowner has sought out the desired piece of property, they would need to make an offer to the seller. If the seller accepted the offer, a legally binding purchase contract would be written up, and the potential homeowner would need to put down a deposit. This offer would include a sales price, a down payment amount, a proposed closing date, and any contingencies agreed upon.
Adding contingencies to the purchase contract is essential. First, you’ll want to add a contingency that states if you aren’t able to obtain a mortgage in a certain time frame, you aren’t liable to purchase the home. Another related contingency would require you, the buyer to secure a certain interest rate and term on that mortgage. It’s a good idea to add this type of contingency to protect yourself against rising interest rates and unstable market conditions. After all, rates could jump and push the deal out of your price range.
An inspection contingency is another essential, as it allows the potential buyer to cancel the deal if the inspector finds anything wrong with the home. Required contingencies will also usually include termite and pest inspections, which nearly all lenders require.
Once a purchase contract is written up, agreed upon, and signed, the buyer will be given a certain amount of time to close the deal. The date the deal must be complete and funded is known as the close of escrow date. If the deal isn’t closed by the close of escrow date, the buyer must pay the seller each day the deal is delayed.
After the purchase contract is complete, the buyer or potential homeowner must secure financing. As I mentioned before, the agent will likely point the buyer in the direction of an associate, as agents and lenders often have relationships. The buyer can choose to follow one of the realtor’s leads, or seek out their own financing with their personal bank or a broker. Obtaining financing is another critical step in the process, and one that should be carefully navigated. At this time, the buyer should research rates from competing banks and lenders, and find the best overall deal. You will need to decide what type of loan will work for you at that particular time in your life, as everyone has a different financial situation and unique goals.
Once you decide on a bank or broker to use, you will submit your loan application which will ideally be approved. At this time you will receive a conditional approval, which will contain a list of conditions that need to be fulfilled before loan documents will be sent to escrow. At this time a bank or broker will work with you to get all the necessary documents in, order an appraisal, and a subsequent appraisal review. Once all these conditions are satisfied, the bank or lender will draw documents, and send them to escrow.
You must also decide on a program and interest rate, which should be locked in if you’re happy with the pricing. It’s important to lock the interest rate as rates move on a day-to-day basis, as what you see today might not be available tomorrow. And if you’re generally satisfied with a certain rate, it’s not wise to play the market unless you have experience doing so.
Also note that the agent will likely point you in the direction a connected homeowners insurance provider. Insurance is a necessity, but using the company they recommend is not. Many new buyers don’t concern themselves too much with this as they have so many other things to worry about. It is wise to shop around for insurance as you can save quite a bit of money if you take the time to compare rates.
A signing date and time will be arranged at escrow, and you will need to go over all the loan documents and sign a multitude of different forms. Make sure you read over each page carefully to ensure you understand what you’re agreeing to. Pay close attention to prepayment penalties, interest rates, caps, etc. Some people rush through these and regret it later after finding out things weren’t explained to them correctly, so take all the time you need.
Once loan documents are signed, they’ll be sent back to the bank or lender for review. At this time the funder will ensure all funding conditions are satisfied. Once everything is signed off, the funder will send out the wire to the bank and the loan will be funded. The next day the loan will record and you’ll need to call your moving company…
