The Home Buying Process
Step 1: Qualifying for a Mortgage
The very first step to buying your dream house is to obtain a pre-qualification letter from your lender. This is necessary for two reasons: (1) this will let you know beforehand exactly what you are qualified to buy, areas that may need to be addressed in order to obtain a loan, and to allow sufficient time to address those areas, and (2) because it is necessary to present your pre-qualification letter, along with the your offer to the buyer, to confirm your purchase eligibility.
My web site contains several calculators (mortgage, qualification, affordability, and rent vs. buy) that would be quite helpful to use before visiting my office. However, once here, I can put you in the hands of a recommended local loan officer with access to many programs, who can council and guide you as to the most advantageous and appropriate loan for your needs.
The terms of the contract provide for a “conditional loan approval” from a lender based on a loan application* and “residential credit report” within 5 days of “seller’s acceptance (unless specified differently in the contract). This means the loan application would need to be made immediately after the offer is accepted.
The loan officer will give you a “good faith estimate” of the closing costs involving financing. There are recurring costs that you pay that are included in your monthly payment, such as home owner’s insurance, and property taxes (the monthly payment consists of principle, interest, taxes and insurance and is referred to as PITI). The one time closing costs are the origination fee, and any points (sometimes called discount points – the more points, the lower the interest rate). The appraisal fee, credit report, and other lender fees, such as document preparation, underwriting fee, inspection fees, are further one-time closing costs.
Many of these costs can be deducted from your federal and state taxes. See “Realty Times” article, “What’s your Principal Residence? Tax Experts Not Always Certain”. Also, there are quite a few tax advantages available to most American citizens, but to benefit, you have to understand them, and report them properly to IRS. See “Realty Times” article, “Its Tax Time Again”. (Note, you should always check with your tax preparer or accountant to ensure you can use these tax break).
*loan approval documents needed upon application:
You will need the two (2) most recent pay stubs, W-2s for the last two (2) years (or if self-employed, 1040s for two (2) years), federal tax returns for the last two (2) years, last two (2) months’ bank statements, long term debt information (credit card, child support, auto loans, installment debt, etc.), proof of funds for your down payment.
You are now ready for Step 2: “The Exciting Home Search”.
Step 2: The Exciting Home Search
This is the most exciting and very important step in the home buying process. The “Kaw Valley” area represents vast differences in communities and life styles and it helps to become familiar with them, their look, their personality, their amenities, etc. and where they are located relative to your employment.
I will explain real estate agency relationships as is required by Kansas law and your right to representation. This is extremely important, since as the “Buyer’s Agent” I would be working entirely for you and not the seller. This prevents “Dual Agency” relationships which prevents a conflict of interest from occurring and protects the integrity of the transaction. I will also explain our “Buyer’s Services Guarantee”, which is unique to the industry.
In your first visit to my office, which is my “Buyer’s Council”, we will determine your wants, needs and desires you require for your new home. We will use my “Buyer’s Survey” to clarify the neighborhood, schools, proximity to work, number of bed rooms, bath rooms, hobbies, and special areas of concern such as children’s sports, golf courses, etc. We want to make sure your home purchase is an enjoyable experience.
If our research of homes isn’t done beforehand, then this is the time to do it on my computer. Clients can see for themselves whether or not the criteria they have (or wish to have) is actually available. If not, then we can tweak it to come close.
After we have refined the search, we can then make the appointments through “Showing Solutions” and go home shopping. We will be looking at existing homes, new homes, and homes under construction. It is important that the realtor be with the client at every visit to maintain safety for the client and to protect property.
We will also go over what it takes to present the offer, such as a pre-qualification letter which will accompany it, contents of out contract, required and suggested inspections, home warranties, and anything else that may be required. Even if a buyer is a seasoned one, having purchased and sole multiple properties in the past, if he/she is coming from another area, terminology and methods may be different in the Kaw Valley area.
Usually, you will know (and so will I) what you like and don’t like after visiting 3 houses. Should that change our research, I have will take note of it and will change the parameters of our search criteria.
You are now ready for Step 3: “Making an Offer”
Step 3: Making an Offer
We have now found the dream house (or close to it – some compromises may have to be made), and are ready to make an offer. We have done our homework and the process should not be scary.
We first check the comparable homes sales in that neighborhood to determine if this home is priced fairly, and how it relates to others similar to it that have sold. This initial CMA (comparable market analysis) tells us what the price range of sold properties are in the area, what the average time on the market for them has been, and what the average sales price per square foot of recent home sales have been. We will also determine what houses are presently on the market (the subject property’s competition), their prices, any price reductions, and how long they have been on the market. We will also research expired listings of homes in the same price range didn’t sell in. From this information, we can better structure our offer to purchase your dream house at the most reasonable price.
Home buyers quickly become mini-appraisers and after a day viewing properties, can tell if a house is over/under priced. The unique diversity of properties in the Kaw area presents many interesting choices, from condominiums, and duplexes to planned sub-divisions of similar properties and custom built homes and farms. There is no point in overpricing since it will not appraise for loan purposes and the market will ultimately determine the price.
When we are comfortable with what dollar amount we will be offering, we will fill in the blanks of the Residential Purchase Contract. Areas that will be covered will be how you will pay for the property, and when we will close the transaction. We will determine which inspections will be needed (wood boring insects, whole house inspections, sewer and septic inspections, mold & mildew, radon, fireplace lead based paint, etc). DON’T WORRY!! I’ll be there to guide you through this! We will also determine closing and occupancy dates, which are usually the same. We will also use some special clauses to better protect your interest, such as personal property items to be included.
We go over this contract very carefully so that each paragraph is understood. The first part of the contract includes names of the buyers and sellers, property description and personal property clause. Next is how the property will be financed (Cash, Conventional, FHA, VA, Installment Sale, assumption of Mortgage), earnest money, and mortgage terms. Closing and possession dates and property tax pro-ration are determined.
After the casualty insurance paragraph (buyer purchasing insurance binder on property), are the required and optional housing inspections, home warranty, and acknowledgement of the “Seller’s Property Disclosure Statement” (acknowledging seller’s knowledge of property defects).
And again, because it is so important in Kansas Real Estate Law and to the buyers and sellers, we must acknowledge the agency relationships of the Buyers and Seller’s agents. This is to prevent dual agency, provide representation, and to protect the rights of buyers and sellers. We then insert special provisions where needed and sign the offer.
The day before closing, there will be a final walk through to make sure all is as it was when inspected, if repair have been made, and to ensure that all personal property listed in the contract is in place. There are warranties that survive the closing. Any information withheld which materially and adversely affect the sale will survive the closing. Remedies for breach are addressed, whether by buyer or seller, what recourse there is, such as mediation, arbitration, or if judicial action is warranted. This is just a summary of the terms and conditions on the Real Estate Contract and the legalese contained brings it to 6 pages. Fortunately, it is in plain language and easily understood.
WHAT NEXT? As your buyer’s agent I present the contract offer to the seller’s agent, who presents it to the seller. If feasible, I will be negotiating with the seller and their agent at the seller’s house. If the seller is out of the area, negotiations are accomplished from me to the seller’s agent or via conference call. I will be working on the buyer’s behalf, YOU CAN COUNT ON IT!
There may be multiple offers or counter offers. Time is of the essence as the contract states. A fair offer usually generates a fair response. We will address these as they arise.
Once we have an accepted offer, we have 10 days to do a Home Inspection. I will attend and obtain a copy of the inspection on your behalf. Any repairs will be requested immediately in writing and the seller has 5 days to respond.
After the inspection phase, we are ready to Close.
You are ready for Step No. 4: Closing.
Step 4: Closing - The Title Company
What is an Escrow? It is an arrangement in which a neutral third party, in Kansas a Title Company, holds legal documents from the buyer, the seller and the lender, as well as funds on behalf of a buyer and seller, and distributes the funds according to the buyer and seller’s instructions in the purchase contract.
People buying and selling real estate open nan escrow account for their protection. The buyer instructs the title company (via contract) to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions.
The seller instructs the title company (via contract) to retain possession of the deed to the buyer until the seller’s requirements, including receipt of the purchase price, are met.
Both rely on the title company to faithfully carry out their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not consistent or cannot be executed.
An escrow is important in that both can move forward separately but not simultaneously in providing instructions, reports, loan commitments and funds, deeds and many other items, using the title company as the central depository.
If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the title company can take many actions on their behalf without further consultation. This saves time and facilitates the closing transaction.
Typical Instructions to the Title Company:
· The method by which the Title Company is to receive and hold the purchase price to be paid by the buyer.
· The conditions under which a lapse or breach of purchase contract provision will terminate the escrow without a closing.
· The instruction and authorization to the Title Company to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
· Instructions as to the preparation of insurance and taxes.
· Instructions to the title company on the payment of prior liens and charges against the property and distribution of the net sales proceeds.
Duties of The Title Company:
· Open the order for title insurance (provided by seller to buyer at closing).
· Obtains approvals from the buyer on the Preliminary Report, pest and other inspections.
· Receives funds from the buyer and/or any lender.
· Prorates insurance, taxes, rents, homeowner association fees, real estate commissions, lien clearance, etc.
· Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow.
· Records deed and loan documents, delivers the deed to the buyer, loan documents to the lender, and funds to seller, closing the escrow.
You are now ready for Step No. 5: What Happens at Closing?
Step 5: At Closing
This is the time to be in touch with the lender to provide whatever is necessary for the final loan documents, for the seller to take care of any requested repairs, and for the lender to go through the underwriting process.
As a buyer, you will want to arrange for the utilities to be turned on when the seller’s is turned off (we, at Coldwell Banker will perform this for you when you register with our Concierge Service which is free. We will also arrange for phone service under the same plan). Make sure all magazines, bills, and family and friends have your new address. Anything related to school registration should also be done well in advance. Moving preparations should be made as soon as you close. You may want to check out my “When You are Ready to Move” page for tips and help.
At Closing:
The closing is almost always done at the Title Company (an exception could be an out-of-state or out-of-country buyer, in which case documents are Fed-exed and need to be notarized). Buyer and seller close at the Title Company simultaneously and the keys are given to the buyer at closing or according to the contract.
Buyers (and sellers) and their agents will be given a settlement sheet showing the closing costs beforehand, so there are no surprises, and the buyer will know exactly how much his cashiers check should be. Your loan officer will have gone over the final closing costs involved with the closing as well just prior to the closing.
Other closing costs will consist of the title company’s processing fee (escrow settlement fee), recording of the deed, prepaid interest*, homeowner’s insurance, homeowner’s insurance impounds, property tax impounds, and notary fee.
*Prepaid interest: Since mortgage loans are due on the first day of the month, and properties can close any day of the month, the interest will be prorated and paid at that time.
Homeowner’s insurance premium is paid at closing. However, since the mortgage company will be paying the continuing payments, it will divide the annual premium by 12 and hold 3 months in your impound account.
The same is true of the property tax. Property taxes are prorated at the closing and the buyer is responsible for the taxes from the closing date into the future, which may start on the closing date, and therefore prorating gives the seller any prepaid tax refund. Annual taxes are divided by 12 and 3 months is held in your impound account.
You are now ready for Step No. 5: Moving Day
Step 6: Moving Day
Everything will be done to make this a smooth transition for you. As your agent, I keep in touch with all the parties to make sure there are no last minute glitches.
Again, I suggest you to check my “Moving Page” for helpful information. If you need help with unloading once you are here, or for referrals of trades-people, decorators, landscapers, etc., this is the time to tell me.
I’ll be stopping by with a housewarming gift, to check to see how you are doing, and in=f you need anything. I’m here to help, so call on me.
One thing I suggest is that ALL the papers and documents involved with your be kept in one place. All receipts, important papers, and the settlement papers, etc. may be needed for your income tax preparation, or for reference.
If you have school children, you’ll want to obtain information on registration and when the PTA meetings are held. Teachers are trained to welcome new children and make them comfortable in their surroundings.
Also, I want to emphasize that the “closing” is not the end of our relationship. I’m here at this point to be your friend, and ask that you consider me one. That means, CALL ME. My goal is to make this “moving experience” an adventure, not a stressful occasion!
Now you are ready for Step No. 7: ENJOY
Step 7: ENJOY
Hot Dog, now you are ready to enjoy your new home, your new city and your new state. There are a lot of things to do in Topeka, and in Kansas, everything from lakes and water sports to sports car and drag racing, from golf and hockey to baseball and football, from sight seeing and shopping in out cities to hiking or just driving and enjoying the scenery.