The old saying goes, "the first step is always the hardest". This can definitely be true when it comes to purchasing a home because often times potential homeowners do not no where, or even how, to begin. The home buying process does not have to be daunting, and you should not let intimidation get the best of you. To help you better understand the home buying process, we have outlined the 16 steps to home ownership below:
1. CONDITIONAL PRE-QUALIFICATION: Should you decide to proceed with a loan application and provide the necessary documentation, a lender may issue a Conditional Pre-Qualification. This information determines an approximate amount you are eligible to borrow. This is not a guarantee of a loan approval. The key to getting pre-qualified is to provide your entire credit history. Neglecting to mention any outstanding debt, obligations or previous credit problem can nullify the pre-qualification.
2. CONDITIONAL-APPROVAL: Conditional approval is similar to pre-qualification, except your debt, income and credit are all verified (by an underwriter) and you are actually pre-approved for a loan, up to a specific amount and under certain conditions and terms. Becoming pre-approved means you can search for your dream home knowing approximately what price range to shop for.
3. THE HUNT: Now you will ask your Realtor® to search the MLS (Multiple Listing Service) daily for homes that meet your specific criteria.
4. PURCHASE & SALES AGREEMENT: When you find the right home, the terms of the sale are negotiated, including the sales price, repair requests, move-in date, etc. Your Realtor® will present your offer to the sellers. Your pre-qualification or conditional approval letter will usually be submitted with your offer since it can tilt the sale in your favor, especially in a competitive market.
5. FULL LOAN APPLICATION/ UPDATED DOCUMENTATION: Once the seller accepts your offer, you will need to obtain your mortgage. Unless you have been conditionally approved you will need to complete a loan application. Paperwork supporting the application must be submitted. This normally includes pay stubs, two years tax returns and account statements verifying the source of the down payment, funds to close and reserves. If you were conditionally approved, this step has already been completed.
6. INITIAL DISCLOSURES SENT: You will sign and return all disclosures within two (2) days of receipt of the disclosures.
7. PROPERTY INSPECTION: Most purchase loans require an inspection of the property for termite and water damage, as well as possible safety hazards. Some problems my need to be repaired before finalizing the sale.
8. TITLE SEARCH: This is a time when a search for any liens against the property is conducted. A lien may have been placed on the property to ensure payment of outstanding debts by the owner. All liens must be cleared before a title transfer can be completed.
9. APPRAISAL: Lenders require an appraisal on all home sales. The Appraiser will conduct a comparative market analysis to determine the fair market value and condition of the property.
10 PROCESSOR’S REVIEW: A loan processor will package all pertinent information to be sent to the underwriter, including any explanation that may be needed, such as reasons for derogatory credit.
11. UNDERWRITER’S REVIEW: Based on the information put together by both the loan originator and processor, the underwriter makes the final decision on whether or not the loan is pre-approved. Lenders are looking for borrowers who will make their payments on time and for a property that will cover the cost of the investment, if a buyer defaults.
12. FINAL LOAN APPROVAL: In most cases, when your credit and debt-to-income ratio is good, your loan will be pre-approved. However, in some cases, you may need to put more money down to improve the debt-to-income ratio. In addition, if the property appraises for less than the purchase price, you may want to renegotiate your contract or increase your down payment to cover the difference. In some cases, repairs or improvements on the property may be required. There may also be other conditions to meet before the final approval or loan documents are issued.
13. INSURANCE: Lenders require fire, hazard and wind insurance on the replacement value of the structure. Flood insurance may also be required if the property is located in a flood zone. In some areas, earthquake and hurricane insurance are a possible requirement.
14. SIGNING: Final loan and escrow documents are signed by you (the buyer) and the seller. Documents transferring title are recorded with the County Recorder.
15. FUNDING: A wire or check for the amount of the loan will be sent to the title company.
16. MOVE IN! Now you get to move in to your new home! Make sure you replace all the locks for your safety.