The Process of Buying a Home
Contrary to popular belief the home buying process should start with a Pre-qualification or Pre-approval. The pre-qualification process will begin with a phone interview or an online application where financial and credit information on you will be obtained. Once the pre-qualification process has been completed you will receive a conditional pre-qualification letter which will provide general loan terms, additional conditions, loan-to-value as well as an indication of an interest rate upon which you have been pre-qualified. This is a key step in the buying process because without knowing if you qualify you may be setting yourself up for disappointment, more importantly it will identify the monthly cost of purchasing a home in your selected price range. Do not hesitate call HomeStart and start your pre-qualification today for free!
II. Home Search
You can now start your home search with your conditional pre-qualification letter in hand. You will identify homes in your price range and selected areas with the help of your real estate agent. Make sure your search is exhaustive to ensure you get a good feel of what the market is currently offering. Once you and your real estate agent have identified a specific home in which you are interested your loan officer can produce a Pre-approval letter with the specific offer details in mind.
Once a home has been identified, the next step would be to obtain a firm lending commitment from Fannie Mae, Freddie Mac or a specific investor on a specific loan program. This process is called the Pre-Approval process. A Pre-approval is a step up from a Pre-qualification and represents a firm lending commitment with an assigned case number. During the pre-approval process your HomeStart loan officer will collect requested documentation, pull your credit report and discuss the findings. Based on the findings, your loan officer will identify specific loan programs for which you qualify and present you with your options. You will then, with the aid you loan officer, decide which loan program best fits your need. Once the pre-approval process has been completed a Conditional Pre-approval Letter will be provided stating the type of loan, loan terms, additional conditions, loan-to-value as well as an interest rate upon which you have been pre-approved in addition to the expiration date of the approval.
Most real estate agents will want you to have obtained a Pre-approval letter prior to submitting a sales contract on a home. A pre-approval letter will put you and your agent in a stronger bargaining position as well as encourage the seller to take your offer serious.
III. The Contract
Your Real Estate agent can now make an offer on the selected home and present your Pre-approval letter for consideration by the seller. If the seller agrees to the terms of the offer the sales contact is signed by both the seller and buyer and becomes an “Executed Sales contract”. The sales contract states the details upon which the home will be sold. Most items on the sales contract can be negotiated. For this reason, you and your real estate agent should coordinate the negotiation of the sales contract with the close aid of your HomeStart loan officer to ensure your Pre-approval will allow for negotiated items and explain any limitations that may affect your negotiation.
Your contract may or may not come before the pre-approval process however it is highly recommended to complete the pre-approval process prior to this step. Once the sales contract has been accepted by both seller and buyer earnest money will be deposited with an escrow agent and the underwriting process will begin.
Once the sales contract has been executed your loan can be submitted to underwriting. Your application and appraisal fee will need to be paid at this point. A credit for the application and appraisal will be reflected at time of closing. [insert link to application & appraisal fee] During the underwriting process, your HomeStart loan officer will put together your official loan application and RESPA disclosures (RESPA = Real Estate Settlement Procedure Act). In addition your loan officer will produce an official good faith estimate (GFE) and truth in lending statement (TIL). Your loan officer will present the loan documentation for you to sign and submission to underwriting. The GFE contains all fees you will encounter at closing including escrows, title & legal fees, loan fees, and discount points. Your loan officer will give you an accurate estimate of known and standard settlement fees. The truth in lending form will show you the total interest throughout the life of the loan
In addition to the above, your HomeStart loan officer and processor will start obtaining (depending on your type of approval) all necessary loan verifications such employment, past or current residences and/or assets and may be asking for additional supporting documentation.
A title commitment will be requested on the property to ensure the property can be conveyed (transferred) without any legal claims or problems arising in the future. Any and all potential lending problems presented by title will be addressed and identified by your loan officer and/or processor and will be addressed during the underwriting process to ensure the property can exchange hands and the loan can be made on the property.
V. Appraisal / Hazard Insurance / Survey
Although property inspections are not typically required for loan approval it is highly suggested you conduct a property inspection during the early stages of the buying process to identify any potential problems with the home. As a matter policy, your HomeStart loan officer will wait until the property has passed its inspection before proceeding with the following steps. At this point, your HomeStart Loan officer and/or processor will go ahead and order the property appraisal, the property survey and necessary hazard insurance. This is done to ensure third-party purveyors do not charge you unnecessary fees if in case you decide the home is unfit or the property inspection identifies potential problems previously unknown in the negotiation stage.
VI. Rate Lock
Once you are approximately 30days from closing and your file has been submitted to underwriting your HomeStart loan officer and/or processor can lock your interest rate. Interest rate will vary depending on a number of factors which may or may not include the following: Down payment amount, credit score, liquid assets available, first-time homebuyers, loan documentation type (i.e. full-doc, stated, conforming, non-conforming, etc.). Rate locks greater than 30days are available and in some cases your rate lock can be locked up to 90days in the future. However with longer rate locks the interest offered rate will be higher. Conversely shorter-term interest rate locks will allow for lower interest rates.
VII. Clear to Close
Once all necessary conditions and verifications have been completed and deemed to satisfy underwriting concerns and scrutiny your will be cleared for closing. The underwriting process may take as few as three business days or up to forty-five days depending on the complexity of the transaction, type of loan, conditions, necessary verifications and coordination with third-party purveyors. However, you can expect on average twenty days from start of underwriting to clear-to-close.
Closing is the last step prior to transferring of property. Closing are typically conducted in a title company but can be conducted by an escrow officer in a attorney’s office, broker office, builder office, or even at home depending on the circumstances. At closing the official warranty deed, deed of trust, promissory notes are signed, money is exchanged and the sale of the home is considered official. Congratulations you are now a home owner.