Your credit report is an on going look at how you manage your finances. These reports play an important role in the mortgage approval process and determine what you ultimately will be approved for. Knowing what is in your credit report is the first step in the home buying process.
Determining what amount of money and from what source (ie: savings, investments, stocks, etc) you will have on hand to put toward your purchase is paramount - is the money easily accessible or will it take some time to obtain and have it on hand.
What are your current expenses, do you have money every month to save or does everything go to expenses including credit cards, cars, loans etc.
Many on-line firms exist for you to start your research. They can provide you with a copy of your current credit report and give instructions on how to deal with any inaccuracies.
Finding the right loan and lender is critical to your home buying success. It is your responsibility to determine which lender is best for your needs. This may take several calls and conversations with lenders from different companies.
Determining which lender to use can be done from your own research, conversations with real estate professionals, friends, family and co-workers who have used them in the past. Many Washington real estate agents have preferred partners in the mortgage industry which they have worked well with in the past. These preferred partners have given outstanding service and provided options to the agents clients in the past.
Given your unique financial history you may have to interview several lenders before finding one that will approve you, provide the right type of financing and be able to follow through with you to "close" the transaction.
Most people have a vague idea of how much house they can afford. Unless they have consulted with a lender or real estate agent they may have an unrealistic idea of what their price range for a home really is. They may also be setting themselves up for failure in the market. Consider this scenario. A seller gets two similar offers. One is accompanied by a letter from the buyers bank that he/she is approved for a mortgage in the amount of the offer. The other has no such supporting document. Which offer do you think the seller will consider?
Mortgage letters come in two levels. The pre-qualified letter simply states that the buyer has sufficient income to afford said property. No income verification or credit report has been pulled. The pre-approval letter says that the buyer has the income, credit score and debt/income ratio to qualify for a house of said price. The pre-approval letter is the preferred of the two. Neither letter states that the financing is guaranteed though. Factors such as appraisals, inspections, down payments still must be considered.
In most cases, these approvals can be done with the lender over the phone. A face-to-face meeting usually is only required when formal application is made for a mortgage when an offer has been accepted.
Real Estate agents can represent buyers, sellers, or both. It is essential to understand the agent's duties and loyalties before you make your first phone call. In Washington State, there are buyer's agents, seller's agents and dual agents.
The buyer's agent is simply that, a real estate professional hired by the buyer to inform, negotiate and represent the buyer in the transaction. Even though they may actually be paid at close from the seller's proceeds, at no time do they represent the seller in the transaction.
The seller's agent likewise represents the seller's interest in the transaction, is paid out of the seller's proceeds, and at no time represents the buyer in the transaction.
In some unique situations an agent may represent both parties, but this must be agreed to beforehand by both the buyer and the seller.
After hiring your agent and discussing your wants and needs, the agent will send you lists of homes in your area and price range for you to look at and decide if a visit is in order. This information is compiled by the Northwest Multiple Listing Service.
The NWMLS is a member driven service comprised of the real estate companies in your area. The NWMLS is where all new listings are entered on a daily basis for you and your agent to review. Your agent will be looking at more detailed information than you will, but will be available to answer questions about the listing when you need more information. In addition, most real estate firms have websites, as do most agents. These will provide you another source to search for property. The data-base is from the NWMLS and simply provides you the ability to look for property your agent may have missed.
Driving the neighborhood you are interested in is also another good way to find property you might want to see. Giving a list of these to your agent will allow him/her to make appointments for you to go in and see these properties up close.
Open houses are also a great way to see property in your area of interest. Not only is it good to see properties you have a high interest in, but those you aren't interested in will give you a good idea of what is going on in the neighborhood in relationship to price and value.
Remember, that while you may want to see a house immediately when you find one of interest, the owners have rights to privacy and may have asked that appointments be scheduled for the visitation of their property. As a courtesy you should always give your agent sufficient time to contact the owners and find out the circumstance around showing the property.
So you found a house that you might want to make an offer on. You might need to consider several questions before you and your agent sit down and write a formal offer.
Does the home meet the minimum requirements you listed before beginning your search? Is the location one in which you feel safe and secure? Does the property have a history of sitting on the market or a high turnover rate? Is the size, age, and condition appropriate for your financial needs and abilities to maintain it? Is the house priced correctly for the rest of the neighborhood?
Your relationship with your agent is critical at this juncture. He/she will be able to provide you with background information concerning the houses history in the market place. Previous sales, tax information, days on the market and similar sales or "comps" for the immediate area. These factors will determine whether you will move forward and write a formal offer.
This is not enough space to cover all the possible scenarios when making an offer. Your agents experience and knowledge will help you decide many of the important decisions at hand in this part of the process.
Real estate contracts must be in writing. Offers are legal documents which are executable and will hold up to scrutiny in a court of law. Although your agent will be able to explain the intent of the wording and your responsibilities under the contract, they are not attorneys and their advice cannot be considered legal in most places including Washington State.
Contracts are written on approved legal forms provided by the NWMLS. In some cases additional forms may be included specific to your agents company. These contracts detail specific information about the property (ie: legal description, address, tax id #, owner name, and details about you and your finances). You will be asked to arrive at an offer price and to detail a time limit in which this offer will expire, if no action is taken by the seller.
One of the items to be detailed is the earnest money. Earnest money is money the buyer puts up front to show his/her seriousness in making an offer. In the Washington real estate market, this is usually 3%-5% of the offer price but may be any amount you feel comfortable in presenting. This money is cashed and then held in trust by the broker in a special account and forwarded to the closing agent right before close. There are specific remedies for default on a real estate contract and in many cases the remedies may include forfeiture of the earnest money. Thus, it is imperative you know your rights and obligations before submitting your offer.
Once an offer is written and signed by you and your agent, the agent will contact the listing agent or broker and either fax, or submit the offer directly to them. In some cases, properties will have multiple offers and the listing agent will have certain guidelines for submission and review. Your agent will advise you if this is the case.
Once an offer is submitted and received certain time constraints will come into play. Time limits will exist for the seller to provide you with a response to your offer. The response may come in several ways. One the seller may simply accept your offer as written and the transaction will proceed to the next steps and to escrow. The seller may counter your offer and come back to you with a different price for you to consider or different circumstance concerning your offer (ie: closing date, amount of earnest money, or some other item in the original offer). New time limits will then apply and it will be in your court to decide to accept these conditions or not. If you do accept the new terms, you will then proceed forward to close. You may also counter the counter from the seller until mutual agreement is made or no agreement is reached and the offer is allowed to expire.
Once you have agreed and have mutual acceptance, the next steps are time sensitive and driven by the terms of the contract.
Once you have mutual acceptance your next steps will be driven by the terms on the agreed contract. In most cases you will have several items to schedule with the help of your agent. The first is usually the inspection. An inspection is a right of the buyer and is conducted immediately (2-7 days) after the offer is accepted. The purpose of the inspection is to provide you with knowledge and assurances about the condition the home. In many cases, the mortgage company will require an inspection to be performed by a licensed inspector prior to approving of the loan. Either way this is one of your contingencies that if not met to your satisfaction will allow you to legally break the contract for good cause. Inspectors are independent contractors whom you hire to give you an accounting of the condition of the home. Inspections can be limited to a visual inspection or as detailed as a structural one with written analysis and recommendations for items needing repaired or updated. In both cases, you should have sufficient knowledge after your inspection to decide if you will accept the house in its current condition or will be asking for repairs or cash discounts from the seller. Once again the language in your original contract will govern your response and time limits.
You will also have a chance to review documents associated with the legal condition of the house. These items are included in a document called Title Insurance Policies. Title Insurance protects you by insuring for you that the seller has legal right to sell the property and that no actions have been initiated against the property as a legal remedy. You will have time to review this policy and ask questions about any issue which may affect your purchasing of the property.
Condominiums also will have a set of documents for your review known as the Resale Certificate. This is a detailing of the covenants, board of directors meetings, home-owners dues, and management statements for the condominium association over the life of the building. Specifically the detailed budget for the building and its current assets will be listed. Your review is important for your assurance that the unit you are buying has been and is being managed in a fiscally responsible way. Concerns about any issue found here provides a basis for you to ask for more information and ultimately legally break the contract if not answered or addressed to your satisfaction.
Also around this time the mortgage company or bank that you are working with will conduct what is know as an appraisal of the property. This will be done by an independent firm specializing is residential appraisals. They will visually inspect the house and use sales data for similar houses in the area and of the same age, condition and features arrive at an independent market price for the home. The bank will use this as the basis for justifying the amount of your loan. In most cases this amount will be very close to your agreed price with the seller. In some cases, homes may have sold for a price well above the value of the home as it compares to comparable properties in the area. If this is the case the bank may not loan you the sufficient amount to close on the property and you may be asked to renegotiate the price of the house with the seller or come up with more cash down.
As your close date approaches, many different entities and individuals will be in contact with you and with each other, sometimes on a daily basis. The coordinator of all these activities is the escrow officer. The escrow officer works for an escrow company that you and the seller have agreed on in the contract to purchase. The primary job of the escrow officer is to coordinate and facilitate all the paper work necessary for the transfer of the property into your name and the filing of the legal paper work attaching a mortgage to it for your lender. Washington Real Estate Law is very specific as to how property must be transferred from one name to another and the timelines and details as to how this is legally done. The escrow office will ensure all the appropriate conditions and requirements have been met under the law.
The escrow officer will be detailing a list of all the costs to you and to the seller. This itemized list will detail all your credits (money your putting down, earnest money, etc.) and your expenses (fees, mortgage, escrow costs, title costs, etc.) This list of assets and liabilities is called a HUD-1 statement and is governed by the federal Department of Housing and Urban Development. This ensures that there is a standardized accounting of your transaction that can be easily understood and scrutinized.
You and the Seller do not sign closing papers at the same time. The transaction will be "closed" on the closing date mutually agreed upon on your purchase and sale agreement. Closing means that the documents have been recorded AND that the Seller has received his/her proceeds from the sale. Once these two items have occurred, the home is legally yours.