Sometimes we Real Estate people need to be reminded that the process of buying a home may not be a 100% clear to everybody, so that's what we're going to talk about today. The following guide is meant to spell out exactly what you need to do to buy a house from step one, to the final close of escrow, when the keys are in your hands and the house (and the mortgage) is finally yours. Here's the process:
Step One: Decide how much money you can afford to spend each month on your new home. Bear in mind that this is different than what amount of money your lender will approve (we'll get to lenders later.) Before you even consider a purchase price, what you need to do at this stage is to carefully consider your budget and decide what monthly payment you'll be able to afford on your mortgage. While you're at it, factor into that consideration that a new home will typically cost more for a lot of other things as well, like the electricity, gas, possible water and sewer charges, home owner's association fees, and other things that you may not have anticipated, especially if you're currently renting something like an apartment. If you don't take great care with this step, you might be in for a rude awakening once you actually purchase and are faced with a whole new set of bills rolling in that you hadn't expected.
Step Two: Shop for rates, talk to a Lender and get yourself Pre-Qualified for financing before you start to look at houses. If you're not sure where to begin, ask your local Real Estate Professional for recommendations. Having a letter in hand from a lender saying you're qualified and ready to proceed can be a tremendous tool that will strengthen your offer when your ready to buy. It will also take away an enormous amount of stress that you don't need in the first place.
Be careful with the financing. Interest Only, variable (ARM,) or other non-traditional loans often have enticing rates to begin with that might make a home normally out of your reach seem affordable. As has been all over the news lately, these types of loans can be trouble if taken out for the wrong reasons. Generally speaking, if you intend to remain in a home more than just a few years, a fixed rate, long-term loan is preferable. However, talk in depth with your lender about exactly what your plans are over the term of your loan. Know the details of any loan you're getting and the reasons why.
Step Three: Shop for a REALTOR®. Remember, not all Real Estate agents/brokers are REALTORS. Realtors belong to the National Association of Realtors and are bound by a particular Code of Ethics that sets them apart from just any agent. Once you've decided with whom you would like to work, bear in mind that your new Realtor has access to ALL the available properties for sale in the "Multiple Listing Service." What's that?
The Multiple Listing Service is a cooperative arrangement between most Real Estate Brokers to pool information about Real Estate for sale into a common database from which all cooperating members can access. When one company lists a house, that information is shared with all cooperating companies. In most cases any commissions generated by the sale of such a property are then split between the listing agency and the selling agency. It's a win-win arrangement that allows listings to be effectively shared amongst the membership.
In other words (and this is important,) real estate brokers don't just sell their own company's listings, they can sell any within their MLS. This is extremely important for the seller as well. Because information is shared among brokers and a broker is not limited to selling property listed within his/her agency, that broker is capable of doing extensive research via the MLS for his clients. Once you've decided on a Realtor, you can trust he or she will have access to every property available, relieving you from feeling the need to have more than one agent working at once.
By the way, 99% of the time, you don't pay a thing to that Realtor that represents you as a buyer. There are some instances when a buyer owes a commission, but generally speaking that's not the case, so as a buyer, don't worry about paying a Realtor.
Step 4: Go shopping with your Realtor, and find a house.
Step 5: Once you've found the house you want, the next step is to make an offer. We say "offer" because it's just that. A house may be listed at a particular price, but that asking price is not always what is paid in the end. This critical step is one of the reasons you will need a good Realtor to help you along. Just what is said at this stage, when it's said, and to whom and how, may involve important strategic considerations that your Realtor will need to help you with, so be very careful here.
Let's say the house you want is listed at $150,000. After discussing it with your broker, you may decide to offer say, $145,000 but with conditions. What conditions? Anything from inspections, to repairs, to having the property's corners marked, might be included with your offer as a condition. Or, you may decide to make an offer without conditions; it's really up to you.
Once your offer is presented, the seller can accept your offer, reject that offer, or, as is often the case, return to you what is known as a "Counter Offer" stating just what they are willing to accept. Once this "Counter" is presented back to you, the very same options of accepting, rejecting or countering back are now in your hands. Offers and counter-offers can go back and forth indefinitely until both sides come to terms that are satisfactory. We call this stage "Mutual Acceptance."
One thing I didn't mention was the Earnest Money that is usually included with your initial offer. Earnest Money is consideration included with your offer in order to demonstrate to a seller just how serious you are. This money is, in some cases, non-refundable to you and is meant as compensation to the seller in return for taking that home off the market while all the details are settled prior to actually closing the deal. In other words, you need to make double-darned sure you want that house before submitting an offer, otherwise, without good reason, if you back out of the deal before it closes, you could lose that money. Now, don't get worried; if the seller rejects your offer, or presents a counter that isn't acceptable to you, you'll get the earnest back. Your earnest money is refundable in some other cases when a deal fails as well, but exactly when, and when it is not, is something you need to discuss in depth with your Realtor.
Step Six (ESCROW): Escrow is a general term that describes where the deal resides between the time you have a mutually accepted offer, and the time you actually close the deal. When we say a deal is "in escrow" we are saying that we have a deal waiting to close once all the necessary components have been gathered and investigations (or due-diligence has completed.) Once you have a mutually accepted offer, copies of all the paperwork and the actual earnest money is placed "in escrow" with a title company. The Title Company acts as a neutral third-party in all instances and is an essential and important player in the process. The Title Company conducts what is known as a "title search" to research what is necessary to make a clean transfer of the ownership of that property from one party to another. Who knows, there may be liens, lawsuits, or other "encumbrances" tied to that property that may prevent a clean transfer, and often these so-called encumbrances are unknown by either party until the title search is actually conducted.
Step Seven.. "The Signing" (sometimes confused as "The Close"): Once all the title searches are completed, all the paperwork is gathered, financing is finalized, etc., the Title Company usually acts as the facilitator of the signing. At the signing, you will then be, well, signing a lot of paperwork and sometimes presenting money for closing costs. Closing costs vary greatly depending on how your deal was structured and what your lender may or may not require. In Oregon, you may, or may not sign when the opposite party signs. As a matter of fact, you probably won't even see the other party at all. Once each party has signed, the deal has not "closed" necessarily. That comes next.
Step Eight... "The Close": The close refers to the point in time when the actual transfer and recording of Title has occurred; which doesn't necessarily happen at the time, or even the day of the signing. We Realtors are often guilty of referring to the signing as the "the close" but that's an unfortunate practice that can sometimes lead to problems. I made that mistake with one of my very first deals, and have never forgotten the trouble I almost caused my client who expected to move in to his house directly after signing the paperwork. The close can happen the day of signing, but don't ever count on it. Your Realtor, and/or the Title Company will always notify you immediately, once the deal has funded and recorded, marking the time when that home has officially become yours.
Eight steps is only the briefest summary of all that is necessary to put you into a house. The fine details to consider, such as the timing of offers, when they might expire, how long you have, or do not have, to complete inspections and other "due-diligence" items, how to deal with third parties, Title Companies, Escrow Officers, etc., etc are the kinds of things that only your Realtor can fully explain. If you're considering buying a home, talk with your local professional; you'll be glad that you did in the end. Finding a Realtor that works for you is set at step three here, but it may turn out to be the most important step in the process.
Fred Jaeger is a licensed Oregon Real Estate Broker and an e-PRO Certified Realtor® affiliated with RE/MAX Sunset Realty Sunriver/La Pine. He can be reached directly at 541 598-5449 or fred@fredjaeger.com .
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