Home ownership can be quite nerve-racking to say the least. The thought of being in charge of such a huge asset, financial commitment, independence, and having the bank as a landlord are just a few things you may not have thought about or had the chance to get familiar with regarding property. As scary as it is, it is almost always worth the reward. So let’s talk about the process and what you should expect.
Have you had the chance to learn whether or not you will be pre-approved for the budget you’re seeking? If you’re ready to make this commitment, go ahead and see if you can get approved for a mortgage loan. I typically suggest trying with whom you’ve been banking with over the past years first, and if all else fails you have plenty of other options. Get your downpayment funds ready (typically 20% of the price). Also, don’t forget as a first time homeowner, there’s plenty of programs/loans dedicated to you as buyer (you can put as low as 3.5% down). Take full advantage of them! If you’re stuck with not being able to obtain a pre-approval it may be due to one of the following:
Low credit
Inadequate income
Inconsistent employment
If you can’t get pre-approved anywhere, don’t put yourself down! Things happen when they’re supposed to. Try even starting early so you can know exactly what you need to get you where you need to be. It’s ok to take a few steps back if your intention is to take many leaps forward a bit later. Be patient, and get everything in order…your budget, your credit, your finances, your paperwork and documentation. It’ll ALL happen at the right time, and trust me, you’ll prefer it to work out that way.
If you are pre-approved, start discussing your finances with yourself and/or your partner in full transparency and honesty. Create a budget of what you would like to spend. Many people just assume that a loan is all you need outside of your initial deposit, which is not at all the case. Have you considered additional deposit money (not always required)? Title charges? Lender Fees? Appraisal Fees? Inspection Fees? Legal Fees? Moving Expenses? Closing Costs? All of this will be on TOP of your down payment. I’d like to suggest that you expect to spend 3%-6% of the purchase price to incorporate all the expenses and to give you some cushion.
We hear things like “if you can afford an apartment, you can afford a house”. While this may be true, please understand the breakdown. Whatever you can afford in rent I’m sure you can afford in a home. The problem is people mistakenly think the rent payment is the mortgage payment and this concludes the expenses. If that’s how you’re calculating it, then you’ll be in for a big disaster. If you’ve created a budget of your monthly spend, please be sure to incorporate the following within that budget:
Mortgage (should include principal, interest, insurance and taxes) if any of the 4 is missing, then get a lawyer lol or just make sure you’re adjusting the budget accordingly.
Loan and maintenance fees (for coops only)
Utilities (water, gas, oil, electricity, sewer, etc.)
HOA fees
Maintenance (if you’re doing a new construction hopefully this won’t be a big issue. However, if your looking into homes that are a bit older/need upgrading, then you’ll definitely need to create a budget to include maintenance. TRUST ME ON THIS!)
Once you’ve created a budget that’s realistic, and you’ve successfully received a pre-approval from a lender, you can now hop on the computer and search for an agent like me to work with, do your googles, or hop on Trulia and click “schedule a showing”.
Now that you know what you’re working with financially, it’s time to go out and play in the field. Whether you’re working with a realtor or just doing your thing on your own (the realtor in me will HIGHLY suggest you find a realtor though), it’s time to start making a list of what your ideal place looks like. Let’s not go too deep into aesthetics right now, let’s dive more into area, structure, and foundation. How many bedrooms? How many bathrooms? Open layout? What year was the property built (yes, some people care)? How many previous owners? Finished basement? Yard? Flood area? Main Street? Good school district? Accessibility? Just to name a few. Once you know what you’re looking for in that aspect, narrow it down to aesthetics. Newly renovated? Updated? Flooring? Laundry? Pool? Stainless Steel? Deep soaking tub? Yea, those things. Try your best to narrow what you want down, because once you actually see the houses, a very open mind will make it harder for you to make your decision. By the time you do, the property may be off the market.
I always tell my clients if you’re worried about the price, make sure it marks off most of the things on your list. Honestly, it will all boil down to what you really need opposed to what it is that you want. You’ll realize sooner than later, what you want can all be done if you have the money. What you NEED, you don’t necessarily want to pay extra for if you’re already making a big payment such as buying a house. Be mindful of this.
Showing day— please come prepped! Walk with intention! Ok, I won’t get preachy. However, make sure you have your documentation saved on the computer, your downpayment stacked in your bank, a tunnel vision regarding the type of property you want, and some comfortable shoes. Although it does take a few days or trips out to find the property you want, let’s just act as though this is all meant to be and you’ll find that property on your first showing day. A secret that you may not know yet is that the more houses you see, the more you shift your list, and now you’re looking at properties for a year. IT WILL DRAIN YOU!
If you find your definition of a perfect place, then move fast! If it’s perfect to you it’s probably perfect to 100 more people. Tell your agent you’re ready to put in an offer. If you don’t have an agent then reach out to the listing agent and let them know you would like to move forward.
Your agent will prepare your offer and send it over to the listing agent so that they can review it with their client. This is the time to negotiate and bring together your best terms. Some things I like to consider to try and have an offer accepted (especially in this current bidding war climate) are the following:
Price (if it’s a steal and you think they’ll be multiple offers, go as high as your heart tells you and your pockets can afford)
Deposit (some people can comfortably afford to put 20% down and honestly the more you put down the more inclined the seller is to believe that you’re committed. If you’re a first time homeowner and have the benefit of putting down 3.5%, that’s still ok. There’s other ways to still make your offer just as appealing so don’t be discouraged.)
Closing date (most sellers want to close ASAP. Financing already pushes you back a bit so make sure your bank is all ready to go and they have everything required of you to get the ball rolling)
Waive mortgage contingency (you’re promising that you’ll purchase the house even if the bank doesn’t grant you the mortgage. I typically recommend this if the buyer has a solid plan A,B,C,D or liquid cash available if needed. Otherwise, I wouldn’t waive this contingency)
Waiving appraisal (unless you feel the property may be deeply appraised lower than its listing price, I suggest waiving the appraisal and also capping how much of the appraisal you’re willing to waive. This suggests that you’re still open to purchasing the home even if it doesn’t appraise at the listing price.)
Waiving inspection (I NEVER suggest waiving inspection in its entirety but some people dare to do it on new builds or restrict it down to important things like roofing and plumbing. This can be helpful but I would only feel it’s worth it if the property is very new and you’re ABSOLUTELY in love.)
Waiving title (again, not my cup of tea but when some people want a place they’ll do whatever to get it. I wouldn’t recommend unless you’ve done some title exploration yourself and know there aren’t any issues too big to deal with on your own)
ALL CASH (please hope the seller has a heart because sometimes if they want the property off of their hands, they’ll run with an all cash closing without a second guess. They’re fast and there’s no mortgage contingency. How you think all these big corporations done swallowed up the housing market today?)
Once the offer is in you just wait with a pumping heart and sweaty palms in hopes that your offer has been selected. It is the MOST nerve-racking process of this whole transaction yet again, the best news you’ll hear is “you’re offer was approved!” We love those 4 words, but hold off on shouting it loud for the world to hear (if you can contain yourself), because this is the beginning…there’s a long way to go on this journey.
If you thought finding the home was stressful then WHEW, CHILE…ya’ll want me to tell ya’ll what goes down during this period?
Title Clearance
The sole purpose of title is to know who owns the property and understand the real estate rights that affect the property. A LOT goes into title clearance but i’ll keep it very simple. I used to love reviewing title as a paralegal, so bare with me as I try to stick to the point. Anyway, title must be cleared to close on a house. There’s so many things that go on during title review. There can be a gap in the chain of title, seller/buyer may have some outstanding tickets/ liens/judgments that must be handled prior to closing (some can be settled at the closing table as long as they are all paid). From ordering title to receipt of title can take about 3-5 days, maybe sooner or maybe later depending on the history of the property. The title company will communicate directly with the bank and your attorney in letting you know what needs to be done in order to be able to be cleared for closing. This part of the journey always seems to be a shock. One thing Uncle Sam is going to do is get his money right when you thought he forgot about what you owed him, I’ll tell you that much!
Coop/Condo Clearance
Although coops aren’t real property*, they seem to be the MOST complicated type of residential property to invest in. In order to be able to close on a coop unit, you must receive board approval. The board and the lender may be cousins because I SWEAR they have the same expectations. Board approval can either take anywhere from a week to two months long. During COVID, some boards have altered the way they conduct their meetings and business to a remote setting. Therefore, they may have changed their reoccurring meetings to make executive decisions regarding purchases to once a month, twice a month, even bi-monthly. If this is your board for your coop I’m going to send a prayer up for you! The good thing is that most co-op owners have already worked with the co-op board and know what to expect, so the pressure is off of you and onto the co-op board. There’s not much you can do since it’s out of your control.
Condos are quite simple. Just make sure you gather yourself a deed from the current seller (should be done with title as well) and have all the condo docs: Offering plan, Declaration, By-laws, Rules & Regulations, Financial Statement, and Budget. I may be missing something but yea, you can grab this from the condo association and/or the seller or their attorney. Also, I know New York issues a right of first refusal in order for the Condo Association to approve the transaction. Once you have this, you’re all set to move forward.
*Remember, with coops you actually just own the shares within he cooperative corporation. You don’t actually own the unit as a property in itself. It’s like renting but you get to sell the unit at the market rate once you decide to leave.
Bank Clearance
Listen, aren’t all things complicated when you’re dealing with money, ESPECIALLY, when it’s not your own?
Banks don’t come to play in this game. I don’t blame them, I barely let people borrow $5 for the day yet alone 6-9 figures for 30 years! They ask for 5 documents and you provide that, then they’ll ask for 20 more, in addition they may want to know your employment history, how long you’ve had funds in the bank, the reason for any reoccurring transactions, and they tell you don’t spend a penny until this is all over. In short, it’s a WAY different process than what most of us are used to coming from being a rental tenant. I always tell my clients to just be patient. Although it’s easier said than done, all you have to do is give the bank what’s required and wait for them. They have a lot to do on their part from gathering docs, coordinating the appraisal and sometimes the inspection, sending everything to their underwriters who review the file with a fine-tooth comb, employment checks, background checks, and more. Statistically, 87% of homebuyers obtain a mortgage to close on their home. So the good thing about this is you’re not alone. Mostly everyone (outside of the buyer) in the transaction knows what to expect if there’s financing. Most important thing is to make sure you have whatever the bank needs. Remember, the quicker you get it all to them the quicker they can get you to your closing.
Some hiccups can come up during this time. Sometimes the home doesn’t appraise at it’s listed price and now the bank has to adjust your loan amount (in which case you may have to come out of pocket for the difference). The home may not do well during inspection, in this case you have the option to either negotiate the price or walk away without penalty. Let’s hope this isn’t the issue. Honestly, if the inspection results are poor, you may not want to live there unless you’re ready to spend major bucks on improvement and maintenance. Be careful of homes that are being sold “as is”. The bank may have found a red flag with your finances or employment. Some red flags can be additional income that you have not claimed, losing/quitting your job, debt to income ratio has changed significantly since your pre-approval (again, don’t make big purchases), etc. These are what we simply call challenges. Some of these challenges may make or break you, but these are all the growing pains of big time investments like being a homeowner.
Once the bank has completed everything on their side, they will issue a “clear to close”. Once you have the “ok” from the other parties involved (title company, coop board/condo association) then you can jump for joy and start coordinating a date for your closing day!
I promise you I won’t drag this out, but remember this IS A BLOG. I’m just giving you all the tea and information!
Once you’re cleared to close all around the board, please prioritize the following:
Have all remaining funds available to you (anything outside of financing)
Have your closing statement from your bank and/or attorney and review (need this to know how much to bring to closing and how to delegate the funds accordingly. BANK/CASHIER CHECKS ONLY! or wire if permissible)
Final walk-through (VERY important! If you see any issues during your final walk through (especially plumbing/electricity/roof) this can make or break the deal EVEN at the closing table. You can always negotiate at the closing table if you find any issues, and hold funds in escrow until the seller gets everything fixed. Just make it your duty to note anything damaged or non-functioning)
Obtain homeowner’s insurance
Once you’re all set on the above, it’s time to get yourself ready for your big day as you pivot into a homeowner. CONGRATULATIONS!
Being a homeowner can be an intimidating thought. However, we all have dreamed of owning our own home one day. There will be highs and there will be lows, but nothing feels better than coming home to your sacred sanctuary. There’s plenty of things I intentionally skipped over in this section, that’s why it’s called Sales 101 and not 201, 301, yea…you get it. As always, you can contact me if you have any questions. I’m always here to help!