San Diego Home Buyers Guide
We all have dreams, and for many people, owning a home is their ultimate dream. But the home buying process can be stressful – especially for people who don’t know what to expect.
You, however, have come to the right place to learn about the home buying process and what to expect. So let’s start by looking at the basic steps you’ll complete during the home buying process:
1. Calculate Your Buying Power
2. Apply for a Home Loan
3. Find a Home
4. Make An Offer & Negotiate
5. Close The Deal
6. Move In & Enjoy Your New House
1. Calculate your Buying Power
If you are buying with cash you can move on to step #3.
The easiest way to eliminate the stress of buying a new home is to have a clear understanding of your buying power – or how much home you can comfortably afford. When you know what you can afford, you can focus onlooking for homes that are right for you – and within your budget. Please contact us for a reference of a trusted mortgage consultant or loan officer within our network.
After you have your initial phone conversation or meeting with your mortgage consultant, they will obtain a copy of your credit report and perform a rate analysis for you. The loan officer will then present you with the different loan options and rates available to you as a pre qualification and invite you to apply if the loan is right for you.
2. Apply for a Home Loan
Once you have an idea of what you can afford, you’re ready to apply for a home loan. Remember, you don’t have to wait until you find the house you want to apply for a loan. In fact, we recommend that you apply before you start looking. If you are pre-approved for a home loan before you start looking, you’ll have a better idea of where to look, and sellers will know you’re serious about buying. Please refer to the “Purchase Checklist” in this document for a list of documents that you will need to submit together with your application for faster loan processing.
AFTER YOU APPLY
After you applied for the chosen loan program, your mortgage consultant will provide you with several disclosure documents, including but not limited to:
- Good Faith Estimate: this document details your closing costs and your monthly payment (principal and interest).
- Truth in Lending statement: this document details the cost of finance charges and the total amount you’ll pay for credit.
You may also receive additional disclosures, including any required by your state and/or loan program.
Your official loan processing generally begins when your loan officer sends in your official application with supporting documents to the Lender or Bank for final review.
You’ll need provide the following documents to your agent for a faster processing since these documents will go packaged together with your application to the Lender for underwriting for pre approval or loan funding (if you have already located your home).
The following docs could be requested by your agent, he or she will specify which ones apply to the loan program you selected.
- Purchase contract (if you have one)
- Checking and savings account statements for the last 2 – 3 months
- Pay stubs for each borrower and co-borrower(s) – reflecting earnings for the last 30 days and year-to-date earnings (these must be computer-generated or typed originals that identify the employer and the employee’s name)
- Last year’s W2 (and 1099 if applicable) for each borrower and co-borrower(s), plus federal tax returns for the last 2 years (or other proof of income and employment verification)
- Divorce settlement papers (if applicable)
- Information about other debts such as car loans, furniture loans, student loans, and retail credit cards
- A gift letter if you are using a gift from a parent, relative, or organization to help with your down payment and/or closing costs.
- If you are self employed and will do a Stated Income loan, please provide a CPA letter stating you been self employed and paying taxes for the past two years.
Your application will be processed faster if you supply the documents listed above.
Within a few days, your loan officer or mortgage consultant will let you know if you’re approved. If your loan application is denied, your mortgage consultant will explain why and discuss any alternative lending options with you.
3. Find a Home
Maybe you’ll want to start looking at home listings on the Internet. Perhaps you prefer to drive around your favorite neighborhood and look for houses that are for sale. You might want to work with a real estate professional. Many home buyers choose to work with a buyer’s real estate agent or broker to help them find a home.
Since finding a home, negotiating the contract and closing the deal is such an important process, an experienced agent can provide guidance to help you avoid potential pitfalls. A buyer’s agent should have vast knowledge of the real estate market, price trends and neighborhood conditions. The agent will help you shop for your home, tour properties and be your negotiator if bargaining over price is necessary
WHAT IS A BUYERS AGENT?
A buyer’s agent is a real estate agent who represents you and only you in the purchase of your home.
· As a buyer, there’s no cost to you in working with a buyer’s agent.
· The buyer’s agent receives part of the commission paid by the seller upon the sale of the house.
Anytime you speak with a real estate agent, be sure that you understand whom the agent is representing in a transaction.
Remember that a seller’s agent is working for the seller — not you. The job of the seller’s agent is to get the highest price possible for a property. If you’re like most buyers, you’re interested in getting the lowest price possible. If you decide to use a real estate agent, you should take great care in selecting one who meets your needs (refer to our informative document “Exclusive Buyer’s Representation vs. Dual Agency” for more information on this important topic).
Our Real Estate team is ready to help. Please visit our San Diego Real Estate Buyer Services page learn more about our Buyer’s Program.
4. Make an Offer and Negotiate
So you’ve applied for your loan, obtained a pre-qualification, and found your dream home. Now it’s time to make an offer. When you’re ready to make an offer, you’ll submit a contract, which will be reviewed by the seller. The contract will include your offer price, as well as your contingencies, which will help protect your interests. Contingencies are requirements that must be met in order for the sale to go through.
You might want to consider including the following contingencies:
- Home must pass inspection: if the home inspection reveals faults in the home, you may have the right to back out if the owner won’t make repairs, if the repairs exceed a specified limit, or if the repairs can’t be made.
- Repairs must be made to your satisfaction: if the seller agrees to make repairs, which turn out to be unacceptable, then you may be able to get out of the contract.
- Financing must be approved: if something were to happen to your credit or you were unable to get approval for the home loan, you may be able to get out of the contract.
In addition to the contract, you’ll also need to present an earnest-money check, which should only be cashed when the sales contract is signed. Earnest money is like a deposit; it lets the seller know that he or she is entering in negotiations with a serious buyer. The earnest money should be held by a third party in an account called an escrow account, and the money is applied to your closing costs.
Though earnest money guidelines vary, generally here is how it works: If negotiations break down before the contract is signed, you should be able to get your original earnest-money check back. Likewise, if the contract falls through because the seller does not meet your requirements, you should be able to get your original check back; however, if you back out of the contract or fail to meet the seller’s requirements, you may lose your earnest money.
If your contract contains an offer that is too low for the seller or includes contingencies the seller wants to change, then you and the seller will begin negotiations. Basically, your offer contract will be changed to meet both yours and the seller’s requirements. Maybe the seller will be willing to lower the price of the house, but not as much as you originally requested. Depending on the market, the seller might be very willing to negotiate with you. If and when you do reach an agreement, you’ll be ready to close the deal.
MORE ON NEGOTIATING
Most homes are sold for less than their asking price. If you’re working with a real estate professional, he or she will be the person who helps you decide what to offer, and deliver your offer to the seller. If you’re buying directly from the owner, you’ll be negotiating on your own.
Your ability to negotiate with the seller will depend on several factors:
- Condition of the home: if the home requires repairs, then you can use the estimated cost of those repairs to lower the price or ask that the seller make the repairs before you buy. (Repairs may be mandatory, depending on your loan’s features.)
- Current market: depending on the current market, buyers or sellers may benefit. For example, in a buyer’s market, more homes are available than people who are looking to buy, so you are more likely to succeed in making a lower offer and negotiating aggressively. On the other hand, a seller’s market has more people looking for homes than there are homes for sale. In this situation, you’ll likely have to make an offer that is close to the seller’s asking price.
- Seller’s motivation: if the seller needs to relocate quickly or buy a larger house for a growing family, he or she may be willing to accept a lower offer.
- Seller’s equity in the home: sellers who have little equity in their homes may be less willing to accept low offers because they don’t want to lose money in selling at lower prices.
5. Close the Deal
After you’ve negotiated the price of your house and any contingencies, you and the seller will sign the offer contract. Also, if you worked with a real estate professional, he/she will review and sign the contract. Once everyone has signed the contract, your earnest money check may be cashed. Then, you’ll contact your mortgage consultant or loan officer to arrange for the check you’ll use to pay for your home which will come from the Lender that funded your loan. On closing day, you’ll exchange the papers necessary for the house to be legally transferred.
On average, closing costs are about 2 – 6% of the house’s sale price. Closing costs may include:
- Origination fee
- Points (paid upfront to lower interest rate on loan)
- Prepaid homeowner’s insurance premiums
- Appraisal fee
- Underwriting fee
- Processing fee
- Tax service fee
- Recording fee
- Title search and Lenders Title Insurance
- Flood certificate fee
- Credit report fee
- Tax adjustments
- Private mortgage insurance premiums (required if your down payment is less than 20% of the home’s price)
6. Move In
So you’ve closed the deal on your new home, and now all you have to do is start moving!