Purchasing a home is one of the biggest life changing decisions you will make. To help with this we have provided a Buyer’s Guide to assist in making the process easier for you. This will below are eight steps that describes the home buying process followed by a more in-depth explanation of the process and the home buying partners you will be working with.
Quick Steps to the Home Buying Process
- Contact REALTOR® at [email protected]
- Loan Prequalification
- In-person Home Search
- Make an Offer
- Open Escrow
- Loan Pre-approval
- Home Inspection
- Funds Transferred & Title Exchanged
Here are Your Home Buying Partners
Real Estate Agent
The term “REALTOR®” identifies a real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS® and abides by its strict Code of Ethics. They will direct, guide and represent you through the home purchase process including:
- Monitoring the market for new listings and inform you of homes that meet your criteria
- Providing current and historical sales and listing data to help in gauging fair pricing
- Helping you explore financing options
- Preparing the Purchase Agreement according to your terms and ensure all documents are legally correct
- Negotiating price and other details of the offer in your best interest
- Ensuring that all disclosures are made
- Suggesting which professional inspections should or must be made on the property
- Handling any problems which may arise and recommend attorney services if necessary
- Overseeing the appraisal process
- Seeing that any repairs or requirements are met prior to the closing
- Accompanying you during the final walk-through
- Advising you as to any contractual changes which might be required prior to closing
- Keeping you fully informed of all activities that lead to the closing.
Prequalification for a home loan
Knowing ahead of time the amount of loan you qualify for can take much of the mystery and guesswork out of the home-buying process and may strengthen your bargaining position with a seller.
A prequalification will show you the monthly payment including principal and interest. It may also show you the amount you’ll have to pay toward mortgage insurance, hazard insurance and property taxes, which in most cases are added to the monthly mortgage payment. Knowing these figures in advance gives you a precise idea of the future costs of home ownership.
The first step is to provide the lender with your basic financial information including:
- Gross income before taxes and deductions, savings and other liquid assets
- Debts, including installment payments on outstanding loans, school loans,
- credit card debt, personal loans and other home loans
- Credit history
In the pre-qualifying process, lenders consider the interest rate and term of the mortgage to determine the amount of the loan. The higher the interest rate, the higher your monthly payments assuming all terms and principal are equal.
Prequalification results reveal the maximum loan amount for which you would qualify. The lender will tell you how much you’ll need for a down payment on the type of loan you’re applying for an estimate the closing costs.
Most lender guidelines require homeowners to pay no more than about 30 percent of their monthly income toward mortgage payments. Guidelines are calibrated to your credit rating, so those with good credit can generally qualify for a higher mortgage at a lower interest rate and conversely, borrowers with poor credit may find it difficult to find a good rate, or to prequalify for the size of loan they want.
Searching for the ideal home
In addition to your REALTOR® searching homes for you, over 90% of home buyers begin their home search online. You can view several properties in a fraction of the time it takes to view them in person. There are numerous websites that list homes for sale and allow you to sort by location, price, school districts, bedrooms and more. Multiple photos or virtual tours are typically available on this websites as well. Once you find homes that are of interest to you, contact your REALTOR® and he or she will schedule appointments to view the homes in person.
Making an offer
When you have found a home you want to buy, the offer process begins. It will likely include the following:
Purchase Contract Prepared – With the help of your agent a purchase contract will be prepared for presentation to the seller. This agreement will include your terms of the purchase including how much you are offering for the home and any contingencies, such as home inspections or lender appraisal. Earnest money may also be included.
Offer is Presented – Upon completion of the Purchase Contract, your agent will contact the seller’s agent and electronically transfer the offer, or make an appointment to present the offer in person.
Offer is Accepted or Countered – The seller will evaluate the offer then accept the terms or prepare a counter offer.
Closing Process Begins – If the seller accepts, the closing process will begin. If the seller counters, the ball is back in the buyer’s court and the buyer must decide if they will accept, reject, or counter the counter offer.
Be Readily Available – The offer process typically moves quickly. It’s important to be readily available.
The home inspection and appraisal process
A standard home inspection is a visual examination of the physical structure and major interior systems. It is not to be interpreted as a guarantee of any kind or an insurance policy on the condition of the property. The inspector will review the easily-accessible exposed portions of the structure of the home including the roof, attic, walls, ceilings, floors, windows, doors, and foundation, as well as the heating/air conditioning systems, interior plumbing and electrical systems. Potential problems will be noted. Home inspections are not intended to point out every small problem or any invisible or latent defects in a home.
Selecting a Home Inspector
Your agent, representing you as a buyer, is a good referral for a home inspector. You may also research Home Inspectors online. The home inspector that is retained should welcome your presence during the home inspection and address all your questions and provide a full verbal and written report.
Other Inspections & Tests to Consider
Fungi, mold and allergens
Urea Formaldehyde Insulation
The worth, or appraised value of the property, will determine how much a lender is willing to loan to buy that particular piece of real estate.
A real estate appraisal is simply that—the expert opinion of a certified, state-licensed professional who determines the value of a piece of property. A home appraisal protects the bank from getting stuck with property that’s worth less than they’ve invested. And it protects you, the buyer, from paying too much for a house.
Securing Financing – Common Types of Loans
Contacting your bank early in the home buying process can benefit you not only by helping you determine how much home you can afford, but by providing you with pre-approval confirmation. This confirmation proves to sellers that you are financially qualified to purchase the home, and it can be an influencing factor in negotiations. When it comes to actually securing financing for your home, your banker can assist you in determining a loan type that best fits your financial situation. A loan type will influence interest rates, payoff rates, the loan period, etc.
- Adjustable Rate Loan
Adjustable or variable rate refers to the fluctuating interest rate you’ll pay over the life of the loan. The rate is adjusted periodically to coincide with the changes in the index on which the rate is based. The minimum and maximum amounts of adjustment, as well as the frequency of adjustment are specified in the loan terms. An adjustable rate mortgage may allow you to qualify for a higher loan amount but maximums, caps and time frames should be considered before deciding on this type of loan.
- Balloon Payment Loan
balloon loan is amortized over a long period of time but the balance is due and payable earlier in the life of the loan. Example: Loan is amortized over 30 years but the payment is due after 5 years. The loan also may be extendable or it may roll into a different type. This could be an option if you expect to refinance before the loan is due or you plan to sell the home before the balloon date.
- Conventional Loan
A mortgage loan program where the interest rate does not change for the life of the loan. Also called Fixed Rate Mortgage.
- Conforming Loan
A mortgage program for up to and including $417,000 in the continental United States.
- Interest Only Loan
A non-amortized loan in which interest is due at regular intervals until maturity, when the full principal on the loan is due.
- Jumbo Loan
A mortgage loan program for $417,001 or more in the continental United States. These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because Jumbo Loans cannot be funded by these two agencies, they usually carry a higher interest rate.
- Second Mortgage
A mortgage on real estate which has already been pledged as collateral for an earlier mortgage. The second mortgage carries rights which are subordinate to those of the first.
- Two Step Mortgage
An adjustable rate mortgage which has one interest rate for the first part of the mortgage (usually five or seven years), and a different interest rate for the remainder of the mortgage.
The Loan Application
Below is information typically requested by a lender when applying for a home loan. It is recommended that you have these documents available prior to applying for your loan:
- Picture ID with proof of social security number
- Residence address (past 2 years)
- Names and addresses of each employer (past 2 years)
- Gross monthly salary (base only—overtime & bonus list separately)
- Names, addresses, account numbers & balances of all checking and savings accounts (last 2 months of bank statements)
- Names, addresses, account numbers, balances and monthly payments of all open loans
- Names, account numbers, balances and monthly payments of all credit cards
- Addresses of other real estate owned
- Loan information on other real estate owned
- Estimated value of furniture and personal property
- Certificate of eligibility and DD214s (V.A. only)
- Money for credit report and appraisal
- W2s (2 years) and current check stub
- Full divorce decree, if applicable
Escrow Officer with Title Agency
Understanding the Escrow Process
The following explains the sequence of events involved in an escrow/closing process and what party involved is responsible. Your Escrow Officer is a “neutral third party.” Her/his job is to gather all the documents and information from all involved parties to prepare for the transfer of the property.
Step 1 Escrow Officer
Receives Purchase Contract with earnest money check, opens escrow and orders title commitment
Step 2 Buyer Has all inspections completed
Step 3 Lender Begins processing: Orders credit report, appraisal, deposits and verification of employment
Step 4 Escrow Officer Receives Title Commitment for review and distributes to all parties
Step 5 Escrow Officer Orders any statements for items requiring payoff per Title Commitment
Step 6 Lender Receives loan approval and orders loan documents to be sent to Escrow
Step 7 Escrow Officer Prepares a preliminary settlement statement for review by parties
Step 8 Seller Signs deed and other related sale documents
Step 9 Buyer Signs loan documents and deposits funds required
Step 10 Escrow Officer Returns signed loan documents to Lender
Step 11 Escrow Officer Receives loan funds from Lender
Step 12 Escrow Officer Orders recording of Deed and Deed of Trust
Step 13 Escrow Officer completes the file by paying the Seller, agents, and all bills in escrow, and sends the final documents to all parties
Step 14 Title company Issues title policies to Owner and Lender
What is Title Insurance and Why is it Needed?
Your lender must ensure that the quality of the title to the property you are about to buy, and which you will pledge as security for the loan, is satisfactory. The lender does this by obtaining a lender’s policy of title insurance, often referred to as the ALTA policy. The lender’s policy protects the lender against loss due to unknown Title defects at the time of the sale and in the future. This policy only protects the lender’s interest. It does not protect you. That’s why you need an Owner’s Policy, which will be issued at the same time as the lender’s policy for a one-time fee.
How can there be a Title defect if the Title has been searched and a loan policy issued?
Title insurance is issued after a careful examination of copies of the public records. Even the most thorough search cannot absolutely assure that no Title hazards are present, despite the knowledge and experience of professional Title examiners. In addition to matters shown by public records, other Title problems may exist that cannot be disclosed in a search.
What Title Insurance Protects against?
Here are just a few of the most common hidden risks that can cause a loss of Title or create an encumbrance on Title:
- False impersonation of the true owner of the property
- Forged deeds, releases of wills
- Undisclosed or missing heirs
- Mistakes in recording legal documents
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Liens for unpaid inheritance, income of gift taxes
What protection does Title Insurance provide against defects and hidden risks?
Title insurance will pay for defending against lawsuits attacking your Title as insured, and will clear up Title problems or pay the losses. By combining expertise in risk elimination at the time of issuing a policy, and protection against hidden risks as long as the policy remains in effect, your Title insurance protects against title loss.
Ways to take Title in Arizona
- Requires a valid marriage between two persons.
- Each spouse holds an undivided one-half
- One spouse cannot partition the property by selling his or her interest
Joint Tenancy with the Right of Survivorship
- Parties need not be married
- Each joint tenant holds an equal and undivided interest in the estate
Community Property with the Right of Survivorship
- Requires a valid marriage between two persons
- Each spouse holds an undivided one-half interest in the estate
- One joint tenant can partition the property by selling his or her joint interest
Tenancy in Common
- Parties need not be married: may be more than two tenants in common
- Each tenant in common holds an undivided fractional interest in the estate. Can be disproportionate.
- Each tenant’s share can be conveyed, mortgaged or devised to a third party
Sole and Separate
- Arizona is a community property state
- Property acquired by a husband and wife is presumed to be community property
- If a married person acquires title as “Sole and Separate”, his or her spouse must execute a disclaimer deed to avoid the presumption of community property.
Estimating Your Closing Cost
- Appraisal – This is a one-time fee that pays for an appraisal. The appraisal is made by an independent fee appraiser.
- Credit Report – A fee that covers the cost of the credit report
- Document Preparation – There may be a separate fee that covers the preparation of the final legal papers.
- Loan Discount – A fee used to adjust the yield on the loan to what market conditions demand. It is often called “points”
- Loan Origination – The lender’s administrative costs in processing the loan. This fee covers the loan.
- Title Charges – The Title Company charges fees for a title search, title examination, recording fees, endorsement fees, a settlement or closing fee and notary fees.
- Prepaid Interest – Depending on the time of the month your loan closes this per diem charge may vary from a full month’s interest to that of a few days. If your loan closes at the end of the month, you will have to pay interest only for a few days or so.
- Taxes & Insurance – You may be required to reimburse the Seller for property taxes, depending on the month in which you close. You will also need to pay a year’s hazard insurance premium up front. Also, you might be required to put a certain amount for taxes and insurance into a special reserve account held by the lender.
- Your title company can also calculate your estimated closing costs.
- Address Change
- Give forwarding address to post office 2 to 3 weeks before moving
- Change charge accounts, credit cards
- Subscription: Notice requires 6 to 8 weeks
- Friends and relatives
- Transfer funds, arrange check-cashing in new city
- Arrange credit references
- Notify Company of new location for coverages: life, health, fire and auto
- Make sure homeowners’ coverage for your new house is in place
- Medical, Dental, Prescriptions
- Ask doctor and dentist for referrals, transfer needed for prescriptions, eyeglasses, x-rays
- Obtain birth records, medical records, etc.
- Arrange for medical services: doctor, dental, veterinarian
- Ask about regulations for licenses, vaccination, tags, etc
- Get school transcripts (some districts require that they be sent directly from the prior school)
- Utility Companies
- Notify gas, electric, water, telephone, fuel and garbage companies
- Get refunds on any deposits made
- Return cable boxes
- Don’t Forget To
- Carry enough cash to cover cost of moving services and expenses
- Carry jewelry and documents yourself
- Double check closets, drawers, shelves t be sure they are empty
- Leave old keys, garage door openers, broilers pans, landscape / house plans and instruction manuals needed by new owner with real estate agent
- Have new address recorded on driver’s license and car registration