BUYING PROCESS

THE HOME BUYING PROCESS

THE BUYING PROCESS
The first consideration in buying a house is not necessarily the house itself. In fact, once you make the decision to buy a home, take the time to prepare before you go on your home search. The process of buying a home starts with determining your buying power -- that is, your financial reserves plus your borrowing capacity. So, get your financial house in order first! I can't stress this enough -- determining what your budget will comfortably allow will save you an enormous amount of time, aggravation and heartache.

PRE-APPROVAL FIRST
The best way to solve this problem is to get pre-approved for a mortgage. This will not only give you a clear idea of how much a lender will approve for you, it will make your homebuying process a great deal easier and save a lot of time later. There’s a secondary reason too. If you’re going to try to bid down the price of a house, your position is strengthened by your pre-approval. The same is true if you are putting down less than 20 percent as a downpayment, thereby requiring Private Mortgage Insurance (PMI) -- your pre-approval letter accompanying your offer will show the seller that you qualify for financing. A seller is more likely to accept an offer when he or she knows you will not have a problem getting a loan.

FINDING THE RIGHT HOME
Once you know how much you can spend, the next step is to find the properties that most clearly fit your needs. This is the time you will find it valuable to have chosen a good agent, and I hope I fill the bill. I have many resources to assist you in this search. My company has the most properties for sale in our area and in addition I am an active participant in the Multiple Listing Service (MLS). Furthermore the property that might be best for you may not be actively advertised in the market but available through my extensive networking with other agents.

SELECTING YOUR DREAM HOME
Your job is to make the final selection of the right property for you. I can assist you in the selection process by providing objective information about each property and the neighborhoods in which they are located. I have access to a variety of information such as assessing data, prior sales, and other sales in the neighborhood, as well as local community information on utilities, zoning, and schools.
        Some basic considerations in your decision are location. Do you like the access to schools and shopping? Do you have to drive far to work? Or do you like to trade the distance for relative privacy? Is this a neighborhood in which you and your family would like to live? Is the house designed well and the layout one in which your family will be happy? Do you prefer the openness of a contemporary or the more formal design of a traditional home? Will the home be large enough? Enough bedrooms and baths?
        Furthermore, will a given home have resale value when you are ready to sell? In our modern world few of us stay in our homes for extended periods. Eventually you may need to sell the home you are now considering buying. Will the home you wish to buy appeal to others? Which of the ones you like will have the greatest resale? I can help you answer those questions.
        Once you know what you want in a home, we’ll find all the homes on the market that fit your needs. We’ll set up appointments and view the homes. You may want to take notes on each property to compare them after seeing everything.
        A final note: maintain your perspective -- and your cool! You may find an acceptable house on the first day -- or the tenth. The important thing is to get the home that is best for you!

MAKING AN OFFER
When you find the right house, you make an offer. This offer is always in writing on a simple one-page agreement where you state a specific price you will pay and a date on which you would like to take ownership. Accompanying this offer will be an initial "earnest money" deposit (usually $500-$1,000) to bind the offer. Note that a second deposit of between 5% to 10% of the purchase price will come later). The offer will also make clear contingencies (items upon which the sale is dependent) such as mortgage financing required, termite inspection, and building inspection, among others. The offer is then presented to the seller. And, if accepted, it will be returned to you with the signature of the seller and your deposit placed in an escrow account where it stays until closing. Of course all deposits go toward your downpayment and are included as part of the purchase price.
        To help you determine an offering price we can match the property on which you would like to make an offer with other properties that are similar in size, style, and condition that are currently on the market or have recently sold, to determine a reasonable offer.

NEGOTIATING THE PURCHASE
Let’s hope the seller accepts your offer. If not, we can negotiate with the seller until we reach an agreement that suits everyone’s needs. Sometimes a seller will give us back a counteroffer with a price and terms that are more acceptable to them. There is no requirement for a seller to make a counteroffer and if your offer is too low they may not respond. Certainly, more than just price is involved in the negotiation: often the date by which you will obtain loan approval, appliances that go or don’t go with the property, and closing date are considered closely by the seller. Let’s assume they counter your offer which you in turn counter, finally coming to an agreement.

FINALLY, AN ACCEPTED OFFER
        Inspecting the Property
Now that you have an accepted offer there are several actions you must make simultaneously. The first is to arrange for a building inspection by a licensed Home Inspector. We want to make sure there aren’t any problems with the property that we weren’t aware of. This should be done within the time frame (usually 10 days) outlined in the offer. Try to have the inspection as soon as possible to allow for further negotiations to take place you find items or problems you wish to negotiate with the seller. Of course during this time you can also withdraw from the purchase and have your deposits returned to you. You will want to remember, however, that when a property is put up for sale, the condition of the property and any repairs that need to be done are usually taken into consideration when determining an asking price.
        Note that another task to be done during the inspection period is a radon test. This test is often done by your inspector. A water test should be done if the home you are purchasing has a private water system, and may in fact be required by your mortgage lender. Other tests such as lead paint may also be done during this inspection period. A termite and wood-boring insect must also be done but this may be done later prior to closing. I can assist you in finding qualified professionals to do most of these investigations and provide you with written reports. Note that in our area the seller is normally responsible for Title V septic inspections as well as for having the fire department approve the smoke detector installation.

        Choosing a Lawyer
Once you have an accepted offer the second action you must take at the same time you start the inspection process is to hire a lawyer. In our area we do not have title companies that in other states often do the work of transferring property ownership. Here, lawyers do that work for you. In fact, as you are the buyer it is your lawyer who oversees the documents (such as the Purchase & Sale Agreement, which is similar to your one-page offer but much more detailed), orders a title search to be sure no liens are placed on the property (critical for turning up an unforeseen ownership problems), accounts for the money (RESPA and otherwise), and receives the mortgage papers from the bank for you to sign. In fact, the first task he or she will do is to receive a draft Purchase & Sale Agreement (P&S) from the seller’s lawyer. Note that we agents do not prepare the P&S as is done in some other areas. At the signing of the P&S, which could come as soon as 10 days but may be longer if the lawyers have not come to full agreement, you will make an additional deposit which will also be held in escrow and applied to your downpayment. As you can see, you want a lawyer representing your best interests.
        Note that the "10-day" periods of signing the P&S and completing the inspection are coincidental and are not dependent one upon the other; both must be done simultaneously.

        Applying for the Mortgage
Upon acceptance of the offer the third task is to make formal application for a mortgage. Note that you do not wait for the results of the Home Inspection and/or signing the P&S Agreement. It often takes weeks to get an actual mortgage commitment; therefore, the process must start immediately. It is not hard; the mortgage officers you will be dealing with make this task a pleasure. Of course it’s even smoother if you have a pre-approval. And I’m here to help every way I can.

WHAT THE SELLER DOES
The seller has some obligations once he or she has accepted your offer. Like you, the seller must bring a lawyer on board right away as it is this lawyer who will send a draft of the P&S to your attorney. And, of course, the seller’s lawyer arranges for the title to the property to be turned over to you. As already mentioned, the seller is responsible to have the local fire department assure that the smoke detectors are working and properly placed in the house.
        Perhaps the biggest task for the seller is his or her responsibility to have the private septic system inspected. This is called a Title V inspection and must be performed by a qualified inspector. Massachusetts requires that when a property is transferred the septic systems be in compliance with state sanitary codes. If the system requires repair or replacement, the cost is usually the seller's responsibility. However, if the cost of any repair exceeds a particular, agreed-upon, amount you may be contributing.

WHAT ARE WE AGENTS DOING?
The seller's agent and I, as your buyer's agent, will make sure all parties (buyers, sellers, bankers, and lawyers) do what they need to do in a timely manner. We make sure each party has access to information they need. We arrange for the various inspectors and the bank's appraiser to examine the house. We make sure that all documents that lead up to the closing, such as Seller’s Description and Lead Paint, are signed. In short, we agents stay in touch with our respective parties and untangle any questions that might arise, lending our assistance right up to the closing day.

WHAT IS THE LENDER DOING?
The mortgage lender is following through on your loan application. They assure themselves that both you and the house are good risks. They begin an approval process that usually takes three (with pre-approval) to five weeks. They verify your paperwork and send an appraiser to confirm that the house is worth what you and the sellers have agreed upon. A key point here is that the lender must issue you a letter of commitment prior to the financing deadline noted on your offer. You, in turn, must make sure that I and your attorney get a copy of this commitment letter so we can assure the seller side we have met that obligation. The next step is for the lawyers to schedule a closing within the timeframe called for in the agreements.

THE FINAL WALK-THROUGH
A final walk-through is an opportunity for you to walk through the property and make sure everything is the way you agreed in the P&S agreement. Any work that was to be done before the closing should be completed at this point, and if the property is to be delivered vacant, any tenants should have moved out. If there is a problem and things are not as agreed, then arrangements can usually be made at the closing to remedy the situation, i.e. funds held in escrow for trash to be removed. This final walk-through is usually done right before or perhaps the day before the closing.
        SPECIAL NOTE: Several days prior to closing you need to call the electric company and give them the information they require to set up an account. I, or your attorney, cannot do this for you. Contacting the company allows them to transfer electric meter to your name without discontinuing service.

FINALLY, THE CLOSING
Finally the closing date arrives. As previously mentioned, in our area your lawyer and the seller’s lawyer handle this process. The closing itself is usually at your lawyer’s office. Note that you will need to bring to the closing any remaining amounts of money in certified funds. Your lawyer will tell you the amount necessary. You will also need to obtain an insurance binder and bring it to the closing.
        Most likely I will be joining you at the closing. The seller and his or her lawyer are not likely to be present as they have already agreed on the proper accounting and turned over to your lawyer a signed deed.
        At the closing you will sign all the necessary papers including the mortgage documents, the latter having been sent by your bank to your lawyer for signing. After the closing your lawyer will go to the Registry of Deeds, do a final title check to see that no last-minute liens have been placed on the property, and record the deed. This accomplished, funds due the seller are released, and you own the property and can take immediate possession -- congratulations!

                                                                  Jim Lumley, Realtor

                                                                 Copyright © 2005 Jim Lumley

Jim Lumley

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