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 Principal Real Estate Broker and
an e-PRO Certified Realtor® affiliated with High Lakes Realty La Pine, OR. He can be reached directly at 541 598-5449 or fred@fredjaeger.com .
I'll never forget what I did that first time I purchased Real Estate. I actually sat on the ground of that property and, just like a kid, played in the dirt. I just had to feel the ground, dig down into it with my hands and let my fingers feel the rocks, sand, sticks and mud of this tiny piece of the earth that had somehow, incredibly, become mine. I looked around at the trees blowing in the breeze, and yes, I admit it, I had to run up to a couple of them and give'm a good squeeze. How could I not have? Tree hugger or not, to own your own land is a feeling like none other. I don't know, maybe it's a guy thing, but I doubt it. To this day I still occasionally walk around my humble little property and marvel at the still seemingly impossible notion that it could actually be mine.
