randy
November 25, 2024

🔑 Your Complete Home Buying Guide: Steps and Strategies

Buying a home is one of the most exciting—and important—decisions you’ll ever make.

Table of Contents:

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1. Getting Pre-Approved: Understanding Your Budget

  • What is a Pre-Approval?

  • Benefits of a Pre-Approval

  • Steps to Get a Pre-Approval

  • Understanding Your Budget

  • Common Mistakes to Avoid

2. Home Hunting Made Easy: Simplify Your Search

  • Set Your Budget

  • Define Your Needs and Wants

  • Set up an Auto-Search

  • Tips for Showings

3. Making an Offer: Strategies for Success

  • How to Determine Your Offer Price

  • Learn the Seller’s Motivation

  • What if it’s my Dream Home?

  • Submit Offer with Pre-Approval

  • Write a Personalized Letter to the Seller

4. Escrow: What to Expect and How to Prepare

  • What Is Escrow and Why Does It Matter?

  • How Do You Get Into Escrow?

  • How Long Does Escrow Take?

  • What Are Your Responsibilities During Escrow?

5. How to Protect Yourself in the Buying Process: Understand Your Rights

  • Understand the Contract: Know Your Rights

  • Home Inspection Contingency 

  • Seller’s Real Property Disclosure Statement

  • Home Owner’s Association Documents

  • Termite Inspection

Bonus Resources:

  • Closing Costs: What are they? How much do they Cost?

  • Your Moving Checklist

  • Home Buying Frequently Asked Questions (FAQs)

Getting Pre-Approved: Understanding Your budget

What is a Pre-Approval?

Preapproval is a formal process where a lender commits to offering you a loan up to a certain amount, pending final checks. It’s more thorough than prequalification and shows sellers you’re a highly credible buyer.

Key Difference:

  • Prequalification: A quick estimate based on basic financial information.
  • Preapproval: A detailed, formal evaluation requiring documentation and a credit check.

Benefits of Getting Pre-Approved

  • Know Your Buying Power:
    Shop confidently within your price range.
  • Strengthen Your Offer:
    A pre-approval letter is usually required 5-10 days after your offer is accepted. However, providing it upfront when you submit your offer shows the seller you can afford the home and are ready to close. This makes your offer more attractive compared to other competing buyers.
  • Save Time:
    Focus your search on homes that match your budget and avoid unnecessary delays.

Steps to Get Pre-Approved

  1. Gather Your Financial Documents:
    • Proof of income: Pay stubs, W-2s, or tax returns.
    • Debt details: Information on student loans, car payments, and credit cards.
    • Bank statements: Show your savings and any assets you own.
  2. Research and Choose a Lender:
    • Look for lenders with competitive rates, strong reputations, and positive reviews.
    • Talk to multiple lenders to compare rates and find the best fit for you. 
    • Need a Trusted Lender? Let Us Connect You!
  3. Submit Your Application:
    • Provide the required documents and let the lender perform a hard credit check.
    • Pro Tip: Have lenders perform credit checks within 14-45 days to minimize the impact on your credit score.
    • Be ready to answer any follow-up questions about your finances.
  4. Receive Your Pre-Approval Letter:
    • This letter will tell you how much you’re approved to borrow.
    • It gives you the confidence to make offers within your budget and shows sellers you’re serious.

Understanding Your Budget

  1. The preapproval amount is the maximum the lender is willing to loan you based on your financial situation. However, this doesn’t mean it’s the ideal amount to spend.

    • Debt-to-Income (DTI):
      Lenders use DTI to determine affordability, but their limits may be higher or lower than what feels comfortable for you. Make sure your budget considers what you’re truly comfortable spending.
    • Additional Costs:
      Discuss with your lender how other expenses—like property taxes, homeowners insurance, and HOA fees—impact your monthly payment and how much you can afford overall.
    • Comfort vs. Limits:
      Just because you’re preapproved for $500,000 doesn’t mean you should spend it. Choose a price range that aligns with your financial comfort zone.
    • Rate Locks:
      Interest rates can fluctuate, which might affect your monthly payment and total affordability. Ask your lender if you can lock in your interest rate and how long the rate lock is valid. Securing a rate lock early can protect you from rising rates during your home search.

Common Mistakes to Avoid

  • Making Big Purchases Before Closing:

 Financing a car or adding new debt can change your debt-to-income ratio (DTI) and lower your credit score. This could lead to your final loan approval being denied, meaning you won’t be able to buy the home anymore. 

  • Forgetting Hidden Costs:

Closing costs, moving expenses, inspection and appraisal fees, insurance, and property taxes can quickly add up. Make sure to budget for these costs.

  • Making Large Cash Deposits Without Documentation:

Lenders need to verify the source of all funds. Unexplained deposits can delay or jeopardize your loan approval.

  • Switching Jobs or Reducing Income Before Closing:

Changes in your job or income can make lenders question your ability to repay the loan, risking denial of final approval.

  • Not Locking in Your Interest Rate:

If you don’t lock your rate, you’ll be subject to interest rate changes. If rates rise before you close, your monthly payment could increase, making your loan less affordable.

 

FAQ: Pre-Approval

  • Can I get preapproved with bad credit?

Yes, but your loan options may be limited, and you might face higher interest rates. Improving your credit before applying can help you qualify for better terms.

  • How much does preapproval cost?

Preapproval is usually free, but some lenders may charge a small fee for processing. Always confirm with the lender before applying.

  • Does preapproval affect my credit score?

Yes, it involves a hard credit check, but the impact is typically minimal. If you’re speaking with multiple lenders, try to have all credit checks performed within the same 14-day window. This minimizes the impact on your credit score, as these inquiries will count as a single inquiry for mortgage purposes.

  • How long does preapproval last?

Most preapproval letters are valid for 60-90 days.

  • Does getting Pre-Approved mean I’m guaranteed a loan?

No, preapproval is not a loan guarantee. Final approval depends on additional checks during underwriting, like verifying your income, assets, and credit at the time of closing.

  • What happens if my financial situation changes after preapproval?

Changes like taking on new debt, switching jobs, or reducing income could void your preapproval. Inform your lender immediately if any changes occur.

Home Hunting Made Easy: Simplify Your Search

Set Your Budget

Once you’re pre-approved, you’ll know the maximum amount you qualify for. However, that amount may not be a comfortable monthly payment. It’s important to stick with a comfortable monthly payment.

Things to Keep in Mind:

  • Additional costs like property taxes, insurance, and HOA fees.
  • Monthly expenses for utilities such as electricity, water, cable, and Wi-Fi.

Pro Tip: Set a firm top amount you’re willing to spend—even if it’s your dream home—to ensure you stay within a budget that works for you.

Define Your Wants and Needs

By knowing exactly what you need and want, you can narrow your options and find the right home faster, saving time and energy.

Needs:

  • These are the must-haves that you can’t compromise on, like:
    • The number of bedrooms to fit your family.
    • Being close to your workplace or your child’s school.
    • A budget that stays within your financial comfort zone.

Wants:

  • These are the nice-to-haves that would make the home more enjoyable but aren’t deal-breakers, like:
    • A large backyard for entertaining.
    • An updated kitchen with high-end appliances.
    • Extra space for a home office or gym.
Wants and Needs Template | Download Here

Set up an Auto-Search

Create a search to automatically receive homes that match your criteria as soon as they hit the market, go into escrow, or sell.

Want Help?
If you’d like me to set up an auto-search for you, just let me know! (click here)

Keep in Mind:
You can still use your favorite search sites, but an auto search ensures you’re the first to know about new listings that meet your needs. This gives you an edge in a competitive market.

Tips for Showings

  • Look Past the Stuff:

If the home is tenant- or owner-occupied, imagine it cleared out. Focus on the space itself and ignore clutter or personal items—remember, you’re buying the home, not the stuff.

  • Be Mindful of What You Say:

We believe negotiations start at the initial showing. If the seller’s agent is present, avoid appearing overly eager to buy or hard to work with, as this could weaken your negotiating position.

  • Identify Key Likes and Dislikes:

Focus on what’s most important to you—good and bad—about each property. While features like paint, flooring, or even layout can be updated, the land and location cannot be changed.

  • Rate Each Property (1-10):

After each showing, rate the property on a scale of 1 to 10 (1 = Low, 10 = High). Properties rated 8, 9, or 10 are homes you would want to make an offer on.

Pro Tip: Ask yourself, “What would make this property a 10?” This will help you better understand what you’re truly looking for in a home.

Making an Offer: Strategies for Success

The Most Important Thing to Know When Making an Offer

Does the seller already have offers in hand, or are they expecting any? Knowing this will help you understand whether you’re competing against other buyers, which will shape your strategy.

How to Determine Your Offer Price

Start by understanding the market value of the home, validated by comparable sales. This will give you a clear idea of what a fair price is. From there, adjust your offer based on the level of competition and how much you want the home.

Learn the Seller’s Motivation

  • What does the seller want most?
    • A quick sale
    • A buyer who will value and care for their home
    • Minimal contingencies for a smoother transaction
    • The highest possible price
  • Understanding what’s important to the sellers allows you to tailor your offer to meet their needs, giving you an advantage over competing buyers.

What if It’s My Dream Home?

If this is your dream home and you need to beat competing offers, consider these strategies to give you the best chance at winning:

  • Understand what the sellers want most and go all in.
  • Offer your highest price, as sellers often prioritize price.
  • Waiving contingencies
    • Beware: Waiving a contingency gives sellers more confidence that you’ll close the deal, but it also removes your right to cancel, which can put you at risk.
  • Add favorable terms for the sellers like:
    • Appraisal language
    • High Deposits
    • Offering to pay for the termite inspection
    • Escalation clause
    • Non-Refundable Deposit

Submit an Offer with a Pre-Approval Letter

  • Submitting your offer with a pre-approval letter and verification of cash funds gives sellers confidence in your ability to purchase.

  • Pro Tip: Have your lender (if applicable) call the seller’s agent directly to provide further assurance of your financial readiness.

Write a Personalized Letter to the Seller

  • Sellers can make an emotional decision or financial decision.
  • Sellers often want to know their home will be well cared for by the next owner.
  • A personalized letter can show your appreciation for the home and help the seller see you as more than just another buyer.
  • A seller chose our buyer over a competing offer that was $100,000 higher because they connected personally with our clients.

Escrow: What to Expect and How to Prepare

Escrow is the final step before becoming a homeowner, where all the details of the sale are finalized. Here’s what you need to know and do to ensure a smooth process:

What Is Escrow and Why Does It Matter?

  • Escrow is a neutral third-party process that protects both you and the seller.
  • The escrow company holds funds, documents, and agreements until all conditions of the sale are met.
  • It ensures the transaction is handled fairly and according to the contract.
  •  

How Do You Get Into Escrow?

Escrow begins when the buyer and seller agree on a contract. Both parties sign the purchase agreement, which outlines the terms of the sale, including price, contingencies, and deadlines.

How Long Does Escrow Take?

  • Escrow typically lasts 30-45 days but can be shorter or longer depending on the terms of your contract and any delays in the process.
  • Staying on top of your responsibilities can help ensure a smooth and timely closing.

What Are Your Responsibilities During Escrow?

  • Fulfill the Timelines of the Contract: Make sure all deadlines, such as earnest money deposits or contingencies, are met on time.
  • Schedule Inspections: Arrange a home inspection to check for any issues with the property. This is your opportunity to conduct due diligence on the property.
  • Complete Loan Finalization: Work with your lender to finalize your mortgage and submit any additional documents they request.
  •  

How to Protect Yourself in the Buying Process: Understand Your Rights

Buying a home is one of the biggest investments you’ll ever make, so it’s important to know your rights and protect yourself throughout the process. Understanding the rights to your contract will help you avoid costly mistakes.

Understand the Contract: Know Your Rights

  • Learn how to legally cancel the contract if new information makes you uncomfortable buying the home.
  • Once you’re in escrow, you have several legal opportunities to back out of the purchase if something doesn’t meet your expectations or if the home isn’t what you thought it was.
  • However, if you cancel without a legal right to do so, the seller is entitled to your deposits, which could amount to tens of thousands of dollars.

Home Inspection

  • What It Is:
    This allows the buyer to hire a professional home inspector to check the property for issues like structural damage, plumbing problems, electrical concerns, etc.
  • How to Protect Yourself:
    If the inspection reveals major problems, you can negotiate repairs, ask for a credit, or cancel the contract.
  • Typical Timeline:
    Inspections are usually completed within 7-15 days after escrow begins.

Seller Real Property Disclosure Statement (SRPDS)

  • What It Is:
    A document where the seller lists any known problems with the property, like past damage, repairs, or other issues.
  • How to Protect Yourself:
    If the SRPDS reveals something significant, such as unpermitted work or recurring problems, you can cancel the deal.
  • Typical Timeline:
    The SRPDS is typically provided within 7 days of escrow opening. Buyers usually have 5-10 days to review and respond.

Condo/Association Documents

  • What It Is:
    For condos or homes with homeowners’ associations (HOAs), these documents outline rules, fees, and financial information about the HOA.
  • How to Protect Yourself:
    If you discover something you don’t agree with, like high fees or restrictive rules, you can cancel the contract.
  • Typical Timeline:
    These documents are usually delivered within 10 days of escrow opening, and you typically have 5-10 days to review and respond.

Termite Inspection

  • What It Is:
    A termite inspector checks for signs of active infestations or damage caused by termites.
  • How to Protect Yourself:
    If a termite inspector finds signs of termites and recommends treatment, the seller is usually obligated to pay for that treatment. Ie: Tenting, Spot Treatment, Heat Treatment, etc
  • Typical Timeline:
    Termite inspections are usually done within 15 days before closing.

Survey

  • What It Is:
    A survey confirms the property boundaries and checks if you have a wall or fence on your neighbor’s property or vice versa.
  • How to Protect Yourself:
    If your neighbor’s wall or fence is on your property by more than 6 inches you can cancel the contract. 
  • Typical Timeline:
    Surveys are ordered early in escrow and are typically completed within 2-3 weeks.

Title Report

  • What It Is:
    A title report ensures the property has no liens, legal disputes, or ownership issues.
  • How to Protect Yourself:
    If the title report reveals problems, you can cancel the deal or require the seller to resolve the issue before closing.
  • Typical Timeline:
    The title report is usually delivered within 7-10 days of escrow opening.

Financing

  • What It Is:
    A financing contingency allows you to cancel the deal if you can’t secure a loan for the purchase.
  • How to Protect Yourself:
    If you can’t get the loan you are not forced to purchase the home. You can walk away without losing your deposits.
  • Typical Timeline:
    Conditional Loan Approval is due 10 days before closing. Final Loan Approval due 5 days before the closing date. 

Bonus Resources:

Closing Costs

What Are Closing Costs?

Closing costs are the fees and expenses you pay to finalize your home purchase. They include charges from your lender, title company, and other services needed to complete the transaction.

Common Closing Costs:

  • Loan Origination Fee: Paid to your lender for processing the loan.
  • Appraisal Fee: Covers the cost of determining the home’s value.
  • Title Insurance and Escrow Fees: Protects you and the lender against title disputes and ensures funds are handled securely.
  • Recording Fees: Charged by your local government to record the property deed.
  • Prepaid Costs: Includes homeowner’s insurance, property taxes, and interest due at closing.

How Much do They Cost?

Closing costs typically range from 1-2% of the home purchase price. For example:

On a $500,000 home, closing costs may be between $5,000 and $10,000.

Pro Tip:
Ask your lender for a Loan Estimate early in the process. This document outlines your expected closing costs and helps you plan your budget.

Your Moving Checklist

Download Your Moving Checklist Here

Home Buying FAQ: Answers to Common Questions

1. How much money do I need for a down payment?

The down payment depends on the type of loan:

  • Conventional Loans: Typically 3-20% of the home’s price.
  • FHA Loans: As low as 3.5%.
  • VA and USDA Loans: Often require no down payment.
    Additionally, there are down payment assistance programs available in many areas.

2. How long does the home-buying process take?

On average, the process takes 30-60 days after an offer is accepted. This timeline includes loan approval, inspections, and closing. Searching for the right home may take longer depending on the market and your preferences.

3. Can I buy a home if I have student loans or other debt?

Yes, but your debt-to-income (DTI) ratio plays a critical role. Lenders typically prefer a DTI ratio below 43%. Paying down debt and improving your credit score can help you qualify for a mortgage.

4. Do I need a real estate agent?

While not mandatory, working with a skilled real estate agent can significantly reduce stress, minimize uncertainty, and help safeguard your investment throughout the home-buying process.

If an agent’s only value is to help you find homes, they may not be essential. However, a great agent does much more: they strategize and negotiate competitive offers, guide you through legally binding contracts, ensure your interests are protected during the transaction, and proactively address any challenges that may arise.

Keep in mind, the seller has an agent advocating for their best interests—so who is protecting you and looking out for yours? A trusted buyer’s agent ensures you have the information necessary to make an educated decision. 

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