Buying a home can be a straight forward process but it can also be a nightmarish headache of seen and unforeseen issues. Most people spend months shopping for a home so once they find the “one” they want to close fast, move in quickly and get on with life.
That’s understandable but not always realistic. While shopping for a home is time-consuming there’s a lot of work to do after the offer is accepted. The home buying process can take as little as a few weeks if everything goes according to plan. But it can also drag on for more than a month if there are any hiccups like the home not appraising, or you can’t qualify for the loan, or you can’t actually come up with the down payment like you thought you could.
Here is a brief description and a few tips to help you navigate the process.
Getting pre-qualified is the first step in the process. You will need to provide some detailed financial information and documentation for the past several years, specifically income, assets, and debt. The lender will confirm the financial documentation and pull a credit history.
Pre-qualification can be quick, taking just as little as 1 hour and the goal is to get approved for a specific loan amount.
Pre-qualification lets you know exactly how much you can qualify for and what the monthly payments will be including principle, interest, insurance, and other costs like taxes. It’s also an opportunity to review the loan programs available, shop rates and to see how the home purchase will affect your finances and budgeting before making an offer.
It can also give you advance warning of any potential issues lurking in your credit. In fact, it would be a good idea to request a copy of your credit score before getting pre-qualified so you have a chance to fix any potential problems before getting too far along in the process.
Pre-qualification speeds the process. Once you’re pre-qualified, you can start home shopping secure in your financial position.
Here’s a tip. You’re going to be asked to provide a lot of financial information and documents. Tax returns, W2s, paystubs, bank statements, just to name a few. Much of the loan process rests on the timely delivery of these documents. Before you get too far along make sure you know where these documents are, that you can access them, and are prepared to send copies. You really don’t want to be asked for a document then lose a week because you can’t find it or print it or send it electronically.
Find a home, make an offer, negotiate, accept
Shopping for a home can be both exciting and challenging. There are a lot of variables that go into shopping for a home. Some of those variables can be controlled, like your own expectations, some of those variables cannot be controlled, like the market and the sellers’ expectations.
This stage of the process could take just a few weeks or it could drag out for years. For the best results make a list of everything you want and prioritize those items, do your homework and know your options.
When you find the home you want to purchase, make an offer and negotiate with the seller. Once your offer is accepted sign the purchase contract, open escrow and deposit the earnest money. Send copies of all documents to your lender to be included in the loan application.
Here’s a tip. Purchasing a home is a big financial investment. Much of the decision making rests with the lender’s review of your financial situation before approving your loan. To help the process do not make other large purchases that could affect your credit, like buying a new car or appliances during this period. The more stable your financial situation is the better.
Loan application and estimate
To submit an application you’ll need:
- Real estate purchase contract (REPC) including the sales price and property address
- Current address and social security numbers
- Most recent 30 days of paystubs
- Previous 2 years W2s
- Previous 2 years tax returns including all pages and schedules (only if self-employed, rental properties, or other unique income)
- Most recent 2 month’s bank statements including all pages
- Photo ID
These are the most important items and probably the easiest to gather. Depending on the situation you may be asked for additional documentation. Actually, you should be prepared to provide additional documentation, for example, a copy of the earnest money & check, divorce decrees, and statements from other financial investments (if you’re using those funds for the down payment), etc…
After submitting the loan application you will receive the Loan Estimate (LE), previously the Good Faith Estimate (GFE). The Loan Estimate will outline all the estimated costs and fees included in the transaction. Review the estimate and sign the document to move forward with the purchase.
Inspections, processing, and underwriting
The signed purchase contract will kick off a lot of tasks. Some of them have to occur in sequence while others can occur simultaneously.
- Conduct a home inspection (HVAC, roof, structural, pool, termite, as needed)
- Conduct the home appraisal
- Order title report & title insurance
- Order hazard insurance
- Loan Underwriting
- Loan Closing Disclosure
Additional documentation may be requested to support the loan Application. All documents will be reviewed before submission to underwriting. The goal is to make sure the application is complete and that the underwriter has all the information they need to make a decision about the loan. The last thing you want are problems in underwriting.
Once the loan is approved your broker will send the Closing Disclosure (CD) for signing and the closing will be scheduled.
Sign & close
All closing documents will be sent to the title company and you’ll have a chance to review everything before signing. Remember to bring a couple forms of photo ID!
In Arizona, we like to sign with a notary or at the title company several days before the closing. This gives everybody sufficient time to review everything and schedule lender funds to be wired first thing on the closing day. The title company receives your funds and the lender’s funds and releases the file for recording with the county. Once confirmation is received that the sale has been recorded, you can collect the keys to your new home.
For more information contact Aaron Walker or Jay Rapson at Aaron Lending, LLC.