Securing loan pre-approval is the best way to determine the price range you want to look

Buying a home can be intimidating, stressful and confusing, but it is an exciting time in your life. To help you through the process of buying a home, think of it as a team process.

The team is led by you and your teammates will be your real estate agent, your loan officer, and your attorney.

The important thing to remember is that the team works for your best interests so you need to choose a team you can work with to pursue your goal of purchasing your dream home. How do you choose that team? Referrals are a good place to start, ask your family, friends and co-workers for professionals they would recommend. You will want a team that is experienced and is easy to communicate with. You want teammates that will listen to what you want and give you clear advice in order for you to make informed decisions. You will want to interview your team, ask questions about their expertise, their availability to answer your questions, and generally feel comfortable working with them.

Talk to a loan officer first

Before you go driving all around the countryside looking for your dream home you will want to discuss with your loan officer what price you can afford and the size of the loan you can afford. Typically a loan officer can get you a pre-approval letter which spells out what you qualify for in terms of price and loan amount. It is important to remember that a pre-approval is not a loan commitment, the pre-approval is just stating that based on your income and credit that is what you qualify for but the lender has not verified all the information you have given them, which happens when you submit a complete application.

With pre-approval in hand then you can discuss with your agent what price range you want to look at, along with the towns and type of houses you like. Refining your search will make it easier on you and your agent to find the home you can be happy with. 

The Step-by-step Process for Making an Offer on a Home

This is when it is critical to listen to your agent on the strategy for negotiating the best price for the home. Your agent will know which price is a good starting point for negotiations. The offer is formally made in writing, never verbal because a contract for the sale real estate must be in writing to be legally binding.

Your agent will have a standard preprinted offer form to fill out with the key terms, it is extremely important to carefully consider each point in the form because once the offer is accepted by both parties then it becomes binding and it is very difficult to change those terms later when the purchase and sale agreement is negotiated. While every attorney would love to review the offer before it is submitted, realistically because time is at a premium the offer is done before an attorney has had a chance to review it. Since an attorney has not reviewed the offer it is important to think carefully about the key terms of the offer.

Offer Part 1

The first part of the offer form lists the property address and the items to be included in the sale. You will want to be clear on what appliances are to be included or excluded, you will not have to worry about fixtures those are presumed to be included. 

Next on the offer you will list the price you are offering and it will break down how much you are putting down with the offer and how much you will put down as a deposit with the signing of the purchase and sale agreement. The amount you give with the offer is usually a small amount, around a thousand dollars, and it is to show the seller that you are serious about the offer you are making.

Many buyers get confused with the amount of the deposit to put down with the signing of the purchase and sale agreement. The amount of the deposit is supposed to represent the amount of damages the seller would suffer if you did not perform the contract, so the deposit is what you could lose if you breach the terms of the purchase and sale agreement. Factors to consider are the purchase price, the length of time before the closing date and obviously how much you can afford to put down at that time.

Too many times the deposit is just put as a certain percentage of the purchase price without much thought of those factors, that being said it is normal to see five percent to ten percent of the purchase price to be put as the deposit. It is very important to remember that the deposit has nothing to do with what you are getting for a loan, so if you are getting a loan for 80% of the purchase price it does not mean you have to put a 20% deposit with the purchase and sale agreement. A seller is obviously very happy to get a large deposit but it certainly is not required. Whatever you give as a deposit will be credited to you at the closing.

Offer Part 2

The next part of the offer form you will fill in a number of dates. You will put a date that the offer will expire if not accepted by the seller. Then there is the date for signing the purchase and sale agreement, you will want to put a date that allows enough time to get your home inspection done and have you and your attorney review the purchase and sale agreement. Usually it is ten to fourteen days from the signing of the offer. 

The date for the closing is extremely important. Be sure you have carefully considered when you will be able to close, considering your financing, your current living situation such as notice requirements for a landlord etc. Some cultures and religions have “auspicious” dates and bad dates, you will want to know those dates before filling in the offer form. Again, it is difficult to change this important date after it has been accepted.

Offer Part 3

Next for the offer is to put any contingencies for purchasing the home. This is where you would put that it is subject to you selling your current home if that is the case. Or that it is subject to the property appraising at or above the purchase price. There can be several different types of contingencies. There is usually a separate page for putting in the inspection contingency, mortgage contingency, radon contingency and if there is a septic system then a title V contingency. With the mortgage contingency you will want to know from your loan officer what the loan amount you will be applying for and how much time they will need to issue a commitment letter, this date is put in the purchase and sale agreement and protects your deposit in case you do not qualify for the loan.

When the offer is completed the agent will present it to the listing agent or the seller directly and the seller may accept, reject or counteroffer your terms and then it just becomes a negotiation of what you are comfortable with. Once all the terms of the offer are accepted by both parties you are ready to move to the next step of the home buying process: purchase and sale agreement.

What to Look for in a Purchase & Sale Agreement

Congratulations on your offer being accepted. The next step is scheduling your home inspection. You will also want to speak with your attorney and let them know the offer has been accepted and send them a copy of the offer. Your attorney will communicate with the seller’s attorney to get a draft of the purchase and sale agreement which is usually drafted by the seller’s attorney or by the listing agent’s office.

The purchase and sale agreement is a standard contract used for the sale of real estate. Every attorney or real estate agent have these contracts in their computer which simply require the transfer of the terms from the offer to the contract. The attorney will carefully review all the terms of the contract because even though they are standard there can be different versions used by various attorneys and agents. If you are purchasing a condominium the attorney will review the condominium documents and budget if available. It is important for the buyer of a condominium to review the condominium documents as well since they are the rules and regulations of the condominium which you will want to be aware of.

Reviewing the contract

You will also have a chance to review the contract and this will be the time to ask questions about any terms you do not understand. The contract can be confusing because it tries to cover many different circumstances and not all of the terms will apply to your purchase.

The purchase and sale agreement is also where you put anything that was found in the inspection which you want to be addressed by the seller before the closing. Of course inspection issues have to be negotiated with the seller. The seller may only agree to fix some of the inspection issues or none at all, at that point you decide whether you still want to purchase the home. You can also negotiate that the seller reduce the price or give a credit at closing to compensate you for the inspection issues rather than the seller doing the repair. When it comes to inspection issues, there is no right or wrong way to have them addressed, it simply comes down to negotiation between you and the seller and what you both feel comfortable with.

There will be a paragraph in the contract for your mortgage contingency. This paragraph protects the buyer in case they do not qualify for a mortgage. It will contain the amount of the mortgage you are applying for, and a date for you to obtain a commitment letter. This letter is your lender stating that you have been approved for this loan subject to final verifications, it is not the same as a pre-approval letter which you may have received prior to looking at homes. If you do not have a commitment letter by the date stated in the contract then you can terminate the contract and get your deposit back. If for some reason you went past that date without a commitment and you do not get the loan then the seller can keep your deposit. 

Signing the contract

Once the terms of the purchase and sale agreement have been agreed upon by all parties the contract is put in final form for signatures. It is not necessary to have a meeting with the sellers or your attorney for the signing of the contract. Normally your agent will meet with you and have multiple copies of the contract signed and collect the deposit check from you, certified check is normally preferred any question on the type of check and who to make it payable to can be directed to your attorney, also be sure to make a copy of the check so you can give it to your lender. Then your agent will bring the contracts to the listing agent and the sellers will sign. You will need to get a fully executed contract to your lender as soon as possible.