Are you ready to find your new home? Here are 5 key steps that will take you from getting pre-approved to closing on your new home getting your keys!
1 – Pre-Approval
It’s important to know how much home you can afford, and what type of down payment to budget for. If you are thinking of purchasing a home within the next 18 months (yes, that far in advance) take the time to meet with a local lender to determine what steps you can take to get your finances to the optimal place for getting approved for a loan. A good lender can line out the steps to take – because sometimes it’s not what you would expect!
A high credit score isn’t required to get a loan, but the higher your score, the better a rate you can get. Take some time in advance to work towards raising your score before you get serious about looking for a new home.
If you are ready to move now, it’s very important to get pre-approved for a loan. There are several sellers who will require proof of pre-approval to even allow you to look at their property. Beyond that, we are still seeing multiple offers on several properties, and having a complete offer package is vital to having your offer accepted – and a pre-approval is a key part of that.
2 – Tour Homes
Search for homes in your target area, then filter by price and your must-haves. Narrow down your wants early to help you find the right home.
Before going out to look at homes, take some time to write down the things that are on your “must-have” list. This may come from the things that are missing in your current home, or things that you love about your current home. Next, write down the things that you would like to have in your new home – not necessities, but things that you would like to have, if possible. For some people, these are things like a fireplace or soaking tub, for others it’s a large backyard or 3-car garage instead of a 2-car garage.
Finally, make a list of the things you absolutely DO NOT WANT in your new home. These are the deal breakers. Maybe you hate having a soaking tub, or you never want to do yard work again and want it taken care of. Maybe a home office is on your necessity list above, but you need at least 2 bedrooms AND an office – this means a 2 bedroom home is on this list – you need at least 3 bedrooms or space for a dedicated office.
Share these lists with your REALTOR® so they can tailor their property search to what you are wanting. They will be able to search for specific things that you are wanting if they know what they are, but if you don’t share these wants and needs with them, they will never know what you want in your new home.
3 – Make an Offer
Once you’ve found the right home, you should make your offer based on a comparative market analysis. In a volatile market like we’ve been experiencing, pricing can be all over the place. Find an agent that understands your local market, and can accurately determine where pricing should be.
Do homes sell above or below the market? Yes, they do. But making an offer that is far above the market will present it’s own challenges if you need to get a loan. Getting a loan usually requires an appraisal, and the appraiser’s job is to ensure that the lender is not lending you more money than the house is worth. The lender is their client, but they are an unbiased 3rd party to the transaction.
Know that if you offer more than the market indicates the value is, you may have to make up the difference if the appraisal comes in below your contract price.
4 – Prepare to Purchase Your New Home
Between having your offer accepted and closing on your new home is a period where a lot can happen – and it all has specific dates and deadlines.
Deliver your earnest money
In our area, this typically goes to the title company that will handle the closing. They will hold on to the earnest money funds until closing, where they will apply them to the final sale. This typically needs to happen within 3 days.
Review all due diligence documents
These are things like HOA documents, water, lead paint disclosures, etc. to determine if there is anything in them that does not work for you. You have until a specific date to cancel the contract for these items and still get your earnest money back.
Order a Home Inspection
Home inspectors will look through the home for potential issues that could be costly. They may recommend that a licensed professional do a more thorough inspection of certain areas if they see a potential problem. They will check the structural elements, make sure your lights, HVAC, and electrical are functioning, look at the roof, check gutter and drainage, etc, and note any issues in a report. If they recommend further inspection, it is a good idea to have that done. They may see something that looks like a potential issue, but they are unsure and want a more knowledgeable set of eyes. If could turn out to be nothing, but it could save you tens of thousands in repairs after closing on your new home.
Order an Appraisal
This will go through your lender, unless you are paying cash. Many cash buyers will order an appraisal as well, to verify the value of the home.
The appraiser will inspect the property, measure it, and take photos. They will then go back to their office and look for similar properties that have sold recently to see what the typical sale price for this type of property has been. They will also consider properties that are under contract, but have not yet sold, to see if the market is increasing or decreasing rapidly.
They may call out some items in the house that will need repaired prior to closing. Depending on the loan type you are getting, the guidelines and requirements can be more strict. These are typically structural issues like broken windows, peeling paint, holes in the siding or stucco, damages to the structure of the property, etc. They can also be safety issues like missing railings, missing outlet cover plates, or deep window wells with no railings or covers. Their appraisal will be subject to these things being repaired or replaced, and the closing cannot happen until they are. In these cases, the appraiser will have to do a second inspection to verify that the repairs have been satisfactorily completed.
This is what I do alongside selling real estate, so if you have any questions about the appraisal process, please ask!
Pack and Prepare to Move
When you decide to look for a new home, I always recommend starting to pack up the non-essentials. If you find the perfect home, you will want to be able to move quickly, and the more you have prepared in advance, the less time it will take at the end. When you get to the last few items that you will need immediately, I recommend packing these into suitcases so they are easier to keep track of. Don’t forget to keep your financial documents available through closing, just in case.
If you have kids, check out my article on moving with kids for helpful tips! I interviewed my girls for parts of this, since we moved several times while they were growing up. There are several ideas in there that make any move easier – with kids or not.
Change Utilities
You will also need to change over the utilities of the new home into your name, and cancel the utilities at your old home. In our area, they title company takes care of some of them, like the water and sewer. Find out from your agent if there are any that you cannot change, and get a list of the utilities you need to contact to put into your name at the new house. There may be something you’ve never had – like an irrigation district – that you wouldn’t think about. The seller or their agent should be able to provide a complete list.
In the time leading up to closing, make sure you don’t make any drastic changes to your finances. What do I mean by that?
Do not open any new lines of credit
Credit cards, furniture, car, etc. These will change the numbers used to get your loan approval, and you may no longer qualify for a loan to purchase your new home.
Do not pay off any loans
While many people think that taking the extra cash in the bank & using it to pay off a credit card will help, it may also make you unable to qualify for your loan. Banks want to see that you have available cash on hand to make your new house payment. Typically they want 2-3 months worth of your payment available in the bank.
Do not make any large purchases
Like above, using your available cash to buy new items for the home, a new car, etc will use up the available cash, and may cost you the ability to qualify for the loan. Yes, lenders do check your account balances, typically within 3 days of closing.
Do not quit your job
This is a big one, that surprisingly happens somewhat often. You may be frustrated at work, and you may have a new job lined up, but make sure that any transition dates happen after you close on your house. The bank has offered to loan you the funds needed based on your current income. If that income is suddenly gone, they have no guarantee that you can afford to make your payments, and will not loan you the funds. Again, they often verify this information right before closing.
5 – Go to Closing & Buy Your New Home!
On closing day, expect to spend at least an hour – if not more – at the title company signing paperwork. You will need a photo ID with you, and ensure that your financial documents are in order. If you need to bring funds to closing, get your certified check the day before and make sure you have it with you.
If you are using a wire transfer for any portion, only give that information to the title company either in person or by calling them directly at a number you know is correct. The title company will never ask for that in an email. Unfortunately, wire fraud has become a big issue, but there are steps we can take to avoid it.
If you are ready to look for a new home, give me a call! We can narrow down the listings available and find your new home.
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