Buyer Process

Before you permit a lender to check your credit score, you’ll want to review your own credit report.

What is a credit report? A credit report pulls data from three major credit reporting agencies: TransUnion, Equifax and Experian. It is the report used to calculate both your FICO score and your Vantage score.

You can get free reports from all three reporting agencies, at least once each year. If you find any errors in your report, dispute them immediately so they can be resolved before you apply for financing.

If you’re trying to improve your credit score before applying, you should understand factors that can impact your score:

● Payment history
● Total debt
● Length of credit history
● New credit
● Type of credit

In order to get pre-approved, a lender will calculate your debt-to-income ratio and assess your overall financial health by reviewing your:

● Income statements, like W2s, 1099s, rental income and tax returns
● Assets, like bank statements and retirement accounts
● Debts, including monthly expenses like student loans, credit cards and other mortgages
● Records of bankruptcies and foreclosures
● Current rent, child support payments, alimony payments and any down payment gifts

When you’re pre-approved, you’ll receive a pre-approval letter. Not only does it officially let you know how much you can borrow, but you'll need it to submit an offer. A pre-approval letter shows a seller you’re serious about buying their home. This is especially important in a hot market, when you’re likely competing against other offers.

Note that you do not have to use the same lender to finance your loan that you used for your pre-approval. In fact, it’s always best to get estimates from multiple lenders so you can compare interest rates and fees before actually opening your mortgage.

Keep in mind that your debt-to-income ratio will be examined again before closing. Taking on new debt can limit the total loan amount available to you during financing.

When you get pre-approved, you'll know the maximum amount you’re able to borrow. Once you have a rough idea of your budget, make a list of must-have features. Your price point will dictate the size, location and amenities of your home. Here are a few examples of wish-list items to consider:

● Number of bedrooms and bathrooms
● Square footage
● Outdoor space
● Preferred location
● Type of home
● Layout, features and finishes
● School district
● Pet-friendliness
● Work commute

Most buyers find it helpful to have a professional real estate agent on their side to guide them through the process. Typically, sellers fund the buyer’s agent commission, which makes using an agent a cost-effective option for buyers.

Here are some areas where a buyer’s agent can help:

● Identifies home value trends, new developments, buyer demand and overall state of the market

● Determines what a home is worth and guides you as you decide on an initial offer
● Knows when to ask for a lower price and how to negotiate contingencies and repairs
● Can provides referrals for a trusted lender, attorney, contractor or other vendors
● Simplifies the process by handling hiccups, staying on top of due dates and overseeing paperwork

You can search online but your agent will have the most up-to-date information of available listings. Try to stay flexible — you’ll probably need to adjust your criteria as your home search continues. For example, you might decide it’s worth sacrificing an extra bedroom to be in your desired neighborhood.

What to look for when touring homes: Once you start visiting homes in person, be sure to consider the maintenance and quality of the home beyond the aesthetics. Ultimately, the inspection will give you an official report on the home’s condition, but while you’re touring, keep an eye out for the following:

● Structural defects and cracking
● Leaks
● Water pressure (turn on faucets and shower heads)
Electrical issues (try the light switches)
● Functionality and heat retention of doors and windows
● Roof and exterior quality

Once you’ve found the right home, you should make your offer based on a comparative market analysis (CMA) done by your agent. The CMA is a calculation of a home’s market value based on comparable recent sales in the same area.

Using the CMA as your baseline, your agent will help you determine a fair offer price and help you decide if you should leave some room for negotiation — this depends on the state of your real estate market.

Above and beyond the CMA, here are some other things to take into consideration when making an offer:

Disclosures: Disclosures are known problems related to structural issues, unpermitted work, natural hazards and flood risks. Most states require sellers to provide disclosure documents, so make sure your agent requests them.

Closing date: When you’re buying a home with a mortgage, it will take 45-60 days after the contract is executed to close on the home. When you submit an offer, you can request a later closing date to fit your moving timeline, but the seller may push back on this request.

Contingencies: A contingency is an agreement between the seller and the buyer or the lender and the buyer regarding conditions that need to occur for the sale to move forward. Some contingencies are necessary, like the appraisal contingency your lender will require to ensure they’re not overpaying on your loan. An inspection contingency is up to you, but it’s highly recommended.

Usually, the inspection is scheduled within a week of the contract being signed. It’s recommended that you attend the inspection, as it’s a good way to get a better understanding of the inner workings of the home. Usually, your agent will attend as well. After you receive the official inspection report, you’ll have time to discuss the findings with your agent and decide how you want to respond to the seller.

If major, non-cosmetic issues are found, you can reopen negotiations, requesting that the seller pay to fix the issue prior to closing or provide you a credit so you can fix it on your own after closing.

Even if you’ve been pre-approved, you still need to take a few additional steps to officially submit the mortgage application. Once you’ve completed the following steps, assuming everything checks out, you should receive the “clear to close,” which means that the lender has approved your purchase.

Loan application

If you decide to officially apply for your loan with the same lender that did your pre-approval, they already have some of the documents you’ll need for your application. Likely, you’ll need to provide updated financial statements. The most important thing you can do during this process is to respond to requests quickly. For example, if the lender asks for your W2, send it promptly to avoid a delay in your closing. If you decide to move forward with a different lender, they will tell you the list of documents they need in order to complete your application.

Appraisal

Your lender will hire the appraiser, so there’s not much for you to do here. Your real estate agent should work with the seller’s agent and the appraiser to schedule the appraisal. After the appraisal is complete, you and your agent will receive copies of the appraisal report, so you can see the appraised fair market value and check out the comps that were used in the calculations.

If the appraisal matches your offer price, you should be clear to close.

If the appraisal comes in above your offer price, even better! This means not only are you clear to close, but you’re purchasing the home for a price below market value, giving you instant equity.

If the appraisal comes in low: Your lender won’t approve the full loan amount, as in their eyes, you’re overpaying for the property. You’ll need to either make up the difference between the appraised value and the offer price in cash or try to re-negotiate the offer price with the seller. If you believe the appraisal was incorrect, you can try to request a new appraisal from your lender.

You’ll need to have proof of a homeowners insurance policy before closing, so if you already own a home, ask your existing agent to help you open a new policy. If you don’t own a home, shop around for a policy that works best for you. Your lender may be able to help you coordinate a policy that can be paid through your monthly escrow account.

Many buyers choose to have a final walkthrough a day before or the morning of closing. Its purpose is to be sure that the property looks the same as when you made your offer and that the seller completed agreed-upon repairs.

On closing day, expect to spend at least a few hours at the title company signing paperwork. You should also be prepared to bring funds to cover your closing costs, which typically range between 3-5% of the sale price. Once the signing is complete and the sale is recorded, you’ll receive your keys.

The house is yours and you're ready to move!