1) Select a Real Estate Agent
A licensed real estate agent, or realtor, will help you find a home that fits your needs and budget. Your realtor will work as a buyer’s agent, representing you in the purchase of a home (in most instances) - your real estate agent can show you homes listed in the MLS by all brokerages, new homes, “to-be-built” homes and even those that are for sale by owner (FSBO). Your realtor will work to negotiate the best price and terms for you.
Your real estate agent can provide you with many resources including putting you in touch with other professionals who will be involved in the buying process. They will guide you through the many steps involved with this very important transaction and will work to prevent many of the problems that you might not foresee. Your realtor must exercise care, obedience, accounting, loyalty and disclosure, among other duties, and is bound by laws and a code of ethics.
2) Loan Pre-Approval
It is very beneficial to obtain a pre-approval letter from a lender to determine just how much home you can afford and/or are willing to spend. You can select your own loan officer or your agent can introduce you to a lender who can assist you with determining your financial situation. Typically, realtors have a few lenders that they have worked with who they can trust to do an honest, professional job. Be sure that you are comfortable with whoever you choose.
When you are pre-approved for a loan, that means that your credit has been checked and your income and assets have been verified. Your lender can provide you with information on the various loans which are available, inform you of what your expected monthly payment will be, inform you of approximate closing costs, explain how much money will be needed as a down payment, explain the tax benefits of purchasing a home, and more. Be sure to ask your lender if you might qualify for the no-money-down programs available through VA and USDA’s Rural Development programs. Many of our Southern Maryland properties are eligible for these programs.
3) Shop for a Home
Understanding both your current and future needs concerning price, location, house size, schools and community are necessary when shopping for a home. Your realtor will search the MLS for homes that meet your needs, based on the custom criteria you set, and provide you with digital or print details of these properties for your review. Your realtor will schedule showings on homes that are of interest to you.
When a showing is scheduled, it is very important to be on-time. Many homes are occupied with homeowners and promptness is always appreciated. Also, there may be multiple showings scheduled on one property in a day, and you will want your own, uninterrupted time, in the house without having other realtors and their clients in the way.
When you think you have found your dream home, your realtor will make contact with the seller’s agent to obtain pertinent documents, such as the Property Disclosure/Disclaimer and HOA Documents, for your review. Your realtor will also provide you with an assessment of the homes value with a CMA. This will assist you in setting an offer price.
4) Submit an Offer
Once you have located your dream home, reviewed pertinent documents and determined an offer price and any other terms, your realtor will help you prepare a your offer on the property. The contract will include a Maryland Residential Contract of Sale and various addenda that spell out the details of your offer. A signed offer with addenda, an earnest money deposit and a lender’s pre-approval letter comprise the necessary ingredients of this legally binding contract. Once the offer is completed and signed, your realtor will present it to the seller’s agent.
Please note: If you are purchasing a new home or having a home built, the builder’s contract if often used rather than a Maryland Residential Contract of Sale. Your realtor will be present at contract signing to answer any questions you might have so that you understand the terms of the contract, as they differ from a resale home and some of the “pertinent documents” may not apply. You will still need to provide an earnest money deposit at the time of contract signing, and often, the builder may have a preferred lender that can assist you with obtaining pre-approval. Many times, incentives are given when you use the builder’s preferred lender.
5) Negotiating the Offer
The seller’s agent will present the completed and signed offer to their client. The seller may accept the offer as written and sign it, may reject the offer or may counter the offer by altering any item(s). If accepted and signed, then your contract is fully accepted. If there is a counter offer, you may accept the counter offer and sign it, may reject the counter offer or may counter the counter offer. This negotiation continues until there is a fully accepted contract or a rejected offer.
6) Finalize Your Financing
You have been pre-approved for a loan, and it is time to work on your mortgage approval. Your lender will require a signed sales contract, copies of W-2 forms from the last 2 years, debtor information, last 2 months bank statements, pay stubs, and possibly other pertinent financial documentation including retirement accounts, stocks, bonds, etc. The lender will build a story about your credit history through the documentation you provide. When your loan goes through underwriting, there may be questions that need to be answered, some loose strings that need to be tied. Underwriting determines if your loan will be approved, pending your credit worthiness, payment histories and debt to income ratios as well as a obtaining a satisfactory appraisal on the property. The contract of sale is contingent upon financing.
7) Home Inspection
It is recommended to have a home inspection performed on the property. Your realtor may have some resources for you if you need assistance in choosing a licensed home inspector. Your home inspector will meet you and your realtor at the property for the inspection. Although they do not have x-ray vision, home inspectors will provide an assessment of the property’s condition based on visual and operational inspections of many components that comprise the home. Typically, a basic home inspection includes a general evaluation on structure, electric, plumbing, HVAC, roofing and other items. Mold inspections, radon inspections, engineering reports, environmental inspections, well and septic inspections, termite inspections and inspections for pools and other unique features require specialized inspectors. All requested inspections are to be documented in the contact of sale. Typically the well, septic and termite inspections are requirements of the lender.
A satisfactory appraisal, one that meets or exceeds the contract price or lending terms, is necessary for a lender to make a loan on the property. If the appraisal comes in below the contract price, negotiating the price with the seller or reducing the loan amount (putting more cash money down) to the appraised value are your two options to continue on with the purchase of the home. The contract of sale is contingent upon a satisfactory appraisal.
9) Schedule Settlement
The scheduling of settlement needs to be done in a timely manner as the title company performs various services that take some time. Your realtor may have some resources for you if you need assistance in choosing a title company. The title company’s services include ordering the property survey and title abstract. They will examine the title, prepare the necessary documents, verify seller’s payoffs, verify property taxes and HOA fees, among other things, and prepare the HUD-1 (settlement statement).
10) Homeowner’s Insurance / Utilities
Don’t wait until last minute to order homeowner’s insurance for the property. Your lender will provide you with the minimum homeowner insurance requirements. Shop around for the best coverage and the best price. Your realtor and your lender may have some resources for you if you need assistance in selecting an insurance company. Additionally, the utility companies will need to be notified of your settlement date to turn on electric, gas and/or water services.
11) Pre-Settlement Walkthrough
This final walkthrough is your final inspection of the home prior to settlement. During this walkthrough you and your agent will verify that the home is in the same condition as when you wrote the contract, that the appliance and heating and cooling systems are operational, that the seller has removed their personal property. If the home is not found to not be in acceptable condition, your realtor will work with the seller’s realtor to find a solution before, or at settlement.
Finally, your big day has come! Before your scheduled settlement, you will be informed by the title company about the amount of money to bring to settlement, the form of payment that will be acceptable (cashier’s check or certified check) and whom to make them payable to (the settlement company). You will receive a HUD-1 Settlement Statement, or a preliminary, that your realtor will explain to you in detail. At settlement, you will also need to bring your homeowner’s insurance policy and a valid driver’s license.
At settlement, your realtor, the seller and the seller’s agent will be present. Settlement is conducted by a licensed settlement agent or lawyer. There will be many documents that are to be signed at this time including the Deed, The Note, The Deed of Trust, Truth in Lending Statement, Escrow Account Disclosure, Name Affidavit, Signature, Tax Authorization, HUD-1, among other documents. The settlement agent will explain each document as they are presented for signature.
Now that your hand is exhausted from signing, your head is spinning from the overload of information, the moment you have been anticipating is finally here. The keys to your dream home are passed across the settlement table and you have finally completed this extensive process that leads to homeownership. Congratulations on your new home!