The single most important step in the whole home buying process is securing your financing. Without it, you cannot make a legitimate offer. See a lender before you look at homes. To obtain pre-approval expect your lender to check your credit history and ask for documentation of income and assets you plan to use for your purchase. You will learn what price home you qualify to purchase and will be given a pre-approval letter.
2. Finding a home and writing an offer
Most people start their searching online, but when they get serious most home buyers work with a Realtor to help them through the process. When a property is selected, a written offer is made in the form of a purchase agreement. Once buyer and seller come to an agreement, the purchase agreement becomes binding and the buyer submits an earnest money check (usually at least 1% of purchase price) to be held by the listing broker until closing, when it is applied to the purchase.
3. Home inspection
It has become very common to make the purchase agreement contingent upon a private home inspection, including a radon test. The buyer chooses the inspector and is responsible for payment at time of the inspection. After the inspection the buyer can choose to move forward, ask the seller for repairs or other compensation for items raised by the inspection, or cancel the agreement and have earnest money fully refunded.
4. Locking into an interest rate
The interest rate for a mortgage cannot be locked in until after a signed purchase agreement is in place. It is up to the buyer to lock in the rate to protect against market fluctuations. It creates a contractual agreement between buyer and lender for a specified length of time based on closing date. Be aware that if the closing date is extended it could affect this contract and interest rate.
The lender usually orders the appraisal once the buyer gives authority after passing inspection. The lender typically requires payment for the appraisal at this time. The appraisal provides an opinion of the market value of the property. If the appraised value comes in below the sale price it usually requires some kind of re-negotiation or could even cause cancellation of the purchase agreement.
6. Title work and title insurance
The buyer's title company conducts a title search and if any title defects appear (common one is unrecorded loan satisfactions), it is up to the seller to clear the title. If the seller has an owner's title insurance policy the insurance will take care of it. Buyer must purchase title insurance for the lender, has the option to also purchase an owner's policy. It is a one-time fee which remains in effect until the property is sold.
7. Home owner's insurance
Buyers make arrangements with their own insurance company for hazard insurance, with the first year paid as part of or prior to closing. If the property is a townhome or condo it may be covered by hazard insurance as part of the association. In this case, buyers are responsible to secure their own 'HO6' policy for the interior and their personal possessions but this is not required for closing.
8. Final loan underwriting approval
After receipt of the appraisal and title work, the complete file is submitted to the mortgage underwriting department for final approval. They may ask for additional documentation as part of the underwriting process. Upon final approval, the closing package is sent to your title company/closer, and you will get an preliminary HUD closing settlement statement with a final estimate of funds needed for closing. Funds must be certified, most often in the form of a cashier's check or wire transfer.
9. Final walk through
Buyers usually do a final walk through of the property shortly before closing to assure it is still in the same condition as at the time of purchase agreement and to check that any agreed upon repairs have been completed.
Buyer and seller meet at the buyer's title company for the closing, which usually takes about an hour. This is where mortgage and deed transfer papers are signed, payment is made and checks are disbursed. Buyer typically takes possession immediately after closing, or sometimes 24-48 hours after closing depending on terms of the purchase agreement.