Every state requires slightly different steps to buying a home, although they are basically very similar. Since I am most familiar with the way California does it, and we are the 7th largest economy, here is the path to home ownership in California, broken down into simple steps:
○ Hire a Buyer's Agent
• A buyer's agent will represent only you and have a fiduciary responsibility to look out for your best interests. You might be better served by an agent whose sole practice is buyer representation. There are buyer specialists in the industry. You do not have to work with an agent who also works with sellers, unless you want to.
• Buyer's agents may ask you to sign a buyer's broker agreement, but it is the seller who pays the commission. I know it sounds odd that a seller would pay your agent, but that's generally how it works.
• Interview agents until you find an agent you trust and with whom you feel comfortable. Possessing a real estate license is no guarantee your agent is competent.
• Once you have settled on an area, try to hire a neighborhood specialist. An agent who routinely sells homes in the area where you want to buy will have more knowledge that could help guide your decision to buy, over an agent who can't find the house with two maps and a flashlight.
○ Get PreQualified/Preapproved
• Order a free credit report online and fix mistakes, if any. Get started early with this process because if you have to fix an error, it could delay your ability to buy a house.
• Ask your agent for a referral to a mortgage broker, but also compare rates offered by your own bank and/or credit union. Rates are not the sole reason to choose a lender because they change daily and hourly. Choose a lender who can perform and close on time.
• Ask the lender to give you a loan preapproval letter, which means the lender will verify your income and pull a credit report. This carries a lot more weight when you write an offer over a prequalification letter.
• Determine your maximum loan amount, but choose only a mortgage type that you understand and a payment level with which you feel comfortable, which may very well be less than the maximum for which you are approved.
○ Look at Homes for Sale
• Ask your agent to look at homes for you before showing them to you. Not every agent will have the time for this extra service, but in some instances, agents will agree.
• Narrow your search to those homes that fit your exact parameters to find that perfect home. This might be more difficult to accomplish in a market with tight inventory, for example.
• Ask your agent to give you MLS print-outs of comparable sales in your targeted neighborhood. With printouts in front of you, you can take notes as your tour.
Consider all homes on the market, including fixer-uppers, REOs, foreclosures, short sales and those overpriced homes with longer DOM. You will find this approach helpful when your choices are slim.
• Observe open house etiquette. If you go to an open house on Sunday, tell the hosting agent if you are represented by a real estate agent.
• Tell your agent which online home listings you are interested in previewing and ask for additional input. Your agent can gather more information than the notes in MLS by talking to the listing agent, and will get more insight than you could, so don't call the listing agent yourself. Let your agent earn his or her paycheck and do this for you.
○ Write a Purchase Offer
• Consider writing seller's market offers in seller's markets and buyer's market offers in buyer's markets. Cannot stress the importance of this enough. Your "lowball strategy" picked up from a popular TV show does not work in seller's markets, for example.
• Select a home offer price based on the amount you feel a seller will accept or counter. This price is generally based on the comparable sales, with input from your real estate agent.
• If you are considering a lowball offer, ask your agent to substantiate this price for you. You will need to present a reason for the seller to accept this type of offer, and it can't be based on whim.
• Prepare for multiple offers if the home is considered desirable in a hot location. Don't shy away from multiple offers. Somebody has to win. Why can't that buyer be you?
• If your offer is rejected, ask your agent to explain why and don't repeat that mistake with your next offer. Also, don't automatically blame your agent. Maybe the problem is you didn't offer enough? If your agent steered you wrong, that's something else, though.
○ Negotiate and Write Counter Offers
• Expect the seller to issue a counter offer. Even if you offered list price, the seller might have other points that were not adequately addressed to the seller's satisfaction in the offer.
• If the seller counters at full price, continue to negotiate. Even if you offered less initially, you might find that continued negotiations could result in the final offering price that is acceptable to both of you. The first counter is not always the last.
• During offer negotiation, share personal information about your family to give the seller a reason to care about you. Especially if there are other offers, you will want to put your best foot forward and have your offer resonate with the seller on a personal level.
○ Make an Earnest Money Deposit
• When your offer is accepted, deposit your earnest money check with the appropriate party. In California, we typically have 3 days to make the deposit.
• Do not ever make your check payable to the seller. I don't care what anybody says, do not pay the seller directly. Good ol' boys and handshakes have a way of coming back to bite.
• Your offer should contain contingencies that will return your earnest money deposit to you if you cancel the contract. Usually, the contingency periods will have a time period for performance.
○ Open Escrow/Order Title
• Your agent or transaction coordinator will open escrow and title, if the listing agent hasn't already done so.
• Ask for the escrow officer's name, phone, email, and escrow file number. Escrow officers are bound by confidentiality.
• Give this information to your lender and your insurance agent. Get an early start on obtaining quotes for an insurance policy as some insurance companies are reluctant to insure all homes in all neighborhoods.
○ Order Appraisal
• Your lender will require an advance payment for the appraisal. Every so often, a lender will as a promotion agree to pay for your appraisal. Ask about it.
• If you receive a low appraisal, discuss options with your agent. As a buyer, it is natural for you to want the seller to reduce the price, but that might not be the only solution.
• Ask for a copy of the appraisal. If you paid for the appraisal, you are entitled to receive it.
○ Comply With Lender Requirements
• Lenders may ask for additional information. Do not balk or complain. They don't write all of the rules. It could be the difference between getting the loan or not getting the loan.
• Do not make home buying mistakes such as altering your financial situation while in escrow. Please do not make any major purchases or acquire any additional debt. It can stop you from buying a house.
• When the file is complete, the lender will submit it for final underwriter approval. Being in underwriting is nerve-wracking and frustrating, especially when it takes longer than 24 hours, but it could take a week.
○ Approve Seller Disclosures
• Read and question items you do not understand on the TDS, Seller Property Questionnaire, natural hazard report, pest inspection/completion and other documents such as a preliminary title policy.
• Realize you have 10 days to review for lead-based paint, which is a federal disclosure.
• Read every document in its entirety; ask questions about all seller disclosures. If you encounter unfamiliar terminology, and I'd be shocked if you understood every single term, ask your agent to explain it to you.
○ Order Homeowner's Insurance Policy
• Order your homeowner's insurance early. As mentioned earlier, not every insurance company will insure every home, especially older homes or homes located in hazardous places.
• Sometimes previous claims by a homeowner can make it difficult to get insurance. A C.L.U.E. report will disclose previous claims.
• Get replacement coverage. It doesn't cost that much more to obtain replacement coverage, which will rebuild your home if it is destroyed. Sadly, many victims of wildfires did not carry replacement coverage.
○ Conduct Home Inspection
• Hire a reputable home inspector. In California, inspectors are not required to be licensed. Not every state requires inspectors to possess any credentials.
• Bring a home inspection checklist with you. You will want to make sure every area of concern has been inspected and your questions addressed.
• Attend the home inspection. Do not follow the home inspector around, like a Zillow book wrongly suggests, or the home inspector will silently curse you under his or her breath. Let the inspector do the job of inspection in peace. Wait until the home inspector is finished before asking questions.
○ Issue Request for Repair
• If the home inspection turns up health and safety issues, issue a request for repair by asking the seller to address those issues or give you a credit for them. Realize the seller might say no.
• Realize no home is perfect, and the inspector will find faults. Don't expect everything on the home inspection report to be fixed nor allowed for in the sales price.
• Be reasonable. I know this is a tough one because it's subjective to some people, but being reasonable means making rational inquiries. Your agent can guide you.
○ Remove Contingencies
• By default, California C.A.R. contracts give you 17 days to remove contingencies. The contingencies do not expire at the end of 17 days, contrary to popular belief.
• Try to make sure your loan is firm and the appraisal is acceptable before removing your loan contingency. If your lender can't confirm your loan, you might still need to remove the loan contingency, if you are contractually obligated to.
• If you do not remove contingencies, the seller can issue a Notice to Perform and then unilaterally cancel the contract, on top of demanding your deposit.
○ Do Final Walk-Through
• Do not pass up doing a final walk-through. You might be tempted to forgo this formality, but those who choose that option often regret that decision. You can learn from your own mistakes but learning from others is far preferred.
• Inspect the property to make sure it's in the same condition as when you agreed to buy it. This is not a license to demand more repairs unless you find a new defect not previously disclosed.
• If you find a serious issue, address it now before you close. Due to the urgency of some situations, you might find a fast solution that will not hold up closing. Try to avoid financial arrangements that could change your closing disclosure or your loan docs could need to be redrawn.
○ Sign Loan/Escrow Documents
• In southern California, you will sign escrow documents shortly after opening escrow. During escrow, you will receive other documents.
• In northern California, you will sign escrow documents along with your loan documents near closing. You will generally sign a few days prior to actual recordation.
• Bring a valid picture ID. Make sure the name on your ID is the same name as on your loan documents.
○ Deposit Funds
• Bring a certified check payable to escrow. You cannot deposit cash nor a personal check. Personal checks are acceptable if there is adequate time to clear prior to closing.
• Expect escrow to pad the amount, so you will receive a refund after closing. Escrow can mail you the check or wire the refund to your bank.
• Consider asking your bank to wire the funds directly to escrow, saving you the hassle of physically delivering the cashier's check to escrow.
○ Close Escrow
• Your property deed, seller's reconveyance and deed of trust will record in the public records. Later, weeks after closing, you will receive the original deed in the mail.
• The title company will notify your agent when your transaction records, and in turn, it is common for your agent to call you. Many agents are very excited when it's time to hand over keys on the doorstep to you.
• After recordation, unless your contract specifies otherwise, the property is yours — change the locks immediately.