Whether you are buying your very first home, or you are an experienced veteran of home buying, the process is unique in every state – and Arizona is no exception. Understanding the home buying process is the key to making it a pleasant experience, and will very likely reduce the stress levels considerably. Even if you don’t read this whole article right now, don’t hesitate to use it as a reference at any point in the real estate transaction. This article will be based on the assumption that the buyer will be obtaining a mortgage to buy a home. Cash buyers can just skip the steps that don’t apply.
A) Interview a few Mortgage Brokers–
This is an important first step. When it comes to buying a home, you may be ready and willing, but you must find out if you are able. You may be in for a big disappointment if you skip this step. I can tell you from experience that it’s no fun to go out and look at resale homes and brand new homes, fall in love with one, only to discover you are unable to afford a home in that price range. If you are a citizen of another country and are financing your home purchase, you must be pre-qualified with a U.S. Lender.
Get pre-approved. Choose a couple Lenders or mortgage brokers that you want to interview. (I have several that I work with if you need a referral.) Some Lenders will handle this over the phone and some will ask that you meet with them in person. In general you can expect the Lender will ask you questions about your income, your debts, and your assets. Be honest and accurate. Don’t be afraid to mention you are interviewing a few Lenders – they want to earn your business.
Pre-approval is the step that determines;
a) how much down payment and closing cost money you will need
b) what interest rate options and loan programs are available
c) how much home you can afford
d) how much your monthly payments will be
Choose ONE Lender. After you have interviewed Lenders, decide on one that you feel has the best to offer, and that you are most comfortable with. Remember that it’s about more than the interest rate. You must take into consideration the total costs of the loan. Ask each Lender to provide you with a Good Faith Estimate (GFE) on the same day. This form will show you the total costs of the loan. You may be getting a terrific interest rate but the GFE will show you how much the lender is charging to give you that rate.
It’s also important to note that if you select a Lender who does not come highly recommended, you risk the loan being ready on time. This is a reason that most of my buyers ask me for my list of approved Lenders.
Ask the Lender to provide you with a Loan Status Report (LSR). Your Realtor will ask you if you have this document prior to looking at homes and will make a copy of it for your file.
B) Find a Realtor who specializes in the area you are interested in buying a home in.
Make sure you feel comfortable with the Realtor you select. You will be spending a lot of time with this professional and you should feel confident in his or her knowledge and expertise and also be comfortable with his or her communication style.
NOW FOR THE FUN PART!
Step 1) Touring Homes with Your Realtor or use any map on this website to view homes simply type in the lower left corner the city or subdivision and city and start looking!
Once you’ve selected a Realtor, it’s now time to trust your Realtor, and listen to your Realtor’s recommendations. Think about it….Just like you do with your job, your Realtor lives and breathes real estate day in and day out every day of the year. It’s extremely unlikely that you or your friends or relatives, know the local real estate market better than your Realtor. Use your Realtor’s knowledge and experience to your advantage. If you are communicating well, your Realtor will soon be able to show you only those homes that match your search criteria pretty accurately. Ask your Realtor about the costs of home ownership including maintenance.
If you’re looking at New Home Communities, MAKE SURE YOUR REALTOR ACCOMPANIES YOU ON YOUR FIRST VISIT TO THE MODEL HOMES OR YOU WILL LIKELY FORFEIT YOUR RIGHT TO REPRESENTATION! Most Buyers don’t realize how valuable a Realtor can be during the purchase of a “New Construction” Home. Remember, the agents working at the Model Home Centers represent the builder. They do not represent you! It doesn’t cost you a penny more to be represented by your own Real Estate Professional, so take advantage of that right of representation. Let your Realtor read the fine print of those builder’s contracts (which are different than the standard Purchase Contract). Your Realtor will also help you make the best selections for the best potential appreciation and resale advantage of your home in the years to come.
If you’re visiting Open Houses without your Realtor, that’s ok…just make sure you mention it to the Agent who is hosting the open house. They will appreciate knowing that. (Ask your Realtor for a handful of business cards to take with you to open houses. Just hand one to the hosting agent and he can then contact your agent for feedback)
Step 2) Writing an offer on a home
After your Realtor reviews all comparable sales in the area where your perfect home resides, an offer price will be determined, along with all other terms of the sale, such as what your earnest deposit amount is going to be (often this number is approximately 1% of purchase price) when do you want to close, do you want to ask for the washer/dryer & refrigerator to be included in the purchase, etc?
All offers to purchase a home should be in writing. Realtors have a saying; “verbal means nothing”. Terms and Conditions are not legally binding unless they are in writing.
a) Offers are typically written on an Arizona State approved Purchase Contract, which is 9 pages long.
b) There are additional documents that are incorporated with the Purchase Contract, so please expect at least 2 hours to write an offer.
c) Bring your Checkbook! Typically you will give your Realtor a check for what is known as the Earnest Money or Earnest Deposit. The check is made out to an Escrow Company or Title Company of your choice and is applied towards your down payment at Close of Escrow. The Earnest Deposit is refundable to you during the 10-day inspection period if you cancel your offer to purchase within the terms of the contract. Your Realtor will explain this in more detail.
d) Contract negotiations between the Buyer and Seller are strictly done through the Buyers Agent and Listing Agent – much like the function of a Lawyer in legal matters. Again, all contract negotiations must be done in writing.
Step 3) Contract Acceptance – a meeting of the minds
a) When an Offer is presented to the Seller, the Seller is given a specific time frame to reply. The Seller has three choices when receiving an offer.
1) Accept the offer as written
2) Counter Offer the Offer
3) Reject the Offer
b) In the event there is a Counter Offer, the Buyer’s Agent will present it to the Buyer. The Buyer is given a specific time frame to reply. The Buyer has three choices when receiving a Counter Offer.
1) Accept the Counter Offer as written
2) Counter Offer the Counter Offer
3) Reject the Counter Offer
c) At some point in this process either an acceptance or rejection will be achieved. Rejection means going back to step 1. Acceptance means to proceed to the next step.
d) The offer has now become the Purchase Contract between the Buyer and Seller. Both Buyer and Seller are legally bound by the terms and conditions agreed upon in this contract.
Step 4) Opening Escrow
a) The Escrow Period begins at Contract Acceptance and ends at the Close of Escrow. Close of Escrow (commonly referred to as COE) is technically the moment the home is legally recorded in your name. However, the phrase “Close of Escrow” is used often to refer to the final stages of closing the transaction (details in Step 8).
b) An Escrow or Title Company is employed to essentially take care of the accounting part of the Real Estate transaction. They function as an unbiased party in the transaction, using the existing terms and conditions of the Purchase Contract as the Escrow Instructions. An Escrow Officer will be assigned to handle your transaction, with assistance from their associates.
c) There are a number of fees incurred by the Escrow or Title Company. The party responsible for paying some of these fees is negotiated and agreed upon in steps 2 and 3.
d) During the Escrow period, both Buyer and Seller will receive many pertinent documents relating to the transaction. Contact your Escrow Officer for guidance and recommendations as to how to properly fill these out.
Step 5) Time is of the Essence
Means that there are specific time frames identified in the Purchase Contract that are strictly adhered to. “Days” are calendar days unless otherwise noted.
a) Escrow opened at the Escrow or Title Company and Earnest money is deposited – typically within 24 hrs or one business day from contract acceptance.
b) Buyer begins completing loan process upon contract acceptance. An appraisal will be ordered by your mortgage lender. The cost of the appraisal, typically around $350 is a negotiated item in the contract. Depending on the lender, this fee may be required to be paid at time of appraisal. Some appraisers will bill at Close of Escrow and the Title Company will bill either the Buyer or the Seller as negotiated within the contract.
c) Home Owners Association (HOA) C.C.& R. documents delivered to Title and Title will forward a copy to the Buyer. Title will also provide a copy of the Preliminary Title Report to the Buyer.
d) Sellers Property Disclosure Statement (SPDS) is a document filled out by the seller that provides the buyer with various information that the seller knows about the property. This document is delivered to the Buyer within 5 days of contract acceptance. Buyer has 5 days to review this document and cancel or move forward with the purchase.
e) Insurance Claims History (or C.L.U.E.) delivered to Buyer within 5 days of contract acceptance. 5 days to review this document and cancel or move forward with the purchase.
Step 6) Inspection Period
Buyer’s opportunity to perform any and all inspections that are material to the Buyer. Be sure to discuss the Buyers Inspection Period with your Realtor at the time of writing the Purchase Offer.
f) Buyers Inspection Period begins upon contract acceptance, and expires as identified on line 182 of the Purchase Contract. Typical Inspection Period is 10 days after Contract Acceptance. When counting the 10 days, day 1 is the day following contract acceptance. A general inspection is not mandatory, but HIGHLY recommended. This is a cost to you that is typically between $300-$550 depending on the size of the home and whether it has a pool. This fee is payable to the inspection company at the time of inspection.
g) At a minimum, the Buyer will order and have performed a professional Home Inspection and Wood Infestation (Termite) Inspection during this time frame.
h) Once all inspections are completed, you will likely have a few items you would like repaired in the home. The Buyers Inspection Notice/Seller’s Response (BINSR) will be completed by your Realtor after you have discussed the inspection. The form will itemize corrections you are requesting and will be delivered to Seller prior to the end of the Inspection Period. If property issues are discovered during this inspection that are unacceptable to you, you have the right to cancel the contract during the inspection period and with full refund of your earnest deposit. Be sure to discuss the Buyers Inspection Notice with your Realtor at the time of writing the Purchase Offer.
i) Seller has 5 days to respond to the BINSR. Seller can respond is one of the following ways:
All requested repairs will be made.
None of the repairs will be made.
Some of the repairs will be made (itemizing the items that will be repaired)
A credit in the form of a dollar amount will be credited to the buyer at close of escrow so buyer can make the repairs.
Should the seller respond that repairs will not be made and this is unacceptable to the Buyer, Buyer may cancel the contract with all earnest monies fully refunded to the buyer.
j) Buyer applies for Homeowners Insurance.
k) Buyer to approve/disapprove Preliminary Title Report within 5 days of receipt.
l) Buyer to approve/disapprove HOA CC&R’s within 5 days of receipt.
Step 7) Appraisal
m) In the event of a low Appraisal, Buyer may elect to cancel the purchase within 5 days of receipt of low appraisal. In the event of a low Appraisal, Seller & Buyer may elect renegotiate the purchase price in order to save the transaction. Your Realtor will certainly be of prime value in this circumstance.
n) If not done already, Buyer should finalize packing and moving plans.
Step 8 ) Final Stages of Closing Escrow
The Closing Date is identified in the terms and conditions agreed upon in the Purchase Contract.
o) 10 days prior to the Close of Escrow date, Buyer should arrange for utility company connections to be placed in their names on the Close of Escrow date. Your Realtor can help you by providing the contact numbers for these companies.
p) No later than 3 days prior to Close of Escrow date, your Lender must have all documents to the Title Company. Buyer will review the HUD Settlement Statement, sign loan documents, and deliver closing funds to the Escrow or Title Company
q) Buyers Final Walkthrough should take place 1-2 days prior to the Close of Escrow date. Seller to have all repairs that were agreed upon in the Inspection Period completed by this time.
Step 9) Close of Escrow Date
This is the day that the Escrow or Title Company will properly disperse funds and Record the new Deed, to complete the Real Estate transaction. This is all done electronically.
r) Title Company properly and officially disperses Buyer and Seller’s funds.
s) Title Company will record the new Deed in the new Buyer’s name, with the County Office where the property is located.
t) Title Company will notify the Buyers Agent that Recordation has taken place.
u) Buyers Agent will notify the Buyer, and arrange for house keys (and garage door openers & mailbox keys – if applicable) to be delivered to the Buyer.
The Real Estate Transaction is behind you and it’s time to move into your new home!