A few weeks ago as I was happily indulging in some mint juleps and horse bets at a Kentucky Derby party when my friend turned to me and said some very magical words:
“Kerry, I’m in underwriting.”
“What??” I asked.
He replied, “Yeah, for a mortgage!”
“What?! Are you working with anyone to find a place?”
“Mmk.. so you want to go check out some options?”
Note to the reader: it is not supposed to go like this. Rule of thumb is that it takes an average of 6 months to ramp up in real estate. I had only been licensed for a month, if that! Yet my very sweet friend eagerly signed up to work with me and we started searching for his new home.
The Basics of Buying.
Before ever stepping foot into a property you’re considering, you should first get pre-approved by a lender (unless you’re paying cash). It only takes 15 minutes and will provide guidelines for your budget. To start looking at properties before obtaining a pre-approval will just risk heartbreak later on if you fall in love with something you can’t afford.
Typically your agent will have some lenders they recommend, but it is up to you to find the one you want to work with. It’s often best to steer clear of the big banks for this process, as time is of the essence with real estate and the bigger banks such as Wells Fargo, Chase, etc. will likely assign you to the next representative in the queue whereas a smaller lender, especially one recommended by an agent you trust, will have a smaller caseload and more personalized, customized approach to processing your file.
Once pre-approved with a budget in mind, the following steps are:
Shop! Time to identify your needs & wants: which part of town, how many beds/baths, what school district? Is a chandelier over the bathtub really a need or should we maybe put that in the want category? (There’s a House Hunters episode where this guy’s requirement was “no ghosts” - so you never know…the client wants what the client wants!)
Make an offer, negotiate the terms and settle on a purchase price with the seller.
Both parties sign agreeing to key dates, terms, and the price. Now you’re officially “under contract!”
Schedule the inspection, negotiate any major issues. Hopefully nothing comes up that kills the deal, but deals most often fall apart at this stage if buyer and seller can’t agree on a fair resolution for repairs/replacements.
Schedule the appraisal, negotiate any discrepancy in sales price and appraised value of the property. The buyer’s lender is only going to approve a loan for the amount of the appraised value. Should the sales price be more than appraised value, the buyer can pay the difference out of pocket or the seller can come down on price. Or the deal could fall through.
If you make it past inspection and appraisal, you are likely going to make it to the closing table. Time to cross your fingers.
Title Work. The title company will audit the records of the property and identify any encumbrances, liens, back taxes, etc. that could cloud the buyer’s free and clear ownership to that parcel of land and attached home.
Closing Day! Both parties exchange funds, sign documents, and the deal is done. The title company representative will lead this process with all parties bearing witness: seller & listing agent, buyer & buyer’s agent. The lender can also attend. In Colorado it is customary to conduct closings in person at an actual “closing table,” with buyer and seller face to face, but other states have differing customs.
One Lucky Duck.
So there you have the high-level nuts and bolts of the process from the buy-side. I have been grateful to have the most cool, calm, collected first client. Together we have been fortunate to have a smooth closing with little to no negotiations and no drama. It’s been a great learning experience for both of us, and a lot of fun.
My friend has some amazing ideas to modernize his 614 square foot condo, built in 1982 (you should see this microwave!) and it will be fun to watch as he brings his renovation ideas to reality. I’ll track his progress here on the blog.
Until next time!