What happens next; what is the process?
To get started, you will begin by talking to a qualified Mortgage Planner or consultant about your goals and what’s most important to you about buying your home and your plans going forward.
The Mortgage Planner will collect the information from you to fill out the loan application, run your credit and collect your income and asset documents. These documents include tax returns,w2s pay stubs and asset statements such as bank statements and retirement accounts. Be sure to send in all your documents with all complete numbered pages and full documents.
Next you find out how much you can qualify for. Your MP will arrange a 2nd meeting with you to let you know how much you qualify for and go over the options for you including down payment options and payment options. This is the time to discuss how the new mortgage will affect your overall finance and ways to insure you can make the payment. You will need to know all the details such as what the taxes and insurance are and any other cost associated.
At this time the MP will explain to you the process of what happens once you find a house, closing on our house and going over the closing cost details. They will also explain to you if there is mortgage insurance required what the cost will be and how it shows up on your LE and what your payments are with the mortgage insurance.
Can buying a house be stressful?
There will almost always be some turbulence during your closing. Something will happen that you, your Realtor or Mortgage Planner do not expect. By taking care of everything you can to be ready before you get into contract you will prepare yourself for the smoothest closing possible. Communication during the entire process is key. Once in contract; your best bet is to follow the close instruction of your MP and Realtor. Remember they are there to guide you thru this process.
When unforeseen issues arise you may not understand why, you may not agree or feel like what you are being asked to do or provide is not substantiated. You may consider not moving forward because what is being asked of you, the buyer is too much. This could be coming from the sellers, the lender or the realtor. These are the moments that make buying your home stressful. The best course of action in these moments is to remember that everything will be ok and remind yourself of the reasons why you are purchasing your home. It’s the big picture; what will or won’t happen if you continue and close on your new home. As your Mortgage Planner I will always be advocating on your behalf and fighting to close your loan, when things come up I will always do my very best to explain what’s going on and why. Usually it’s best however; instead of arguing and resisting to just try to work with your team to take care of the problem and ask questions later.
Time will be of the essence; you have to meet deadlines
When in contract you will be asked to perform by certain dates. Going beyond specified dates and time makes your contract void. Your lending team is very determined to perform on the contract in your behalf, their energy may create stress for you. There is nothing wrong just making sure that deadlines are met and we are performing to make sure we do not risk your home to falling out of contract. Your best bet is to think of your closing as similar to a job. It’s a big task to buy a home and one of the most important moments in your life!
Contingencies; contracts are made up of several performance contingencies. These include
Inspection –usually within the first week; you will need to inspect the home for anything that could be wrong. These inspections include Pest, Home, Roof, Septic, Well, Survey, and other possible inspections.
If there is anything wrong the home you will work with your realtor and the seller’s realtor to resolve and or renegotiate the contract. This can also affect your home loan; anything that is on the contract or appraisal will need to be addressed. The bank contrary to what you may have been told before is that they will not require a termite report unless the contract specifies that there was one ordered or the appraisal indicates termite damage.
Appraisal – usually within the first 10-17 days; the house must appraise for the agreed purchase price. If the home appraises for less than the agreed amount the lender will take the lesser of the contract purchase price or the appraisal value.
In such cases there are several ways to resolve this. You can renegotiate the contract to lower the price and other concessions or the buyers can pay the difference in cash. The lender will accept this however the money must come from a verified account. Gift is allowed.
Loan- usually within the first 10-17 days; This cannot be removed before the appraisal contingency as the appraisal must be signed off by the underwriter. Your loan should be submitted and appraisal should be ordered right away. Once your loan is submitted; there will be a conditional approval issued. These conditions must be reviewed and your MP must be sure that all conditions can be met.
Sale of existing residence- usually within 30 days of the contract date; if you are selling your current primary residence you must have a contingency for that. If you can’t sell your home then you may not be able to perform on your contract.
COE or close of escrow date- within 21-30 days; once all your contingencies are met the next major deadline is the close of escrow. Once all the contingencies have been removed there is usually a little less pressure as all the parties of the transaction believe now that the transaction can close however if there is another transaction waiting on yours then the sellers will need you to close as fast as you can. This is known as a “stacked deal”
Often you will need a contract extension. IF there is good reason or sometimes you’re a few days late; usually this is not an issue, but not something you should allow to happen unless absolutely necessary.
Ernest Money Deposit
You will need to put down a deposit once you have a contract accepted. This is part of your down payment and you pay it at the same time the escrow is opened.
The amount is usually at least 3% of the purchase price. This money can be at risk if you do not perform on your contract. You must pay for this from a verified account, check with your MP before you write the check; this is very important! Your EMD needs to be your money and come from your verified account. If you use another account someone else’s account or money it will cause all kinds of problems.
Writing your offer so it can really get looked at and accepted
This can be tough. Here in California we have had a seller’s market for the last 5 years. Prices are appreciating quite a bit as inventory is low, demand is high and rates are at historic lows. Listing agents are very smart usually and are advocating on the sellers behalf. The sellers will put pressure on the listing agent to sell their home for as much as possible. This means pricing the house for a little less than the market price to start a bidding war for the seller.
The homes that are priced right or a little bit to low sell within days. There is a set date as to when offers will be accepted. The listing agent will scrutinize offers in accepting the offer that will get the most money for the seller and highest probability of performance. Many all cash offers are common now in the San Francisco area.
In order to compete, you must accept the market for what it is. Think of it as 10 people who want to by the last gallon of milk in the world and are bidding up the price to by the milk. The reason I use this analogy is because you can go down to the store right now and buy milk. This is what you are used to living as a consumer in the US. What you are not used to is trying to buy average commodities when other buyers are bidding up the price. This is not natural and you have to get used to the feeling that having the money may not be enough to get into contract on the house you really want.
There is also an emotional attachment to the home you are making an offer on. Having an experienced Realtor and Mortgage Planner who is very successful in the market you are buying in is so important.
How do I get my offer looked at in a hot sellers market
Here are some tips for success
Putting down a larger down payment; How much down payment do you have? Realtors are looking at how much money you are putting down. There is the perception that the more money someone is putting down, the better the odds of you closing on your loan. This is not really true but that is the perception. Can you change your mind and decide to put less money down after you make your offer? Once your contingencies are lifted? Sure.
What kind of loan do you have if any loan at all; the perception is that conventional loans with at least 20% down are best and more likely to close. FHA is bad and only borrowers who barley qualify use them. FHA has all kinds of problems with appraisals and they fall out all the time. I have always closed every single FHA loan I have started. Again this is the perception and what the listing agents are explaining to their sellers. Although the loan types are different they both close just the same. FHA appraisals and conventional appraisals are basically the same. FHA has some differences and more to do with health and safety but the perceptions is that FHA has more red tape than conventional.
Try for conventional if you can but FHA can close too. You may need to offer a very fast closing or to cover the difference of the appraisal if the appraisal comes in to low.
What will you offer to do if the home will not appraise for the purchase price; After bidding up the price against other buyers, you have your offer accepted and everyone knows there is no way the house will appraise for the price you have negotiated. The sellers know this and one of the reasons your offer may have been accepted is because you offered to pay the difference up to a certain pre negotiated dollar amount. You are in contract on a home for 500k purchase price and the house will only appraise for 470k, that means there is a 30k difference and the sellers knew that would be the case. You will have to agree in advance to pay the 30k from a verified account to get your offer accepted. You can cap the amount in your offer so if the appraisal comes back at 460k that means you should be able to drop the purchase price down by 10k to close the loan
What is the real purchase price? This is the dilemma here in San Francisco bay area. A house is listed for a certain amount and you think that is the price they will accept, in fact you are thinking about offering less- sorry don’t even think about offering less in fact you will need to offer quite a bit more. It’s a bidding war; there will be counter offers and several rounds of offers going back and forth until the sellers get down to 1-2 of the strongest offers. The truth here is you don’t know what the price of the house is until the sellers accept your offer. In a seller’s market unfortunately you have NO leverage against the sellers.
Why is this listing still on the market in a hot sellers market like San Francisco? Sometimes listing agents need a listing so they will allow the seller to set their own price. In a seller’s market these are the houses that do not sell right away.
Oddly they sit on the market and usually have a combination of problems. 1. The listing agent may not be top producing, part time, a friend of the family or relative just getting started in real estate. Although that does not sound like a big deal, inexperienced agents can be difficult to deal with because the seller is mandating everything and the listing agent cannot properly consult with the seller. 2. The house is not in good condition and does not stage well. 3. The listing does not qualify for conventional financing. Even a cash buyer will avoid a house like this because it will be difficult to re sell the house. 4. The price is way too high. 5. A combination of all of these factors-usually the case.
In this case you might have some leverage but unfortunately the seller is not realistic about the market and what they need to do to sell the house. The seller wants too much money and they are not willing to do anything to the house. If they have to sell then they start dropping the price eventually. They probably have had a few offers they rejected because they were low ball offers or closer to the real price.
What is a To Be Determined approval? In this scenario the lender has already submitted your loan before you get into contract. Using the TBD approval in the contract offer you can point out to the sellers that your loan has already been approved an all you need to do is remove inspection and appraisal contingencies.
In combination you could write the offer such as to no contingencies what so ever. I don’t recommend that but sometimes you can get an edge that way. You would have to be willing to cover any difference in the appraised value vs the contract purchase price and purchase the home in as is condition. Usually the most competitive situations are for cherry turnkey homes so the risk in that scenario is not as great.
Removing Contingencies and closing as fast as you can; you can get an advantage in your offer by closing in less than 3 weeks. Lenders can do that now so it is becoming more common in contracts here in SF.
Example offer; Here is an example of how to write a competitive offer that will get looked at.
Offer up to 5 to 10% higher than the asking price. This may be a starting point however there are additional ways to strengthen your offer.
Offer to put down 20 % if you can – the sellers will want to see your bank statements so if you show them more money than you need, all the better. If you change your mind about the down payment amount, as long as the house closes; you can put down more or less. If for some reason you cannot close on the house your EMD is at risk. Make sure you have an approval for less money down in place before you remove any contingencies.
You can put any amount of money down with FHA if you need to. Sometimes depending on certain factors you decide you want a FHA loan it does not mean you can’t show all the money you have.
Show bank and asset statements that are recent and have more liquid money than you need. Even non liquid funds can be used for this.
Use conventional lending if you can instead of FHA
Offer to close in 21 days and remove contingencies in 10 days or less
Try to eliminate any contingencies in your offer. All things equal buyers with no contingencies and a large amount of cash are your biggest competition; these are usually cash buyers or buyers with a small loan that demonstrate that they could perform all cash if necessary
This is a much different market and much better if you are the buyer. Here you have leverage. The only leverage a seller may have is if the house somehow attracts bids because it is the most desirable home on the market. It could be underpriced even in a buyer’s market.
In a buyer’s market there is much more inventory and usually rates tend to be higher. You can ask for the seller to pay for part or all of the closing costs. You can offer less than asking price depending on how the house is priced.
There is not much to review here; pretty basic and your realtor will help you write your offer. You have more options, less pressure to make instant offers and close in a specified time frame. You can go home and think it over for once.
I hope this has been helpful for you the prospective home buyer. Contact me with questions and if you would like to find out more about how I can help you with buying a home.
Good luck in your home search!