Talbot/Smith Group Home Buyer's Guide

First-time home buyers are often confused by terms like escrow, title, and earnest money.  Read our 10 Easy Steps Guide, and you'll be well on your way to becoming a homeowner.

1. Get your finances in order

Your credit report is an ongoing look at how you manage your finances. These reports play an important role in the mortgage approval process and determine what you ultimately will be approved for. Knowing what is in your credit report is the first step in the home buying process.

Determining what amount of money and from what source (ie: savings, investments, stocks, etc) you will have on hand to put toward your purchase is paramount - is the money easily accessible or will it take some time to obtain and have it on hand.

What are your current expenses?  Do you have money every month to save, or does everything go to expenses including credit cards, cars, loans etc?

2. Become Familiar with the Mortgage Industry

Finding the right loan and lender is critical to your home buying success. It is your responsibility to determine which lender is best for your needs. Many Minnesota real estate agents have preferred partners in the mortgage industry which they have worked well with in the past. These preferred partners have given outstanding service and provided options to the agents clients in the past.  It is always the home buyer's choice, in the end, which mortgage company they decide to use.

Our mortgage partners are local, and our home buyers report being totally pleased with the level of service and loan products that they've received.

3. Get Pre-Approved for a Mortgage

Most people have a vague idea of how much house they can afford. Unless they have consulted with a lender or real estate agent, they may have an unrealistic idea of what their price range for a home really is. They may also be setting themselves up for failure in the market. Consider this scenario: A seller gets two similar offers. One is accompanied by a letter from the buyer's bank that he/she is approved for a mortgage in the amount of the offer. The other has no such supporting document. Which offer do you think the seller will consider?

Mortgage letters come in two levels. The pre-qualified letter simply states that the buyer has sufficient income to afford said property. No income verification or credit report has been pulled. The pre-approval letter says that the buyer has the income, credit score and debt/income ratio to qualify for a house of said price. The pre-approval letter is the preferred of the two. Neither letter states that the financing is guaranteed though. Factors such as appraisals, inspections, down payments still must be considered.

In most cases, these approvals can be done with the lender over the phone, or even through email/scan/fax correspondence.

4. Determine Your Wants and Needs

Buying a home is not as difficult as it may seem. Hiring professionals, such as real estate agents, mortgage loan officers, inspectors and escrow professionals, greatly simplifies the process. What most people have problems with is deciding what exactly what they need versus what they desire in a home. The basics such as being structurally sound, good re-sale, safe, inviting and comfortable for your lifestyle are usually the essentials. However, certain amenities, extraordinary features, and large square footages may not be. All these factors affect the price you will pay for your home. Deciding which are necessary for your lifestyle, and eliminating those which are not, may provide you with more choices for your dollar. The ability to identify these and list them in order of importance will help your TalbotRealtyInc.com real estate professional focus in on homes that meet these needs.

5. Learn what it means to work with a Real Estate Agent

In the vast majority of Minnesota state transactions, one real estate agent represents the buyer, and a different agent represents the seller. It is important to understand the agent's duties and loyalties.  When buying a home, a home buyer should always have independent representation. 

The buyer's agent is simply that, a real estate professional hired by the buyer to inform, negotiate and represent the buyer in the transaction. The buyer pays nothing for this representation, as the seller pays all agents' commissions.  Even though they are paid at close from the seller's proceeds, at no time do they represent the seller in the transaction.

The seller's agent likewise represents the seller's interest in the transaction, is paid out of the seller's proceeds, and at no time represents the buyer in the transaction.

6. Searching for a Home

After hiring your agent and discussing your wants and needs, the agent will send you lists of homes in your area and price range for you to look at and decide if a visit is in order. This information is compiled by the Northstar Multiple Listing Service.

The NSMLS is a member driven service comprised of the real estate companies in your area. The NSMLS is where all new listings are entered on a daily basis for you and your agent to review. Your agent will be looking at more detailed information than you will, but will be available to answer questions about the listing when you need more information. TalbotRealtyInc.com lists all homes from all real estate companies on the NSMLS, so home buyers can feel comfortable knowing they are seeing every possible real estate listing available when searching on TalbotRealtyInc.com

Remember, that while you may want to see a house immediately when you find one of interest, the owners have rights to privacy and may have asked that appointments be scheduled for the visitation of their property. As a courtesy you should always give your agent sufficient time to contact the owners and find out the circumstance around showing the property.

7. Handle pre-offer tasks

So, you found a house that you might want to make an offer on. You might need to consider several questions before you and your agent sit down and write a formal offer.

Does the home meet the minimum requirements you listed before beginning your search? Is the location one in which you feel safe and secure?  Is the size, age, and condition appropriate for your financial needs and abilities to maintain it?

Your relationship with you agent is critical at this juncture. He/she will be able to provide you with background information concerning the houses history in the market place. 

8. Making an Offer

This is not enough space to cover all the possible scenarios when making an offer. Your agent's experience and knowledge will help you decide many of the important decisions at hand in this part of the process.

Real estate contracts must be in writing. Offers are legal documents which are executable and will hold up to scrutiny in a court of law. Although your agent will be able to explain the intent of the wording and your responsibilities under the contract, they are not attorneys and their advice cannot be considered legal in most places including Washington State.

Contracts are written on approved legal forms provided by the NSMLS. In some cases additional forms may be included specific to your agents company. These contracts detail specific information about the property (ie: legal description, address, tax id #, owner name, and details about you and your finances). You will be asked to arrive at an offer price and to detail a time limit in which this offer will expire, if no action is taken by the seller.

One of the items to be detailed is the earnest money. Earnest money is money the buyer puts up front to show his/her seriousness in making an offer. In the Washington real estate market, this is usually 1% of the offer price, but can be more in some situations, especially new construction. This money is cashed and then held by the escrow company until it is transferred to the seller at closing. There are specific remedies for default on a real estate contract and in many cases the remedies may include forfeiture of the earnest money. Thus, it is imperative you know your rights and obligations before submitting your offer.

Once an offer is written and signed by you and your agent, the agent will contact the listing agent or broker and either fax, or submit the offer directly to them. In some cases, properties will have multiple offers and the listing agent will have certain guidelines for submission and review. Your agent will advise you if this is the case.

Once an offer is submitted and received, certain time constraints will come into play. Time limits will exist for the seller to provide you with a response to your offer. The response may come in several ways. One, the seller may simply accept your offer as written and the transaction will proceed to the next steps and to escrow. The seller may counter your offer and come back to you with a different price for you to consider or different circumstances concerning your offer (ie: closing date, amount of earnest money, or some other item in the original offer). New time limits will then apply and it will be in your court to decide to accept these conditions or not. If you do accept the new terms, you will then proceed forward to close. You may also counter the counter from the seller until mutual agreement is made or no agreement is reached and the offer is allowed to expire.

Once you have agreed and have mutual acceptance, the next steps are time sensitive and driven by the terms of the contract.

9. Home Inspection and Other Tests

Once you have mutual acceptance your next steps will be driven by the terms on the agreed contract. In most cases you will have several items to schedule with the help of your agent. The first is usually the inspection. An inspection is a right of the buyer and is conducted immediately (2-7 days) after the offer is accepted. The purpose of the inspection is to provide you with knowledge and assurances about the condition the home. This is one of your contingencies that, if not met to your satisfaction, will allow you to legally break the contract for good cause. Inspectors are independent contractors whom you hire to give you an accounting of the condition of the home. Inspections can be limited to a visual inspection or as detailed as a structural one with written analysis and recommendations for items needing repairs or updates. In both cases, you should have sufficient knowledge after your inspection to decide if you will accept the house in its current condition or will be asking for repairs or cash discounts from the seller. Once again, the language in your original contract will govern your response and time limits.

You will also have a chance to review documents associated with the legal condition of the house. These items are included in a document called Title Insurance Policies. Title Insurance protects you by insuring for you that the seller has legal right to sell the property and that no actions have been initiated against the property as a legal remedy. You will have time to review this policy and ask questions about any issue which may affect your purchasing of the property.

Condominiums also will have a set of documents for your review known as the Resale Certificate. This is a detailing of the covenants, board of directors meetings, home-owners dues, and management statements for the condominium association over the life of the building. Specifically, the detailed budget for the building and its current assets will be listed. Your review is important for your assurance that the unit you are buying has been and is being managed in a fiscally responsible way. Concerns about any issue found here provides a basis for you to ask for more information and ultimately, legally break the contract if not answered or addressed to your satisfaction.

Also around this time, the mortgage company or bank that you are working with will conduct what is know as an appraisal of the property. This will be done by an independent firm specializing is residential appraisals. They will visually inspect the house and use sales data for similar houses in the area and of the same age, condition and features arrive at an independent market price for the home. The bank will use this as the basis for justifying the amount of your loan. In most cases, this amount will be very close to your agreed price with the seller. In some cases, homes may have sold for a price well above the value of the home as it compares to comparable properties in the area. If this is the case the bank may not loan you the sufficient amount to close on the property and you may be asked to renegotiate the price of the house with the seller or come up with more cash down.

10. Escrow and Closing

As your close date approaches, many different entities and individuals will be in contact with you and with each other, sometimes on a daily basis. The coordinator of all these activities is the escrow officer. The escrow officer works for an escrow company that you and the seller have agreed on in the contract to purchase. The primary job of the escrow officer is to coordinate and facilitate all the paper work necessary for the transfer of the property into your name and the filing of the legal paper work attaching a mortgage to it for your lender. Washington Real Estate Law is very specific as to how property must be transferred from one name to another and the timelines and details as to how this is legally done. The escrow office will ensure all the appropriate conditions and requirements have been met under the law.

The escrow officer will be detailing a list of all the costs to you and to the seller. This itemized list will detail all your credits (money you are putting down, earnest money, etc.) and your expenses (fees, mortgage, escrow costs, title costs, etc.) This list of assets and liabilities is called a HUD-1 statement and is governed by the federal Department of Housing and Urban Development. This ensures that there is a standardized accounting of your transaction that can be easily understood and scrutinized.

You will schedule an appointment with the escrow officer to sign the appropriate paper work, for the transfer of your property to your name and sign the legal documents for your mortgage. The seller will also be doing this as well. It is not necessary that both you and the seller do this at the same time or face-to-face. In many instances the seller may not be in the same city, and it may occur days before closing.

After your signing and after the seller has signed (which may be a different day), your transaction will be "closed" on the mutually agreed upon closing date from your original contract with the seller. This action is done at a government office in your city and recorded. Once the transaction has been recorded and a recording number is received, the home is legally yours. If you have agreed to possession at close, you now will receive the keys to your new home. In some contracts, you and the seller will have agreed to different terms for possession after the closing date.