Believe it or not, this is the most common question I get asked. Unfortunately kids growing up now get taught very little as it pertains to finance. I’ve talked to some who’ve never written a check before! Now, I’m not that old but I do know my way around a checkbook….and Chelsea defffffinately does! (just kidding)
I know a lot of the younger generation would rather “google” the answer to something than ask someone so hopefully this helps. Also, maybe for those of you who’ve had a mortgage but it all seemed like a blur, this should serve as some useful knowledge for the next home you purchase.
So, how do I buy a house? Well, the first step is to seek out a lender to get pre-approved. I happen to be one, just saying… Why is a pre-approval important? Getting pre-approved enables you to have a better understanding of what you can afford. It also lets a seller know that you are a serious buyer and have been doing your homework to get ready for a purchase. A pre-approval typically consists of 1.) Pulling a credit report 2.) Reviewing Income documentation 3.) Establishing a pre-approval amount. You might be thinking, I can do that online, piece of cake. Let me give you a little warning on doing an online pre-approval. The convenience is top notch but, when it grants you an instant pre-approval, chances are they didn’t really review all your information. There could be other contributing factors that could cause you to be ineligible. I’ve seen horror stories of people getting really far along the path to be roadblocked by an issue that could’ve been resolved upfront. It’s important to work with a lender that is going to properly review your file and give you guidance on things that could cause an issue in underwriting. That’s what I do, I hate to see people get surprised after they’ve found the home they want to buy.
I’ve been pre-approved, now what? Start shopping! I would recommend finding a real estate agent that you can trust and feel comfortable asking him/her questions. Once you find the home you want to purchase, your agent will help you write an offer to the sellers. The sellers will either accept, reject, or counter your offer…but hopefully they’ll accept! Once you come to an agreement, you will have a fully executed sales contract. Now it’s time for an application.
As mentioned previously, once you have a contract you’ll contact your loan officer to fill out your full application. Get your pen ready because you will be autographing several documents, disclosures, etc. You will also bring in documents such as tax returns, pay stubs, and bank statements to submit with your file. Once your application is finished your lender will lock your rate in and submit the file to underwriting.
Once your file has been submitted the lender will be sending you an initial Loan Estimate. The “LE”, as we call it, will be delivered to you and will show you an estimate of fees that go along with the purchase of your home. This is where you will find the terms of your loan, the closing costs, and how much cash you will be bringing to the closing. These numbers will likely change before your closing date as they are simply an estimate.
Underwriting is the process in which an underwriter reviews all your documents to make sure that everything submitted fits within the loan product you have chosen. They will make sure that tax returns are accurate, income calculations are correct, and check for details that don’t meet the lender’s guidelines. Once the underwriter has reviewed the file they will send the loan officer an “Approval with Conditions”. Which is basically their way of saying “everything looks good, but there’s some missing pieces we need for final approval”.
The conditions will depend on which loan program you choose as they all have their own set of documentation requirements. It could be anything from a missing page in a bank statement to requesting a verification of rent/employment/etc. Your loan officer will be there to help give you guidance on how to get these documents and what exactly the underwriter is needing. Once all the documents have been received the loan officer will upload them for the final review process.
Assuming all documents are received and all conditions have been satisfied, the underwriter will initial final approval and we’ll all hear those three golden words “CLEAR TO CLOSE”. There are no sweeter words to hear as a loan officer. The lender will issue you what is called a “Preliminary Closing Disclosure” at least three days before closing that will look a lot like the “LE” we talked about earlier. The “Prelim CD” will be a more accurate measure of closing costs and how much money you are bringing to close. There is a chance that some numbers could slightly change before closing. However, you will receive a “Final Closing Disclosure” either the day before or perhaps even the day of closing. This is the last one and will have everything you need to know before you sit down at the closing table.
Closing is the culmination of this whole process. Hopefully the ruead has been smooth and you’re excited to get moved in! This is the time where we all sit down and “sign our lives away” as the old saying goes. Once all the T’s are crossed and the I’s are dotted…..
CONGRATULATIONS YOU JUST BOUGHT A HOUSE!!!!!
Simple as that. Now, its time to call everyone to help you move….and with that, I’m out.
Honestly, I hope this helps clear up some of the mystery of th home buying process. It doesn’t have to be scary, it doesn’t have to be difficult. Call someone you can trust and know that is going to guide you in the right direction. If you’re reading this, I hope that’ll be me when the time comes.