Step 1: Review Financing Options
Financing your new home purchase begins with a consultation with a qualified loan agent. You will want one with strong, local experience with purchase transactions in your county's market: Do not use an out-of-area loan agent or lender, as that often has very unhappy ramifications, financial and otherwise. If you wish, we can recommend a loan agent who has the requisite experience, competence and integrity. There are a wide array of loan options, and choosing the one that works best for you will depend on a number of factors: your financial wherewithal and future plans, the monthly housing expense you are comfortable with, cash available for the down payment and closing costs, how long you plan to own your new home, etc. You may wish to consult your accountant regarding financial and tax implications.
Our advice is to purchase a home with a total monthly housing cost - including loan, insurance, tax, repair and maintenance costs - that is affordable to your current finances and circumstances, while maintaining a reasonable reserve fund for emergencies. That last thing one wants in a new home is undue financial stress that stops you from enjoying it.
Step 2: Loan Pre-Approval
Your home search should begin with obtaining formal loan pre-approval—so that you fully understand your financing options, what you can afford, and what your closing costs and ongoing housing expenses will be. Furthermore, a lender pre-approval letter significantly strengthens your position when it is time to make your purchase offer to the Seller. Your loan agent will guide you through the pre-approval process, which involves the submittal, to chosen lenders, of your loan application and accompanying documentation regarding employment, income, assets, debts and credit history.
Going through the pre-approval process is often a tedious, time-consuming hassle and involves the collection of many documents your lender requires. But it has to be done, and the sooner it is completed, the more you'll know about your options and the better prepared you will be for finding the right home and making a successful offer. Make the effort as soon as possible and get it done.
Step 3: Your New Home is Found & your Offer Accepted
You have already been loan pre-approved; now the lender must approve the specific purchase terms and the property itself. This involves review and approval of the purchase contract, the property appraisal, the Preliminary Title Report, and any other supporting documentation required. Depending on the lender, the property and specific circumstances, this process typically takes from fourteen to thirty days.
Step 4: Loan Approval
The property has appraised satisfactorily and all supporting documentation approved by the lender. The lender issues a formal loan commitment letter, and the purchase contract’s loan contingency is removed.
Step 5: Loan Documents
After formal loan approval, the loan documents are drawn up and sent by the lender to the title company. The best idea is to request the full set of closing documents for your review prior to going to the title company to execute these documents -- that gives you time to read them carefully and get any questions answered. At the title office, you will sign the entire package of closing documents; they are then notarized by the escrow agent and the loan documents are returned to the lender for final review and funding.
Step 6: Funding
The lender funds the loan, depositing the loan amount into the escrow account. You deposit any additional monies necessary to complete the purchase such as the remainder of your down payment and closing costs. These final monies are typically delivered by cashier’s check or bank wire. If wiring, please be aware that wire fraud has become a big issue, with hackers sending buyers emails that appear to be from their real estate or escrow agent, with FALSE wiring instructions.
Step 7: Recordation of Transfer of Ownership & Close of Escrow
The legal documents transferring the property into your name and the deed of trust pertinent to the property’s new loan are legally recorded with the County Clerk. The funds in escrow are then disbursed, as appropriate, to the Seller, the Seller’s lender and other involved parties or service providers. Escrow is closed, and you are now the owner of your new home! (But you have to make mortgage payments each month.)