The Ultimate Purchase: Buying a House

You’ve spent hours looking at listings, visiting houses, and considering renovations and decor; and now you’ve finally settled on a house you love. Unfortunately, your work is not yet done! The buying process can be complicated, so we’ve put together a guide to help you with all of the paperwork of buying a house. We recommend that you get a real estate agent, too, though! They can help you with the process.

Get Pre-approved for a Mortgage

It’s best to get pre-approved for a mortgage ahead of time, that way the moment you find a house you like you can submit an offer. In order to get pre-approved, you’ll need to provide information about your identity, your credit score, and your debt-to-income ratio to a lender, who will use that information to determine how much you can borrow. They will send that number to you in a Loan Estimate, within three business days of your application.

Keep in mind that this is not yet full approval. Once you have your house, you will have to complete other processes, detailed below, in order to get approved.

Offer Letter

Next, you will need to write an offer letter with your real estate agent. This will include a price which you’re willing to buy the house for. In order to determine that, you can look at similar properties’ values in the same area, repairs you may need to make, and the amount of competition that the house has. Your agent can also help you consider the current market.

You also need to offer an amount of earnest money, which is basically insurance for the seller in case the buyer backs out. If you don’t, you should receive this money back once you close on the house. However, you should also come up with contingencies, which are conditions that can get you back your earnest money even if you do choose not to buy the house. Contingencies can include a requirement for a house inspection for anything unsafe, or an appraisal contingency to make sure you’re paying a reasonable price for the house.

Other information in your offer letter includes the address of the home you’re buying, the names of the people who will be on the title, items or concessions you want included in the sale (like repairs and appliances), the dates you would like to close on the loan and move in, the mortgage approval letter, and the deadline to respond to the offer letter.

If your offer is accepted, great! Unfortunately, your work still isn’t done.

Home Inspection

You should always get a home inspection before moving in! The inspector can reveal issues that you would have never noticed during your own walkthroughs of the house. They will test things such as the appliances, the roofing, lights, and more. They will also look for potentially dangerous things in the house, like lead paint or black mold.

This is why it’s important to have a contingency about a home inspection in your offer letter. That way, if something is found, you will be able to negotiate with the seller about fixing it for you. And if they refuse, you can walk out with all of your earnest money.

Home Appraisal

An appraisal makes sure that what you are planning to pay for the house actually matches what it’s worth. You need an appraisal in order to buy a home with a mortgage, because lenders won’t want to lend out more money than the house is worth.

It’s also a good idea to have a home appraisal contingency in your offer letter. That way, if the home’s actual value comes out to be less than what you were going to pay for it, you might be able to negotiate a new, lower payment with the seller.

Home Insurance

Before closing on the house, you should secure homeowners’ insurance. This will probably be required by your mortgage lender. There are many different plans, and different benefits and costs to each, so make sure to choose one that fits your needs.

Open an escrow account

An escrow account is a neutral account, managed by a third party, that can process all the transactions you need to make during the home buying process. This will be used to pay closing costs and your down payment, and also mortgage and insurance costs, among others.

Closing

Closing on a house is the process of signing all of the final documents and finally becoming the owner of your house. The process is rewarding, but hectic, so we have put together a guide here, detailing what you might encounter during your closing process.

Closing Disclosure/Settlement Statement: By law, you will receive this document at least 3 days before closing. It’s basically a summary of your loan and its terms, and tells you all of the closing costs that you’ll need to pay.
Loan Application: The loan application that you filled out to get approved or pre-approved for a mortgage will be copied and sent back to you for you to review and make sure everything is correct.
Loan Estimate: You may receive another copy of this document to review the information you originally provided to make sure nothing has changed since then. If something has, for example you got a new job, you need to let the lender know.
Mortgage Note: This document legally binds you to pay your mortgage on time. It will also include other details of your mortgage like the amount, interest rate, and payment dates.
Deed of Trust: This document allows the lender to foreclose or sell your home if you don’t make the mortgage payments on time. Once your mortgage is paid off, though, they won’t have that right anymore.
Initial Escrow Statement: This lists all of the payments on taxes and insurance that will occur during the next year.
Transfer of Tax Declaration: You may or may not need to sign this depending on what state you live in.
Certificate of Occupancy: You will only need this if the home you are moving into has been newly constructed. It verifies that the home is structurally sound.
Title Documents: These are to make sure that the seller owns the house fully.
Deed: The deed transfers the title from the seller to the buyer. Once you sign this document, the house is legally yours!

During closing, you should have on hand:

A form of identification (Driver’s license, passport, etc.)
A cashier’s check in the amount of the closing costs, as personal checks are not usually accepted
Your Closing Disclosure, or settlement statement, because it has a summary of most of the information you need
Proof of homeowner’s insurance