The Offer Process & Contract to Close
1. Preparing the Offer: So you’ve found the right home, and you are ready to make an offer! Now it is the time to review the comparable neighborhood home sales with your agent to determine an appropriate offering price. You will also review a number of documents including the disclosures for the home and additional offer documents. To more fully understand your financial obligation, your loan officer can also provide you with a worksheet tailored to the house and your offer price. This sheet will inform you of the amounts needed for your monthly mortgage payments and how much money you will need to bring to the closing table (downpayment, closing costs, etc.).
2. Submitting the Offer: Once you have determined an offer price and terms, your agent will draw up a formal written offer for you to review. Once you sign the offer documents and disclosures, your agent will submit them, along with a pre-approval letter and an Earnest Money Deposit to the seller. The deposit, which is typically 3-5% (or more!) of the purchase price, is an act of good faith that shows the seller you are a committed buyer. If your offer is accepted, this deposit usually goes toward your down payment and closing costs. After your offer is submitted, the seller will either accept, reject, or counter your offer.
3. Offer Accepted: Once the contract is ratified (which means, that the contract has been agreed to by both the buyer and seller) the contract timeline or countdown begins for the contingencies you may or may not have included in your offer. Contingencies are clauses within the contract that provide an “out” if something unforeseen arises.
a. Home Inspection: This contingency gives you the right, within the specified time frame, to access the home and conduct a professional home inspection (note this is a visual inspection). This property inspection will provide you with a detailed report that will explain the condition of various systems, appliances, the interior, and exterior. Other inspections, which you may or may not have depended on the features of the home or type of home, include radon, termite, well, septic, and pool inspections. Once the inspections are completed, negotiations over the repairs begin (if your contract permits). During the negotiations, you can ask the seller to repair items or give you a closing credit for particular repair items. Sellers may or may not agree to address all or part of your requests. If you have checked “the right to cancel” in your original offer, and you find something in the home inspection that makes you want to back out of the contract completely, you can cancel the deal altogether and should get your earnest money deposit back.
b. Home Appraisal: Just because you are pre-approved for a loan, does not mean the lender will hand over the money immediately. The bank will hire a third-party appraiser to conduct an appraisal of the property and provide an evaluation report of the appraised value of the home. If the appraisal comes in at or above the sales price, all is well, and the sale can proceed. However, if the appraisal comes in lower than the accepted offer price, extra steps will need to be taken.
c. Financing: During this period, the lender conducts a title search to see if there are any outstanding liens or clouds on the title of the home. It is VERY important that you do not make any large purchases or take out any additional loans before settlement, as this can throw off your debt-to-income ratio and jeopardize your ability to close. During this time, you will also want to line up your homeowner insurance policy.
4. Closing Time: By this point, you should have called the utility service providers and established accounts in your name effective as of the closing date. Prior to the closing day, you will conduct a final walk-through of the home with your agent to make sure all of your agreed upon home inspection items have been addressed, and the property is ready for you to move into. Seventy-two hours prior to closing you will receive a Closing Disclosure document that outlines all the final financial numbers associated with the transaction and explains how much money you will need to bring to the closing table.
Home ownership is a wonderful thing, but the journey to get there can be stressful and frightening at times. Being familiar with these Top 10 Tips for First-Time Buyers can help you to stay ahead of the curve and fully engaged in the process. Of course, these tips are just a general guideline- working with a great buyer’s agent will help you navigate the process properly.
A great way for you to get started is to set up a free, no obligation, Buyer's Strategy Session with us so we can tell you all about what to expect in greater detail.
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