A step by step overview. We work with buyers in a variety of situations, from savvy investors to excited first-time homebuyers. Our first step with a new client is to discuss your needs and explain to you the various ways we can help you. If you are curious what the whole process looks like, here’s a step by step overview.
1. OBTAINING A LOAN The first step to buying a home is getting your mortgage loan together. Buyers are often approved for purchase amounts that translate into monthly payments that feel too high. A good way to come up with a purchase price is to work backwards. Based on your finances, what are you comfortable with as a payment each month? Let your lender know this and have him or her calculate what the actual purchase price would be. Remember that this figure will change depending upon the interest rate, amount of down payment, type of loan (adjustable or fixed rate) and the property taxes of the home you want.
2. FINDING YOUR HOME Once a price has been established, it’s time to get to work. The more specific you are in your needs, the more focused my search for you will be. Some things to consider: favorite neighborhoods – or boundaries; total living space/square footage, minimum number of bedrooms and bathrooms, garage, basement, fireplace? Are you willing to do major repairs or just light cosmetic fixes? Do you know the style of house or condo that you are looking for (i.e. bungalow, midcentury home, new construction, etc.)?
3. WRITING THE SALES AGREEMENT – “THE OFFER” Once you have identified a property you want to purchase, our next step will be to make a formal written offer to the seller. The offer will outline, among other things: a price, type of loan you will be obtaining, how to deal with any repairs identified through inspections and a closing date. When making an offer it is appropriate for you to sign a promissory note for a predetermined amount of money that will be applied to your down payment. This is known as “earnest money” and shows the seller you are serious in your attempt to buy the home. Earnest money is typically 1-3% of the sales price. It is refundable if you choose not to buy the home because of the results of an inspection, seller’s disclosure, or failure to appraise at value. I will let you know what timeframes and deadlines you should be aware of once the seller has accepted your offer.
4. ESCROW/TITLE COMPANY The title company (“Escrow”) is a neutral third party in your transaction and will only take mutually agreed upon written instructions. The title company will research the title of the home you are buying, make sure there are no liens or judgments against the home or seller. Your name/social security number will be researched as well, to make sure there are no outstanding liens or judgments against you that would prevent the purchase from going through. Once the property’s title is cleared, the title company will issue a title insurance policy, insuring the discovery. The seller buys this policy for you and you in turn buy one for your mortgage lender (this is a part of your closing cost). The fee of the policy varies depending on the purchase price and condition of the home.
5. DISCLOSURES In most cases, the seller will provide the buyer with Disclosures. There are several types of disclosures including Property Disclosures, Lead-Based Paint Disclosure, and/or Siding Disclosures. The intention of this information is to inform the buyer of any deficiencies that the seller knows about. These can be helpful to understand the history of the home. But in no circumstance should this replace home inspections. The buyer has a right to terminate up to 5 business days of receipt of the Property Disclosures if unsatisfactory information is revealed.
6. INSPECTIONS I strongly encourage all buyers to have a home inspection performed by a professional. The cost is solely the buyer’s and is usually not refundable. An inspection is an excellent way to get to know the house, what has been done properly, and what will need future maintenance. Inspectors will look at everything from the roof to the basement/foundation, check for dry rot and pest infestation, test the appliances, run the furnace, evaluate the plumbing, electrical, and other aspects of the property. If your home was built prior to 1978, you have the option to have a professional lead-based paint inspection executed. This inspection is not included in a property inspection but may be purchased separately from a lead-based analysis company.
RECOMMENDED INSPECTIONS (EXPECT COSTS OF $800-1000):
Whole House Inspection: Provides you with an overview of the interior and exterior of the mechanicals, structure, roof, attic, pest, & dry rot. A lengthy report with photos will be emailed to you after the inspection. Approximate cost is $400-600
Sewer Scope: A camera is sent down the sewer stack from the house to the city’s connection that is looking for roots, displacements, holes, bellies, or other issues. Approximate cost is $100-125
Radon testing: Radon is a harmful gas that can cause cancer. It naturally comes up from the earth and Portland happens to have higher levels due to Missoula floods activity. More information here: www.epa.gov/radon Approximate cost is $120-170
Oil Tank Search/Soil Samples: Older homes have a tendency to have an oil tank on the property, either as a working fuel source or abandoned after a gas upgrade. If the tank has been decommissioned and the seller has documentation to prove as such, no problem. If an oil tank is currently working on the property, a soil sample test is recommended (approx. $200-$300). If the results show no leaking, the seller is not obligated to do anything further. If the results show contaminated soil (indicating a tank leak), the seller must have a DEQ-certified clean up done at their own expense. A third scenario is a home with a gas furnace and seller who has no knowledge of an abandoned tank on the property. If this is the case, I strongly recommend a buyer pay to have a tank search done (approx. $100-125). This will verify if there’s any tank on the property and if there is, the seller will need to properly decommission it.
7. NEGOTIATE REPAIRS After inspections are complete, the buyer has the opportunity to ask the seller to address some of the deficiencies that were discovered. There are two ways to address deficiencies— credit or repair. The credit to the buyer from the seller can come in the form of a credit towards the buyer’s closings costs/prepaids or as a reduction to the sales price. Since this step is a negotiation, every situation is a little different.
8. APPRAISAL Once you have removed your Home Inspection Period Contingency and agree to move forward with the purchase, I will let your mortgage lender know to order the appraisal. An appraisal is a mini-inspection so to speak, on the lender’s behalf. This is different than the above inspections that you had performed for your own benefit & information. The lender wants to make sure the home is in its represented condition and in-line with comparable home sales in order to reduce their risk to lend you the money to buy the property. You need not be present during the appraisal but should receive a copy of the final report before or at closing.
9. INSURANCE & UTILITIES Once you are confident you are going to go through with your home purchase, you may need to choose homeowner’s insurance. Some find that they can get a multi-policy discount (home, auto, umbrella, etc.) with their current insurer. But you also have the right to shop around for the best rates. Upon closing your lender will make this a homeowner’s insurance policy a requirement. Utilities are handled outside of escrow. I will give you a list of the utility companies that service your area so you may make arrangements to transfer accounts in your name as of the closing date.
10. CLOSING ‘Closing’ is the term used when the deed has transferred from the seller’s name and into yours. There are 3 steps to closing: signing, funding, & recording. About two days prior to your closing date you will go the title company to sign all your loan documents. This process takes about one hour. You will bring with you proof of your identity (i.e. driver’s license or passport) and the balance of your down payment in the form of a certified cashier’s check made payable to the title company. You may also arrange a wire with the escrow officer in place of a physical check. The packet of loan documents will be sent back to your lender for final review, which may take a day or two. After your lender receives the signed loan documents, they will release the funds to escrow in order to proceed to close. Once the County records your closing and provides recording numbers as a receipt, then you officially own the property.
11. POSSESSION Possession is the time we have agreed upon in the sales agreement contract for you to receive your keys, from me truly. The time you take possession of your new purchase may be different from time you actually close on the transaction. For example, the buyer may agree to allow the seller “rentback” the property for a daily cost.