Anatomy of a Home Purchase

buying a home

There is no typical home loan as every case is different and will have its own nuances. Make sure to keep in constant contact with us and with your lender to make sure everything's on track to close on time. This outline is meant only to give you a general idea of the process and is not meant to be a comprehensive guide for any specific transaction.

1.) Find a loan officer and get pre-qualified. Have your lender write you a letter of pre-qualification saying what amount you're qualified up to and what restrictions apply. Let them know the type of property you are looking for and whether you plan to live in the property or rent it out. Also, be honest with the loan officer when describing your income and credit.

2.) Find an agent you like and start looking at homes in your price range and locations. Once you find someone you trust and get along with, (like us for example!) be sure to tell other agents you come in contact with that you are already working with someone, otherwise it could complicate your transaction.

3.) Find a home you like and put in an offer. When you put in an offer to purchase someone's home, you spell out the specific price and terms you are willing to pay for a property. Then, you give the owners a set amount of time to respond to your offer.

Let's say you put in an offer on a home listed for $210,000. You offered them $200,000, and said you could close in 45 days and you would put $2,000 earnest money down on the house. You gave the sellers until noon the next day to respond.

4.) The owners either accept your offer, reject your offer, or they give you a modified or counter offer. In the case of our previous example, let's say the owners indicate on the contract that $200,000 is fine, but they want to close in 30 days with a $5,000 earnest money deposit. They give you until noon the next day to respond to their counter offer.

5.) You and the owner finally come to an agreement, and you accept the current contract. The home is now "under contract" which means no one else can put in an offer that would supercede yours. You and the owner have signed a contract to buy and sell the home, and you must both act in good faith for the remainder of the contract.

In our example let's say you talk with us and with your lender and determine you can close in 30 days, and you are okay with putting down a larger earnest money deposit because it will eventually go toward paying your closing costs. So you accept their counter offer and sign it. Then you write your agent a check that she'll give to the listing agent to deposit in a non-interest bearing account. This check will be credited back to you at closing to help pay for your closing costs.

6.) Schedule inspections. Because all homes in New Orleans except new construction are sold "As Is," it is important to have at least a general home inspection as well as a termite inspection. A termite inspection costs $75-100 and most general inspections cost $300-500 and include a written report of all the major systems in the house. Sometimes an inspector may recommend that you get additional inspections like a video plumbing, roof, gas pipe, or electrical inspection. Most contracts give the buyer ten days to have inspections and to prepare a response, but I usually ask for 15.

In your Inspections Response you can 1.) Say everything looks fine and you want to proceed to an act of sale, 2.) List things you want them to fix or give you a financial credit for and then you'll proceed to an act of sale, or 3.) Cancel the agreement and get your earnest money back. (In any of these cases, you don't get any refunds from an inspections company because they're independently paid at the time they do the inspections.)

If the property is being sold in "as is" condition, which most homes in New Orleans are, then the seller is not under any obligation to make any repairs. Depending on how motivated he is to sell, he may elect to make repairs or give you a repair credit anyway. A seller has 72 hours to respond and then you as the buyer have 24 hours to respond to his response, so you have the last say.

7.) Get insurance quotes. Because of a shortage of insurance providers since Katrina, it is vital that you start looking for insurance right away. We can help you locate professional insurance agencies that are writing on all kinds of homes. You will need hazard insurance, flood insurance (even if you're not in a flood zone, you should probably get this. Considering recent infrastructure problems around the country, we think it is worth the money!) Click here to read my blog about insurance post Katrina.

Let's say on your single family home you were able to get a quote for a $5000 premium for property insurance and $600 for flood. That means at the closing, you will have to prepay $5600 for one year's worth of insurance, and every month your lender will probably escrow 1/12 of your insurance to cover next year's premium.

8.) Order an Appraisal. Once you've finished your inspections and any negotiations about the inspections, then your lender will order an appraisal. Usually costing between $300-500 an appraisal is a licensed, certified appraiser's professional estimate of how much the property is worth. Most banks require an appraisal to make sure the home is worth the loan they're giving.

In our example let's say the appraiser came out to see the property, and after three or four days of research he concluded that it was worth $203,500. This is great news for you, because you're only paying $200,000, and it's great news for your bank, because they're only lending you on $200,000, so everyone agrees to keep proceeding toward an act of sale.

If your home did not appraise for the purchase price, and your bank refused to lend to you because of that, you could either cancel the sale or try to get another opinion by getting another appraiser to look at the property. You could also try to renegotiate your offering price based on the appraisal, though the seller has no obligation to sell to you at a lower price.

9.) Title work is ordered. We'll work on ordering your title work with a reputable title company, and then someone will call you to get your marital, insurance, and mailing information. The title company will also call the seller to get their information, and it will start researching the history of ownership for your future home. They do this to make sure the title doesn't have any liens, judgments, or clouds on it before they insure the title.

In the case of our home, let's say the title company finds out there's a lien on the property for $1,000 by a roofing company who says they did work on the home and weren't paid. It is the seller's responsibility to satisfy this claim before you go ahead with the sale. So the owner agrees to pay the lien out of the proceeds of the sale, and he signs paperwork promising to do this.

10.) Send the package to the underwriter. Once all your insurance and appraisal information is in, your lender sends your whole loan package to the underwriter who has final authority for approving or denying any loan. This underwriter may have additional requirements for you to fill depending on your personal information or the details of the property. Once those requirements are fulfilled, he gives it the clear to close and the title company calls all of us to set a date and time to meet at their office to sign the papers. You must close on or before the time written in your original offer to purchase, or we have to get an extension from the seller. The seller is not obligated to give us an extension.

In this case the underwriter says he needs additional information from the appraiser as well as a termite certificate. Once he gets that information, he reviews it, and then gives it the magic words - clear to close.

11.) You do a final walk through the property. Up to five days before the act of sale the purchaser has the right to do a final inspection or walk through the property to make sure it is in the same or better condition as when you made the offer on it.

12.) The act of sale. Before the act of sale you are given a statement called a HUD-1 that breaks down all your charges and fees, and details exactly how much money you must bring to the closing table. Any amount over $2000 must be presented in certified funds like a money order, certified check or other certified funds. Also be sure to bring a drivers license or other approved identification.

In our case we were getting a 95 percent FHA loan, so we had to bring our down payment of $10,000 down plus let's say $14,000 in transaction costs. That would be $26,000 except that you've already paid them $5,000 for your earnest money deposit. So in this case that earnest money would go against the money you need to come up with, so you would only have to bring $21,000 in certified funds.

Both you and the seller sign the required papers, your lender and you fund the money for the purchase which pays off the seller, and he gives you the keys to your new home. Congratulations! We'll have a special closing gift waiting for you.