Now that you have located the home you want to buy and you have successfully negotiated a purchase price, what is next? Congratulations, you now have a ‘Purchase and Sales’ agreement; this is a legal and binding contract between a buyer and a seller. In most contracts there are deadlines for each prescribed step when purchasing a home. It will go something like this:
- Earnest Money. This is a deposit you put down as a show of good faith to the seller that you promise to purchase their home. The earnest money is your money and will be applied to the purchase price of the home at closing. It is normally 1% of the sales price, but this can vary, check with your Realtor.
- Loan Application. Next according to your contract, you will have a certain number of days the sit down with your lender and make application for the money you want to borrow, usually 5 days. All borrowers to be included on the loan will need the following documents:
- Signed Purchase and Sales contract including disclosures (Realtor)
- Existing deed for house (Realtor)
- 2yrs of W-2’s (buyers)
- Bank and investment documents for the last 30 days (buyers)
- Other debits owed e.g. Child support, personal loan, etc. (buyers)
- Signed 4506-T form (lender)
Additional documents needed for special circumstances:
- If a borrower receives a gift toward the down payment: provide a letter from the “giftor” that declares the gift isn’t a loan. A copy of the giftor’s bank account statement showing the funds, a canceled check and the borrower’s own statement showing the deposited funds.
- If you are self-employed or own rental properties you may have to provide these additional documents: Income tax returns for 2 yrs, Profit & Loss statement, Rental income statement (an appraisal of the properties may be needed at your expense)
- Inspections. Most P&S contracts will allow 10 days for inspections to be
completed. Your Realtor can recommend a licensed home inspector to inspect the home. Buyers can opt to use a contractor, but they do not test water, air, septic, etc. Buyers may even want to hire a surveyor to perform a MLI (aka site survey). Buyers should make every effort to attend these inspections, because this is always very informative about the systems and the structure of the home. This is also an opportunity for you to ask questions about home maintenance in general. Inspectors usually get paid at time of service and charge $300 -$500 depending on inspections or tests performed at the home. It is highly recommended that buyers take advantage of this opportunity to inspect the home, because a costly repair could be uncovered and most of the time something can be negotiated with the sellers for the repair or mitigation to be made.
- Re-Negotiations, if needed. Sometimes a deficiency in the home is discovered during inspections, this is to be expected when buying an older home. If a repair or mitigation is needed a contractor can be asked to give a written estimate and this will be used to re-negotiate the contract. Your Realtor will write up a proposed addendum stating the deficiencies with the inspections and a possible solution. You will work with your Realtor to establish the solution. Sometimes it is as simple as asking for the repair or mitigation to be completed, and sometimes it is asking for a cash consideration so the buyer can pay to have the problem taken care of after closing. Or sometimes the cost of the repair is shared between buyer and seller.
- Negotiations are done, what’s next? Buyers will contact an insurance agent to get an estimate on the home and provide this information to their lender. Buyers will continue to work with the lender and Realtor to complete the next phase of gathering information and documentation needed to close the loan. If there are repairs or mitigation to be completed and the buyer has some or all the responsibility in this, buyers will work with a contractor to see that these are completed before the lender’s appraisal. Before closing you will receive a copy of the HUD statement take time to go over this with your lender &/or Realtor, sometimes errors are made and this is the time to rectify them.
- Closing is finally here! Your loan has been approved! You have a ‘clear to close’. Your Realtor will arrange a ‘walk-through’ of the property, usually the day before closing, and you should find it ‘broom clean’. The home will be vacant and it gives one last time before the purchase to notice anything amiss. If a problem is noticed your Realtor will help you navigate the issue and get it taken care of. Day of closing items to bring with you to closing: driver’s license, cashier’s check for proration’s of fuel, and the file you have on this purchase (just in case).
- Congratulations! You have purchased your first home and will leave the day of closing with the keys to your new home! Always remember your Realtor is working for you, so if any questions arise during the process or after closing ask for their advice.
Written by Deborah Johnson, Assoc. Broker, C21 Baribeau Agency
