A Typical Home Buying Process (And How It Doesn’t Exist)

Just like snowflakes, no two home purchases are going to be the same. Ever. The 7 steps below are based on a single-family home purchase for an “average” W-2 earning homebuyer in the Austin area, narrated by Yours Truly as the agent.

  • 1. Get pre-qualified for a mortgage loan
    • This is what you will do with a local lender (I have a few I’m happy to recommend). They will take your loan app with all your personal information, gross income, any debt, pull your credit, blood type, first-born child etc. Once you qualify, the lender will hand over your golden ticket to home buying: the pre-qual letter. This will prove you have funds and can rightfully make an offer on the home you choose within the recommended price point you want based on what you qualify for. I would recommend you fill out a loan application with at least two loan officers to make sure you’re getting the best deal and program for your personal situation. Think of it like two foxes fighting over the last hen in the hen house, they’re going to put their best paw forward.
    • The starting point for information you’ll need to supply to the lender in order for them to qualify you will be: form of identification, most recent 30 days paystubs, most recent 2 years W2s and tax returns, and any 1099s if you have them.
      • Every deal is different, so depending on your financial profile, income, debt, funds to close, etc., your requirements can and will always vary.
    • It is essential for you to decide what is most important to you at this time in terms of how you will spend your money during this process. Ex: Is keeping a low monthly payment the most important? Or keeping your cash on hand and putting the minimum amount towards the down payment? (3% is all that’s required in most cases) Or is it the lowest interest rate most important? (You can also buy this down to what you want as well.) Or perhaps the shortest loan program term (30 years, 15 years, 10 years, etc.). Based on what you decide, your lender can structure that mortgage for you making your capital desires a reality. They should also generate a few scenarios for you to compare during this decision period.
  • 2. Now, with our golden ticket in hand, the fun starts. Once we find a property you like, we submit an offer on it to the owner’s list agent.
    • Let me preface all of this with- you are the boss. You will have the final say in all decision-making. I will write the offer based on your preferences along with my brilliant, blinding expertise and humble guidance. I will give you the market value at the time for that particular property along with any other neighborhood statistics or facts, and then you decide if you want to meet the list price, offer higher or lower.
    • A house is only worth what it’s worth to you, if you LOVE it, I always advise my clients to write a full list price offer, if not over.
    • Details of the contract are outlined below in section 3.
    • Once we finalize the offer contract, you will sign and I will submit it to the seller’s agent for review. They will accept our offer, counter it, or reject it completely.
  • 3. Once we reach an agreement with the sellers and everyone has signed and the contract is executed, the proverbial contract clock starts ticking.
    • First up is the Earnest money and Option money delivery and we have 3 days to get these amounts delivered from the time the contract is executed (meaning signed by all parties). There are multiple options for delivery and payment.
      • The Option money goes to the agent and is written to the seller, and the Earnest money goes to the Title Company and is written to the Title Company, and will be deposited and held until contract close.
        • This money goes toward your closing costs and will be deducted at the end to your credit.
  •  The Option money amount is disclosed in the contract and is also an amount decided upon between you and me. $150 is typical for a seven-day option period. If you would like more time during option, typically that comes along with more money, for example a 10 day option period typically costs you about $200.  If in a multiple-offer situation, a higher option money offer is helpful.
    • In some cases a longer option period is beneficial if there are multiple inspections to conduct for example, septic inspection, foundation, well, etc.
    • When you submit a contract offer, and it is accepted, the Option money is gone forever, regardless of whether or not you inevitably back out of the contract, you will never get it back. Bye bye.
    • The Earnest money is typically 1% of the sales price. This amount you can get back IF you choose to terminate the contract during your option period OR if you financing falls through. Financing has a different contingency period all on it’s own. See section 5.
  • 4. As previously mentioned, the Option period is typically 7 days. During this time we work hard to do all of our research and due diligence to be sure this is the property for you and there aren’t any red flags.
    • We will schedule an inspection within the Option period time frame. This is when you will hire someone to inspect the house and find any possible issues. For Ex. Any foundation or roofing hazards, HVAC and heating systems, septic inspection or well inspection if the property has those on it as well. You will write a check directly to this inspector on the day of the inspection and you will not receive a refund no matter what for their service, even if you back out of the contract.
      • My team and I will compile bids for the various services needed for your transaction. Once we have a list of inspectors, companies, prices and times, you, once again, will be the ultimate decision maker with who you would like to go with and when (BOSS). Or you can always choose someone you know and trust yourself.
    • If the inspection returns any issues you are uncomfortable with, you have the option to negotiate repairs, closing costs, or pull out of the contract. This all must be done within 7 days of the Option period if you wish to get your Earnest money back. Therefore, if you wish to have any other inspections done during this time, it’s strongly advised you schedule them within the Option period timeframe.
    • Once the Option period is over and negotiations are achieved and agreed upon, the Earnest and Option money both belong to the seller. The only other way out of the contract for you is if your financing falls through. A financing period is typically about an 18 day period, which also starts at the time the contract is executed.  The lender has until the financing addendum date to alert all parties if financing is fully approved or not.
  • 5. Financing Addendum
    • You will have about 18 days to get the clear to close from your lender. A contract is written for 30 days typically, so we leave the last week for any loose ends to be tied up. While Sections 2-4 is ongoing, you’re still working with the lender to obtain final loan approval. More detail on that later. The financial piece of this is worthy of a whole other blog post all on its own.
    • The only other financial piece to mention at this time is the appraisal. The lender will order the appraisal and you will pay for that out of pocket as well, just like the inspection(s). The hope is for the appraisal to hit our offer price or above, like rolling 7s. If it does not, we may have some negotiation power here, especially if we submitted our offer with an appraisal addendum.
      • There is a time and a place for an appraisal addendum, not always necessary and most sellers do not like it, however, it does protect you like a nice, soft safety blanket fresh out of the dryer.
  • 6. Once the clear to close has been achieved from the lender, we will do a final walk through of the property the day before or the day of closing. At this time we will be sure the home is clean and ready for move in, and we will proceed to the closing table.
    • If the home is not move-in ready, I will work with the listing agent to rectify the set-back and do whatever is in your best interest to get you in your new home as soon as possible. It doesn’t happen often, but it has happened before.
  • 7. Congrats! You own a home! You Baller.

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