- The first step in purchasing a home is getting Pre-Approved with a lender (if not paying all-cash). This is a letter from a lender, which ensures that you qualify for the loan you are requesting. Your lender is going to verify your financials as well as your credit by asking for the following:
- Last few months of Paystubs
- Last 2 years Tax Returns
- Run your credit
- Confirm Assets
- The pre-approval takes about 24-48 hours to receive after all the documentation is given to the Lender. An offer is not presentable to a seller without a pre-approval. This pre-approval is done for multiple reasons:
- Determines how much the Lender is willing to give you a loan for. This also allows you to speak to the Lender to determine what their monthly mortgage payment and PITI (Principle, Interest, Tax and Insurance) will be at “X” purchase price. You may find yourself qualifying for more than you’re comfortable spending, which is very common. It’s best to not ask to be approved for a certain purchase price, rather be approved for the highest possible price, so you know your ceiling. If a limit is put on the price, and later you decide to go higher, you may need to have your credit checked again and the pre-approval process repeated.
- This is also a good time to speak to the lender about where your money for the down payment is coming from. Based on its location, different timing is needed for the purchase, and this must be taken into account. If the money is being gifted from a relative, you will need to attain a “Gift Letter” from your lender, and the funds from the relative must be verifiable. If there isn’t a paper trail from the relative, or from your own funds, this becomes problematic, and could result in your loan not being approved because of in-adequate funds to close.
- Shows the Seller and Listing Agent, that you are qualified to purchase the home with the stated terms on the offer.
- Choosing a lender that is professional, easy to get a hold of and able to perform on the terms written in the offer, are often more important than the rates they offer. We have seen many Buyers use lenders that are hard to get a hold of, in different areas/states, have long loan process or are too busy and it ends up costing the Buyers in the end. By not being able to perform within the contingency periods or close of escrow dates, lenders have often cost the Buyers extra money, or even resulted in the Sellers canceling contract because of lack of performance. Over the years, we have developed great relationships with a few lenders, which are very professional and easy to get a hold of. Our integrity, reputation, morals and values are all very important to us, so we look for Lenders with like-minds.
- The lending companies that we work closely with are David Belluomini with Wells Fargo, Sally Audet with Security National Mortgage Company and Billy Cunningham with American Financial Network. We can introduce you to them through email and they will take care of you.
Searching for Properties
- On The Rose Group website, we offer many tools that can better assist our clients in the home buying process. One tool you will be provided with is a listing alert, which we setup after gathering from you what your wants and needs are for a home. This technology is directly connected to the MLS, which allows you access to Real Time Realtor information. Once a listing that meets your criteria comes on the market, it will alert you, via email, within seconds of the home being listed. In this fast paced market, where homes are often only on the market for a week. This tool allows us to act quickly on homes to do the necessary research, find out showing instructions and get disclosures and/or reports if they are available.
- We strive to give great customer service and give our weekend showing slots to our priority buyers. These priority buyers are ones that are pre-approved, ready to purchase now and understand the market conditions. We have about 2-5 slots on both Saturday and Sunday and these showings are very purposeful.
Writing an Offer
- With this fast paced market, we often are up against offer deadlines, which typically are the following week after a property is listed. Often this means we are writing an offer within just a day or two of first seeing the home. Because of this, we like to make an appointment ahead of time in which we can go through the offer in our office. The offer is very long and litigious and we like our clients to understand what they are signing because it is a legal contract. The contract typically takes an hour to review and allows us time to explain each line. This time also gives you the opportunity to ask us any questions they may come up.
- Once we’ve reviewed the offer with you and you are comfortable with it, we can then Docusign the offer when it comes times to write an offer. This allows you to sign the contract electronically, rather than coming into our office each time.
Additional Things Needed with Offer:
- Proof of Funds (POF) – You will need to show that you have the necessary funds for the down payment on the Property. The POF can consist of a Bank Statement or Money Market Statement. There can be multiple accounts provided as not all funds need to be in one account. Most of the time the offer and supporting documents will be emailed to the listing agent, so PDF files are preferred.
- Earnest Money Deposit Check – You will need to provide a Personal Check, which is like a good faith deposit. This Deposit is for 3% of the purchase price. This money will be deposited into the Escrow Account with the Seller’s selected Title Company upon offer acceptance. This amount will go towards the down payment (if 3% EMD and putting 20% down, 17% is due at funding date). If you back out of contract within your contingencies, this money is not at risk, and it will be returned to you.
- Pre-Approval Letter – This shows the Seller that you are actually able to get a loan for the purchase price of the home.
- Letter to the Seller(s) – A letter to the Seller(s) is a very powerful document we always like our clients to write. This letter is just one page letter talking about what you do for a living, your family, what you like about the home and what you like about the area. Adding a picture of you, your family and/or your significant other is the “icing on the cake.” The home buying process is very emotional, as is the selling process. We have seen sellers favor buyers they connect with and, because of this, we have recommended all of our clients write the letter.
- Signed Disclosures and Inspections – With inspections often completed prior to the home being listed on the market, Sellers want to know that each Buyer has gone through the inspections and seller disclosures before writing an offer. This is a great opportunity for you to go review them; see what has been done to the home and what issues came up, and to write an offer accordingly. Most inspectors are ASHI certified, which is a state license. This ensures that the inspectors are inspecting the home to the best of their ability and not providing bias inspections.
Ways to Strengthen Your Offer for Acceptance
There are a few things that you can do to strengthen your offer, to get it apart from other offers, to increase your chances of getting an acceptance.
- Contingencies – There are 3 different contingency periods in the home buying process:
- Property Contingency: This allows the buyer the ability to inspect the home, have inspectors inspect the home, and check for any concerns they may have. This is essentially your “Test Drive” of the home, in which you have full access to the home to ensure you are comfortable with its condition. As mentioned above, Sellers have often done the inspections up front, and because of this, they are expecting you to have read them and write an offer accordingly. Writing no property contingencies is a great way to increase your offer’s strength. This would mean you are comfortable with the findings in the inspections and the Seller’s disclosures. We only suggest this to you if you have read the inspections thoroughly as well as the disclosures.
- Loan Contingency: Good lenders can have a loan approved in 10 days, which is the standard in today’s offers. Some lenders have the ability to show your financials to their Underwriter, which is who approves your loan. This process takes 10-14 days and, if done, you can be Approved for a loan rather than just “Pre-Approved.” The difference between a pre-approval and an approval is significant. With a pre-approval, your lender gathers your financials and runs your credit and if they meet the standards for your loan amount, you are pre-approved. With a full underwritten approval, the underwriter starts your loan approval as if you are already in contract. By getting the approval, you’re able to safely remove your Loan Contingency, giving the Seller and Listing Agent confidence in your financial ability to purchase the home.
- Appraisal Contingency: When writing an offer, you are committing to purchasing the home at that price. Once you are in contract, your lender requires that you get an appraisal on the home to ensure that the home is worth what you offered. If the home appraises for less than you offered and you are doing a conventional 80% loan (20% Down), your lender will only give you 80% of the appraised value. You will then be responsible for making up the difference of the appraised value at closing. Buyers in today’s markets are often putting more than the standard 20% down payment to give them a cushion for the appraisal if they choose to remove their Appraisal Contingency. If the home were to appraise for less than offered, and they have 30% down payment, they can use the extra 10% towards that difference in appraisal to offer price. Removing your Appraisal Contingency can be risky, however, if you have the extra cash to compensate, this can be one of the strongest contingencies you can remove. What this essentially means, is the Sellers will get the price you offered, no matter the appraisal price, which is a very strong term in their minds.
- Time to Close – Another term to strengthen your offer is to close quickly. A standard 20% down payment loan takes 30 days to close. With the combination of being approved early and getting cash liquid, you can close in as little as 15-25 days. This takes some talking to your lender to ensure they feel you are able to close early, but closing early means the Seller gets their money faster.
- Rent Back – The last term you can offer is a Seller Rent Back. This essentially means you are allowing the Seller the ability to lease the home from you after the close of escrow. This is common in this market because Sellers would like the opportunity to sell their home, rent it back from the Buyers, then purchase their next home, eliminating moving more than once. When doing a rent back, a lease agreement will be in place and you will do another walk through when the sellers move out at the end of the term. While allowing the sellers to rent the home for a brief period after the sale, another strengthening term would be to allow a Free Rent Back. This is the most common term given to the Sellers, which would mean they can stay in the home, rent free.
Example of the Escrow Process
Accepted Offer (Day 0)
For Example Purposes, below are the Purchase Terms:
- $500,000 purchase price
- 20% down payment
- 3% Earnest Money Deposit
- 7 Day Property Contingency
- 10 Day Loan Contingency
- 10 Day Appraisal Contingency
- 30 Day Close of Escrow (COE)
- The Seller has accepted your offer once we acknowledge the acceptance of the contract, this now starts the escrow period (Day 0). In this example it is 30 days until close.
- The Earnest Money Deposit is to be deposited into the Title Company within 3 business days. In this example, a check for $15,000 ($500,000 * 3%) is to be deposited.
- We will inform your Lender that you are now in contract so they can start the loan process.
Property Contingency Period
(7 Days in Example, Day 0- Day 7)
- The Property Contingency period is the “kicking the Tires” stage. Property contingencies are typically 7 days and during this period you are able to inspect the property for anything you deem necessary. This can include; Property, Termite, Roof, Geologoical, or Chimney Inspections.
- We recommend starting with a Property and Termite Inspection
- Property Inspection (around $300-$400): a property inspector can be described as a “Jack of all Trades,” inspector. They go over everything in the home with a basic overview. They check things such as; if all appliances are operable, leaks around the house and under the house, inspect roof condition, go into crawl space and attic to inspect for problems, etc. Property Inspectors will suggest further professional inspections for each potential problem. Go to www.pacificinspect.com for more information on Property Inspections.
- Termite Inspection (around $180-$250): Termite Inspectors are searching for Wood Destroying Organisms, which not only include Termites, but also water. They will search the house inside and out, under and above for termite presence and damage, as well as water presence and damage. Many people are terrified when they get a termite inspection report back, to find that the house they are about to buy has $4,000-$6,000 in termite damage. In Santa Clara County, which used to be full of Orchards, termites are very prevalent. It is not uncommon for a home (even only 3-5 years old) to have $4,000-$6,000 in quoted damages. With many Termite Inspection Companies, this quoted amount is sub-contracted out, so the quoted fees are inflated. They often have minimal repair costs, $150+, for even a 2”x4” piece of wood that needs to be replaced. We can get quotes from a Handy Man, if this is a concern.
- This also includes checking Megan’s Law, viewing traffic during rush hour in the area, viewing children present when school lets out, etc. The Seller is required to make the house fully accessible (within reasonable hours) to inspect the property.
- The Seller is also required to provide certain disclosures, such as a Seller Property Questionnaire. This disclosure is a document that the Seller notes anything they have upgraded, rebuilt, repaired or had problems with on the property since they have owned it. You will also be receiving a Natural Hazard Disclosure Report, which shows the area the home is in and any earthquake zones, fire hazard zones, flood zones or liquefaction zones.
- If at any point during this Property Contingency Period you feel that any of the things found are deal breakers, you can walk away from the transaction and get your Earnest Money Deposit back (only before Property Contingencies are removed). If you have removed your Property Contingencies and decide to walk away from the transaction, your Earnest Money Deposit is at risk.
- If the home is in an HOA, you will get the HOA documents and financials to review. These can be important because they have the rules and regulations, such as pet restrictions and also the financials, which note any future assessments or repairs, or past repairs and upgrades.
Loan Contingency Period
(10 Days in Example, Day 0 – Day 10)
- The Lender starts the process of Approving. The Pre-Approval was done before to qualify you for a purchase price, the Lender has to qualify you for the house you are now in contract on. The Lender will start looking deeper into your finances. Part of the Loan Contingency Period includes an Appraisal.
- An Appraiser will go out to the home and appraise the home. The appraised value is what your lender will give you a loan on the home for. In this example, the offer price is $500,000, if the appraised value comes in at $525,000, you have instant equity in the home and your lender will have no problem giving you a loan for the home. If the appraised value comes in at $475,000, the offer is $25,000 over the value, and you will have to walk away from the transaction, re-negotiate with the sellers or come up with the difference out of pocket.
- If the Lender approves your finances for the purchase of the home, and the appraisal is at or above the purchase price, the Loan Contingencies can be removed. If the Loan Contingencies are removed and you have to walk away from the transaction, after the fact, your Earnest Money Deposit is at risk. We have seen this happen when a Buyer had removed their Loan Contingencies and hadn’t closed the transaction yet, and decided to go buy a car. They were no longer able to qualify for the loan and had to cancel contract, losing their Earnest Money Deposit. This can be prevented by talking with your lender or us, to ensure that it is okay to make large purchases while in contract.
(Day 10 – around Day 25 in example)
- During this period, both parties are finalizing their submission of documents and getting all the names on the documents, transferred from the Sellers name to your name(s). Towards the end of this waiting period, you should start inquiring about transferring the Utilities on the home to your name(s).
(Around Day 25-28 in example)
- This is the big day where you go to the Title Company and signs documents to transfer the Title from the Seller’s name to yours. You will have everything notarized and your finger prints are taken. A valid driver’s license is required at the sign off appointment. The sign off takes about an hour to an hour and a half.
- At this time, you will also bring a cashier’s check or schedule a wire transfer, to pay your remainder due for the down payment and closing costs. This amount will be less the Earnest Money Deposit. In the example, the Buyer is to pay $85,000 (20% -3% EMD = 17% or $85,000), plus your closing costs. There needs to be at least 24 business hours before closing, so the check can clear.
(Day 30 in example)
- Congratulations! You are now the owner of the home! Typically we will hear from the Title Company around noon on the closing day, that the transaction has “recorded.” This means you are now on the Title of the home, as the owner. Per the contract, the official possession of the home, and when the keys are given you, is 5pm on the possession day. This gives the Sellers time to get the rest of their belongings out of the home.