THE HOMEBUYING PROCESS

  • If you’re a first-time buyer, consider taking the VHDA’s free Introduction to Homeownership class. This 6-hour class covers the entire home buying process and provides excellent information regardless of whether you choose a VHDA loan or not. Visit vhda.com for more information. This class is required if you do choose a VHDA loan.


  • Pre-qualify for a loan and start the application process. This step involves contacting a lender and determining your eligibility to purchase a home. This is not a guarantee from a lender. You will receive a letter that states the loan amount you qualify for. You and your lender should discuss different loan programs and how these programs fit your needs. Be sure to tell the lender and your Realtor if you qualify for a VA or FHA loan. Remember…the pre-qualification letter does NOT guarantee that you will get a loan!


  • Select an Agent – It is best to have your own representation when buying a home. Be sure to discuss “agency” with your Realtor®. Also be sure that the person showing you homes is a Realtor®, not just a licensed salesperson – there IS a difference. You should feel confident that the Realtor® you have chosen is working in your best interest. Tell your Realtor® what you are looking for in a home. They can then email listings that may be of interest to you. You may want to drive by before actually going inside the home to get a feel for the neighborhood, the lot, etc.


  • Sign a Brokerage Agreement with Your Agent - In Virginia, by law, all parties must sign an agreement prior to viewing homes. This agreement, similar to a Listing Agreement signed when selling a home, outlines the responsibilities of the client/agent relationship such as the services provided, how long the services will be provided, what fees are involved and how they are paid, etc. This agreement can cover the showing of one particular property, one particular day, or can extend for several months – whatever you and your Realtor® decide. Compensation is typically paid to the Realtor® by the Seller of the property at closing.


  • Preview homes – it’s good to develop a “Want” list that includes things you DO want in a home, and also things you DON’T want. But keep an open mind. Many buyers end up purchasing a home that has some of the items on their original “don’t want” list.


  • Make an offer on a home. In our area the purchase agreement (sales contract) addresses issues that may arise when purchasing a home, items such as financing, home inspections, default, earnest money deposits, and settlement. Your Realtor® should explain these terms and their significance. Once a contract is ratified the contract is legally binding. This agreement must be in writing to be enforceable. Be sure you understand what you are signing. Keep in mind that your Realtor® is not an Attorney; they cannot offer you advice or interpret the contract.


  • Contract Acceptance by Seller - a contract is ratified when all parties agree and sign/initial any changes.


  • Mortgage application process continues. According to the purchase agreement in Virginia, a Buyer has 7 days from the date of ratification to make formal application to the lender.


  • Schedule the Home inspection. Your Realtor® may be able to give you a list of inspectors, but it up to you to choose the inspector and schedule the inspection. Both you and your Realtor® should be present, if possible. A good home inspector will explain the various systems in your home and how to maintain and/or improve them, so it’s in your best interest to pay close attention! The inspection is usually done within 10 days of ratification and is usually paid for outside of closing (you pay the inspection company directly). The cost of the inspection can range from about $350 to $450. If you have chosen to have radon testing, most home inspectors can provide that as well. The cost is typically an additional $125-$175.


  • Realtor® turns in all necessary paperwork to the lender and settlement attorney or Title Company. You should receive a letter from the settlement/title company outlining the settlement procedure and indicating what information is needed. You should provide this information as soon as possible so settlement is not delayed.


  • Arrange for homeowners (hazard) insurance within 7 days of ratification. Call various companies and compare rates. Provide the information to the settlement company. They will collect the first year’s premium at settlement, along with several months’ premiums which will be added to your escrow account depending on lender requirements.


  • Mortgage approval. At some point the lender will send a letter to you stating that all conditions of the loan have been met and the loan is ready to close. This letter may not be ready until the day of closing, or it could be ready weeks in advance. It is important to stay in contact with your lender! Keep in mind that your loan package will be reviewed just prior to closing so don’t make any large purchases or pay off any large debts without first checking with your lender.


  • Survey is ordered by the settlement/title company (if you request a survey). A survey is not always required – it is your choice as the buyer. There could be encroachments on your property such as a neighbor’s fence or shed, or your property could be encroaching on someone else’s property! You can check with the settlement/title company as to the cost of the survey. If you are receiving a seller’s subsidy towards your closing costs this may cover the cost of the survey.


  • Termite inspection is ordered by the seller/agent, or buyer/agent, depending on contract. Most loan companies require this inspection, usually within 30-60 days of settlement, in order to approve a loan.


  • Contact utility companies approximately one week prior to settlement and have all utilities transferred into your name as of the date of settlement.


  • Contact the lender or settlement agent at least one day before settlement for an estimate of certified funds needed at settlement. It’s best that these funds be wired from your bank to the settlement company. Since this is an estimate only, be sure to bring a checkbook to cover any shortfalls. If your wired funds are more than are needed, the settlement agent will often cut a check for you that day.


  • The pre-settlement walk-through inspection is usually done just before settlement. Check to see that the home is as it was when you wrote the contract and that any home inspection repair items were completed, if applicable.


  • Settlement usually takes about 1 hour. Be sure to bring a photo ID. Once all paperwork is signed you will receive the keys to your new home! Congratulations!!


Real Estate Terms to Know:


Appraisal – a professional estimate of the current market value of a property. The lender will require that an appraisal be done to make sure the value of the home is at least as much as they are lending you. An appraisal is different than a home’s assessment for tax purposes, and can change over a period of time due to market conditions. If an appraisal comes in lower than the sales price there are several options for the Buyer. A second appraisal can be requested, with payment being negotiated between the Buyer and Seller. Or, the seller may choose to lower the sales price to the appraised value. However, if you have asked for closing cost assistance the Seller may want to renegotiate the amount. Another option is for the Buyer to come up with the difference between the appraised value and the sales price. A final option is for the Buyer to void the contract.


As Is Properties – These are properties that are really good deals and the seller won’t make repairs, properties where the seller is an “estate”, or properties that are foreclosures or short sales. In these instances the seller has no obligation to fix any items that need repair, including treatment for termites. Home inspections are usually for the buyer’s information only – the contract can be voided if the Buyer so chooses.


Closing Costs – a percentage of the mortgage amount paid at closing. This includes costs such as Realtor® fees (for the Seller), attorney fees, appraisal fees, taxes, and lender fees.


Contingencies – Items included in a purchase agreement that protect you in case you cannot (or choose not to) perform on a promise to buy a home. If you cancel a contract without having these contingencies, you could forfeit your earnest money deposit. Common contingencies are home inspections, radon inspections, loan approval, and sale of purchaser’s home. There is generally a timeframe for these contingencies and once they expire the contract remains intact.


Earnest Money Deposit – this money, submitted with the contract, shows the seller that you are “earnest” about purchasing their property. The amount varies depending on a variety of factors, but is generally between $1,000 and $5,000. It can be paid by personal check. Once the contract is ratified the check is deposited into an escrow account and will go towards the funds due at closing.


Short Sale – a property where the owner owes more on the house than the house can be sold for in the current market. The house is not yet in foreclosure, but may soon be. The mortgage-holder (lender) must approve any contracts on this property because they are agreeing to take a loss. The purchase process of these properties can be long and frustrating.


Title – often called the deed, this is the document containing the evidence of someone’s legal ownership of a specific property.


Title insurance – a policy that insures the borrower against any errors in the title search, or any past misrepresentations of ownership such as forgery, impersonation and fraud. Lenders require buyers to purchase Lender’s Title Insurance. The buyer has the option to purchase (or not) Buyer’s Title Insurance.


Title search – this is the official examination of public records to determine legal ownership of the property.