Buying your first home can be both exciting and scary. I remember how nervous I was when I bought my first place in 2005…and I was already a Realtor®! I can only imagine how nerve-racking it would be for someone who’s not in the real estate industry!
I like to walk first-time buyers through the entire process from start to finish so they know exactly what to expect, even when the unexpected arises. Below is a description of the process.
1. Choose a realtor® who is knowledgeable in the market you’re looking in. If you’re looking for a $200,000 condo in Park City, choose a realtor® who knows a lot about $200,000 condos in Park City. A realtor® who specializes in $10 million dollar homes or Salt Lake commercial property probably won’t have their finger on the pulse of the market you’re looking in and you may miss out on your dream property as a result.
2. Get pre-approved. It’s best to get pre-approved before you start shopping so you know you’re looking in the right price range. Lending is crazy these days so don’t assume anything. Many short sales and foreclosures require a pre-approval letter before they’ll even submit the offer to the bank so it’s nice to have it on hand in case a hot foreclosure pops up that you want to tie up before anyone else does. Later, when you have an offer accepted, feel free to shop around for lenders by comparing the APRs (annual percentage rates) on the good faith estimates they give you. Mortgage rates change quickly so do your comparison shopping all on the same day.
3. Go over the purchase contract. It’s helpful to go over the purchase contract with your realtor® before you start shopping. The real estate purchase contract (REPC) in Utah is very buyer friendly. Once you understand how lenient the contract is toward buyers you will have no problem writing up offers on the fly. It’s important to be comfortable enough to write offers as soon as you find a property you like because it may be gone the very next day.
4. Learn a bit about how short sales work. Most importantly, know that short sales can take a VERY LONG TIME! I’m not joking. There was one short sale I worked on for THREE years before it came to a close. This is an extreme case, but guestimate 2-6 months before you have the bank’s response to your offer. Then, if you get an approval, you can count on another 30-45 days to close.
Nonetheless, never hesitate to look at short sales or write offers on them, regardless of whether or not an offer has already been submitted to the bank. Because of the lengthy process, the first offer often fails because the first buyer winds up finding another property to purchase. Some of the best deals out there are short sales. Try not to get your heart set on any one short sale but DO try to make it happen.
What is a short sale? A short sale occurs when the bank comes up short in the sale. By selling the home, the seller would not be able to pay the loan off in full. Here’s how it usually goes:
- The seller puts the property on the market, sometimes at a below-market price to generate offers to turn into the bank.
- The seller accepts an offer subject to bank approval and turns it in to the bank for review. Often only one offer is turned in to the bank regardless of whether a higher offer comes in a bit later. (The process is lengthy and nobody wants to start over with a new offer.) Therefore it’s somewhat important to get your offer in quickly on a fresh short sale. The seller will often accept other offers in back-up position in case the first offer fails (and it often does).
- The bank does its stuff. This includes ordering a BPO (like an appraisal), reviewing the seller’s financial situation (the better off the seller is the less likely a short sale approval is), reviewing the offer, and twiddling their thumbs. During this time feel free to call your realtor® or short sale manager often for updates. Part of what keeps the ball rolling is having frequent contact with the bank. They have a huge stack of files to go through and the squeaky wheel gets the grease. So, bug your realtor® to ensure your realtor® is bugging the bank to ensure the process is moving along…and don’t feel bad about it. This doesn’t apply so much to back-up offers, however.
- Snafus: any number of things can trip up the process including a second mortgage, PMI (mortgage insurance), an appraisal that comes in well-above your offer, and a seller whose financial situation is not sufficiently dire. Feel free to ask your realtor® about each of these snafus at the beginning of your short sale adventure. You may be able to predict which if any of these could be a problem.
- The bank issues a response. They can accept, reject or counter your offer. Additionally, the seller may require a non-deficiency letter to make sure a deficiency judgment cannot be filed against them for the amount the bank comes up short.
If you’re doing your own search online, short sales may be tagged as any of the following:
- ASS: Active Short Sale
- ASS3P: Active Short Sale Under 3rd Party Review (an offer has already been submitted to the bank)
- Subject to Third Party Approval
5. Know about foreclosures. Compared to short sales, foreclosures are a breeze. They take about the same amount of time as a normal sale. The bank will counter your offer with a long, scary bank addendum that cancels out just about everything in the purchase contract you’ve learned about. Each bank has their own addendum so DO read it over with your realtor®, but they usually go very smoothly. If you try to make changes to the bank’s addendum it may slow down the process or just get downright rejected. The banks usually aren’t very good at being flexible in their contracts so keep that in mind if you want to make any changes.
If you buy a foreclosure you may not receive the garage door opener, amenity keys, mail keys, or storage keys. They often charge you a re-key fee at settlement and give you a key to the property entrance(s) only. The rest is up to you. There will be other quirks so read the contract so you know what to expect.
And again, have your pre-approval letter ready to go.
6. Start looking. Maybe you’ll find the right property instantly and maybe you’ll have to wait for it to hit the market. If there’s something specific you want then ask your realtor® to send letters to those properties to see if anyone is looking to sell. Ask your realtor® about current market conditions in the area. If things are hot then you need to be on the ball, ready to look as soon as something good pops up and ready to write an offer as soon as you find something you like. Most people learn about hot markets the hard way by missing out on a couple of great properties. In a slow market there are still hot properties, so, assuming you trust the realtor® you’ve chosen, listen to your realtor’s® advice on how to proceed in different market conditions with different properties.
7. Write offers. If you’re writing offers on short sales, feel free to write offers on every property that works for you. The sellers should be prepared for the long timeframe. Contractually, you can do the same with regular sales but with regular sales you’re affecting sellers’ lives, so use caution. Your realtor® can help you write the appropriate offer for the situation.
8. Move forward on your inspection and loan. Once your offer is accepted, you can move forward with your inspection and your loan. Make sure your lender gets a copy of the contract quickly. You’ll receive the seller disclosures as mentioned in the purchase contract. You can review the seller disclosures as a part of your inspection.
If the property is part of a homeowners’ association you’ll want to go over the rules for the community, the minutes from recent meetings and the financial situation for the HOA. This paperwork will be given to you but DO review it. Also, phone the person in charge of the HOA and have a chat. Ask about any upcoming special assessments, any future HOA dues increases, and the financial situation of the HOA as well as any other questions you may have about the community.
If you find something you don’t like during the inspection period and you’ve made your offer contingent on due diligence, then you can ask the seller to fix certain items or cancel the contract prior to the due diligence deadline.
If you’ve made your offer contingent on financing and your financing doesn’t come through then you can cancel prior to your financing deadline.
9. Sign docs. If all goes well then you’ll wind up at the settlement table signing documents. Bring your driver’s license or passport and any funds you need to bring to the table. Check on the requirements for these funds. They may need to be wired.
You most likely will not get access to your new home today. Call the utility companies today and let them know you’ll be moving into the property. Give them the expected “close” date that the title company and lender estimate and make sure utilities are ready to go for when you move in.
10. Take possession. Usually you’ll take possession a day or two after settlement but this will depend on what you negotiated in the purchase contract and how soon your lender sends the funds from your loan to the title and escrow company. Around closing time you should be able to get a good estimate of the timing for possession.
11. Move in and enjoy your new home!
I hope this helps all you first time buyers be a bit more at ease about the process. I didn’t go into all the ins and outs of the purchase contract here but do ask your realtor® to go over it with you. Afterwards everything should be pretty clear but don’t hesitate to ask questions!
*This article is for properties in the state of Utah. Outside of Utah the rules may be different so ask your local realtor®.
