Before you get serious about buying a home, it helps first-time home buyers to understand the process that lies ahead. This article will help familiarize you with what to expect every step of the way!
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Pre-qualification Letter
Before you get serious about finding your dream home, you will need to obtain a loan pre-qualification letter through the lender of your choice and get a good grasp of homes that match your budget. Your real estate agent should be happy to refer you to lenders they trust. Once you’ve received your pre-qualification letter, it’s time to begin your search! Do your best to be patient. Once you do find the home of your dreams, your realtor will look at recent, comparable sales in the neighborhood to figure out the best price to offer.
Earnest Money
Upon offer acceptance, the purchase contract and earnest money is sent to the title company and escrow will be opened. Earnest money is typically about 1% of the purchase price and is due within 24 hours of contract acceptance via personal check or wire transfer. It is held with the title company and is fully refundable to you if you cancel the contract within the inspection period.
SPDS
Within three days after contract acceptance, the seller must provide you with the SPDS (Seller’s Property Disclosure Statement). The SPDS is a form that the seller fills out to disclose any issues they have experienced with the property, or any issues that were disclosed to them by the previous owner.
CLUE Report
Within 5 days after the contract is accepted, the Seller must also provide you with the CLUE Report (Comprehensive Loss Underwriting Exchange Report). The CLUE Report lists the history of the insurance claims that the Seller has filed on the property since they purchased it.
Within five business days after the contract is accepted, the seller must provide you with the Lead-Based Paint Disclosure (applicable only if the property was built prior to 1978).
Preliminary Title Commitment
Usually within the first week after Escrow is opened, you will receive a Preliminary Title Commitment which will show if there are any title issues that need to be resolved prior to the close of escrow. For example, the Sellers’ names may be incorrect or there may be a lien on the property. These are all things that the title company will address to ensure that you are provided with clear title to the property at closing.
Home Inspection
The inspection period begins the following calendar day after the contract is accepted by both parties. It is generally a 10-day period in which you may perform your due diligence and make sure the home is right for you. A home inspection is not required but is highly recommended. This can cost anywhere from $400-600 (depending on the size of the home). A termite inspection (required on FHA loans) usually costs an additional $75-150. Be sure to order the home inspection as soon as possible. You and your realtor will meet with the inspector to review the findings at the home. If further detailed inspections are required, your realtor will order those with their specific tradespeople (i.e. roofer, plumber, electrician, etc.).
TIP: Visit the property at various times of the day independently to learn about the property you are purchasing. Feel free to talk to neighbors and ask questions!
BINSR
Once the inspection is complete, you will decide which items you would like to be repaired at the property. The document requesting the repairs is called the BINSR (Buyer’s Inspection Notice & Seller’s Response). The seller has five days to respond to the BINSR once it is received. If the seller does not respond, that is still considered a response and implies that they will NOT make any repairs and you must take the home in as-is condition. Once you receive the Seller’s response, you have five days to decide if you would like to accept their terms or walk away and receive your earnest money back. Keep in mind when submitting an offer on a home that sellers are typically reluctant to perform repairs if the offer is not close to the asking price. Per the contract, they are not obligated to perform any repairs on the home, as the contract technically states that the property is being offered in as-is condition.
Home Appraisal
The appraisal can be ordered as soon as the contract is accepted, however I recommend erring on the side of caution and waiting until the BINSR has been completed. If the seller is unwilling to compromise on the BINSR and you decide to walk away from the contract, then the appraisal cost would be wasted. The cost for an appraisal is typically $500-600 and is required for the loan. It is the lender’s way of utilizing an unbiased, third-party to determine if the home is worth the value of the offered price. If the home does not appraise at the offered value, the lender can only loan out the amount it appraises for.
Should the home NOT appraise for the full amount, there are four options to consider:
1) Have your realtor negotiate with the Seller to reduce the original price they accepted for the home and bring the new number down to appraisal value.
2) You come out of pocket, with cash, to cover the gap between what the home appraised for and what the contract price is.
3) You and the seller both compromise and meet in the middle to reach appraisal value.
4) You elect to cancel the contract and receive your Earnest Money back. Once the appraisal is completed and you are cleared to close, the lender will send you the Closing Disclosure (CD).
Closing Disclosure
The Closing Disclosure must be acknowledged no less than three business days prior to the signing of the loan documents. The pre-closing final walkthrough will be a few days prior to the closing date. You and your realtor will walk through the property and verify that all repairs have been completed and the home is in the same condition it was when you submitted your offer. Once the loan documents are sent to the title company, you will receive an estimated settlement statement showing all of your debits, credits, and the amount required to close.
Closing Documents
The title company will call you and set up a time for you to come in and sign your closing documents. The Seller will also need to sign their closing documents at a separate time. At your signing, your down payment and closing costs will be due, via wire transfer or cashier’s check. Closing costs are somewhere between 1-2% of the purchase price and you will review them in detail when you receive the closing disclosure and estimated settlement statement. Once the file has recorded through the Maricopa County Recorder’s Office, then the property is officially yours! Your realtor will then coordinate a time to meet at the property and you will receive keys to your new home.
TIP: Keep in mind, your realtor does not have control over what time of day the County Recorder’s Office will record the file, so it’s best not to schedule movers to arrive until the day after the close of escrow.
Hanna Smith is operations manager and realtor at The Brokery, a Phoenix-based real estate company that is relentlessly focused on serving residents in the Arcadia and Biltmore neighborhoods.
