#1. Get Pre-Approved for a Mortgage
The First Step to take to buy a home is to look at what you can afford. The best way to decide a good budget is to reach out to a local mortgage broker from a trusted local company. If you are not familiar with any good local mortgage brokers, then now may be a good time to reach out to a local Real Estate Broker (Realtor) and ask them for a recommendation for someone who is easy to work with.
When you get your pre-approval letter from a local mortgage broker, they will look at your last 2 years' of IRS taxes that you filed and see what you reported for income when you filed your taxes. They will also ask for your last 2 weeks’ pay stubs. If you are working with a friend or family member as your Realtor, they will not be involved with your personal income or financial information they will just be told what you are approved for on your loan. Your mortgage broker will talk about the different loan options that you are eligible for and you may need to ask them what loans they are qualified to process. Not all mortgage companies process all loan types so a different mortgage company may be able to offer you a better loan. For Example, if you are a Veteran and you are interested in using your VA Home Loan you should use a mortgage broker who does VA home loans and understand the process of working with the VA on a loan. Also, if you are trying to buy a home out in the county and you want to use a USDA Zero Down loan then that is another option that not all mortgage companies offer. Most Mortgage companies will be familiar with FHA loans and Conventional loans but if you have specific questions about the best loan that may be a good fit for you then an experienced Realtor can offer an unbiased opinion since they are more likely to refer to the best mortgage broker for the type of loan that you need. Also, Realtors are familiar with what different companies offer on construction loans or land loans rather than making you shop around and get stuck working with a mortgage broker who talks you into a different loan option rather than sending you to a broke who can do what is best for you.
When you get your pre-approval letter now is a good time to start looking at houses for sale and getting your loan officer and mortgage broker talking about what options are the best for you. For Example, if your pre-approval letter says that you can buy a home for $450,000 that does not mean that is the best idea to allow you to live the type of lifestyle that you want. You should understand exactly what your mortgage payment will be when they add in the Escrow items like the mortgage insurance and the property taxes. If you are ok with paying $2,400 a month for your mortgage payment for 30 years, then you will not get cold feet if you submit an offer and it gets accepted just so that later on you realize that house may be too expensive to allow you to travel or buy clothes and afford cars.
When you have your Pre-Approval letter in hand, and you are confident that the mortgage is a good fit for you now you are ready to make an offer on a house.
#2 Starting your search for the Perfect Home
When you have your pre-approval letter in hand and your ready to start searching for your next home it is a good idea to sign up on a local Realtors website and start looking at houses for sale online. Searching for Homes online is a great way to get familiar with the inventory and the average asking price for a home that has everything that you are looking for in your next home. Brandon Patton with Real Estate Market Leaders says that as a Broker in Tri-Cities the first thing he did when he started his Real Estate Company was a nice real estate website that helps buys view homes listed for sale in the Tri-Cities. Getting a good Real Estate Website that pulls data from the MLS allows buys to view the entire inventory of homes for sale in Tri-Cities from the comfort of their home. Brandon says the reason it is so important to use your Realtors website that shows Tri-Cities Homes for Sale is due to the tools that the website has to improve the communications between you and your Realtor and even your mortgage broker. For Example, when Brandon had his website designed he went with a web developer that allowed him to create a saved search for his clients and he also wanted a website that allowed his clients to sign in and create their own saved search. A saved search allows clients to enter in the filters to restrict the search to only show homes that have everything they are looking for. Then when a buyer sees the search results they can click save and this will be a saved search. Now when the software notices a new house is added to the inventory for Homes for Sale then it will email the buyer with a notification showing them the new homes that were added to the inventory that fit their search criteria. This improves customer service with your broker and makes scheduling home tours way easier. For Example, let's say that you are trying to buy a home in the Horn Rapids subdivision located in Richland Washington and your ideal home is a 4 bedroom rambler priced between $450,000 and $525,000. However, every time you go online you don't see any homes that fit your search criteria. If you logged into your Realtors website and signed a buyers agencies agreement saying you hired them to be your Realtor they can assist you with your search to make sure that you not missing out on opportunities. If you look online for a home for sale every few weeks to check what's going on there may be homes that were listed and sold before you even realized it. Homes for Sale in Tri-Cities are often sold on the first day they are listed so getting a notification when they hit the market will ensure that you have an opportunity to go see homes before they are sold.
#3 Drafting a Purchase and Sale Agreement
If you are thinking about making an offer on a home that is advertised for sale then you may ask yourself, how do you write up an offer on a house?
If the house is advertised for Sale by the Owner, you will have a few options on how you can approach the owners of the home and ask them if they want to work on the transaction without a Real Estate Broker or if they are open to the idea of allowing you to work with a Real Estate Broker or Real Estate Attorney. Depending on your experience level with Real Estate Transactions this could be a good way to save money when buying a home but in most cases, the seller and the buyer will have very little experience with Real Estate laws and will get into arguments that could be avoided by following a conventional practice that is set up using an experienced professional.
If the house is listed for sale with a Tri-Cities Real Estate Broker that will limit your options on how you can move forward with making an offer on a home. When a person decides to list their home for sale with a Real Estate Broker, they sign a listing agreement that establishes what a Real Estate Broker will be paid when the home is sold. Typically, this listing agreement will pay the listing office a 3% commission and offer a 3% commission to the broker who brings them an offer is referred to as the selling broker. The Listing Broker will represent the Seller and the Selling Broker will Represent the Buyer. In most Real Estate Transactions, the listing broker and the selling broker are from two different Real Estate Companies and it allows the brokers to maintain confidential information when they are making the first draft of the Purchase and Sale Agreement. For Example, if you hired a Real Estate broker to list your home for sale and you told them you wanted to list your home for sale and ask $450,000 but told your broker you would be willing to take $425,000 then a buyer calls your listing broker and ask them what the lowest price the owner would sell their home for then the listing broker now has a direct conflict of interest. It’s the Listing Brokers job to get the owner the most money possible for their home and it is the Selling Brokers Job to get the buyers the lowest price possible on the Purchase and Sale Agreement. This is why the Washington State Association of Realtors requires brokers to clearly identify what party they are representing and also requires extra definitions and consent to be added into the Purchase and Sale Agreement when a Broker acts as a Dual Agent Representing both parties in a purchase and sale agreement. If each party involved in the transaction has a different Real Estate Broker, then it makes maintaining confidential information much easier.
#4 Adding addendums to the Residential Purchase and Sale Agreement.
Brandon Patton the Designated Broker and Owner of Real Estate Market Leaders and he made a great video showing what is in a Residential Purchase and Sale Agreement in Washington State. As a Realtor, he has negotiated over 500 Real Estate Purchase and Sale Agreements and wrote hundreds of offers on houses for sale. Watch the video below or skip past it and read items included in the Washington Purchase and Sale Agreement when your Realtor writes an offer for you.
Each Real Estate Broker will stack the Residential Purchase and Sale Agreement in a particular order and when they get used to negotiating deals, they like to maintain the same stacking order when they look at offers and present offers to their clients. The first page of any Real Estate Offer should be a Pre-Approval letter from a lender that can verify that they have vetted the buyer for accurate information.
Now that we have gone over the prerequisites let’s get into discussing the Residential Purchase and Sale Agreement. Realtors in Washington State use forms called Zip Forms and within these forms, the Purchase and Sale Agreement is a 5-page document. These first 5 pages will establish the Purchase Price, the names and contact info for all parties involved, and the Earnest Money. It will also point out key definitions of items such as computation of time, agency representation, and expectations for a closing date. One of the benefits of having professionals involved with the Purchase and Sale Agreement is that the buyers and seller can trust the companies involved will perform their duties to ensure their clients comply with the terms on the contract and understand the terms in the contract. Real Estate Brokers will attach addendums to the Purchase and Sale Agreement tailoring a contract that is specific to their client’s needs. For Example, if you currently live in a home that you need to sell before you can buy another home then your broker can write the offer so that it is contingent on the sale of your current home.
#5 What are common Addendums in a Residential Purchase and Sale Agreement?
Most Real Estate Brokers will include the following addendums on every offer they write:
Home Inspection Addendum – Gives buyers 10 days to back out if the home is discovered to need repairs or offers both parties to re-negotiate options to proceed to closing. Some options may be to have the seller make the repairs or lower the purchase price based on the number of repairs. This addendum will generate another addendum called the 35 or Home the Inspection Response.
Utilities Addendum – Shows who services Garbage, Water, Sewer, Gas Etc.
Optional Clauses Addendum – This form offers multiple options to include adding a home warranty.
Lead-Based Paint – If the house was built before 1978
Septic Addendum – If the house is not hooked up to the city sewer
Well Addendum – If the house is not hooked up to city water
Earnest Money Promissory Note – if the deposit cannot be made within 48 hours.
Buyer Pending Sale – If the buyer has a home that is under contract and the proceeds from the sale are being applied as the down payment on their Offer.
Buyers Contingent Sale if the buyer's house needs to be listed for sale and sold for the offer to proceed to close.
Escalation Addendum – Great for a multiple offer scenario. It discloses the most amount of money the buyers are willing to pay for the property in a format that only raises their purchase price if another offer is greater than theirs. For Example, If the list price is $350,000 and your offer is $340,000 with an escalation addendum you can say your clients are willing to pay $3,000 more than any other offer the sellers get as long as the total price does not exceed $380,000. The listing broker will be required to prove that the buyer’s contract was escalated in Purchase price buy showing the 2nd highest offer that was received.