Purchase a Home in Florida in 20 Steps
1.) The A/C Breaks Down - You are sitting around the kitchen table writing a check to your grumpy landlord muttering to yourself that you are throwing away money to this person who cares nothing about you and your family. Then your accountant calls who reminds you that you are missing out on a big tax deduction by not owning a home. Then you’re A/C units stops running and you start to boil. Shortly thereafter the A/C technician tells you that he has been to your house before and it will be five days before he can fix it. He also points out the mold problem growing behind your walls and based on previous experiences the landlord won’t fix it and he won’t let you break your lease. Now that you are very agitated and your spouse is glaring at you, you go on line and start shopping real estate in your area. Some day you will thank that A/C for breaking down. Reading my article please keep in mind that in today’s market you will need a certain amount of resolve to deal with the whole making an offer process and getting through the mortgage process later. When you get there home ownership will definitely give you the feeling of a great accomplishment.
2.) You Start to Google - 80% of real estate transactions start on line these days and most of the time customers look at the homes in their area first before selecting a good realtor. Finding a mortgage professional is really the step you need to take before you talk to a buyers agent. The mortgage banker or mortgage broker will let you know if you can indeed purchase a home and will narrow down what is the appropriate purchase price and down payment you will need before you go shopping. The mortgage consultant will send you an itemized fee disclosure that will break down all of the closing costs, the payment , the interest rate, the loan program and the out of pocket expense.
3.) You Start to Look at Good Faith Estimates - After a few discussions you will know what is the appropriate price range of houses you should be looking at and how much of your savings you will be required to put down as a down payment and later cash to close. One thing that many customers are not aware of is that the mortgage professional is probably a great aide in selecting a realtor. There are a lot of realtors with flashy web sites who provide great “lip service” but you want one that knows the ins and outs of the contract and especially one that specializes in your area and the types of homes you are looking for. Ask the mortgage professional to suggest a good realtor.
4.) You Worry About "Am I Good Enough - In many cases potential buyers may need to work on their credit, fix credit or remove something that doesn’t belong. There are many tools that the mortgage professional has at his/her disposal that can fix problems quickly. Did you know that keeping balances on credit cards at 40% of the high limit on a credit card has a great impact on your score? Did you know that there is a tool called a rapid rescore that can fix items in as little as five business days? Did you know that you will not be able to proceed with your mortgage until all items in dispute read as no longer disputed on a credit report? These are the types of issues that you deal with up front to ensure a smooth and easy process, the highest credit score possible which in turn will help generate the best interest rate possible.
5.) You Might Have to Build Credit - Mortgage professionals need a middle credit score of 620 to get you a loan. If you are in the 500’s you will need to settle old accounts with balances over $500 and most likely you will need to build your credit profile with more satisfactory accounts that need to be paid on time. FHA requires at least three accounts paid on time for one year in addition to your residency history paid on time with a check. Do not pay your landlord in cash and if you are staying with family pay them some money with a check. I have a great link with many helpful hints for establishing credit.
6.) You Got Your Pre-Approval Letter - Now that you are deemed good to go by the mortgage professional he or she will give you a pre-approval letter. The other step that is necessary in today’s world is to have an automated approval from Fannie Mae, Freddie Mac or FHA. The approval will say “approve eligible, refer with caution or refer.” “Yes, no or maybe”. After you have had the discussion about the details of your file you will be asked to verify what you said. Here is the standard checklist of what you will need to get the ball started:
a.) A copy of your driver’s license and social security card
b.) Two most recent paystubs, last two years tax returns and W-2’s
c.) Last two months bank statements for FHA, last one month bank statement for Fannie Mae. (All pages)
d.) Credit explanation letters for all derogatory credit and inquiries
e.) Do not think about things like making a major purchase such as a car and please do not start making large cash deposits that we will not be able to explain later. There are many things that can create a nuisance later on in the process so it is important to discuss any questions you have way up front with your loan officer.
7.) Jump in the Car - Start shopping with a good realtor who has a lot of insight about the areas you are interested in. There is no excuse for not using a Realtor. When you are purchasing keep in mind that their commission comes out of the seller’s side of the transaction so all of their insight and experience doesn’t cost you anything! Make sure you check schools if you have kids or learn about any crazy by-laws if you are considering a certain homeowners association or condo. Learn about the potential pitfalls of purchasing a short-sale or a foreclosure and most of all get a feel for what is available in your price range. After a short while you will have a good gut feeling what is a deal and what is not. When you find that special home you will know it.
8.) Make the Offer - Making the offer is probably one of the most crucial steps in the process. This is where the Realtor’s training and experience comes into play. Many customers choose to hire an attorney as well to make sure the key points of the contract are written in your favor and are followed to the letter. There are many key moments of the contract that we will elaborate on here and later on. The realtor will advise you as to what is an appropriate amount to offer on a given home. Using their knowledge of examining comparables in the market place they will provide an opinion if they feel the home is at a good price of overpriced. The realtor will discuss key facets of the contract such as how much of a deposit to offer, whether or not you should do a home inspection, how long of a commitment period should be placed on the contract and when is a realistic time to close.
9.) Get the Offer Accepted - Acceptance of the contract is a difficult step to achieve thesedays. There are not enough homes on the market and any cash offer will trump your offer that requires financing. Similarly an offer that has 80% financing will get taken before an offer with 96.5% FHA financing. We are definitely experiencing a sellers market right now so be prepared to make several offers because some counties have a real problem with not enough inventory right now.
10.) Time to Get to Work - Hooray, lets assume that at some point your offer is accepted by a seller and a seller’s agent out there. The first step for you is to get a home inspection. There are two types of inspections. One is called a four point inspection where the inspectors examines the roof, the electrical, the plumbing and the A/C and the rest of the property. The other type of inspection is called a mitigation report which is basically the roof. Typically your contract will be written where you have 5-19 days to complete your inspections. These inspections are important for a number of reasons. Firstly you want to make sure you are not buying a lemon. The inspector will bring to light any potential problems that the home may have. The mitigation report is done for the benefit of your insurance agent later. Many companies including Citizen’s which is the government sponsored carrier for Florida will require mitigation before they give you a binder. This can actually work in your favor if the roof on your new home is new. You will get a very low premium on your hazard insurance and reap the benefit of a low premium for years to come. The benefit of the four point is that if they find a lot of items that need to be fixed, sometimes you can go back to the seller side and renegotiate the price of the home downwards or at least split the cost to cure of the items that need to be fixed. If you are buying a foreclosure or a short sale, quite often there is no way that the seller side can fix things so beware. Also if you have too many things that need repair the bank you are using as a lender may want you do a rehab loan rather than a conventional loan.
11.) Do a Home Inspection - At the same time you are coordinating your home inspections, you will also be required to make application with a lender like me. Usually a contract states that you should make application within five business days of signing a contract. Fortunately you did your homework and provided most of your documentation from step number Six. Making application usually means that you need to sign and date about 40 disclosures and get them back to your loan officer. Some customers get carried away by “shopping” too many banks at one time. It is pretty much a level playing field when it comes to interest rates. There are internet based mortgage companies that advertise teaser rates to get you in the door and absolutely offer terrible service delivery after that. My suggestion is to pick a local lender, one whom you can visit if need be.
12.) Your in Process - Once your file is assembled and reviewed by your loan officer and your home inspection is deemed OK your file will be sent into process by your loan officer (me) and the file goes on to what we call an opener. At that point in time, an appraisal is ordered, along with title work, tax transcripts and a verification of employment form.
13.) Your in Process Some More - After the file is opened , it moves on to a loan processor who will go over everything with a fine tooth comb and most likely will ask you to verify a few details or perhaps improve upon the documentation that you have provided so far. This may entail getting a better copy of a paystub or perhaps a better credit explanation letter or sourcing any large deposits that appear on your bank statements.
14.) Behind the Scenes, the Title Work - As all of this is going on the title company handling the closing of your loan is checking public records to ensure that you receive clean title. Unlike regular insurance that insures going forward in time, title insurance insures that no liens were placed on your property going backwards in time. The title company also checks for local liens from the town that the property resides in. An example of a local lien would be something like a water bill or a zoning violation with the town or city.
15.) The Appraisal is One of the Biggest Steps - Once your appraisal is returned you will be asked to sign an appraisal acknowledgement disclosure which states you saw the appraisal and understand the value of the property. Usually at this point in time your file is ready to submit to an underwriter.
16.) Get Your Insurance Lined Up - While you are waiting on the conditional approval from the underwriter it is a good idea to be shopping your homeowners insurance. The premium will be dependent on the age of the home, the health of the roof and how much liability coverage and personal property coverage you need to carry. In my opinion it makes sense to lower the coverage on personal property. Quite often they default their premiums on 100,000 in personal property and for the most part people don’t have that much stuff.
17.) Finally Underwriting From an Underwriter - Towards the middle to the end of the process you will get your actual underwriting which will be an approval with some conditions that we need to fill before closing. Many people ask why do we wait so long before we have our actual approval and the answer is that we need to collect all of the facts including title work and appraisal before an underwriter can validate your file. Remember on day one, we ran your file though automated underwriting and received our approve/eligible so we did have a binding approval in the beginning of the process. The rest of the process is sort of a validation of the facts we presented to start.
18.) The Pesky QC Person - After you have filled your conditions you will get a clear to close. Then your file is moved to a compliance person or QC (Quality Control). This person is supposed to ensure all of the disclosures were done in compliance but what they usually do is bring up a couple really annoying questions that have been answered to the underwriter. Depending upon the question this usually takes one more day to get through this department.
19.) Show Me the Money - Finally you are in closing where they send the figures on your file to the title company who will be handling your closing. They prepare the HUD-1 statement or the closing statement which determines how much money you will be bringing to closing. Hopefully this number is very similar to the estimate I gave you in the beginning of the process. After the closing statement is approved by the closing department of my company the actual closing package is emailed to the title company for them to print out and you to sign.
20.) The Closing Celebration - Finally the day of closing at your closing celebration! Before the closing you will do a walk through at your property to make sure everything is in order. Your actual closing will take 45 minutes to an hour depending upon how much fun we are having. By this time we have been through a journey together although yours is just starting as you ride off into the sunset with the keys to your new home.