Steps to purchasing a home in Minnesota
Steps to Purchasing A Home in Minnesota
Purchasing a home is a big decision. The process can be very exciting and rewarding when it is done correctly.
Here are a few steps that will take you through the typical buying process.
Step 1: Financing
Market conditions can change but one thing that will remain the same is that sellers will want to know that the potential buyers of their home have the financial ability to purchase their home before accepting an offer. There are different ways to finance the purchase of your new home, the common types are to pay cash, obtain mortgage financing, or obtain seller financing. (Contract for Deed) We will focus on mortgage financing for now.
If you are going to obtain mortgage financing to it is a very good idea to get Pre-Approved (not just pre-qualified) for financing before falling in love with a home you want. What is the difference between pre-approval vs. pre-qualification?
- Pre - Qualification - An application has been filled out and credit was most likely pulled. Based on this information the buyer looks like they will be approved for a loan. Little to no information has been verified. (Think online lender)
- Pre - Approval - After the application and credit have been pulled, assets, employment and income have all been verified.
Once you obtain a pre-approval this will help determine the price of home, down payment requirement, and monthly payment you want. Different types of loans (i.e. Conventional, FHA, VA) require different percentages of money down.
Step 2: The Home Search
Congratulations! You are now in a position to make an offer on a new home! Now you just need to find the right one. Searching for a home in today's seller's market can be a little tricky depending on your price range. Some homes are selling really fast and with multiple offers so it is good that you have your pre-approval and ready to go!
Searching on line for homes can be great, but make sure you verify the information you see. It is always a good idea to get a home search directly from the MLS that can accurately update you if a property has an accepted offer, pending sale, or is even still available for sale.
Once you determine houses that you would like to see you can have your licensed Realtor set up showings for you to go tour them. Unless you are really under some tight time constraints, it is a good idea to limit your search to 5 homes in one tour, take great notes, and pictures if allowed. Otherwise, the homes tend to run together and it is hard to determine which ones best fit your criteria. It is possible and happens quite a bit that the first house you look at is the one so don't be afraid to go after it and make an offer!
Once you walk into that dream home, the one, it is time to make an offer!
Step 3: Time to Make an Offer!
You have found your dream home and are ready to submit an offer! The offer process involves a few parts.
1. Determine an appropriate offer number based on current market stats and momentum. You can get a feel for if the house is priced right based on recent sold properties, pending sales, current active properties, and expired listings in the area for similar types of homes. 2. Sign and submit a purchase agreement to the sellers.
2. Sign and submit a Purchase Agreement to the sellers. Here you will determine how much earnest money to send, what contingencies you want/need (financing, inspections, sale of home, etc.), close date, etc.
3. Respond and/or agree to any counteroffer from the sellers. The sellers can counter just about anything in your offer but the most common are price, earnest money, close date, and seller paid closing cost amounts.
4. Sellers accept your offer!
Step 4: Your Offer Is Accepted, Now What?
Great news, you have agreed and have a completely signed Purchase Agreement. There are some things that have to happen from now until the close date you agreed on. Typically 30 - 60 days from now depending on financing. A typical lender will ask for 30 days to prepare for closing. If you are purchasing with cash closing can happen within a couple weeks. Below is a typical timeline from accepted offer to closing:
Deliver Earnest Money - The seller will request some money to set aside for some security just in case you, as the buyer, default on the purchase agreement. The earnest money will sit in a trust account and it gets credited back to the buyer at the closing table. The earnest money is at risk once all the contingencies have passed or is stated non-refundable in the contract.
Inspection - I encourage all my clients to have the home inspected by a licensed home inspector. This contingency on the purchase agreement allows for 7-12 days for you to do your due diligence on the house. Your inspector will make sure all the systems work, structure is safe, roof looks ok, and there are no big surprises that the seller missed on their disclosure.
Sale of Home Contingency - If you offer is contingent on you selling your home, hopefully this happens soon!
Financing - If you are obtaining mortgage financing you will have to finish getting remaining conditions met with your lender. These conditions will include the appraisal, which you will order after the inspection. Once the appraisal comes back and supports your purchase price and all conditions are met with your lender, you are clear to close!!
Final Walk Through - Usually the day before or day of closing you will go see the house one final time. This is to make sure the house is still in the condition it was when you showed it and at inspection. This is also a time you can make sure the seller completed any required repairs and removed all personal property you do not want.
CLOSING DAY!! - This is an exciting day! You will meet at title company and sign all the appropriate forms to transfer the deed/title to your name and get the keys from the seller!! CONGRATS YOU ARE A NEW HOME OWNER!