We’re in the middle of winter here in Milwaukee, however, our housing market is already heating up! Just over the last 2 weeks, I showed a handful of homes and they have all gone under contract within 1-3 days of being on the market. Not only that, multiple offers and going for well over the list price. Clearly, we are returning to a very hot seller’s market come spring. So how can you as a buyer buy a home in this market? Preparation and having the right team around are key, here are the steps to do just that:
1. Find an agent that you trust who is experienced, has a pulse on the local neighborhoods you want to buy in, and has a successful track record working in a competitive market. They should be able to offer you solutions when challenges arise. In addition, they should have a network of experts that are ready to help you as well. The first expert that you need referrals for is a great loan officer.
2. After getting a couple of referrals for great loan officers in the area, conduct your interviews. At this point, you don’t necessarily need to pick just one loan officer to work with. The reason being different lenders offer different loan programs, have different underwriting requirements, and you may be able to get a better loan from one lender but not the others. Also during your home search your situation may change, so being pre-approved by multiple lenders allows you to pivot quickly if needed. Therefore, you should apply for a mortgage at your top 2 or 3 choices.
3. Get your pre-approval! Ideally, you’ll want to make sure your pre-approval is FULLY UNDERWRITTEN. This means that the underwriter has reviewed all your income, employment, bank accounts, and taxes. You are fully pre-approved to buy a home and the only thing that remains is you need to find the home. This is powerful and shows sellers that you are a well-qualified buyer, which will improve your offer’s chances. In addition, getting a pre-approval does things like setting your home shopping budget and gives you an estimate of where your monthly payments and rate will be.
4. Now that you know your purchasing power from your pre-approval, you can fine-tune your home search criteria to help you have more clarity during your home search. The top factors that most buyers find important are location, followed by price, and then the actual features of the home. This is because location determines the price, and home features can be adjusted if needed to fit the price and location. If the price in a certain location is too expensive for the must-have home features, then the location must be adjusted.
5. Study new listings! Even before you schedule the home, study each listing carefully. Take your time and scrutinize every little detail from the pictures to the listing info, description, and seller condition report. If you’re looking at older listings check how many days it has been on market, has accepted offers before, and how many times has it fallen through. You’ll also want to do a Google map view, check the street view, and check the aerial view. Make sure that there is nothing exterior-wise that is a deal breaker. If you can drive by the home before you even schedule the inside tour Google street view can be outdated. These simple tips can save you a lot of time in your home search.
6. If the home passes the desktop review, now you can move on to scheduling an actual tour. Request your agent to schedule the home for a tour. As you walk through the home, look carefully for anything that might be a cause for concern or a major deal breaker for you. Take your time and look carefully, in a hot market you may not have much time to review and decide. In a hot market, oftentimes as soon as you complete a walkthrough, you must decide, if this home is worthy of submitting an offer on. If not, move on. If yes, go to the next step.
7. We’ve found the one! Time to put the offer in. What we need to write an offer are the following:
A. Purchase price, how much are you willing to offer? In a competitive market, you may only have one shot at submitting an offer. So submit your best and highest offer.
B. Pre-approval letter from your loan officer to support your ability to qualify for a loan and purchase the home. The pre-approved amount must be at minimum equal to your offer price.
C. Earnest money, if your offer is accepted, how much earnest money are you willing to risk to show the seller you’re serious? Earnest money counts towards the final down payment. The typical earnest money amount is 1% of the purchase price, however, in a hot market you may need to go 2% or even higher.
D. Inspection Contingency Y or N
E. Finance Contingency, if using a loan, pre-approval letter, type of loan, down payment amount, and interest rate.
F. Appraisal Contingency Y or N
G. Any other terms – escalation clause, post occupancy, seller credit, etc
8. Offer rejected? Well back to the drawing board, learn what you can do better next time, and try again. Offer accepted? Congrats! The next immediate steps are to send in the earnest money per the listing agent’s instructions and then schedule the home inspection, if applicable.
9. Your lender will open escrow with a title company, from here the title company will conduct a title search on the home and check if the seller is the property owner, has the right to sell the home, and the home and seller do not have any legal hang-ups.
10. They will order the appraisal of the property to give a professional opinion on the value of the home and make sure that the property is worth at minimum equal to or higher than your purchase price. If the appraised value comes in less, then you may be able to exit the deal or negotiate the purchase price down. In hot markets, you may have to pay 100% of the appraisal gap difference between what you offered and what the appraised home value is.
11. Underwriter from your lender will work on completing the review of the property. Should the underwriter have any questions about the property or you, it is critical to respond back to the underwriter for the best service. The underwriter does complete a final financial check to make sure there are no changes and if you still qualify.
12. Once the underwriter has completed a review of your files and made the final approval. The lender will issue you a loan commitment letter which is your final approval for the loan. You’ll also receive a loan closing disclosure which breaks down the details of your loan, the fees, rates, and costs of your loan as well as the home purchase. At this point, you are CLEAR TO CLOSE, the magical words that all buyers and agents like to hear. You can now schedule a time and date for closing.
13. While you wait for closing day to arrive one of the things you need to do is set up all the home’s utilities under your name. Call up the local utility company for electricity, gas, and water. Transfer the ownership name over to you. So that you can receive the bills effective the date of closing. You’ll also want to schedule internet/cable setup and installation so it will be quickly installed after you move in.
14. Final walkthrough! This is a quick and final tour of the home to make sure that it is still in the same shape as you previously saw it and there have been no significant changes or discoveries since then. Sometimes if the seller is living in it, their rugs, paintings, or other belongings could have been covering up potential defects. This is the last opportunity you have to check for anything out of the ordinary before closing and make sure that the seller left the home in good and reasonably clean condition.
15. Closing day has arrived! The title company will figure out the final amount that you, the buyer, need to bring to closing. You will receive instructions on how to bring that to closing commonly in a cashier check or wired to the title company. Also, don’t forget to bring a valid government ID. The last and final step is to sign all the paperwork and then send the funds over to the seller’s side. Once all of those are completed, Congratulations you’re now a homeowner!
14. You’ll receive the keys at closing, and you should change all the locks immediately. Welcome to your new home! Celebrate with your friends and family and have them help you move into your new home!
So those are the detailed steps that it takes to buy a home in this market. It is very important to prepare so that you can be ready to move quickly as soon as you’ve found the one. Also putting together a great tag team of a great agent and loan officer to help you accomplish your goal of purchasing a home! I also have a very detailed Home Buying Guidebook. If you’d like a copy send me a message or email and I’ll get it over to you!