HOME BUYING PROCESS

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Successful negotiating is a delicate combination of being aggressive and personable.  I am a firm negotiator and have plenty of experience winning for my clients.  We want the best home at the best price.  Negotiations often happen before agreeing to price and terms with the seller.  There may be additional negotiations after a buyer has completed their inspections if there are some findings that are unsatisfactory to the buyers.   

A typical escrow is 30 days long.  If you are doing an FHA or VA loan it's usually a bit longer, around 40 days.  If you are buying a property with all cash (no loan) it can be closed in as few as 7 days.  Here is a timeline for a typical escrow:

• Day 0 - Offer is accepted by the seller.  Buyer and seller agree on price and terms.
• Day 1 - Escrow is opened.  The agents will open an escrow account and provide the signed contract and other necessary documents to the escrow officer.  The escrow company is similar to a "middle-man" between buyer and seller and will handle the closing documents and the exchange of money.
• Day 3 - Buyer's initial deposit.  The buyer gives an initial deposit to the escrow company, this is typically equal to 3% of the purchase price.  This money will remain with the escrow company and be used for the down payment and closing costs.
• Day 4 - Seller provides disclosures.  The seller provides the buyer with all of the disclosures pertaining to the property including HOA documents, if there is one.  This is important information for the buyer as it will tell them everything the seller knows about the property and any issues or defects there may be.
• Day 5 - Appraisal ordered.  The lender will order the appraisal, which is completed by a third party.  One is not needed for an all cash purchase.
• Day 7 - Inspections completed.  The inspections can include home, pest, roof, sewer lateral, etc.  These are ordered by the buyer and paid for at the time of inspection.
• Day 8 - Escrow paperwork.  The buyer fills out the escrow paperwork.  This includes who will be on title, and the vesting information (a single person, a married couple, a company, etc.)
• Day 10 - Homeowner's insurance selected.  The buyer selects a company to provide homeowner's insurance to protect their new investment.  This is also a lender requirement.
• Day 14 - Conditional loan approval.  The buyer receives conditional loan approval from the lender and provides the additional documents requested by the underwriter.
• Day 15 - Request for repairs.  The buyer can ask the seller to repair problems found in the inspections. This is negotiable and the seller does not have to agree to any or all of the requested repairs. A price reduction or seller credit may also be offered to the buyer.
• Day 17 - Appraisal and inspection contingencies removed. The buyer removes these contingencies assuming all aspects of the transaction are satisfactory up to this point.
• Day 21 - Final loan approval and contingency removal.  The buyer will receive final approval for their loan and will remove the final contingency, making the initial deposit non-refundable.
• Day 25 - Verification of property condition.  The buyer will do a final walk-through of the home ensuring it's in the same condition as when the offer was accepted and any repairs have been completed.
• Day 26 - Verification of employment.  The lender will verify employment for all buyers by contacting your employer.  This is not needed on an all cash purchase.
• Day 28 - Sign loan documents and provide down payment, closing costs.  The buyer will sign the loan documents needed to fund the loan.  The buyer will also provide escrow with the funds needed for the remaining down payment and closing costs.
• Day 29 - Loan funds.  The lender will do a final review of the signed loan documents and wire the loan funds to escrow for closing.
• Day 30 - Escrow closes, transaction complete.   The title/escrow company records the necessary documents (Grant Deed) to transfer ownership with the county recorder's office.  The buyer is now on title as the owner of the home and will get the keys.

During the escrow period buyers have the opportunity, and we always recommend, to do inspections. This includes, but is not limited to, home, pest/termite, roof, sewer lateral, chimney, structural, and soil. Most home buyers do 3 inspections, home, roof, and pest. Some condominium and townhouse buyers only do a home inspection as the roof is often covered by the HOA.  We have a network of licensed, professional inspectors we have worked with over the years. We are happy to provide recommendations and advice to ensure our clients are protected.  

A typical buyer's offer is contingent upon a number of factors.  This means certain tasks need to be completed, and approved, by the buyer before the transaction moves forward and ultimately closes.  The prominent contingencies built into the contract include: a physical inspection of the home, reviewing the seller's disclosures and HOA documents (if applicable), reviewing the preliminary title report, having the home appraised, and receiving final loan approval.  If one, or more, of these is not successfully completed, the buyer has the right to cancel the transaction and retain their full initial deposit.  Some buyers will remove certain contingencies from the contract to strengthen their offer.  For example, removing the appraisal contingency is one a lot of sellers will look for in a multiple offer situation, so buyers may leave it out of the contract.  All cash offers don't involve a bank and therefore have fewer contingencies.

Below are rough estimates of the closing costs and prepaid expenses based on a price of $500,000, $1,000,000, or $2,000,000.  Your purchase price will be more or less than this amount, but this gives you a general idea.  With a strong offer a buyer can ask a seller to help pay for closing costs.  There may be additional costs and they will vary with every transaction.  

• 1 - 30 days of mortgage interest payments (prepaid expense).  The first 1 to 30 days of your mortgage interest is paid at closing, it will vary based on the time of month the transaction closes.  Assuming 15 days:

          $500K=$750   $1M=$1,500   $2M=$3,000

• Property tax reserves (prepaid expense).  Lenders typically, but not always, require 6-9 months worth of property taxes to be placed in a reserve account. This is your money and will be given back to you when the loan is paid off.  Assuming 7 months at 1.2% property taxes:

          $500K=$3,500   $1M=$7,000   $2M=$14,000 

• First 12 - 14 months of home insurance (prepaid expense).  Lenders typically require the first 14 months of home insurance to be paid at closing.

          $500K=$700   $1M=$1,050   $2M=$1,750

• Escrow fees (closing cost).  In Southern California the escrow fees are typically split 50/50 between buyer and seller.  Buyer's half:

          $500K=$1,200   $1M=$2,100   $2M=$4,000

• Title insurance (closing cost).  Typically two forms of title insurance are required, one for the lender and one for the buyer. In Southern California the seller typically pays the buyer's form of title insurance and the buyer pays for the lender's. Title insurance is used to ensure a property's title is delivered free and clear of any liens.  Lender's title insurance:

          $500K=$700   $1M=$1,100   $2M=$2,000

• Appraisal (closing cost).  This is a requirement by the bank if you are financing a home.  It's completed by a third party hired by the bank and payment is due before the appraisal.

          $500K=$650   $1M=$750   $2M=$850

• Inspections (closing cost). The buyer is responsible to conduct any inspections they deem necessary. These are typically paid directly to the inspector at the time of completion.  Assuming a home, roof, and pest inspection are completed:

          $500K=$500   $1M=$750   $2M=$800

• Recording, notary, courier, etc. (closing cost).  There is a charge for recording the necessary paperwork with the county to transfer title.  There are also charges for the notary, courier, loan tie in, etc.

          $500K=$500   $1M=$650   $2M=$800

• Lender fees and discount points (closing cost).  If you are buying down your interest rate that amount is due at closing.  Most lenders have fees for processing and underwriting, etc.  Check with your lender about these and here's the average for processing and underwriting:

          $500K=$1,500   $1M=$1,500   $2M=$1,500

• Condo Certificate (closing cost).  If you are buying a condominium the lender will require a condo certificate.  This is filled out by the HOA management company and paid for by the buyer to ensure the HOA is in good standing.

          $500K=$250       $1M=$250     $2M=$250

• FHA and VA funding fees (closing cost).  FHA loans have a funding fee that is equal to 1.75% of the loan amount. This is typically added to the loan, so no money is due out of pocket.  VA loans also have a funding fee that is added to the loan.  The amount for VA loans varies from 1.25% of the loan amount, and up, depending on your down payment, if any.  VA loans don't require any down payments, but allow a buyer to put money down to reduce their mortgage amount.  The funding fee for a first time VA buyer with no money down would be 2.15% of the loan amount

The buyer will sign the loan documents and closing paperwork at the escrow company's office or by using a "mobile notary" that can come to your house or office, if that is more convenient.  After the loan documents are signed they go back to the escrow company and then the bank for final review and funding. The loan will then fund, which means the money is wired to the escrow company.  At this point the escrow company will have the loan funds, down payment, and closing costs.  This is everything they need to complete the transaction.