I'm Buying a House. Now What Do I Do?
Whether you are a first-time homebuyer or one that has many notches on your belt, it’s always great to know what to expect on the loan side of things when you are buying a home. There is A LOT that goes on behind the scenes, and below is a short summary of what to expect once you are in contract:
1) Locking or floating your rate. Mortgage rates are like the stock market, they go up and down a little each day. Most lenders let you lock in a rate as soon as you are in contract. The rate can only be locked in for a specific period of time (the most common is a 30 day rate lock, since most transactions are completed inside that window of time). Should you lock or float? It all depends on your risk tolerance and if you think there is a window of opportunity before closing to lock your rate at a less expensive price. It’s important to note that when you “lock” you aren’t stuck with that rate (it’s NOT like “Who Wants to be a Millionaire” with Regis Philbin) – you are simply locking ALL rate options for yourself with that lender based on that day’s pricing when you lock.
2) In the next few days, you’ll receive loan disclosures. They are sent digitally, and all can be e-signed. They’ll be sent from the lender (not your Loan Officer). Inside the digital pile of documents will be something called the Loan Disclosure. That is a DRAFT version of the loan and required (per federal guidelines) to be signed for the loan to move forward. The numbers on the Loan Estimate usually look “off”. They always do at this point in this initial step in process. Most borrowers on their loan disclosures expect it to look like a finish apple pie out of the oven, but in reality – its really pie dough, apples, cinnamon, and a messy pie tin still sitting on the countertop waiting for a baker to put it in the oven that has yet to preheat.
Signing the e-documents – simply acknowledges receiving it – and not cementing anything in stone as of yet (the fine print on the Loan Estimate even says as such). So why do these have to be sent in the first place? Federal Law. It’s required for everyone involved in the process to disclose their maximum fees now, so there isn’t any funny business in the end.
3) Once all the disclosures are signed, we send in everything you sent to us into the lender’s underwriting team for review. They then will issue something called the “Conditional Loan Approval”. This is a regular and normal part of the process. It’s essentially ‘half time’ of the loan process. The lender provides us with a list of additional items and additional questions that they have that need to be answered in order for the loan to make it to the finish line. We do our best to anticipate every question they have in the beginning – to limit the things needed from you at this point in the process.
4) The appraisal. If an appraisal is needed, our team usually pays for it in advance to help things stay on point and speedy. (you pay us back at closing). An appraisal is a usual (but not always) required part of the process, and different than any home inspection that you would have done to the property. An independent appraiser visits the property and writes a lengthy templated report about what they feel the value of the home is. The lender is required to go off the value of the home for their loan to value equations if the value reported is at or below the purchase price. If it is above the purchase price, the lender uses the purchase price (they can’t go above the purchase price on their loan to value equations). Check with your Real Estate Agent for more information on the appraisal. If it under appraisers, there is typically a clause in the contract that lets you negotiate with the seller. That said, I have a big beef with the federal guidelines regarding appraisers. An appraisal is an OPINION of value and not a fact of value. If you have 30 appraisers visit a home and not tell them the purchase price, they’ll report back 30 different values.
5) Final Disclosures. A second round of loan disclosures get sent your way. One of them is a form called the Closing Disclosure. It’s very much like the Loan Estimate – a draft version of the loan. It has to be signed at least 3 business days before you are allowed sign final loan documents.
6) “Clear to Close”. The lender issues the Clear to Close, which signals all conditions and questions regarding the loan have been resolved and satisfied.
7) Verification of employment. The lender checks with your employer a few days before closing to make sure you are still employed there (they won’t issue a loan for example if they found out you quit or got fired inside of the loan process). If you are self-employed or using retirement income – the process is a little different.
8) You’ll sign final loan documents in person, in ink. You don’t necessarily need to go to the Escrow Office to sign your documents. We can coordinate a notary if you are a part. We’ve had people sign their loan documents in the obscurest of places, from a Las Vegas Hotel Lobby, to a military base in Afghanistan, to a Denny’s in Sacramento, to a beach in the Florida Keys and everywhere in between.
9) You send your funds. Escrow should have or will be sending you soon – the wiring instructions – ONLY accept instructions from them and no one else. If you do, call and confirm if they have changed. If you receive them via email, DO NOT call the escrow company back from the phone number in the email. Do a quick google search and call the phone number you see from the Escrow Company’s LEGITIMATE website.
The reason why we have folks call is because there is an old law on the books that I wish would change – it goes back to the covered wagon days… but at this place in time on your purchase, your name – and that you are buying that specific house is now required to be in the “public domain”. What happens is literal cyber pirates from overseas then find your email address and disguise themselves as being the escrow office to try and trick you to wiring money to the wrong place. If you do that, there isn’t a way to get back your money. It doesn’t happen often, but it does happen.
As an example, a few years back in San Diego (not my clients), there was a family that wired over their life savings ($800,000) to these ‘bad guys’. Here is the link to the article. https://www.10news.com/news/local-news/san-diego-news/couple-wires-800-000-home-down-payment-to-scammer
Wiring money is safe, as long as you follow all the protocols laid out. The moral of the story when you receive wire instructions is to call them back from the phone number on their website by looking them up on google or by the phone number I gave you, and not from the specific email that was sent to you.
10) Closing Day! The lender sends their funds to Escrow, and the title company records your purchase with the county – and the home is yours!!!
There is actually MORE (can you believe it?) that is a part of the process than what is listed above. Our disclaimer is that what is described here is a GENERAL description of the process, and there may be different or additional parts of the process added in based on your unique situation.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.