What is the Process for First Time Home Buyers in San Diego
8 Steps for San Diego First Time Home Buyers
Buying your very first home or condo can be an overwhelming undertaking without proper preparation and an understanding of the buying process. I see way too many blog posts or articles written by writers with no actual experience in real estate. Not a single transaction under their belt but yet they freely give advice on buying real estate. The advice I give is from a seasoned Licensed Real Estate Agent in the State of California. So it’s not advice in theory from books or knowledge gathered on the internet it’s actually knowledge from doing. And that makes all the difference in the world.
Buying a home in San Diego 101 for the First Time Home Buyer
I will layout a step by step process of buying a home for the first time. If you’ve already purchased a home in another state or even in California you may gain some knowledge from this post so please read on. First time home buyers, since you have never been through the process of buying a home, you come to the table with no actual experience with this process. First time home buyers should take the time to familiarize themselves with mortgages and the process of qualifying for one. They should also learn the process of buying a home so that they will have the basic knowledge of the process. This will take many of the unknowns out of the equation. Knowledge is very important and can make the road a little less bumpy on the way to the American Dream of home ownership.
1. Getting a Loan
Unless you’re lucky enough to have all cash to purchase your first home you will need to apply for a home loan. You need to know how much money a lender will lend you to purchase a home and at what interest rate. This will allow you to find out what your monthly payment will be including, Principal, Interest, Taxes and Insurance also known as “PITI”. You should also be aware that some properties in San Diego County will have a Home Owners Association “HOA” fee, or maybe even 2 HOA fees and possibly Mellow-Roos. Your real estate agent can help you determine if the home you want to write an offer on has any of these. You will also need to know the type of loan you will use to purchase your home. The most common home loans are FHA, VA and Conventional. They can also require a down payment anywhere from 3.5% to 5% or more. The VA Loan requires zero money down and is a loan offered only to active duty, retired military and veterans that qualify for the loan, there are other acceptations to this loan so please contact a qualified lender or the Veterans Administration.
A lender will need from you the following information to apply for a loan
This is typically what a loan officer will need from you to start off the loan application process to qualify for a mortgage. You can usually fill out an application online, verbally either in person or over the phone or the old fashioned way, fill out the paperwork. Today, due to the ease and speed of technology, most people choose online.
Typical information a lender will ask a first time home buyer for:
- Full name, phone number, date of birth and Social Security number
- Marital status along with number of children and their ages
- 2 full year’s history of where you lived. If you’re a renter, your rent payment is required.
- 2 full years of employment history including the names of the companies you worked for along with their addresses and phone numbers and the title you had while working there.
- 2 full year’s income history. If you receive commissions, bonuses or are self-employed you must provide 2 years of bonus, commission or self-employed income that you received.
- Asset account balances including all checking, savings, investment, stocks, and retirement accounts like 401k or 403b.
- Debt payments and balances for student loans, car loans, alimony, child support, credit cards or any other fixed debt obligations that you have.
- The lender will also need confirmation whether you’ve had foreclosures or bankruptcies within the past seven years and whether you’re party to any lawsuits, or you co-sign on any loans.
- The lender will also need confirmation if any part of your down payment will be borrowed.
- A lender will need documents from you when applying for a loan
The loan officer will need documents from you to verify the application. They will provide a list of documents needed from you to complete the application. This can be a part of the process where first time home buyer for whatever reasons, doesn’t want to give the documentation over to a loan officer. Please understand they will need this to complete the application and to get you what you need in the first step of buying your first home. You will need to know what amount of money you qualify for to purchase a home. The process can’t start without it.
Typically a lender will ask for the following documents:
- Provide the most recent two month statements for all checking, savings, investment, and retirement accounts. Include all pages even if a page says “intentionally left blank” on certain pages.
- If you’re receiving gift funds for your down payment or closing costs monies, your lender will require all donors and receivers to sign a gift letter verifying the gift isn’t a loan.
- Written authorization from you so the lender can run your credit report.
- You will need to write letters of explanation for credit inquiries and past addresses as well as derogatory information on your credit report.
- If there are tax liens or other derogatory items on your credit report that require further explanation, you’ll be required to provide full documentation for all of the derogatory instances.
- If there is a bankruptcy in the past seven years, discharge papers are required.
- If you are a renter you will need to provide 12 months of canceled rent checks or 12 months of bank statements to show rent checks were paid and cleared on time.
- Personal federal tax returns for the past two years.
- Provide pay stubs for at least 30 days.
- Provide W2 forms for all jobs worked in the past two years.
- If you are self-employed or greater than 20 percent owner in a company, a year-to-date profit and loss statement for the business.
- If you are self-employed or you are greater than 20 percent owner in a company, all pages of business federal tax returns for past two years.
- If you’re divorced and receiving (or paying) child support or alimony, a divorce decree will be required, and this income typically must be scheduled for at least three more years from the time of loan closing.
Seems like a lot, I know. Keep in mind if you were loaning hundreds of thousands of dollars to someone and giving them 30 years to pay it back do you think you would want a lot of documentation too? I would. This hurdle is probably the hardest and most uncomfortable part of the process. Once this is done then the fun part starts. Don’t let this stop your home ownership dream in its tracks. Just getter done!
2. Saving for your Down Payment and Closing Costs
Once the lender has worked with you and has nailed down the loan type, interest rate, qualifying amount or max purchase price of your new home, monthly payment, down payment and estimated closing costs then you will need to save for your down payment and closing costs. Typically you will need a minimum of 3.5% down for an FHA Loan, 5% down for a conventional loan and 0 down for a VA Loan. This will vary so your lender will clarify exactly what you will need for a down payment. And when I say 3.5% down payment I mean 3.5% of the purchase price of the home. So as an example on a $500,000 home in San Diego you would need $25,000 for a down payment, 5% of $500,000.
Closing costs are expenses you will incur when purchasing a home. They can vary depending on the type of property you purchase and the type of loan you are using. Here is a list of some of the fees that you will pay in closing costs. This list can vary and does not include all lending costs and fees.
Typical closing costs when buying a home:
- Lender Application Fee: Some lenders will charge an application fee.
- Escrow Fee: This is paid to the escrow company for conducting the closing. The escrow oversees the closing as an independent party in purchase of a home.
- Title Search: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
- Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title.
- Courier Fee / Wiring Fee: This covers the cost of transporting documents and wring.
- Credit Report: A 3-bureau credit report or a residential mortgage credit report (RMCR). This is a single report that merges the data in your credit reports from each of the three major consumer credit reporting agencies (Equifax, Experian and TransUnion) that helps a lender determine interest rates for your loan.
- Escrow Deposit for Property Taxes and Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
- Homeowners’ Insurance: This covers possible damages to your home. Your first year’s insurance is often paid at closing.
- Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Flood Determination or Life of Loan Coverage: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance is paid separately.
- Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
- Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
- Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
- VA Funding Fee: If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and the amount of your down payment. Here is a breakdown of the cost of the VA funding fee and a complete list of allowed fees for VA loans. Search for VA Approved homes in San Diego Now!
* These costs may or may not apply to your actual home purchase
Example of Buyer Closing Costs in San Diego County
Here is an example of buyer closing costs for a $500,000 purchase with 5% down “$25,000” for a loan amount of $475,000.
- Escrow fee: $1500
- Title fee: $1000
- Lender processing and underwriting: $1500
- Prepaid interest of 17 days: $885
- Homeowners insurance premium one year in advance: $960
- Impound Account: Homeowners Insurance: 2 Months $160
- Impound Account: Property taxes “1.25% tax rate used”: 6 Months $3125
Total Closing Costs: $9130
* This is an approximation only – your lender will have more accurate numbers
*This does not include an appraisal fee which is about $600 or a home inspection which is about $300 to $500. This also does not include Mello-Roos, HOA or Mortgage Insurance fees, which may or may not apply.
The total we will need to purchase a home in this scenario of a $500,000 purchase price:
Conventional Loan with 5% Down
- Purchase Price $500,000
- 5% Down $25,000
- Financing $475,000
- Closing Costs Approx. $9,130
- Appraisal Approx. $600
- Home Inspection Approx. $400
FHA Loan with 3.5% Down
- Purchase Price $500,000
- 3.5% Down $17,500
- Financing $482,500
- Closing Costs Approx. $9,130
- Appraisal Approx. $600
- Home Inspection Approx. $400
VA Loan with 0 Down
- Purchase Price $500,000
- 0 Down $0
- Financing $500,000
- Closing Costs Approx. $9,130
- Appraisal Approx. $600
- Home Inspection Approx. $400
Please understand that these are approximate numbers so please don’t use these as fact. They are for instructional purposes only. I’m also not a loan officer; I’m using this scenario to explain the process of buying a home.
There’s another part to the equation that can be a factor in how much you will need to save and that’s the closing costs. Closing costs can be paid in full or in part by the seller. So when an offer is written on a property the buyer can ask the seller to pay for the buyer’s closing costs. So if you asked the seller to pay your closing costs in the above scenarios the total you would need to save would be $26,000 on a Conventional Loan, $18,500 on an FHA Loan and $1,000 on a VA Loan. If a buyer is asking the seller to pay the closing costs of $9,130 on a $500,000 purchase price it would mean that the seller would actually only be netting $490,870 because the seller would have to pay from their proceeds $9,130 of the buyers closing costs.
Many times in order for this to work the buyer has to offer more money to purchase the home so that the seller nets the same amount as if they weren’t paying for the buyers closing costs. So if you, as the buyer, want the seller to pay for your closing costs then you might have to offer more money by the amount of the closing costs for the seller to accept your offer. So if the seller will take $500,000 for their home and you want them to pay $9,130 of your closing costs then you will need to make an offer at $509,130. Remember this is just an example it’s possible the seller will take $500,000 and still pay for your closing costs it’s all about the negotiations.
If there are multiple offers on this example property a seller is more than likely to take the best offer. Sometimes the best offer is not the highest price offer, it can also depend on other factors like; close of escrow, rent back options, all cash, how much cash is in the offer and is the buyer asking the seller to pay for buyer closing costs. A seller may be less likely to accept an offer with buyer closing costs if they have better options. One of the reasons for this is that the home will need to appraise in order to get financing from the lender. If the purchase price is more because the closing costs are added into the purchase price then the home is less likely to appraise. Seller’s factor paying a buyer’s closing costs into the equation of taking an offer that includes closing costs when they are considering offers. If this sounds complicated it may be but if you’re an experienced agent it’s not, it’s just every day negotiations.
So at this point you have spoken with a loan officer and qualified for a loan. You also should know how much money you will need to save or get gifted to you in order to have enough money for your down payment, closing costs and other fees associated with buying a home.
You should also know and be comfortable with your monthly payment which will include principal, interest, taxes and insurance. It may also “depending on the property” include; “H.O.A.” Home Owners Insurance, Mello-Roos, “P.M.I.” Private Mortgage Insurance and possibly others.
On a $500,000 Purchase Price this is an estimate of what your monthly payment may look like on a 5% down conventional loan. So this means that you would be financing $475,000 at a 4% interest rate, this rate will vary depending on many factors. As of the writing of this post 4% is about the going rate, which historically is an excellent interest rate for first time home buyers.
Example of Monthly Payment
- Principal & Interest $2,267 “Most of which is interest”
- Taxes $500 “Figured at 1.2% of purchase price – will vary”
- Insurance $75
- Private Mortgage Insurance “PMI” $350 “No PMI on VA Loans”
Total $ 3,192
* This is just an estimate for instructional purposes only.
Also factor in things like, electric bill, gas bill, water bill, yard maintenance and other monthly expenses that a homeowner will incur.
Once you have saved the money or possibly received a gift or a combination of both then you’re ready for the next step in buying your first home in San Diego, California.
3. Finding a real estate agent that you want to work with
Now it’s time to choose your San Diego real estate agent that will help you with the home buying process. This is my chance to tell you about The Lewis Team and why we would be a great choice to help you. We’re knowledgeable, as you can see we know the process very well and have over 50 years combined experience selling thousands of homes in San Diego, many of which were to first time home buyers. We have many 5 star reviews on sites like, Zillow, Trulia, Yelp and others. Most of our business is past clients and referrals of friends and family from our past clients. Now that that’s out of the way this is what you should look for in a good San Diego Real Estate Agent:
- Experience – There’s no substitute for experience. Once an agent gets their real estate license they essentially have no experience on how to help you purchase a home, write contracts, negotiate on your behalf, write request for repairs, addendums, rent backs and so many other things that just aren’t on a real estate exam. All this comes with time in the business.
- Team or Individual Agent – Nowadays most agents are on teams and their on teams for a good reason. A team has a team leader and experienced agents that have been with the team for many years. This combined experience gives them an advantage over a lone agent doing it on their own. A lone agent just won’t have the experience of a top-producing team. A real estate team also has more resources such as additional agents for when you want to see a home right away and your agent is already with other clients or at a school event, vacation, not feeling well, etc.… there are additional agents that can show you properties if your agent for some reason is not able to. Let’s face it, life happens and people are not always available when you want them and in the scenario of a lone agent you wouldn’t be able to see that home that just came on the market if they were unavailable, but on a team there is another agent there to jump in and show you the home so that it doesn’t get purchased by another buyer. Teams work and we’re one of the first real estate teams in San Diego and one of the best.
- First Time Home Buyer Experience – Make sure your real estate team has lots of experience working with first time home buyers. There’s a lot of hand holding and education that goes on during a buyers first experience with buying a home. You can read lots of blog posts and articles on real estate sites but if you take the time to read who the author is they’re many times not real estate agents or brokers they’re writers with no real estate experience. So when you read some of these articles and blogs they may not be written by someone who actually sells real estate, rest assure that we at The Lewis Team have helped hundreds of first time home buyers buy their first home or condo in San Diego County. Many of them active duty military relocating to San Diego due to the many military bases in San Diego.
- Phone Interview – All good agents love helping people. That’s essentially what real estate agents do, they help people find their home and then help them with the process of buying it. To me real estate is less of a sales job and more of a people helping job. So agents that love what they do love to be interviewed for the job. If you’re buying a home for the first time then call the agent or contact them and ask for a phone interview to see if that agent or team is right for you.
- Face to Face Interview - Sometimes a phone interview is enough for a buyer to feel comfortable with a real estate agent to start helping with the home buying process and other times buyers want a face to face meeting. It’s not such a bad idea to take the time to meet the agent. Remember that the home buying process may take some time and you will be working with this agent for quite a while so making sure that you’re compatible and you like them is a really good idea. Good places to meet are at the agent’s office, a coffee shop or ask when the agent is doing their next open house and meet them at the open house. Due to Covid-19 or Coronavirus in today’s San Diego Real Estate Market, many agents are doing Zoom face to face meetings over the internet.
- How Hard Do They Work - Many times a home in the location that a buyer wants isn’t always available for sale. That’s where a good and hardworking agent with experience is essential in getting you an advantage over other buyers that want the same type of home in the same neighborhood that you do. Because we have been in the business for so long we know where to find coming soon and off market deals. We have access to lists of homes that are coming soon on the market before they actually come on the market for sale. This allows us to show them to our buyers before other agents even know they exist. In today’s competitive market this is essential in getting the home. We also take the time and effort to canvas a neighborhood and ask the home owners if they are interested in selling their home to a buyer that we represent. This allows us an exclusive for our buyers to write an offer on a home that wasn’t even available until we did the hard work of door knocking and calling on behalf of our first time home buyer.
Once you feel comfortable with your decision then it’s time to let the agent know that you have chosen them as your agent and that it’s time to get to work!
Caution: I want to throw out a word of caution. With the internet the way it is today with cookies and tracking your IP Address and the like, many companies will target you when they notice you’re looking around on-line for a home. Take caution in knowing that many agents will pay lots of money to marketing companies to target you to use them. Many times they may not be experienced agents but rather agents that just pay for leads to companies that track your movements on the web and social media. Choose a local San Diego Team with lots of experience and great reviews not someone who is trying to target you like a predator does prey.
FAQ: How do agents get paid? An agent that helps a buyer buy a home is paid by the seller of the home. So essentially when an agent helps you purchase a home you aren’t paying them anything, the seller does through a commission. So if that’s the case, why not hire the best!
4. What Where and When
Now that you’ve chosen an agent it’s time to find your home. Your agent will need to know what kind of property you are interested in, where you would like to live and when you would like to close escrow and move into the property.
What type of property would you like to buy?
With that being said you will need to be realistic. A house on the beach at 5 million dollars is probably not realistic for a first time home buyer. So from what your lender said your home buying budget is you will need to select a property that is within the price range of the max loan amount. So in the scenario we were using earlier we hypothetically had a max purchase price of $500,000. This would approximately put your payment “depending on interest rate and how much down you’re putting” somewhere around $3,200 per month. This would include Principal, Interest, Taxes, Insurance and PMI “if applicable”. It would not include an HOA “Home Owners Associations” so keep in mind an HOA will decrease your buying power. So if an HOA is $180 per month your will only be able to spend $3,000 a month towards your home purchase which would drop your max purchase price from $500,000 to somewhere around $470,000. It also does not include a Mello-Roos Tax which some areas of San Diego have. A smart real estate agent will know if there is an HOA or Mello-Roos and will advise you appropriately. Again this is where experience makes all the difference in the world.
FAQ: Why wouldn’t I just use the agent that I see on the sidebar on a national real estate website?
You can certainly use an agent that pays money to be on a national real estate website but keep in mind that they may not be very experienced, they’re just the ones who are paying the money to advertise on the national real estate website page. I’ve seen agents who have been in the business for a year that have over 50 reviews on web sites but yet they have only sold a handful of homes or no homes at all. These reviews can certainly be manipulated so beware. There are some national real estate companies that have really good websites that many buyers use. They come up really good in Internet searches on Google and Yahoo because of the massive amounts of content on their websites not because of the experience of the agents. I often use the analogy of WebMD. WebMD is a fantastic website for researching information on rashes, pains, sicknesses and the like but you wouldn’t use WebMD as your doctor or surgeon. You would find a local expert with lots of experience to make sure you were properly taken care of. Using WebMD for research is fine but not for an operation or a firsthand diagnoses. Real Estate is the same way, use the national real estate websites for research but find a local expert to help you with the complicated process of buying a home.
So I created these links for you to see what is on the market in San Diego for at or under $500,000. I did not include areas that are way on the outskirts of San Diego County only because 99.9% of people working close to San Diego proper will not make the commute to these outlying areas. They’re just too far out for a realistic commute.
The median home price in San Diego County varies year to year but is somewhere around $550,000. The median condo price is quite a bit less. So from these searches you will see fixer upper properties that may require cash offers only, you will not be able to purchase these with VA, FHA or Conventional Financing, these require cash or hard money loans. Some of them maybe in areas that you would not consider buying a home in for various reasons and others may be worth having a look. The condos will in most cases be less expensive than a detached home but will have an HOA and will be in building shared with other condo owners.
So after looking at some of the homes and condos in the price ranges you can buy in it’s time to put your What List together:
- How many bedrooms: 2 3 4 5+
- How many bathrooms: 1 2 3+
- Minimum square footage: 800 Sq Ft+ 1500 Sq Ft+ 2000 Sq Ft+
- Garage required: Y or N
- Yard required: Y or N
- Pool required: Y or N
- Other needs:
Don’t get caught up on items like paint color or flooring type. These can easily be changed for a few thousand dollars or sweat equity. Be more concerned about things that can’t be change or that are a large dollar amount to be changed. Depending on your price range and where you want to buy a home you may have lots to choose from or you may have very few homes that meet your criteria. I also want to stress that the perfect home doesn’t exist. The idea is to get as close to the perfect home as possible within your home buying budget.
Where would you like to buy?
There are 6 main areas of San Diego County and they are broken down as flows:
If you’re from San Diego or familiar with San Diego then you probably have a general idea of where you want to live. The question is, is it within your home buying budget? If you’re relocating to San Diego and not familiar with the area then a local agent can help answer your questions about different communities in the county. Many times where you live is effected by where you’re working. Commute times can play a major part in the decision on where you buy a home. Schools may also be very important to you and you may have a certain school or school district in mind when looking for the perfect location to buy. As a general rule the better the school district the more expensive are the homes. Many times when we help active duty military moving to San Diego the location of the base where they will work is a major factor in where they will end up buying.
In most cases, not all, the closer you buy to the coast or Pacific Ocean the more expensive it is. Many of the affordable communities are inland a ways but still an easy commute to the beaches and coastline of San Diego. There are many master planned communities which many of them are newer in areas of Carmel Valley, Carlsbad, Vista, Escondido and Chula Vista, among others. San Diego also has its share of older neighborhoods with older homes which some can be over 100 years old. There are some really nice Craftsman homes and California Bungalow homes in areas like Mission Hills, North Park and Kensington. We can show you where the up and coming communities are in the county and where we think the market will do very well over time. Remember your home is not only where you live it’s also a vehicle to build wealth.
There is also the option of buying a new home in San Diego from a new home builder like, KB Home, Lennar, Meritage Homes, Toll Brothers, Shea Homes, William Lyon Homes, Cornerstone Communities, TRI Point Homes, Pardee Homes, Beazer Homes, HQT Homes, CalAtlantic Homes, D.R. Horton, Pacific Coast Communities, Brookfield Residential, Pacific Legacy Homes and more. We would love to show you the different new home communities in San Diego County and show you where the real value is when buying in the new home communities.
Pick the areas that you want to buy in and work with your agent to narrow down exactly which communities within the zip codes really meet your needs. Your agent will work hard to find you what you’re looking for in the area you want to buy in. Don’t just give it to chance by waiting for sites like Zillow, Realtor.com and Redfin to show it on their sites. By then the home, especially if it’s a desirable property, may already be sold to another buyer.
When would you like to buy and move in?
Now you will need to decide when you would like to move in to the property that you are about to purchase. You may be in a lease or you may be moving to San Diego in 6 months. You may be in a month to month lease or renting a room and are flexible on a move in date. You may also need to sell a home in order to buy a new one and The Lewis Team can help you with both. If you’re selling a home in San Diego then you will need to coordinate the sale of your home with the purchase of your new one. Don’t leave this complicated transaction to an amateur, contact us to let us show you how it’s done. You can also check out our San Diego Home Value calculator to get an approximate value of your home.
Sometimes home buyers will coordinate the move so that they are in the new home before the next school year starts so they don’t have to move their children in the middle of the school year. Others may want to buy a property at different times of the year for different reasons. Once you have decided on when you want to buy and when you want to close escrow and be in your new home let your agent know and they can advise you on when to start looking for properties to meet your timelines
5. Start Looking at Properties
Now the fun part starts. You have everything in order to start looking at properties with your agent. Your agent will start emailing you homes that fit your criteria and you will select the ones that you want to go look at in person.
Advice: Don’t judge a property from the photos. Whether the photos are good or bad make sure that you don’t eliminate a property from the photos alone. Many times the photos don’t give a realistic representation of the property for sale and you may be missing out on the one that you would have made an offer on.
Once you have let the agent know which homes you want to see they will setup showings with the listing agent or homeowner so that you can preview the home. Your agent will either pick you up and drive you around and show you the homes or you can meet your agent at one of the homes and follow them to each one of the properties. Some buyers will meet at the agent’s office and decide from there if they will drive with the agent or follow them. When previewing properties you will sometimes know right away that the home just won’t work, move on to the next home to allow you to spend more time at the properties that peek your interest. It’s a process of elimination and as you go through these homes give them a score of 1-10 or only keep the top 3 in the bunch. That way at the end of previewing the properties you have the 3 homes that you would potentially write an offer on. If you don’t rate the home or eliminate properties you will not remember them in detail at the end of the day. Rate them or eliminate them while you’re at the property or in the car on your way to the next property while it’s fresh in your mind.
Your agent will be with you and taking notes on what your likes and dislikes are about the properties you’re looking at. This will help them understand what you’re really interested in and not interested in so if you don’t see something that you like they will continue the search for a home that meets your needs. Sometimes it can take a few trips to find a home that you would like to write an offer on. Sometimes you’ll see one that you want to buy the first time out.
When you see something you want to make an offer on, act quickly! There are other buyers that may also like the home and will be putting in an offer. If you take too long they may buy the property before you have a chance to buy it. Your agent will help you in determining what purchase price amount you want to offer, if you’re asking for closing costs, length of escrow and other important details of the purchase agreement.
6. Writing the Offer
When your agent finds you a property that you are interested in buying then they will use a Residential Purchase Agreement to write an offer on the home or condo. Your agent will need your full legal name(s) for the contract along with what amount of money you would like to offer, how much down you will be putting (usually 3.5% to 5% of the purchase price), good faith deposit (anywhere from 1% to 3% of the purchase price), if you want the seller to pay all or part of your closing costs and when you would like to close escrow (usually 30 days upon acceptance of your offer).
You want to make your offer stand out to the seller especially if there are multiple offers on the property. If you’re not the only offer you want the seller to take yours, writing a strong offer includes a strong purchase price and terms that the seller is looking for. Some sellers want a quick escrow, some sellers want a long escrow, some will want a rent back and so on. Your agent should discuss with the listing agent what the sellers are looking for to make your offer more enticing to them. It’s not always about price.
Your real estate agent should also take the time to do a CMA or Comparative Market Analysis on what homes similar to the one you’re writing an offer on have recently sold for. This will give you a clear snapshot of what has sold in the neighborhood and at what price. This will help you and your agent when it comes time to nail down what purchase price you will ultimately offer. You may want the house but you certainly do not want to over pay. Remember, a home is only worth what a seller is willing to pay. But also remember a seller has a price in mind that they will want for their home. It’s negotiating that gets you to the end result.
So once you have decided on what goes into the offer, your agent will write the offer. They will explain the contingency periods to you that include inspection, appraisal and loan contingency and possibly others. The inspection contingency allows you to inspect the property and back out of the deal if there is something that you don’t like in the findings. You should hire a professional home inspector to inspect the home for you. Depending on the size of the property a home inspection can range between $300 and $1,000 but usually it is between $400 and $500. The appraisal contingency allows for your lender’s appraiser to appraise the property to make sure that in their opinion the home is worth what you’re paying for it. Since the lender is going to be financing the property they want to make sure the home is at the value of the purchase amount. Keep in mind that sometimes appraisers don’t bring the home in at the value of the purchase price you offered. This is your opportunity to back out of the deal or have your agent negotiate with the listing agent to come up with a compromise on price acceptable to both the buyer and seller. The loan contingency is your opportunity to back out of the transaction if for some reason the lender cannot get you the loan to purchase the property. Even though your lender may have pre-qualified or pre-approved you for the loan, something could possibly come up to derail the loan. This is also one of the contingencies in the contract that will allow you to back out of the deal.
Your agent will have you sign the offer, usually through DocuSign so they will need your email address(s) to send you the contract for signatures. Once signed by you and your agent the offer then will be emailed to the listing agent by your agent. The agent will call the listing agent to make sure they received it and answer any questions they have about the offer. Remember that real estate is about relationships and listing agents want to feel good about your offer when they present it to the seller. This is where a good buyer’s agent takes the time to start building a good working relationship with the listing agent. No listing agent or seller wants to be in escrow with a buyer or buyer’s agent they don’t feel comfortable with. Communication is the key.
The seller has a period of time, usually 3 days, to look at the contract and decide whether they will accept it, counter it or reject it. You may be the only offer or there may be multiple offers on the seller’s property. If there are multiple offers the seller may just take the best offer, counter back the top offer(s), counter back all of the offers or whatever they choose. They are in control of which offer they end up taking. In this scenario we will pretend that the seller countered you back and raised the price by $10,000. You decide to accept their counter and now it’s time to go to escrow.
7. Offer Accepted – Escrow
Now that your offer has been accepted by the seller an escrow company will act as a neutral third party to handle paperwork and money. The escrow company is almost always chosen by the seller or listing agent and the exact escrow company is stated in the residential purchase agreement. Many times it’s written as “seller to select all services” which means seller picks, escrow and title. As a buyer you will be contacted by escrow and they will introduce themselves to you and let you know what will happen during the escrow process. They will be the ones that contact you to wire the initial good faith deposit funds to an escrow bank account. Due to possible fraud the escrow company should be the only party that instructs you on where to wire the money to.
During the escrow a buyer will receive disclosures, do home inspections and any other inspections that they deem fit, get their loan in order, wire funds to escrow, receive information on the properties title, ask for the seller to do any repairs that the buyer wants, make sure that this property meets their needs after looking at all disclosures and looking at all of the finding from inspections, select how you will take title to the property and get ready to move to your new home. Your lender will order an appraisal and the appraiser will go out to the property and do an appraisal to make sure that the home is worth the price that you offered in the Residential Purchase Agreement. If not your real estate agent may need to do a little more negotiation on the price of the San Diego real estate you’re buying.
The Lewis Team will be there to guide you through this process and answer any questions that you have. Once you have decided that the findings from the disclosures and inspections meet your needs then you will release your contingencies and get ready to close escrow. This process usually takes 30 days but can be a little shorter or a little longer. You will wire over the remaining funds to escrow and close escrow. The property is now yours and unless you allowed the seller to rent back for a period of time you can now move into your new home in San Diego.
8. Move In
It’s now time to move in. If you need help with referrals for movers, cleaners, carpet cleaners, landscapers, handymen, painters, flooring installers and so on …. we can help. We will stop by and check in on you to make sure everything is going well and answer any questions that come up. Once you have purchased your new home or condo The Lewis Team will always be there to answer any questions you have and periodically update you with the value of your San Diego real estate. Since we’ve been selling homes for over 30 years we’re in this for the long haul and will be there when you’re ready to sell and purchase your next home.
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