Real Estate Finance

Welcome to the curious world of real estate finance, a place with its own vocabulary, logic and reality. This is designed to give you a general framework of the process of buying a home. It’s not just for first time home buyers, though, because most importantly, its purpose is to give some ideas on how to flow with the process, thereby reducing anxiety and increasing your peace of mind. A lofty goal!

Here’s the usual scenario: You decide to buy a home. You select an agent. If you have any questions (and you should) about financing you may be prequalified by a financing specialist. When you find your potential castle, you make an offer and, usually, the owner will counter the offer. Your qualification letter is a critical part to your offer because the sellers need to know you can really afford to buy their home.

During the offer/counter offer stage, the stress factor normally zooms. Keep two things in mind. First, if you feel that the property is perfect for you, make your offer a good one. In the competitive market we have today, playing lowball may not result in an accepted offer. You’ll second guess yourself and pine over it needlessly if you are not successful. Second, after making a good, strong offer, let go of the idea that the home is “perfect” for you. Instead, realize that you will get the home if it is “meant to be.” That is the key. You have done all that you can. If it doesn’t fly, you’ll find something just as good. This is not just a rationalization, it is really true. 

If you come to an agreement on an offer, you normally have 30–45 days to complete the transaction. Why 30–45 days? That gives both parties enough time to organize the 1001 things you need to do and gives the lender time to process the paperwork.

Immediately upon knowing that you have an accepted contract you contact your lender. You will sit down to fill out some forms and then submit them (like tax returns) to get the ball rolling. The lender always arranges for an appraisal to be done on the property, which you should ask to see when completed. A credit report is ordered and your income and down payment are verified. The lender will produce a good faith estimate with all the lender quotes and information.

Almost always more information will be requested from you. Lenders do not lend hundreds of thousands of dollars on a whim. They must have 2.3 pounds of paperwork. Don’t be offended. Lenders would probably ask Mother Teresa for a character reference.

About three weeks down the line, your loan is underwritten for approval. It’s usually about three days after that that you are notified of your loan approval. Often there are a couple of more things (called conditions) that the lender will want. Relax you’re doing fine.

The loan documents arrive at the title company about three days later. Your escrow officer will take a day to add up all the prorations and figures and then call you to arrange a time for you to come in and sign off.

At that time the escrow officer will ask you to bring in a cashier’s check for the down payment and closing costs.

Day 2 - Application and papers exchanged with the lender.

 Day 3 to Day 20 - The loan is in process. The appraisal is ordered and an appointment will be made with the seller. The appraisal is reviewed to justify the loan amount. The loan is packaged for underwriting.

Day 21 to Day 24 - Loan disappears in a dark mysterious underwriting room.

Day 25 - The lender speaks  You’re OK! Loan is approved. Terms and rates may be lockedin. Conditions you must provide include explanation letter of time your aunt held off the revenuers at the back door with a skillet. (Or something equivalent.)

 Day 28 - Loan documents arrive at Title Company.

Day 29 - You come into escrow office to sign your name 127 times.

Day 33 - Lender issues funding check

Day 35 - Loan is recorded and deed.

Here is where the attitudes of all involved come into play. From lots of experience we know the following can make the difference between a smooth process and an ordeal: NO MATTER WHAT YOU DO, ALLOW EXTRA TIME FOR EVERYTHING.

Work with competent, efficient, caring people. But understand that the enormous sums of money involved, coupled with the complex bureaucratic financing system translates into caution and caution reduces speed. Make backup plans. If it doesn’t record by the certain weekend, reserve two nights at a relaxing motel with a pool and a hot tub!

THE ALL IMPORTANT RATE IS RELATIVE

When fixed rates were 14% and inched down to 13.75% some were thrilled. A few years later when rates were 8.75% and then inched up to 9% some were heart broken. Now our rates are much lower and haven’t been this low in years. Don’t be thrilled or heart broken. Rates fluctuate with the market and world events.

Also, no matter how much you shop around for the lowest rate you’ll always find someone advertising lower rates in the newspaper. This is because, unfortunately, some lenders can and do “quote with optimism” to put it kindly. The solution? Work with someone who has a dependable reputation for delivering fair market rate loans that always close. You’ll never regret it.

LIFE IS AN ADVENTURE

“Nothing ventured, nothing gained”. “If you never want to make a mistake, make no decisions”. Don’t let the nagging little voice of doubt keep you from going for it! Sit down with an expert who can counsel you on whether the time is right for you. And if so, jump in! Home ownership is worth all the hassle and stress you put up with.

Keep in mind that your agent is trained to handle any problems that might arise. Laugh a little (or even better, a lot). You are doing the right thing. Life is truly an adventure…

Information provided by Carylee Stone.