Raise your hand if you love that show! I so enjoy watching ridiculously wealthy people buy ridiculously expensive property. I guess I’m a dreamer… That said, for some strange reason, I was not prepared for the home buying process to be quite as complex as it turned out to be.
Below I’ll walk you through our home-buying process (which might differ from yours but is quite juicy nonetheless).
My husband and I began the search for a home in “San Francisco proper” (which just means the 7x7 mile area that is San Francisco City) over a year ago. After developing a “check-box” list of the things our home had to have (backyard, built-ins, enough projects to keep me busy for years) and going to countless Open Houses, we couldn’t find a house that checked the majority of the boxes on our list. Or if the place did check all of the boxes, it was typically $2-3 million over budget…nbd. While it was a difficult decision, complete with melt downs and the desire to just rent for eternity so long as we could stay in San Francisco proper, we decided that the items on our check box list were more important, and that meant that what we were looking for just wouldn’t be available in our price range in the City.
Tip 1: Make a list of your check-boxes and be open to getting most but not all of them. We finally decided that if one of our top items was a single-family home (meaning a free standing home) we would have to move out of SF. The other common types of real estate purchases are:
Condo: when you own a unit within a building that has other owners and typically share an entrance.
Townhome: when you don’t have units above or below but share a wall with another identical building.
Once we decided to look outside of SF, we had to get a new real estate agent, someone who knew the seemingly foreign areas outside of the city. The agent was able to help us find neighborhoods within our price range, and even a few houses that checked some of our boxes: easy commute to work and a good “walking score” (Don’t worry, no one is judging your walking style. A walking score tells you how quickly you can walk to shops and restaurants with the best being 100). While we don’t have children now, we wanted to make sure that we could get into a good school area (public schools are ranked from 1-10 so you are looking for a 7 or higher), just in case.
Alright, so we’ve got our neighborhoods and now it’s all about inventory. What is coming on to the market and how many other people are looking to buy? We were buying in December/January which historically is low inventory (not a lot of people will list their home in/around the holidays) but also low demand (not too many buyers are trying to relocate during the holidays). Turns out, we are the odd balls. Typically you’ll find higher demand around the summer months when families are on summer break which means you might find more “dream homes” available but more people gunning for them.
Tip 2: Don’t let the time of year truly dictate when you buy a home. While you might get a better deal if you wait until the winter months, you may also not find a home you like. You are not, however, allowed to put more than one offer on more than one home at the same time. You have to wait to hear a “no” from one house before you put an offer on another. Why is this important? Because when more homes are on the market, you will sometimes have to pick just one to put an offer on, even if you like 2 or 3 that are “accepting offers” on the same day.
Once you get serious and think you’re in an area you like, go ahead and start the lending process. Tip 3: Shop around for (1) interest rates, (2) quick “days to close”, and (3) someone who responds to your emails/phone calls quickly. There are several different types of loans you can get for a mortgage (most popular being 30-year fixed or adjustable rate mortgage) and make sure your lender can clearly explain what those are and the advantages to one versus the other.
My husband and I did a “7-1 ARM” which means we have a fixed rate for 7 years and in year 8, it becomes variable and can change annually. This is a slightly riskier option and isn’t for everyone, so chat with your lender before you make any final decisions. After you’ve had at least two lenders compete for the lowest rate and quickest close for you, you can officially begin to put offers on your homes.
Tip 4: If you live in a competitive area that is a “seller’s market,” you should have your lender pre-underwrite you. We learned that there is a difference between pre-approval and pre-qualified. When you are pre-qualified, it means the lender thinks you are technically qualified to get a loan assuming everything checks out. A pre-approval means that they are approving you to move forward with an offer and you are much more likely to have the loan completed. If you are underwritten, you are as close to approved as you are going to get.
You want this for two reasons: (1) you don’t want your loan to fall through in the last minute, which has happened to so many people; and (2) you want the lender to “close” in as few days as possible so if you’re underwritten, the lending agency has done a lot of the heavy lifting up front. My lender told me underwriting will be valid for roughly 6 months. If you don’t find a home by then, they have to do the process all over again and you’ll have to submit all of your financial statements, again.
We originally worked with a real estate agent who wasn’t able to help us decide what we should offer, and you need your agent to run “comps” in the neighborhood to tell you what you should offer. (“Comps” a.k.a “comparables” are other homes of a comparable style and size that sold in your neighborhood. This helps you know what your soon to be neighbors dished out for their homes…;) ) While homes might be listed at $500,000, your agent can help you realize the average for that neighborhood is $800,000 therefore you should offer closer to that number. Something you can’t do alone. Tip 5: If you’re just looking on Zillow or RedFin make sure you track what homes actually sell for, and not just their listing price, because the sale price is what you need.
When you view a home and think you may want to put in an offer, your real estate agent will reach out to the seller’s agent and get “the disclosure packet”. Man, if you thought an encyclopedia was dry and thick, wait till you get one of these packets. It’s utter nonsense to us common folks. I was so frustrated because I’m a control freak and I needed to understand what all this said… Tip 6: You personally will not be able to understand everything in this packet so make sure your agent is of good quality and is able to explain it to you. Added bonus if they can do it with a sense of humor. You should definitely read it, but lean on your agent to explain what certain things mean.
The disclosures are intended to have the seller share anything and everything they can about the property. For example, our packet said, “Neighbors have alpaca or llamas. Occasionally you can smell them from the backyard” [insert a true lol here]. It also said, “Water heater temperature is programed to 140 degrees and should be lowered to 120 degrees so as to not burn yourself” This packet should show you everything they know about the house (sometimes they have a third party inspect the house) so you can decide if it has additional “work” that needs to be done other than just what you can see with your own two eyes.
So we put in a few offers, and didn’t get any of those houses, sigh. Tip 7: Don’t get married to any one home. Use your checkbox list to guide you, but remember, you can always do remodels over time. Things you can change, the one thing that you can’t: location. That’s pretty much it. We spent most weekends at Open Houses so the search can consume your life for a period of time, be prepared for that. We found another house that we liked, disclosures didn’t look horrendous, (unless those llamas are going to kick down our fence….). We put an offer in (which consists of your agent generating a large DocuSign packet) and found out the next day that we got it! Holy shit, I couldn’t believe it…we were prepared for another no, not a yes!
So now what? Now the process that might be different for everyone but something we knew nothing about.
Once the offer has been accepted, you may have up to 3 business days to send in your deposit. The deposit is 3% of the purchase price. If your deal falls through, or you back out, this is what you will lose unless you have contingencies.
Contingen-e-what? Contingencies are basically escape valves. If one of your contingencies is not met, you have an out from the sale. The three most common are:
Appraisal: an appraiser will come to your home within a week or two and value the home. If it’s below the accepted offer, your lender will not approve a loan any higher than its appraised value and you are on the hook for the difference. If you’re not sure it will appraise for your offer price, add an appraisal contingency to avoid this.
Inspection: you have the right to have the home inspected by a third party and if there is anything else in there that was not disclosed in the packet, you have the right to negotiate price or the seller covering the cost to fix issues.
Loan: once an offer is accepted, you will have your final loan approval. This is part of the “escrow process” post acceptance. The lender wants to make sure your money is still in your accounts and that you are still employed. If anything changes, they can decline your loan and if you don’t have a loan contingency, you will be on the hook!
We did no contingencies because there was an inspection with the home already, our loan was underwritten, and our agent said we should be right on the money for our purchase price. Oh, and we live in San Francisco, so if you put a contingency it’s pretty much a guarantee that someone else won’t and they will get the place…. Sigh.
So, no contingencies, we are ready to buy the house! We wire over our deposit (to the title company, not the bank) and wait for the appraisal. Our lender is getting documents together and confirming statements where necessary. You need to get home owner’s insurance quickly, otherwise the lender won’t finish the loan. Having a security system helps lower you insurance cost, so if there is one already in the house, you should contact someone to have it turned on when you move in. Your lender will start to send you a few documents (usually electronically) that you need to sign, or at least view, so they can proceed.
You then have to sign, in-person, the final documents for title. Make sure someone is there to help you understand everything you’re signing (this is also an encyclopedia). You will sign your name over and over and over again. And then twenty more times. After this, the timeline may vary, but funds for the full down payment (minus your deposit) are sent to the title company. After this is received, they will “record” and the house is yours.
Ok deep breathes… I didn’t even talk about the hardest part… how much the house cost and what we had to put for the down payment. Tragically they didn’t accept payment in llamas. Ah well, for another time….