Buying a home is a very important life event that will affect you in many ways and for many years to come. It can be exciting and intimidating in equal measure, so it’s important to understand the steps in the process and work with someone you can trust. Even if you’ve bought a home in the past, different times and different places can make for significant differences in the process. The following is a general outline of the home buying process in the Greater Tampa Area.
Begin the Lending Process and Get a Pre-Approval Letter
The first step in the home buying process is to gather proof of funds if you're purchasing cash, or get pre-approved if you're using a mortgage. Even if you've been pre-approved in the past, you'll need a recent pre-approval letter in order to get started.
A pre-approval letter or proof of funds is required to submit an offer, and it is not uncommon to have to offer for a home on the same day you see it, so having proof of funds on hand before you begin is essential. This step will also confirm the amount for which you'll qualify, clarify what you'll pay in closing costs and how much you can expect to pay monthly.
You may see interest rates posted online, but that doesn’t mean those are the interest rates for which you’ll qualify. Credit scores, debt to income ratios and loan terms are all common items that are used to arrive at your loan’s interest rate. Different institutions also have varying closing costs and primary mortgage insurance (PMI) guidelines. Applying for a loan and getting pre-approved is the only way to get a clear idea of these important details.
If you cannot get approved on your first attempt, your lender may suggest strategies and services to help you prepare for approval. The Federal Trade Commission has published a Guide to Credit Repair and a Guide to Disputing Errors on Your Credit Report that are both helpful for guidance in improving your credit score.
Many loan officers will ask you basic questions over the phone or point you to an online application, get your permission to run your credit and give you a pre-approval right away if you qualify. They’ll also let you know what kind of documentation you’ll need to provide to move forward with the loan. Some lending institutions may have a more thorough process that takes longer, so a call to a loan officer who can get you pre-approved same day is at least a good place to start. It is very important to get your documentation to your lender as soon as possible, in order to strengthen your offer when you find the right house.
Look over this first approval carefully to be sure that your monthly costs fit within your budget. There are new consumer protections that have gone into effect since October 2014. Check out this helpful Guide to Home Loans or en Español to help you understand the process. The guide also has helpful calculators, comparison tools and related links.
All loans are not created equal, so the consumer Financial Protection Bureau encourages borrowers to explore several options and get two to three loan offers. In the past, each application could potentially affect your credit score, but under the new guidelines, applications made within a short time period only count as one on your credit. Use the Guide to Home Loans to help you compare your loan offers and/or discuss with your Realtor® who can help you understand and compare the loan estimates.
DO NOT make any major financial changes once you're approved or you could easily negate your loan approval! Do not change jobs, get a car loan, or open or close lines of credit. Just sit tight until your home is closed.
Begin the Home Search
Get a Realtor® to represent you as your buyer’s agent. Homes for sale are listed on the multiple listing service (MLS), giving all Realtors access to selling those homes. In other words, your buyer's agent will have accesses to all homes listed for sale.
In the Tampa area, Realtors® are typically paid by the sellers' proceeds upon closing, so as a buyer, you will not be responsible for paying your agent's commission unless you specifically agree to pay them under certain circumstances.
Your Realtor® will ask you about your requirements and preferences for your new home and neighborhood. What are the minimum number of bedrooms and bathrooms you require? Do you prefer a ranch or a two story? Are there neighborhoods you prefer? Do your children need to attend a certain school? These and more details will help your Realtor® set up searches and contact you with home options.
Some Realtors® will set you up with a personalized portal where you can keep track of homes you’re considering – mark some as options, others as favorites and keep notes. In addition to the homes your agent suggests, you can send any other homes you find interesting to her so that she can add them to your portal, provide more information and set up viewing appointments.
As you review and visit homes for sale, your Realtor® will be learning more about your home needs and desires. This will help her better understand what you’re looking for and then use that information to find more listings for you to consider. This may lead to various changes in your search to accommodate what’s most important to you and your family.
Narrowing Down Your Options and Getting Details
During the process of choosing a home, the most important goal is for you to find a house and neighborhood that excite you within your budget. Don't get caught up in too many details first; instead, find a short list of homes and neighborhoods you may want to call home.
Once you’re ready to offer on a home, it’s time to learn much more about it. Your Realtor® will provide you with important details that will help you make informed decisions, like details about community amenities and fees, a strong assessment of home value and other valid details about this property and neighborhood. The sellers are required to provide several disclosures with known details on the property's condition and neighborhood rules, costs and amenities. Your Realtor® will share these with you.
When estimating your monthly costs, be sure to include an estimate of taxes and insurance and any mandatory community fees. Some community fees are high, so they could have a significant impact on your monthly budget. That is fine if you're paying for the amenities that you want, but be sure to compare apples to apples in order to evaluate which home best suits your needs while fitting your budget.
Your Realtor® will also research details on the listing, recent sales, time on the market and more to help give you the information you’ll need to offer for the home. The listed price of the home may not be in line with the actual value, and online estimates are rarely accurate. Please note that, although Zillow and other online home buying tools are helpful, the estimates provided are not accurate enough to be helpful when deciding on your offer. A well-informed Realtor will research the details of the market and comparable homes very carefully to help you put your best foot forward.
How Are Home Values Calculated?
Home values are based on recent sales of comparable homes. Important variables in home value are number of bedrooms and bathrooms, home size, pool, location, lot and other major items. Cosmetic items like paint, drapes, lighting and over-improvements may be of value to you if you like them, but they do not have a significant influence on the appraised value of the home.
Submitting an Offer
After you’ve chosen a home and your Realtor has researched it, it’s time to put together your offer. Although price is very important, an offer is not just about price. The basic items of your offer are price, deposit, closing date, financing (or cash), days for inspections, seller concessions (if any) and closing costs. These various items are used to find a good compromise. For example, sellers may be willing to accept a lower purchase price for other concessions like an as-is sale or convenient closing date. Your earnest money deposit will be stated on the contract, but usually not payable until after offer acceptance (commonly within 3 days of acceptance paid by bank wire).
Acceptance, Counter-Offers and Executed Contracts
Your offer, signed by you, is not yet a contract. It does obligate you to what you’ve offered if the sellers agree to it, but it is not yet a contract. If the sellers counter your offer, they will submit a counter-offer with their desired changes and you will have a set period of time to approve, counter or reject them. If the sellers agree to your offer, they’ll sign and initial the offer, and once it’s returned to you, it will become a binding contract for sale. But wait! If you’re submitting a common “as-is” contract, you’ll still have the opportunity to cancel the contract within your inspection period for any reason or for no reason at all. If you sign and send a cancellation during that period, your deposit will be refunded. This is very helpful for the buyer, but a risk to the seller, so that's why it's helpful not to request longer for the inspection period than is needed.
Deposit
A deposit must be included in all contracts. The deposit is not held by the seller or the seller’s agent. The deposit must be held in a legal real estate escrow account (usually with a title company) and its distribution is governed by very clear, very strict rules. Your deposit is safe as long as your Realtor® carefully supervises requirements and deadlines on the contract like inspection and financing contingencies. If the sellers require a sizable deposit, your Realtor may negotiate a smaller deposit before your inspection and then the rest of the deposit once you’ve approved of the property’s condition.
Inspections
This is now the time to find out all you can about the property condition with the help of inspectors. Although you’ll be able to get your deposit back within the deadline if you so request, you would not get back the money you spend on inspections (typically between about $450-$700, depending on the home). When you consider the risks of not getting an inspection, this is a nominal loss and well worth the money.
Other inspections like a Wind Mitigation inspection and a 4-Point inspection on older homes are required for homeowner’s insurance. Most home inspectors offer both. Be sure to ask about them.
If the home condition is not what you expected, you may wish to negotiate repairs or a price reduction. If you're unsatisfied with property condition and/or negotiations, you may cancel the contract and get your deposit refunded.
Once the condition is approved (either as-is or with negotiated concessions), the contract moves forward in the closing process.
The Closing Process
There are several items required for closing the sale. These include contingencies (items than can be used to exit the contract if needed) like inspection contingencies, financing contingencies and possibly others. These all have important deadlines that are included in the contract and must be supervised carefully in order to protect your interests.
You’ll also need to arrange for homeowner’s insurance to cover the home. If you purchase the home with a mortgage, the bank will require you to carry homeowner’s insurance, while if you purchase a home with cash, carrying insurance is at your discretion. It’s always strongly recommended that you get homeowner’s insurance, whether you’re required to or not. A home is both an investment and a liability, so it’s best to insure it.
In addition, if you’re financing the home with a mortgage, there are several items required by the bank, including an appraisal of value, termite inspection and land survey. The bank’s appraisal of value could affect the sale if it does not meet or exceed the sale price. The bank is taking on a risk by mortgaging a home, so they will not move forward with the loan terms if the home does not appraise at a minimum of the purchase price. The appraisal is paid when it's ordered (about $500-$700). The survey will be conducted to mark the legal property boundaries, and the termite inspection tests for wood destroying organisms. There may be more items required depending on your circumstances.
Homes are typically closed with a title company that offers title insurance protecting the buyers from any earlier claims on the home. In other words, the new buyers would not be held responsible for any debts that were left over on the property. In Tampa, sellers usually choose the title company, and by doing so, agree to pay for an a seller's title policy, which awards a discount on the buyer's title policy.
Florida Home Sales Rarely Require a Lawyer
Florida home sales rarely include a lawyer. The great majority of home sales here are coordinated by Realtors® and title agencies. There are some situations that warrant the use of a lawyer to close, but they are few and far between here. Unless you specifically desire to use a lawyer or are completing an unusual transaction, you won't be obligated to pay for a lawyer in a standard home sale.
Costs to Expect Before Closing Day
There are various items that are paid before closing like earnest money deposit, inspections and appraisal. Review those details here so that you're prepared.
The Closing
Before closing (a minimum of three days before), you’ll get a Closing Disclosure (CD) that will detail all the exact debits and credits of the closing. The Consumer Financial Protection Bureau has a very helpful guide to understanding your closing disclosure. Your loan money (if you’re purchasing with a mortgage) will be available at closing. To pay your out-of-pocket costs, you will be expected to wire the money to close to the title company the day before closing.
After closing, the home is yours! Unlike car loans that award the deed of the car to the loan holder until it’s paid, home deeds are awarded directly to the new home owners and the mortgage is a lien on the home that you own. Your deed will be recorded with the county by the title company and it will arrive in the mail within a few weeks.
Filing for Homestead Exemption
Florida's Save Our Homes Act provides certain protections for resident homeowners, including a lower tax bill than homes that are not homesteaded. Once your deed arrives, you should file for your homestead exemption right away either online or in person.
If you're already a Florida homesteaded property owner, you're now able to transfer your accumulated homestead savings to your new homestead. Many owners save significantly by taking advantage of tax portability.
Let's get started!
Reach out today by call, text (813-453-5273) or email to Tracy@LoveTampaLiving.com. It's never too early to get on track for the goal of home ownership!
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