Buying the house of your dreams is one of the best satisfactions, California is one of the best cities to do it. We tell you how to buy a house in California and not fail in the attempt, read on and find out the requirements you will need.
Documents and Requirements
One piece of news is that buyers do not always need to handle many of the documents, especially after signing the purchase and sale agreement because, in this case, it will be your real estate agent who will handle most of them. In the United States, real estate agents are very professional and many of them are regulated, of course, occasionally they will have to sign some documents.
Pre-approval letter
The pre-approval letter is a document provided by the lender you have chosen. This document details the amount of the mortgage that the bank has pre-approved you for the purchase of your new home. Arguably, this is perhaps the first document you need, even before you start looking at properties. Why? Because it's your ace up your sleeve to show sellers that you are a serious buyer and that you have the financial ability to close the deal.
Although some may equate this document with the pre-qualification, it is not the same thing. In order to pre-qualify, all you would be doing is providing a general overview of your finances to the lender, including your credit rating, income, debts and assets. You can usually complete this process online and get the letter in a few minutes. The problem? This letter doesn't prove that the lender verified the information.
In contrast, the pre-approval letter does confirm that the lender has verified - at least in part - the applicant's credit or financial information. This could result in a soft inquiry on your credit or perhaps even a hard inquiry because the institution you have chosen will closely scrutinize the accuracy of everything you have stated, including your W-2 forms and bank statements. Depending on the extent of the bank's review, the pre-approval letter will carry more or less weight with sellers and real estate agents.
Now, going a step beyond the traditional unverified pre-approval, some lenders and financial institutions - such as HomeLight Home Loans - take a complete financial snapshot of borrowers. In other words, they examine every piece of the puzzle to analyze all the data that's available 24 hours before the buyer's application. That could help you determine what type of home you qualify for.
However - and just to be clear - any pre-approval letter you have, whether it's an upfront financial underwriting, pre-qualification or pre-approval; it's not considered a loan commitment. Remember that there are several scenarios in which the mortgage loan could fall through, even after you have this letter in your hands.
For example, if you incur more debt during the loan process, quit your job or something similar, you could put your mortgage at risk. Nevertheless, it is still a key document for buying a home.
2. A loan estimate
This form (which your lender is required by law to send you within three business days of receiving your loan application) is a brief but complete financial description of the type and possible terms of the loan you are applying for. Think of it as a sheet that will outline everything you would be committing to if you agree to the terms of the loan, such as:
Estimated interest rate
Monthly mortgage payment
Estimated closing costs
Estimated tax and insurance costs
Rate changes or scheduled payments
Possible penalties (including prepayment charges)
Remember: The loan estimate does not represent the amount you will actually be approved for by the bank or the likelihood of approval. At the time this document is sent to you, the lender may not yet have made a decision whether or not to approve your application.
In short, this three-page document is simply a snapshot of the terms of the loan the bank might offer you. Having it in your hands will be very useful, especially if you send your application to several lenders, since it will allow you to evaluate the conditions of each one and compare them with each other in order to choose the least expensive for you.
3. Offer to Purchase Letter
This is an optional document that has unparalleled potential because it could help you get the house you want to buy. When a buyer writes an offer letter it is essentially a summary of praise for the sellers, as its main function is to explain to them why your family wants to buy the property.
Ideally, this letter should include a bit of personal information describing who you are, who your family is and why they love that house. This is arguably your best opportunity to personally connect with the seller or homeowner.
Recommendation: Keep your eyes peeled during the showing to see if you have any common interests with the seller. Then, you can mention this in the offer letter. Perhaps it could be a compliment on the garden and your interest in keeping it intact or perhaps expressing admiration for their collection of kitchen utensils from bygone eras.
In itself, the purpose of this letter is to connect you emotionally with the owner and try to tip the scales in your favor. This will make your offer stand out from any other offer, even if it is a little lower than the other potential buyers.
If the price you are offering is less than the advertised price, explain why you have made this decision. It may be because you are in a time of financial contingency or you feel that the property needs some major repairs.
4. Purchase and Sale Agreement
The purchase and sale agreement is a document signed by both the buyer and the seller in which both agree to formalize the purchase and to initiate the terms of the contract. Typically, this document is drafted by the seller's real estate agent and includes important information, such as the following:
Identification of the parties, i.e., buyer and seller.
Description and condition of the property
All of the terms and conditions of the contract
The rights and obligations of both parties
All items included in the sale, such as appliances and furnishings, for example
The amount of the earnest money deposit
Closing costs (itemized so you know who pays what)
Closing date of the contract
Condition of possession, i.e., when you'll receive the keys to the home
The signatures of the buyer and seller
Although you will not be involved in drafting this document, it is arguably the heart of the negotiation. The purchase agreement is one of the vital documents you need to buy a house.
5. Home Inspection Report
The home inspection report is a detailed list that includes the overall condition of the property and any visible damage. In itself, it evaluates:
The structure and foundation of the house
The exterior
Bathroom fixtures
Appliances
The roof
The plumbing
The chimney
HVAC
Electrical systems
A home inspection is one of the most frequently included due diligence in purchase and sale agreements because it allows the buyer to walk away from the transaction in case the house has major problems.
Therefore, it would give you your ticket out in case you don't want to take the risks, but also a good card you can play to renegotiate the terms and, of course, the price of the contract.
6. Appraisal of the property
While the inspection report focuses on the condition of the home, the appraisal is somewhat different. This step will help determine the current market value of the property. This document is vital to your mortgage approval because it is usually the lender who orders the appraisal of the property. In fact, before the mortgage lender will approve your loan for the amount agreed upon with the seller, they will first want to verify that the property is actually at that price.
If the appraisal determines that the property is worth less than what you agreed to pay, you could use this document to try to negotiate a lower price.
7. Property titles
Nobody likes to be swindled, right? Especially when it comes to buying a property that, far from being inexpensive, represents an investment of hundreds of thousands of dollars. That's why a title search is part of the home selling process and is designed to protect the buyer from fraudulent sales or much worse.
Ordering a title search of public records will allow you to verify that the seller does, in fact, have a legal right to the house and can sell the property without problems. It will also help you examine whether the property has any outstanding legal issues, such as property tax debt, liens or judgments that list the house as an asset of the seller.
Mortgage lenders always require this title search to be done because, in addition to protecting you, it protects them in case you default. Remember, in this case, the house is their payment insurance and is collateral designed to protect their own interests.
As a buyer, you may not be interested in the title to the house, but don't skip looking for it! Think it's worth the $175-or at most, $300-to search for the title to make sure the house is available for sale.
8. Cashier's Check
The cashier's check is perhaps the most important document to have on hand to close the sale of the home. Without it, you won't be able to close the deal.
But why is a cashier's check required and what does it include? The check contains the final amount of the purchase and sale, including closing costs. A cashier's check is required because this is what guarantees that the funds can be cashed; unlike personal checks that can be written for any amount, whether or not you have the cash available.
Remember: The amount of this check includes closing costs, prepaid interest, taxes and homeowner's insurance. It may also include the down payment, but this will depend on whether your lender has bundled the closing costs and cash down payment into that lump sum. If not, you'll need to provide another check with the down payment or follow your real estate agent's instructions to complete a wire transfer.
9. Closing Disclosure
The closing disclosure is a five-page form that your mortgage lender must give you. This document details the final terms of the loan. It is arguably a much more true-to-life piece of paper, this when compared to the loan estimate you were previously given. What does this document contain? Let's take a look at it:
Interest rate
Monthly mortgage payment
Estimated tax and insurance costs
Rate changes or scheduled payments
Estimated closing costs
Potential penalties (including prepayment charges)
Note: The key difference between the loan estimate and the closing disclosure is that the closing disclosure provides hard numbers rather than estimates. Therefore, it should be in your hands - at least - three business days before the home closes. That way, you'll have time to review the terms of the mortgage.
Remember: This document is vital to getting the cashier's check, as it will also tell you the exact amount to include in the amount section.
10. Homeowner's Insurance
The homeowner's insurance declaration page is nothing more than a summary of the insurance coverage that has been taken out for this purpose. Keep in mind that most lenders won't make a mortgage loan without insurance like this in place. Why? Because until your mortgage is fully paid off, the bank will have a vested interest in the condition and upkeep of the property.
In other words, your lender agrees to lend you the funds as long as, in the event you default, the bank can take possession of the property. Therefore, it makes sense that they need this property to be in a good state of repair so that when they sell it, they will get everything you have defaulted on.
11. Property Survey
While not a requirement, ordering an additional inspection of the property is a good idea because it could give you legal proof of what you are buying. This would be especially important if you are purchasing a home with any disputed assets, such as a beach or a road, for example.
As you can see, buying a house is overwhelming, but checking what documents you need is overwhelming as well. Fortunately, you will always have a specialist on your side to help you complete all these documents and requirements: your real estate agent.
Contact a Housing Counseling Center
Call the Department of Housing and Urban Development's (HUD) toll-free number, 1-800-569-4287 (press 2 for Spanish), and get information about counseling in your state.