Your Step-By-Step Guide To the Purchase Process
Jun 10, 2021
While every dream home is personal and every home purchase unique, there are certain steps that most buyers will go through when buying a home. The steps you take may not always be in this exact order, but you will experience most of them during your home-buying journey, so let’s get you prepared so you know exactly what to expect.
Pre-Qualification or Pre-Approval
Something we tell clients over and over again is that getting in touch with us should be the second step in your process. The most important one to begin? Finding a mortgage broker you can trust and securing your pre-approval.
Getting pre-qualified is a much less rigorous process but it also doesn’t mean as much to potential sellers—particularly in the hyper-competitive NYC market. That’s why securing your pre-approval is so important.
Understand that a “pre-qualification letter” is NOT a loan commitment. The Loan Commitment Letter is issued by the lender only after they have reviewed your documentation, have done a credit report and agree to fund the loan, subject to additional conditions that may appear on the Commitment.
The vast majority of homebuyers use the internet as part of their home search, so it’s likely that you’ll do some of your searching online. Narrow down your list of must-haves and nice-to-haves. Ask the questions that will help set parameters for your search on RealtyCollective.com: Are you set on buying a home in a particular school district or neighborhood? How many bedrooms do you need? Do you want a single or multi-family home or are you open to a co-op or condo?
Once you have some parameters in mind, we can set up an automated search for you so you’ll automatically be sent listings that only match your chosen criteria. This also assures you that you’re seeing all possible listings; StreetEasy, for instance, requires listing agents to pay so most agents are not going to pay indefinitely for every property they represent. Also, some of the aggregating sites are not great about scrubbing data and you could find an ideal place online but when you go to see, find out that it’s already under contract.
Finally, when you see listings you like, give your agent a call or send an email to set up a showing. It’s that easy.
Making an Offer
Once you’ve found a home you’d like to make an offer on, your buyer’s agent ( Realty Collective ) will compile all the needed docs and submit a written offer to the seller’s agent( Cover Letter, Pre-approval and Submit Offer Form). This written offer also serves as confirmation to the seller that you have the funds needed to purchase the property. If your offer is accepted, deal sheets will go to the lawyers and you’ll receive an email detailing all the additional information you’ll need to get to your mortgage broker for your loan. Once your mortgage broker has all your financial documents, they will send them on to the underwriter, who will confirm all the information so your loan can get officially approved.
If your offer was contingent on inspection you’ll want to move quickly to get your inspection done so it doesn’t delay you signing your contract. Reach out and have your inspector on deck and ready to go once you submit an offer.
Contract Negotiation and Due Diligence
The transaction summary sheet has been prepared and sent to the attorney; they will begin their pre-contract signing due diligence (there is also post-contract due diligence), fully investigating the cooperative corporation, finances, building and unit — as well as confirming there are no title or lien situations to be aware of.
Simultaneously, as the attorney is negotiating the contract, to ensure it contains all relevant components of the deal that was struck, and in addition, they will add a Purchaser’s rider, to include protections for you and get representations from the Seller.
Once contracts are negotiated and you’ve been provided with a summary of the firm’s due diligence, you will sign the contract and they’ll be sent to the Seller’s attorney, along with your check for the down payment. The Seller will then countersign, and fully executed copies are sent back to the attorney, along with notification that your down payment has been deposited into the Seller’s attorney escrow account, where it is held and applied towards your funds for closing. The day the fully executed contracts are returned to your attorney is the date of the contract. The fully executed contract is then sent to all parties.
It is important to arrange for your lender to perform an appraisal on the premises as quickly as possible; the bank and your real estate broker will ensure the appraiser has access. If your contract is NOT contingent on financing, if you are unable to secure a loan commitment letter, you are still bound by the terms of the contract and will be expected to close. If your contract IS contingent on financing, you will have a specified period of time (most often 30 calendar days from the date of contract), to submit your Loan Commitment Letter, along with the Coop Board Application Package. If at the expiration of this period, if you are unable to secure the Commitment, after making a full good- faith application, you will be entitled to cancel the contract and receive the down payment back, or if you desire, you may ask the Seller for an contingency extension, allowing you additional time to secure the Commitment Letter
The Loan Commitment will have conditions: for example, additional bank statements or pay stubs be submitted, written explanation of any irregularities in previous employment or credit history, etc. Normally a loan commitment will not be considered a binding commitment, until the bank has received a satisfactory appraisal.
With few exceptions, once the Loan Commitment has been issued the contingency period is essentially over; you will still be bound to the contract, even if you are unable or unwilling to satisfy the remaining conditions of the Loan Commitment. Your attorney will discuss with you the particularities of your own Contract
Once “in contract,” you will need to work closely with your mortgage broker or bank representative, ensuring they have all requested and necessary documentation from you. DO NOT LOCK IN A RATE UNTIL YOU ARE CERTAIN YOUR LOAN REPRESENTATIVE HAS SEEN A COPY OF YOUR CONTRACT AND UNDERSTANDS THE “ON OR ABOUT DATE”. Remember that in New York, closing dates are not exact, and “on or about” means a 30 day window in which to close. All too often Purchasers lock in a rate too early and are faced with extension fees.You should inquire if the loan product you are acquiring has extension capability and associated fees just in case the closing is delayed. Do immediately discuss rates and locking your rate with your mortgage professional as soon as you can. They will make a plan and strategize with you about the best time to lock and get the best rate.
Once the commitment is issued, you should be receiving some communications from the lender’s attorneys.
They will be sending you several important items:
The UCC 1 Authorization Form – enables the bank attorneys to “register” the loan (normally requires a fee ranging from $90-$120). This form and the check should be sent back to the lender’s attorney per their instructions.
The Lien Search Request Form – if you choose, the bank attorney can also order the Lien Search (a report that discloses all existing liens against the apartment).
If you are purchasing a co-op: Three copies of the Cooperative Recognition Agreement, also called the “Aztec Forms”; this is an agreement whereby the bank and Cooperative Corporation recognize the responsibilities and obligations towards the other, in the event of a loan default. All 3 will be pre-signed by the lender; you will need to sign them as well, AND DELIVER THEM TO YOUR agent , OR TO THE ATTORNEY’S OFFICE SO THEY CAN BE FORWARDED TO THE COOPERATIVE BOARD usually with your co-op application.
Getting Ready To Close
When your loan has been fully approved, it is called “clear to close.” This is a term you will likely hear frequently as we get near a closing. Remember that only the bank’s attorneys (not mortgage broker or bank representative) will give the final clearance – your attorney will be in constant touch with these attorneys and will keep you informed.
At this point, we can schedule a closing date. In all likelihood, the bank attorneys will not solidify a date until your loan is “clear to close.” Your “first choice” of closing date may not be available (or even the second, for that matter). It is frustrating in New York, as you likely cannot confirm movers and other plans until we have the firm closing date. Please be patient, be a little bit flexible, and of course, it always helps to have a sense of humor.
It is quite likely that you will not receive your closing statement and check instructions until right before the closing. This is the process in NYC, and while extremely frustrating, is not unique to your transaction. If you are purchasing “all cash,” your attorney will most likely be able to provide you with your check instructions earlier than if you are financing. With a loan, you must wait for the lender’s attorney to provide your attorney with the “net proceeds” on the loan; Net Proceeds is the amount the bank actually brings to the closing. For example, if your loan is $500,000, the bank may really come with $496,239.87. Why? Because the bank takes all of their fees right off the top of the loan. You are still borrowing $500K, but they collect underwriting and processing fees, appraisal fees, bank attorney fees and the remaining mortgage interest for the month in which you close, right from the mortgage; consequently, until your attorney get that number from the lender, they cannot tell you the exact amount of the checks you need to bring yourself. Be aware however, that you will likely need one or more Certified or Official Bank Checks, drawn from a bank that is a member of the NY Banking Clearinghouse.
Prior to closing you will schedule your “walk-through inspection” of the Unit with your agent, to ensure that the apartment is in the condition as contemplated by the Contract. You should try all appliances and plumbing fixtures and look for any damage that was not apparent when you initially went into contract. Your agent will accompany you on the walkthrough and submit any issues to the lawyers 24-48 hours before closing.
You should allocate approximately 2 hours for your closing. We may be there at the closing table, along with the seller’s attorney, your attorney and possibly their clients, your bank attorney if you are financing. Remember that we are here to make this transaction as “stress-free” as possible for you.
This is the basic buying process from beginning to end. Good Luck with your home search but know you’ve got something better than luck — because we’re going to prepare you for every step of the way.