Steps to Buying a Home

Making a great offer is essential to buying the home you love.

Step 1: Be Prepared

You want to make sure you have done the necessary preparation before you ever write an offer. The first step is to make sure you are RWA – Ready, Willing and Able to make an offer. That means you have made up your mind that you are ready to buy and are willing to make a reasonable deal. You should have a pre-qualification letter from your lender or a Proof of Funds letter to provide with your offer. This lets the Seller know that you can afford the house you’re interested in.

Step 2: Consider Writing a Real Estate Offer Letter

When you are buying a house, you’ll have to make the seller an offer. To do that, you might want to write a letter explaining why you’re interested in buying the home, including details about the mortgage, and closing. Often, the key to writing the best offer letter is finding a way to connect with the seller on a personal level.

Step 3: Decide on Contingencies

It’s sometimes advisable or necessary to make some contingencies in your offer. The State of Montana buy-sell (the instrument used to make the offer) that is used predominantly in Western Montana is very thorough and gives you a number of protections such as the ability to have inspections done, review title commitments, and research just about any detail such as exact property boundaries, possible questions about the well(s) and/or septic(s), numerous aspects of the house itself such as how old the furnace is or the hot water tank. Obviously, the more you know about the property before you make the offer, the better offer you can present, but these safeguards can give you the time it takes to do your “due diligence" and make sure you are making a sound decision.

Step 4: Write Your Initial Offer

Your Realtor™ should be able to advise you about what is happening in the market and whether the house is priced well. Remember, prices are not set in stone but whether you should make an offer at asking price, less than asking price, or even more than asking price is always determined by the market – not by a particular buyer or seller or even a Realtor™. It is not advisable to give a “low-ball” offer unless you are an investor making numerous offers hoping something “sticks.” Knowing the market will help you make a realistic offer that will hopefully be accepted, but not leave money lying on the table.

Remember that price is not the only term in purchasing a house. A seller will sometimes take less if they have more time to vacate the house, or sometimes if the closing can occur sooner. They may be willing to accept less if they don’t have to worry about making repairs. In some cases, it may be worthwhile to offer a seller more if they will credit you with some closing costs or buying down an interest rate on a loan. If you have some serious contingency such as needing to sell your home before you purchase your new one, you may have to be prepared to offer some non-refundable earnest money or negotiate possession dates.

Step 5: Negotiate the Price and Terms of The Sale

After submitting an offer, the seller can do one of three things. They can accept it, reject it, or make a counteroffer.

• If the seller accepts your offer, then congratulations! You will probably feel that you should have come in a little lower but that normally is not the case. The best offer you can make is the one that the seller doesn’t really want to take but is able to and wants to move on with life.
• If the seller rejects your offer, it’s more than likely an indication that they are not willing to work with you and it’s probably time to start looking for another property.
• When a seller gives a counteroffer, you have a few choices. You can now accept their counter-offer, make a new counteroffer to them, or decline the counteroffer and move on.

If you decide to negotiate and make a counteroffer, know that it is common to go through several rounds of negotiations before reaching an offer that both parties are happy with.

Keep in mind that you can negotiate more than the price. You can remove contingencies, change your closing date, or offer something like a lease-back, which means the seller can rent the home back from you while they search for a new property.

These negotiations are where your West Montana Homes’ agent will shine.

Step 6: Finalize and Sign the Contract

Once you and the seller agree on the exact same terms and have signed the contact, both parties are committed . Then West Montana Homes will send this contract to your mortgage lender to continue the mortgage process where your pre-approval left off. Your lender will order the appraisal, and West Montana Homes will help set up your home inspection and open escrow with the title company.

Earnest money, or “good faith money”, is an upfront deposit that a buyer applies to the purchase of a home or property. Earnest money for a house or real estate purchase plays a special role, so it’s important to understand the rules that typically govern these types of financial transactions. West Montana Homes will explore when it is required and shed some light on the ways earnest money is used to help secure a home or property in today’s real estate market.

When Is Earnest Money Due?

Earnest money is usually due at the time of submitting an offer or very quickly after an offer is accepted. In Montana earnest money can be held by either the real estate broker or the title company. At the time of making an offer, West Montana Homes generally encourages the buyer to write a check directly to the title company because they are an independent third-party to the transaction. However, the check is not given to the title company until after all parties have signed the offer. If the parties cannot come to an agreement, the check can be voided before it is ever cashed.

How Does Earnest Money Work?

Many potential homebuyers ask what is the purpose of earnest money and how does it work. Earnest money is a portion of cash up front — often 1%-2% of the purchase price. It is the consideration the buyer puts up for their part of the contract. The seller’s consideration is to pull the property from the market so another offer cannot be considered even if one comes in for a higher amount.

Earnest Money Factors to Consider

There are a lot of market factors to review when making an offer, so getting a feel for how much earnest money you should put down is key. Your West Montana Homes’ agent can recommend the typical earnest money amount to offer based on several factors. Here are a few items to consider:

Home price
Be sure that the earnest money in the offer is sufficient to reflect a small percentage of the home’s asking price. Too low of an earnest money deposit may suggest to the seller that the buyer is not serious or they are unable to come up with the necessary funds to purchase the home.

Market trends
Some regions are prone to requiring higher earnest monies than others. The state of the market also enters into that scenario. If homes are only on the market for a few days before offers are being entertained, a higher earnest money might be one incentive for a seller to consider the seriousness of the buyer.

The standard home inspector's report will cover the condition of the home including:

• heating system
• central air conditioning system (temperature permitting)
• interior plumbing system
• electrical system
• roof
• attic
• fireplace/wood burning stove
• condition of the appliances
• visible insulation
• walls
• ceilings
• floors
• windows
• doors
• the foundation
• basement
• structural components

You can have additional inspections such as:

Water Sample Tests – If you are on a public water system, they are required to test your water on a regular basis. However, if you are on a private well, it is recommended to test your water for things like bacteria, nitrates, and arsenic. During certain times of the year, it is more common to have a positive test for something like coliform. If you have a positive test, don’t become alarmed. Normally the well just needs to be shocked and retested, but you want to know that the water is safe before you move in. (These tests should be done on a regular basis because the ground acts as a sponge and can change from one year to the next and even one season to the next.)

Radon Inspection - The Environmental Protection Agency (EPA) has issued guidelines saying radon levels should be under 4.0 Pico Curies per liter. This is a highly controversial topic but if it is a concern of yours, this is the time to have it done. Radon equipment is put in a basement or an area with little movement or activity. They are picked up two days later and sent to a lab. If a high level of radon is detected, another test can be taken that takes a little longer but may give you a more precise result.

Lead-Based Paint Inspection - Painted surfaces of a home can be evaluated to determine the presence of lead paint. Most homes constructed before 1978 may contain lead-based paint. There are some common-sense ways of protecting your children and pets from the damage that lead-based paint can cause. If you are buying an older home, it is recommended that you at least be aware of these. Lead-based paint inspections are extremely expensive but, again, if it is a concern, now is the time to do it.

There are many other inspections you can have done such as asbestos, composition board siding, underground storage tank inspections and the list goes on. Obtaining the proper inspections prior to buying is one of the best ways to make a smart purchase decision and protect your investment.

It is important to note that there may be some exceptions. If certain areas are inaccessible (locked door, tenant's belongings in the way) or unsafe conditions (severely steep roofs, poor structural integrity) the inspector will explain the situation and note that they were not able to assess that specific area or system.

Why do Homebuyers Need a Home Inspection?

Buying a home could be the largest single investment the homebuyer will ever make. To minimize unpleasant surprises and unexpected difficulties, homebuyers should strive to learn as much as they can about the house before they buy it. A home inspection may identify the need for major repairs or builder oversights, as well as the need for maintenance to keep it in good shape. Through the home inspection process, homebuyers will have a better understanding about their prospective house, which will allow them to make decisions with confidence.

Do the Homebuyers Have to be There?

It is not a requirement for the homebuyer to be present for the inspection. However, West Montana Homes recommends attending at least the last hour or so of an inspection so the inspector can point out different features and considerations that may not be readily apparent to them. In this way, the homebuyer can receive the most value from the inspection.

Home Inspection Report Reveals Problems

It is important to note that no house is perfect. Every home inspection will identify issues with the property and the inspector will communicate the severity of the issues found. Most reports are quite lengthy and can be intimidating but the home inspector's goal is to give a deeper understanding of the prospective home so sound decisions can be made as they continue the home buying process. A homebuyer should not expect a perfect home but be fully aware of any issues, risks, or health concerns that may impact their decision.

What Does the Title Company Do?

A title company provides a variety of services to satisfy buyers’ and lenders’ concerns about clear title. It performs a title search, prepares documentation for closing, and offers title insurance to back up their research findings should anyone make a claim to the property in the future.

The seller will generally pay for what is called a standard policy. The lender will require additional endorsements which the buyer is required to pay for. After the lender has approved the loan, they will give instructions to the title company for the closing. The title company must make sure that all of their instructions are met as well as anything that is outlined in the buy-sell before closing. They review all documents, make sure everything is signed and dated correctly and funds accounted for. The title company will file everything at the county clerk and recorder’s office and all funds dispersed appropriately.

The Title Search

The first thing a title company will do is perform a title search, which entails looking for potential obstacles to the clean transfer of ownership.

What most often comes to mind is whether other people have ownership in, or rights to, the property. A title search looks for encumbrances that could interfere with your ownership of the property such as:

Outstanding Mortgages
Unless the previous home is owned free and clear, the current homeowner will have a mortgage lien on the property. This will need to be paid off at closing so that the title can be transferred to you.

Other Debts Secured by The Home
There could be a lien on the property because a home equity line of credit was taken out or the cost of solar panels was financed, for example. These will need to be paid off or otherwise removed before title is transferred.

Unpaid Homeowners Association Dues
While this will vary depending on what’s written in the HOA contract, associations often give themselves broad powers in these agreements to place a lien on – and even foreclose on your property – because of unpaid HOA dues. The home seller will need to resolve their dues balance so the lien can be lifted, or the buyer will become responsible for paying those dues if the sale goes forward.

Unpaid Property or Income Tax Liens
Governments can place a lien on a deed if the homeowner fails to pay property taxes or other required taxes.
The Internal Revenue Service (IRS) will also place liens on real and personal property when a taxpayer fails to pay unpaid income taxes. Both types of tax liens must be resolved before closing.

Mechanic’s Liens
If a contractor, their subcontractor, or their employees weren’t paid for work that was completed, either on the property or the house itself, a mechanic’s lien might be imposed on the property. Unpaid debts for repairs done on the property stay with the property.

Restrictions
Anything that restricts the free transfer of ownership of a property can cause problems in the future. For example, buying a home in a 55+ community means you can’t sell your home to anyone under 55, which is a restriction.

Easements
Easements are agreements that, although you own the property, you’re giving someone else the right to use your land for a specific purpose. An example of an easement might be a driveway easement - this will give the easement holder the legal right to use and go onto another party's property for the purposes of accessing their property.

Leases
Is the property rented out to anyone for a specified term? If it is, you can’t interfere with their lease rights when you buy the home. A title search will reveal whether the property is encumbered with a lease.

Conduct A Property Survey
If required, the title company will order a property survey or a drawing of the property. The aim of this is to discover any potential encroachments – for example, if a neighbor’s home addition intruded onto your property.

An encroachment can give rise to a claim of adverse possession if it goes unaddressed. That means that, if the homeowner does nothing to resolve the encroachment, they could lose the affected portion of their property.

The title company researches these items and others to make sure that nothing of public record is clouding the title and new buyer will receive an insurance policy to that effect shortly after closing.

The Closing Process

After the lender has completed their process, you have your final approval, the appraisal has come in for the appropriate amount and the underwriter has approved everything, the lender will be in touch with the title company to let them know that a “clear to close” has been issued. They will give instructions, loan documents and disclosures to the title company at that time.
This is when either your lender or your West Montana Homes’ Realtor will set the “closing,” or the time for paperwork to be signed. It is important to note that “closing” actually refers to when the Clerk & Recorder’s office files the deed transferring title from the seller to you; not when you sign paperwork.

Preparing For Closing Day

Closing Costs and Fees
Closing costs are the fees paid to your lender and other third parties to close on your loan. They’re typically around 2% – 6% of the purchase price of the home and include several fees, like the appraisal, hazard insurance, lender fees such as origination and document fees, title insurance and other costs.

Earnest Money and Credits
Earnest money is the money you put down to show the seller you are serious about buying their home and the money is held in an escrow account until the day of closing It is applied as a credit towards your down payment or closing costs. If you’ve already made certain payments to your lender such as paying your home owners insurance in advance – it will be deducted from your cash to close.

Cash To Close
Cash to close is the total amount of money – closing costs and down payment included – that you need to bring on closing day.

Settlement Statement

One of the documents that a title company prepares is a settlement statement which lists all debits and credits and this is what tells you what you will need to close. West Montana Homes always requests a copy of the settlement statement before the day of closing so it can be discussed before you actually get to the closing table itself. It just helps to know the numbers and understand them beforehand. If there is a mistake on the settlement statement, which does occur from time to time, it’s easier to correct it ahead of time rather than waiting for clarifications and paperwork to be reprinted while everyone is sitting at the title company.