Los Angeles Living

First time home buyers, this is what you need to know about the home purchase process:

The very first thing you need to do is find out how much home you can afford.  Find a lender, or ask your realtor to recommend one and get pre-approved.  The reason for this is twofold:  Firstly, in Los Angeles you are not going to be able to make an offer without a letter from a lender verifying that you are able to afford the house and make the payments.  Secondly, you will find out how much house you can buy.  There is no point looking at homes above your price range, but you also may be surprised at how much house you can afford.

When talking to your lender, make sure you understand what it will cost you to buy the house.  There are closing costs involved over and above the lender's fee. 

When you are motivated and ready to look at homes you need to make yourself available to view them.  Your realtor will send you lists of homes within your criteria, but you should also look yourself as sometimes the realtor may not consider a home that you would for certain reasons.  If you like a home chances are several other people will also. Missing the first open houses or showings will put you at a disadvantage when it comes to making an offer before someone else.  A good house (in a great area and well-priced) is not going to sit around and wait for you.

Your realtor will give you the comps (prices of similar homes that are on the market or sold in the area) and then you can decide what your offer should be.  Putting in an unreasonably low offer on a house fresh on the market will probably not get you a counter offer, and remember you will be competing on the house.  The idea is to encourage a dialog with the seller until you can both agree on the right price.  Ultimately the house is worth what a buyer is prepared to pay for it, so you need to decide how much is too much for you.

Once the offer is written you will be waiting to hear from the Seller.  If it is a reasonable offer and there are no other buyers, the Seller may accept, but in most cases you will receive a counter offer.  You will know if there are other buyers since the counter offer will show that you are not the only one being countered. 

Now the ball is in your court.  You can accept the counter or present your own counter.  In a multiple offer situation most probably the counter's main goal will be to get the highest price.  Sometimes they will state the price they want, or they will ask for "best and final".  That is tough because you are in competition.  This is where you decide what the house is worth to you.

Here also where you financial strength will play a part based on the type of loan you are presenting.  If another buyer is putting down 20% and you are only putting down 3.5% (FHA) they will probably be looked at as a stronger buyer.  They may not be, but that is the perception.  Also, if an all cash buyer comes along, then all bets are off.

But, let's say your offer is accepted, you are now on your way to purchasing the home and the work starts!

There are contingencies that must be met within a certain time-period, namely the inspection, loan and appraisal.  Your realtor will probably have lowered the inspection period to 7 days from 17 as a good faith gesture.  A general home inspector can be out within a day or two, as can specialized inspectors whom may be recommended by the general inspector. It is usual that the buyer be present during these inspections and he or she is responsible for paying the inspector on site, around $300 or so.   After you have reviewed the inspections you can remove the contingency or submit a Request for Repairs.  The clock stops at this time.  The Seller can agree to do the repairs, offer money through escrow for you to take care of the repairs, or refuse to do any.  If the Seller refuses to negotiate you can choose to go ahead and waive the repairs or back out of the deal.

Hopefully your lender is speedy in getting an appraiser out to the property as this can be a slow process.  And, hopefully, the house appraises at the price offered.  If it doesn't you can back out of the deal, negotiate with the seller to lower the price, or agree to pay the difference out of pocket.  Depending on how long you are going to live in the house, the latter is not an advisable tactic, since you will have overpaid for the house.

In Los Angeles the loan and appraisal contingency period is 17 days.  In today's market this is a little tight, but there are lenders that are able to meet the deadline.  If for some reason they can't your realtor can usually get an extension on the time.  Once your have removed these last contingencies then you have effectively "bought" the house. 

The Seller also has his or her own contingencies, some of it paperwork to be provided to the buyer within a certain timeframe.  But the main one is the termite inspection and clearance if needed.  The buyer requests a termite inspection and clearance of any infestation found.  This is paid for by the seller.  Anything found by the termite company that could be a future problem is paid for by the buyer if they wish.  It is not a requirement for the escrow to close. The Seller also has to comply with the City requirements.  In Los Angeles there needs to be retrofitting of toilets to low-flow, working fire alarms and water heater bracing.

Your realtor will also have asked for a home warranty paid for by the seller to cover the first year for appliances, air conditioning, etc. depending on what has been agreed.

The only thing to be paid for by the buyer as part of the contract is their portion of escrow costs, usually less than the seller's portion.

Generally the escrow period is 30 days, but the contract can request a reasonable time longer and sometimes, through no fault of anyone it can be extended beyond the agree period. 

The last contractual duty of the buyer is the walk-through which is usually done up to 5 days before close of escrow.  This is to ensure that all the work that the seller agreed to do has been done, or that nothing has significantly changed since you put in the offer.

The next step is the signing of the loan document, after which the funding of the loan takes place.  The next day the title rep goes down to the County Recorder's office and title is recorded. 

You will have made arrangements for the gas, electric, phone, etc. to be turned on the day of close of escrow and provided your change of address to the post office.

Congratulations!  You are now a home-owner.  See it wasn't so bad.