Dream Farm Fridays: The Basic Buying Process, Step-By-Step
|This could be yours!|
Bully for you! It's a long and arduous process, but with a good team of professionals, you can make it through unscathed AND, hopefully, with the farm of your dreams!
"But where does one even start? Buying real estate seems really... overwhelming. And complicated."
Good question! I'm glad you asked!
As mentioned in a previous post, your first step is to:
Find A Lender And Determine Your Purchasing Power
Real estate costs money, and if you don't have any money, you ain't buying any real estate. Those are the cold, hard facts of life, folks. A mortgage expert from a financial institution (preferably one that specializes in rural properties) will walk you through how to analyze your financial situation to determine how much farm you can afford. While you may have dreams of a sprawling 100 acre equestrian empire with five arenas and a luxury mansion, your bank account may limit you to a run-in shed on 3.5 acres with a very modest pre-fab house.
The important thing to take away from this first step is to be realistic about what you can afford. I know a lot of us have champagne taste on a beer budget, but trying to find a 'deal' on something you just really don't have the means to pay for is a waste of time - for you, for your real estate agent, and for your lender. Be honest about what your budget is BEFORE you start shopping.
Find THE ONE, Make An Offer
Okay, so you've chosen a lender, gotten pre-approved for a loan and are well aware of how much you can afford. You've looked at a bunch of farms in your price range, and you've found one you love! You want it! You need it! HOW DO YOU MAKE IT YOURS?!
Your friendly local horse-savvy buyer's agent will help you write an offer, and that will get the ball rolling on the first negotiation period with the seller of the property. Your offer includes basic information such as the price you are offering to pay, how much money you'll be putting down as a good-faith deposit, when you'd like to settle on the property, which inspections you'd like to perform, information about the mortgage you'll be applying for, and any other pertinent details that are relevant to the sale.
If you are really lucky, the seller will accept your offer without any complaints, but this is rarely how it goes. Usually, this initial offer sparks a period of negotiation, and buyer and seller will go back and forth with changes to the terms of the sale until everyone is satisfied and feels they are getting a fair deal. Negotiation is why you hire a real estate agent - they do all the dirty work, the phone calls, the back-and-forth, and the re-writing of the contract. The process can still be very stressful, but trust me, your agent is taking a lot of the burden off your shoulders! If the sale is unusually complex, I also recommend having a real estate attorney get involved in the contract writing and negotiation process to make sure that you are protected by what you sign.
Once both parties have agreed on the terms of the sale and signed off on all of the necessary paperwork, it's time to hustle! Now the REAL work starts.
Apply For A Mortgage and Schedule Inspections
Due to some new rules that went into place last year, lenders require a period of at least 45 days to go through the process of approving mortgage loans. Your agent, if they're worth their salt, will have told you this, and you will have scheduled your closing and mortgage commitment dates far enough in the future to allow for this 45 day period and then some.
That said, as soon as the ink dries on that sales contract, call up your lender and get that mortgage application in! You want to give yourself enough time to iron out any wrinkles that may come up in the mortgage application and approval process without having to extend your closing date. Because no one likes to extend the closing. No one.
You'll also want to call up your home inspector and get your inspections scheduled ASAP! The standard time period for home inspections is usually about 2 weeks - in this time you'll have to have the house, barn, and related systems inspected and present any requests for repairs or credits to the seller, so it's imperative that you get started right after the agreement of sale is signed. If y'all would like to learn more about inspections, what's involved, and what my company recommends, I'd be happy to do another post specifically on that topic!
Negotiate Some More
Usually the inspection and/or the appraisal (which is often required by lenders) will turn up some issues with the house, barn or systems on the property that need to be resolved. As the buyer, you have a few basic choices about how to proceed once the inspection and appraisal results are in:
- Request that the seller repair the defects and address the problems that were found during the inspection before settlement. If the property is being sold "As-Is", however, this is not an option!
- Request a credit from the seller to allow you to make the repairs post-settlement.
- Request that the sales price be lowered to account for the needed repairs, OR because the appraised value of the property is lower than the sale price.
- Decide that there are too many problems with the property, or come to the conclusion that you cannot get a loan on the property because it is in poor condition, did not appraise, etc. and terminate the sale.
Now, sellers want to do approximately zero of these things, so you'll have a bit of back-and-forth until everyone comes to a mutually agreeable solution. It can be filled with drama, but usually everyone is able to eventually agree on a compromise. At this point, you're in the home stretch!
Order a Title Search and Get Ready For Closing!
You'll have to hire one more professional to seal the deal and get you into your horse farm: a title company. Your agent will, hopefully, have some recommended title companies that they've worked with before to steer you towards. The title pro will run what's called a title search on the property to make sure that the current seller owns it free and clear, and that there aren't any weird legal hang-ups, liens, or other strangeness that might prevent the transfer of ownership. You'd be surprised at what kind of crazy stuff a title search can turn up! They also, generally, will provide a settlement agent who will handle the nitty-gritty of getting all of the paperwork in order for the closing so that the ultimate transfer of the deed to the property, as well as payment to the seller and the agents, goes smoothly. On closing day, if your team of pros has done their job, all you'll have to do is sign a few pieces of paper and collect the keys to your new farm!
Now, with every real estate transaction there are bumps in the road, and this is a VERY BASIC overview of the buying process from start to finish. Each transaction is totally different, and your experience won't be the same as everyone else's. You will face some stress, anxiety, and drama during the process, because horse people are crazy, and real estate is insane as it is. But as long as you hire an agent whose #1 goal is to get you into the RIGHT farm for your needs and budget, you'll be just fine. Your buyer's agent is your advocate throughout the process, and their knowledge (as well as the knowledge of their broker and the team they work with) is a priceless asset.
Happy Farm Hunting!