10 Steps to Buying a Home on the Monterey Peninsula
Buying a home on the Monterey Peninsula may not be as easy as 1, 2, 3—but it just might be as easy as counting to 10. And while a variety of factors can affect the ease and timing of your transaction (distressed properties, 1031 exchange or a special mortgage programs) a few basic steps are universal for most central coast homebuyers during the process of buying a home.
1. Determine your readiness:
If you’re reading this, it’s likely that you have already tackled the first step of deciding whether purchasing is a good option for your finances and your family. Obviously, your current financial situation will be a major factor in this decision. Understanding the costs of home buying and home ownership are vital steps in determining whether you’re ready to “take the plunge.” Factors that determine your financial readiness include your current income, savings, fixed expenses, and debts.
2. Become optimal mortgage candidates:
With lender requirements stricter than ever, you’ll need to make sure your credit and finances are in excellent condition. Try to pay off or pay down outstanding balances on credit cards, car loans, etc. This will help improve your income-to-debt ratio, which will in turn improve your credit score. A credit score higher than 700 will help you get the best rates.
3. Get a pre-approval letter:
In today's competitive real estate market, especially hear on the Monterey Peninsula, if you aren't pre-approved, the sellers will not take your offer seriously. Some Monterey Peninsula sellers won’t even let you look at their house unless you are preapproved! Getting pre-approved for a mortgage means that a loan officer has reviewed your finances and credit report and believes you qualify for a specific loan amount for one or more mortgage programs. The lender will then offer you a pre-approval letter, which will be a testament to your buying power when you are ready to make an offer on a home.
4. Determine your budget:
Just because the bank says you are pre-approved up to a certain amount doesn't mean you have to spend that much. Your pre-approval letter will tell you how much the bank is willing to lend you based on your credit, income, and other factors, but how much you can really afford is a personal decision. The bank will take your fixed expenses into consideration when determining your pre-approval amount, but you will need to determine what you’re comfortable spending each month.
5. Find a local Monterey Peninsula real estate agent:
With access to the local Monterey Peninsula multiple listing services and insight into the idiosyncrasies of each individual peninsula city, a Monterey Peninsula Home Team real estate agent can help you find the home you’re looking for as well as facilitate the negotiating and closing process. While you don’t have to use an agent to purchase a home, it will make the entire process much easier for first-time homebuyers as well as experienced sellers.
6. Select a property:
With your real estate agent, narrow available properties by determining what you really want in a home. Your agent will help arrange home viewings for properties that suit your preferences. This can be a long process here on the Monterey Peninsula as inventory is sometimes limited and demand can be high making competition for homes a real factor at times. Once you’ve found the right home for you and your family, it’s time to make an offer and work towards closing the transaction.
7. Make an offer:
Placing an offer on a home for sale here on the Monterey Peninsula can be a delicate process. The current market condition, time of year, work needed on the home, the length of time the home has been on the market can all affect your offer – not to mention your own budget. The price is not the only factor within an offer, either; you can also negotiate closing costs, necessary repairs, etc. Your Monterey Peninsula Home Team agent can help you navigate the ins and outs of an offer explaining all of the local customs and practices. You can likely plan on a counter offer and many times we will counter back and forth several times before there is an agreement in place. This is pretty normal.
8. Get "under contract":
Once all the details are hashed out between you and the seller and you are ready to "go under contract," you will accept the final counter offer and you will officially be in contract on the purchase of your Monterey Peninsula home!!! The purchase agreement, will outline the specific directions of the transaction including (but not limited to) fixtures sold with the house, payment of earnest money, negotiated payments of various costs (like county transfer taxes, escrow fees, title insurance, government retrofits, etc.) whether you want/need an appraisal, contingency periods for your loan (how long you have to get approval) and contingency period for your inspections (how long you have to inspect the property). The earnest deposit along with a copy of the purchase agreement will be held by your escrow officer who is typically picked by the seller, since the seller normally pays for the bulk of the closing costs. The purchase contract is basically a road map defining your purchase so that both sides can then get to work on providing what they agreed to do and escrow checks to make sure both parties have provided what they promised.
9. Contingency period:
Once your offer is accepted, you will have a specific amount of time to do your due diligence on the property and make sure you can secure a loan. This is called the contingency period.
It’s customary to schedule a buyer’s home inspection. This is when you have the opportunity to get a professional opinion on the condition of the home and determine any red flags (like damage, pests, structural issues, etc.). If you don't know a good, local Monterey area certified home inspector, we will provide you with a list of qualified proffessionals. In addition to checking out the interior of the property, a good home inspector will crawl under the house, get on the roof and check out the attic for signs of past, present or potential future issues and will document those issues with pictures and a thorough description of each. This report will likely be 50 plus pages long and it will contain valuable information that will help you move forward or potentially not purchase the house. You will also review all seller disclosures and title documents during your inspection period.
During the contingency period, you will work with your lender to secure your mortgage. This process will involve gathering a wealth of financial paperwork as well as arranging a lender’s appraisal of the property. Your lender will let you know when your loan has final approval at which point you can remove your loan contingency.
It's decision time! If you are ok with the condition of the home, you can remove your inspection contingency and if your loan has been approved by the lender, you can remove your loan contingency. Once you remove all contingencies, you are locked and loaded and set to purchase this home. Your deposit is now in play, meaning the seller can keep your earnest deposit (up to 3% of the purchase price in CA on a SFR or 1-4 unit property) if you change your mind and no longer want to purchase the property. I always tell my buyers is you need to be 100% sure you want to purchase this home when you remove your contingencies.
10. Close the transaction:
The process of closing on a home can require several weeks (or longer) and many steps. During the closing, your lender may require you to purchase a policy of homeowners insurance, and you will have the option to purchase an owner’s policy of title insurance. When the requirements of your purchase agreement have been fulfilled and your mortgage has been approved, you will be given a final walk-through of the property to determine that all repairs were made as negotiated. Several days prior to the closing date, you will sign your mortgage documents. You will receive your keys the day it closes escrow and records with the County of Monterey.
Congratulations, you now own your new home on the Monterey Peninsula!