Hi BP I wanted to make this post in hopes of helping people understand the nitty gritty little details involved in the transaction of a property.
I did a preliminary search to see if there was a post like this but most of them focus on the bigger picture and general mindset. I hope this helps as I would have found it very useful before purchasing my first property.
I will focus on the typical process of having an offer accepted and utilizing conventional financing.
All of this works just about the same for out-of-state buyers as it does for local buyers.
I am personally an investor focused agent in Cleveland and would love to be your boots on the ground and guide you along this process. Over the past 5 years my team has specialized in helping investors navigate CLE RE.
1. If you see a property you like and you are pre-qualified with a lender – reach out to a real estate agent who will draw up the purchase agreement to send to the listing agent. The typical contingencies and deal structure is a 30 day close with a 7 day inspection period. You can get very creative in your offer and I plan to make another post about the different kinds of deal structures and contingencies you can add.
-- If you are out of state then you can always ask your real estate agent to walk the property before you make an offer and take videos to send to you. Whatsapp is the best app to send large videos thru.
2. Once you and your buyer's agent send the contract over-- do not expect an immediate response. Typically the listing agent will need some time to have an opportunity to present it to the seller. If you'd like-- you can always add an expiration to the offer to add urgency and not get caught waiting while other deals are coming and going-- I would personally recommend at least 2 business days out as an appropriate amount of time for expiration or opportunity for the seller’s side to respond.
3. Boom-- let's say your offer is accepted. You will then have a contract signed by both parties or "Executed Contract" (PDF) that you should immediately send to your lender so they can begin the loan process (more on that later). You should request some trusted inspectors from your real estate agent. The inspectors should have no trouble scheduling to see the property and completing the inspection report within the next week (the inspection period). Typically an inspection is $400 for a single family home or approx $250 a unit for multifam.
4. Once you find an inspector who you like-- tentatively schedule a time for them to see the property when they are free. Then let your agent know the time you have scheduled with the inspector and they will coordinate with the listing agent to see if that time works for the seller and any tenants.
5. Once you receive the inspection report back - about 24-48 hours after the inspection is completed-- you should review it with your agent and go over any items that were not apparent when walking the property. If you are okay and agreeable to the inspection then you complete an “ROC” or removal of contingency document... more on that in a moment.
--If you do plan to request concessions or are unhappy with the inspection then you have two options... 1. You can back out of the deal OR 2. You can request seller concessions/have the sale contingent upon the seller fixing certain items (a lot less common). Concessions are a credit from the seller at closing. It translates to less money out of pocket for you.
--If you plan to request concessions you should collaborate with your agent about tactfully requesting concessions based on items that were not at all apparent when completing the walk-through/viewing. (Make sure to account for any items apparent during the walk-through when making your initial offer)
6. Once you have decided on whether or not you want to request concessions and/or what amount you would like to request-- your agent will draft up an "ROC" or Removal Of Contingency document. If you are requesting concessions then it is removed contingent upon that certain $ amount of concessions. You will sign this document and send it to the listing agent at which point they will present to the seller and either accept with a signature or propose a counter-offer.
7. The ROC is due 3 days after “completion of the last inspection requested”
8. You're probably wondering- aren't I supposed to send in an Earnest Money Deposit? When should I do that? Some agents have you send that in within 48 hours of contract acceptance-- but in my opinion it doesn't make much sense to do that with the inspection contingency still ahead of you. With that being said-- my purchase agreement is set up so that you are only obligated to send in the earnest money deposit "24 hours after satisfactory completion of all qualified inspections". The specific dollar amount of the EMD is determined by the purchase agreement and those funds should be sent to the title company. You can send those funds via a mailed check or typically-- the title company will have a way for you to send money by wire transfer or online banking (preferred). Typically the person handling the file at the title company or the "escrow officer" will reach out to you with wiring/banking instructions.
-- While it’s important to do your absolute best to meet these deadlines... None of them are typically enforced extremely strictly. So if you happen to have a crazy day and you don't have a chance to wire the EMD then just make sure you communicate about that and do it first thing tomorrow.
9. Once you get past the inspection phase you will want to reach out to the property manager you have chosen and answer any questions they have. Your agent can typically recommend a few good property managers to reach out to.
While you are doing that - you also have some responsibilities to take care of with your lender. After you have removed your inspection contingency and your Earnest Money Deposit is sent in - the main task is getting your loan approved and closed.
But first let's back up to when you first got under contract- here is what the loan process looks like from the beginning:
1. Upon receipt of the purchase agreement– your lender will send you a document to review with a loan estimate and many upfront legal disclosures -- this document is commonly known as RESPA. They will need you to E-sign this and will likely request any other documents they didn't need or that have become outdated since the pre-approval process. Then they will submit your file to their underwriting department along with your executed contract.
2. Also make sure to pay for your appraisal as soon as you can because they are typically scheduled 1.5-2 weeks out. An appraisal is $500 (and don't worry, if the inspection comes back negative then you can typically always cancel an appraisal anytime before it happens at no cost)
3. Your lender will also ask you which title company is being used. The agent representing you will typically have a default company to use or sometimes the seller will request a specific one. Ask your agent to share the contact info of the person handling your file or sometimes the lender will be already be plugged into ordering and coordinating title with that company.
4. It typically takes 3-5 business days for the underwriting department to review your file and come back to the loan officer with conditions. This just means they are requesting more paperwork from you. Maybe an updated paystub or your most recent bank statement. Something along these lines. Make sure to be quick in getting any requested "conditions" back to the lender so that they can resubmit your file to underwriting.
5. During this time period is where you will want to reach out to an insurance agent who can provide you a preliminary policy on the property all you have to do is answer some basic questions about the property and provide them the suspected close date so that they can make that the "effective date" of the new policy. Share this preliminary policy with your loan officer.
6. After reviewing the initial conditions you submitted- underwriting may ask for more conditions. Remember it is their job to prove beyond a reasonable doubt that you qualify for a loan that is based on strict federal guidelines. Again it is important that you promptly get these documents/conditions back to the lender.
7. Somewhere along the way your loan officer will also look to "lock" your loan. This essentially guarantees the rate for the loan.
--All lenders have the option for you to "buy down" the rate using "points". So if you would like a lower rate than what the market average is currently -- then you will pay a certain percentage of the loan amount (at closing) in order to achieve that lower rate.
8. Once the lender locks your rate then they will send you a "Loan Estimate". This will show all the closing costs including: the lender's own underwriting fee, title costs, the cost of your (preliminary) insurance policy for the year and any property taxes that need collected.
9. The title report will come back within 1-2 weeks of ordering and your escrow officer will let you know if there any issues and if any other documents are needed. Typically there are no issues and documents are needed from the seller.
10. After 2-2.5 weeks the appraisal report is completed and it typically values the property around the agreed upon purchase price. If you have cleared all your other conditions and the appraisal is satisfactory then the underwriting department will give the clear to close-- at which point the loan officer will send you a "Closing Disclosure". It is extremely important that you Esign this document ASAP because the lender can only legally close the loan 3 business days (including Saturdays) after you sign it. This document is very similar to the Loan Estimate.
11. Then a closing is scheduled and the lender will coordinate having a notary come to you (your office/current house/coffee shop) with all the mortgage documents. You will have to have a form of ID. If you are out-of-state then typically the documents will be shipped to you overnight and you are expected to sign those documents with a notary present and ship them back. Some lenders are even able to complete a virtual signing using a virtual notary.
12. Once the title company receives all the signed documents as well as the money due from you - they will disburse the funds and file the transaction with the county. Your buyer's agent will meet with the listing agent to get the keys and either get them to you or deliver them straight to the property manager.
Congrats on the new purchase and happy investing!! If you have any questions or would like me to be your buyer’s agent here in Cleveland you can always PM me.
