Assuming that you will get a loan, here is a brief overview of the purchase process:
- Get a Prequalification Letter from a lender
- Get financial statements in order showing that you have sufficient funds to complete the transaction
- Find the property that you want to purchase
- Write up an offer and come to terms with the seller
- Deposit 3% of the purchase price into a neutral escrow account
- Conduct inspections during the “due diligence” period to make sure you are comfortable proceeding with the acquisition
- Receive a final loan commitment from the lender
- Release contingencies and commit to the transaction
- Fund any additional money needed to complete the transaction
- Wait for news on the day of closing that the title transfer has been recorded at the courthouse
- Move in and begin enjoying your new home!
Getting a Letter of Prequalification isn’t difficult. Basically, you call up a lender, tell them your assets and income over the phone. Many of them will write you a Prequalification Letter the very same day, although some might ask for more detailed information first. If you would like me to refer you to a lender or loan broker, I know some of the best in the business and I would be happy to help.
Once a seller accepts your offer, however, the lender will do a much more thorough review of you finances before approving the loan. You will probably have to show a good credit score, 2 years of income tax returns, cash reserves to pay 6 months or more of your scheduled loan payments, and have at least a 20% downpayment to make on the property. If you are a first-time home buyer, there is a special government program where you may be able to purchase with less than a 5% downpayment. If you can find a seller who will hold a “second lien” (a.k.a. “owner carryback” or “seller financing”) you may also be able to negotiate a minimal downpayment even if you are not a first-time purchaser.
All purchase offers in the state of California must be secured by a deposit. In the Santa Barbara area, the deposit for real estate transactions is traditionally 3%. If you change your mind within the property investigation period (a.k.a. “Due Diligence Period”, usually 17 days in length), you will typically get a full refund of the deposit. Additionally, there will be buyer closing costs of usually 1% or more to pay at the end of the escrow process. In total, you will need at least 4% or 5% in cash to write up a practical offer. Depending on how the loan is structured, you may need an additional 20% or more to close the deal and take title of the property. Regardless of how much money you put into escrow, your total liability is typically limited to 3%. That means that even if you deposit 20% or 30% into escrow, then change your mind and default at the last minute, the maximum amount the Seller is entitled to is still typically limited to 3%.
The standard purchase contract in the state of California is very “buyer-friendly”; you can back out of the contract at any time for practically any reason. So long as you change your mind within the negotiated inspection period, your deposit is not at risk. If, however, you release all of your contingencies and change your mind after the inspection period has passed, it is possible that the seller will keep some or all of the 3% deposit you originally placed into escrow.
Knowing your rights and how the purchase process works is essential in conducting a safe transaction. I am a high-volume agent who typically writes over 50 offers per year. Most transactions involve dozens of forms and a number of potentially complex issues. The offers I compose are well written and I always keep my clients safe throughout the process. Anytime you have questions about purchasing Santa Barbara real estate, I would be happy to share with you my experience on successfully completing transactions.