Home Buyer Strategy Session 5: ratified Contract
You've seen a bunch of houses, you fell in love with one. You pulled it all together in terms of the paperwork and the things that you needed to submit an offer. You submitted an offer, and whether it was accepted, rejected, or negotiated, at the end of the day, we worked it out to where we got a ratified contract, meaning both parties have agreed and signed on the dotted line. Now, what? That's what we're going to get into in this video.
Once we get this offer accepted, the next thing that we got to do is hurry, hurry, hurry, and get that earnest money deposit to the title company. The title company is going to hold that in escrow. So basically, escrow is stating that somebody is putting a contract on this property, and now they have placed the money in the hands of the title company to solidify that place, that they are on the docket to purchase this house. That earnest money deposit has to be submitted within seven days of that ratified contract. That's why I say, hurry, hurry, rush, rush. Get your earnest money deposit check over to the title company so that it can be a legally binding agreement between you and the seller saying like, "Hey, they're going to buy this house. They put their money where their mouth is."
That earnest money deposit is in the event that you default, they have the opportunity to keep that money for all their troubles and all the things that they did to hold that property for you. If you get under contract, you submit that earnest money deposit, and you make it all the way through when you get the closing, that money would then be turned around and used as, I like to call it a down payment for your down payment. So that money would just go towards your closing cost.
Even if the property is not contingent upon a home inspection, I always recommend that you get a home inspection even if it's just for informational purposes only because I think it's very important for homeowners or property owners to just have that peace of mind of knowing exactly what they're walking into. Even if it's not contingent upon a home inspection, still get a home inspection. Once you have that home inspection done, there could be potential repairs. If the home inspection turns up some things and you would like for the seller to correct them, then this would be another negotiating point. The repairs would have to be negotiated or fixed, or there would have to be some sort of agreement there between the buyer and the seller. But this is that period of time, and this typically happens as soon as possible once you have that ratified contract.
Appraisal. I ain't got no control over appraisal! Appraisal is something that is performed by a third-party appraiser that is basically sent out to the property to appraise or assess the value of that property in the current market, and that is really for the lender's purpose. The lender has that done because they're only going to lend to the amount or the appraised value of the property. If you are under contract for $300,000 and the house appraised for $250,000, the bank will only be able to loan you up to that $250,000. Then you either have to negotiate that price point or you got to figure out a way to come up with that 50 grand. That's the reason why these lenders have the home appraised because they just want to lessen the likelihood of them losing money in the future.
The next thing that you got to do within that seven-day window when you first get under contract is you have to go and, at the very least, you have to inquire or get a quote for hazard insurance. Hazard insurance is just good old homeowner's insurance, making sure that if anything were to happen to the house, there's at least an insurance policy that is going to cover the bank. Yes, the bank. The bank. They want to make sure that in the event of a fire or something happening to the house, that they're going to be covered because they are your business partner. They have majority stake in your house most times right out the gate. So if you put 20% down and they put 80% down, they're going to do things like make sure that you have homeowner's insurance. In the event that something happens to the house, they're 80% is still okay. They have some sort of backup, some insurance backup that if anything happens to the house, they're going to recoup their money through that insurance payout.
If it's possible, I always try to ask the listing agent if they can get a clue report from the sellers. A clue report, just think of it as like CARFAX for your house. If there was ever any insurance claim made on the property, it should show up on that clue report. This is just a good piece of information that if you can get your hands on it, it will just let you know if there were problems and there was an insurance claim paid out on it, at least you have documentation and you know about it.
Once your offer is accepted, then you're also going to work on finalizing your mortgage. So you're going to have to finish that mortgage application, submit paperwork that the lender is asking you for so that they can get all that stuff through underwriting, and as I had mentioned before, if anything has changed with your credit score, debt to income and all that other stuff, they will continually check throughout the process.
So make sure that, I always tell people, don't make... It always seems to happen this way. Home Depot or Lowe's or whoever, they always have a sale on appliances, kitchen appliances. I'm talking stoves and refrigerators and all the stuff, all the big ticket items. Dishwashers, always seems to be a sale when a lot of my clients are buying, so it's hard to resist, but you have to because if you go and you spend 3,000 bucks on all new kitchen appliances, when it comes time to close on the house, it's going to throw off your debt to income ratio. It's going to throw off your credit if you bought it on your credit card. It's going to mess with all those things, which in turn could either make you not qualify for the loan, or based on what your credit score is now for using your credit card, it could make your rate higher. So you would pay more money on a monthly basis and over the long haul on that loan based on just not having enough patience to wait until you closed on the property to make those big purchases.
One of the final things that we'll do is do a final walkthrough. The final walkthrough is to make sure that the house is in the condition that it's supposed to be when it's time for you to take ownership. I typically like to perform the final walkthrough, at the very least, the day before settlement. This way, if anything doesn't look right, it at least gives us a 24-hour window to have that rectified by the seller.
So these are all the important things and important dates and all the things that we will work through once we get a ratified contract. We're about to take ownership of this property. Once your offer has been accepted, that's when we get into the buyer closing checklist, interactive list that I have that I will send to you and you'll be able to follow right along, check off the boxes as we go through the process. The next video up, we're going to talk through what's on that checklist. Stay tuned.