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Los Angeles, California, United States
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Monday, August 7, 2017

House Purchase & Home Loans 101

This article is for anyone who has
- Just started and Thinking to purchase a home (via taking a loan)
- Already in process in purchasing a home and have few questions on the way.
- Or just in general, Trying to understand the house buying process in real simple words?

Let's see what a most simplified house buying process looks like -

Pre-requisite: Make sure you have a budget, area, configuration in mind.

Step 1: Pre-approval (only if you are taking a loan) -
Pre approval is a process where you approach a bank and let them know that you are interested in buying a house and expecting them to help you with finances.
The bank gets your details, verifies it and provides you with a document which contains -
a. If you are approved or not.
b. If so, Rate of Interest for you.
c. Validity of the approval (usually 60 days)
This document is helpful as it tells the seller that you are a serious buyer and if you like the house, you are in a position to purchase it.

Step 2: House hunting -
Looking for houses can be a tedious task in itself (or fun, if you like it).

Step 3: Putting an Offer -
You (finally) liked a house. yay! Time to put an offer. Its basically as simple as sending an email to the seller or the agent to let them know that you want to purchase the house for X amount.
There can be a lot of to-and-fro for the amount before both parties reach to a common ground.

Step 4: Inspections and Attorney Review -
A Home Inspection is a very important step where a home inspector personally visits the house and inspects it for good 2-3 hours. He looks for things ranging from structural deformities to water leakages. Its always advisable to be personally present during the home inspection. A radon test is also done and is highly recommended.

Attorney Review, on the other hand, is some thing that is independent of purchaser. The attorney makes sure the paperwork for the house in consideration is all legally fine.

The purchaser usually pays for both the steps, but a good negotiator can ask seller to pay for these as well. Also, outcome of this step may result in renegotiation in price or requesting to fix few things before making the purchase.

Step 5: Home Appraisal (again, only if bank is involved)- 
A major step, where the bank steps in and performs an independent appraisal of the house. It actually makes a survey of neighboring houses and tries to figure out if the price thats accepted by both parties can be approved as a loan.
Many a times what happens is the house is over renovated or had very fancy appliances along with it, all these things, although adds value for the buyer, the bank remains unaffected in its appraisal. So there is a possibility that a loan of lower amount might get sanctioned. The purchaser is responsible to pay the difference.
for eg. You like a house which comes with a golden throne (nothing wrong to imagine that)
Now the house costs $300,000 and the throne costs $10,000. You apply for a loan for $300,000 - but the bank says, hey we (obviously) don't consider the throne adds any value to the property, so we approve a loan of $290,000.
Now you end up paying those 10k from your pocket (sad).
Tip: Be aware to catch these golden throne early and negotiate them in advance. 

STEP 6: Loan Approval -
An addendum is signed for the final price and loan approval process starts.
Expect the bank to demand all sort of documents  ranging from - where did you get those 5k in your account 3 months back?, or where did you spend those $1500 last week? or Master Insurance for the house? 
Finally you get a closing document! Thats required at the time of closing the deal.
Once everyone signs it off, the deal is done and Closing is scheduled.

STEP 7: Closing - 
This is where all the involved parties sit together one last time, attorneys, agents, purchaser, seller (and a box of donuts, hopefully brought by one of the agents)
You sign the closing documents, bring in your down payment in the form of cashiers check, sign a bunch of papers and get keys n eat donuts.
Tip: A walk thorough of the property a day or two before moving is always recommended to avoid any unwanted surprises.