While you can’t wait to get your hands on your home, it takes a lot of patience and effort as you turn your dream into reality. For one, you need to present different documents to show that you are eligible to purchase a house in the first place.
Some real estate developers and property sellers require voluminous requirements, which may be too much to take in, especially for first-time buyers. So, we’ve listed below all the important documents you need to buy a new home.
Getting a pre-approval letter is the first step in buying a home. As the term provides, it is a preliminary approval for an amount to finance your home. This letter helps you get an idea of what type of mortgage payment you can afford. It is also an indication for potential sellers that you are a legitimate and serious buyer.
To obtain a pre-approval letter, you need to go to your chosen financial institution to provide your identity, information, and an overview of your financial status. It may include your income, assets, or liabilities. Some fill up the information online, while others prefer to go in person. Other requirements needed for a pre-approval letter may include a copy of your driver’s license and your tax returns as well.
Home Loan Estimate
A loan estimate is a form that provides complete details regarding the loan you applied for in your chosen financial institution. The lender must deliver the Loan Estimate to you within three business days of receiving your application.
A home loan estimate includes crucial information, such as the estimated interest rate, monthly payments, and the total closing amount for your loan. There are also details on how much you need to pay for taxes and insurance and how interests may be subject to change in the long run. The form uses clear and concise language so you can easily understand the terms and conditions of the loan you applied for.
Do remind yourself that the home loan estimate is not an indication of your loan status. Your lender has neither approved nor denied your loan application. This form provides the overall expenses you will expect if you decide to push through with the loan.
This three-page form is essential if you are submitting several mortgage applications to different lenders or financial institutions. A copy of a home loan estimate can help you compare and contrast which lender has the best deal for you. Once you decide to move forward with your loan application, your chosen lender may ask for additional information.
You may be eyeing the home of your dreams, only to realize that you’re not the only one who wants to purchase it. This is where offer letters come in. Offer letters are your love letters to potential sellers. Writing an offer letter is a homebuyer’s opportunity to create a connection with the seller. While this document may be optional, it surely caught the hearts of sellers.
An offer letter is a document where you state why you want to purchase the property and why it should be given to you. This letter usually includes personal information: who you are, where you live, and why you love the house. However, writing an offer letter also consists of the following:
- Sale price
- Target date of closing
You may also write any common interests you share with the seller or compliment any part of the house in your letter. What’s important is that you establish a connection with the seller so they can choose your offer above others.
The seller has finally chosen you to be the homebuyer — that’s great! Now that you’re almost a step closer to getting your dream house, it’s time to seal the deal. Both of you must bind themselves in a purchase agreement.
A purchase agreement is a binding contract between the two parties – the buyer and the seller – that lays down the comprehensive details of the sale transaction. It is also the stage where you can propose the terms and conditions you may want to include in the contract. The seller may accept, reject, or modify your proposal to have a win-win situation for both of you. Once both parties have agreed to the conditions in the contract, they will now be considered as “under contract.”
Real estate agents are the people who usually negotiate with the homebuyers regarding the sale transaction. These agents provide standardized form contracts from the company that allows both parties to fill it out.
Because not all purchase agreements are the same, here are some of the necessary details that each purchase agreement should have:
- Buyer and seller information
- Property details
- Price and financing
- Conditions and contingencies
- Rights and obligations of parties
- Earned money deposit
- Closing costs and date
- Items included
- Signature of buyer and seller
If you plan to buy a property, brokers or property specialists provide a “Reservation Agreement” to ensure that the property is officially reserved for you. The developer will take out the property to the market and disallow others from purchasing it.
The reservation agreement includes the necessary information and specification of the property. It contains the complete address, lot area, floor area, preferred payment option, and payment terms agreed by the client and the company. To avail of the property, you must pay a reservation fee and comply with the sales team’s requirements to process the application.
The reservation agreement is one of the essential documents of the real estate procurement process. It specifies the scope of the future purchase contract of the property. You must understand every detail in the contract to avoid problems or risks. As a buyer, there are penalties if you fail to comply with their requirements.
The reservation agreement usually contains:
- The amount of the reservation fee is deducted from the total purchase.
- The amount of purchase price, discounts, tax, and other expenses.
- The due date of the reservation agreement.
- The terms and agreements of the developer.
Contract to Sell
In the contract to sell, there is no transfer of ownership happening. It is an agreement between the seller wherein they commit to selling the property, and the buyer affirms to buy the property. Once the client signs the Contract to Sell, both obligations of the parties begin.
Each party must meet the set of conditions to fulfill their obligation on the agreement. In Contract to Sell, the seller does not need to have the property. Neither, the seller is not required to pay the property in full. They are only required to comply with their obligations on the agreed period.
For example, if the property developer agreed to sell a pre-selling condominium unit, it will take time to build. In that process, the buyer promises to pay a specific amount of money in installment or in full while the developer builds their property. There is an agreement that the title will be transferred upon completion of the seller’s property and the buyer’s completion of payment.
Deed of Absolute Sale
It is the document regarding the seller’s obligation, which is to transfer the ownership and turn over the property based on their previous agreement. If the buyer accomplished the payment of the property, they could proceed to the Deed of Sale. However, if the buyer cannot pay the property even if the seller can deliver the property, the parties may enter into a resolutory condition. It is a condition wherein the seller will take back the property if the buyer fails to pay according to their agreement.
The document must be signed by both parties, which are the seller and buyer. The Deed of Absolute Sale must indicate the date, appropriate identification of the property, and the name and address of both parties. It must also be notarized by a law firm. The document includes the statement of assurance that there is no pending transaction under that specific property based on the Registry of Deeds.
In case the buyer is not present to sign the document, there must be an appointed representative to sign the Deed of Absolute Sale. The lawyer assigned should be legally appointed by the buyer through a notarized Special Power of Attorney.
It would be better if the seller and buyer enter the Deed of Sale upon complying with their obligations. Ownership will only be transferred upon full payment and when the sellers already built the property.
Letter of Guarantee
The letter of guarantee is the contract issued by the bank through the request of the client who has purchased the property. It is used to inform the property developer that their client is approved to take out a loan and pay their remaining balance. The letter of guarantee lets the developer know that the client will pay them through their assistance.
To obtain a letter of guarantee, the client will need to apply for it. The bank will negotiate with the developer regarding the amount of the property they will cover for their client.
Home Appraisal Reports
Most people who are scouting for properties work within a limited budget range. So, it is pivotal that they try to get hold of the estimated prices of the houses they are eyeing. This is where the Home Appraisal Report comes in.
The current real estate market value of your potential home is reflected in the Home Appraisal Report. This report is usually generated by a licensed property appraiser. Because of the validity of this document, it can also help in expediting the approval of your mortgage loan.
Several factors affect the overall fair price of a property. For instance, the appraised value of a house is influenced by the most recent sales of similar houses within the vicinity. The person assigned to do the appraisal may look for a property with the same land area, size, and design in predicting the current cost of another house.
Moreover, the current status of the house and its neighborhood also determine how high the potential value of a house will be. Having an official copy of this report will, for sure, be of great benefit to your decision-making.
Paying for a house in cash or through personal checks is generally frowned upon. After all, cold cash is very inconvenient, and some states like California legally prohibit the closing of a real estate deal with cash. That is why buyers are encouraged to prepare a cashier’s check when it comes to payment.
Cashier’s checks should include payments for prepaid interests, loans, reservations, insurance, and closing costs. They are linked to a bank’s monetary fund instead of your own account.
The advantage of paying with a cashier’s check is that the real estate agent or owners are guaranteed the funds that they agreed with. This type of check is also reversible. When there are miscalculations, you can negotiate with the issuer of the check to do a reversal.
On the other hand, using this method of payment may pose some difficulties as well. A cashier’s check needs to be handed over personally so that you can avoid fraud. This implies that it can not be readily used if you are overseas or trying to buy a house from a different country.
The mortgage loan is one of the keys to having a house of your own, so you must ready the documents needed by the bank or institution issuing this loan. The Closing Disclosure is a record that is heavily related to your loan. It summarizes the different terms and conditions of your loan in five long pages.
Your Closing Disclosure includes various information about the loan terms, projected payments, costs at closing, loan costs, and other miscellaneous fees. It also details the calculation of cash-to-close and summarizes the transactions and disclosures. The amount of information enclosed in this disclosure might be overwhelming, so it would be advisable to go through this with legal counsel.
The lender is expected to hand you this document at least three days prior to closing. You should use that time frame to review any conditions that you may find ambiguous and clarify them with whoever is concerned. Also, this is a prerequisite for you to have your cashier’s check issued.
When buying a real estate property, you will need to know the legal boundaries entitled to your name. The Property Survey is the right record that suits that purpose well.
A property survey done by a licensed surveyor is not actually a requirement for buying a house. Most property sellers are not concerned about whether you have it or not. Therefore, you can just get this document after closing.
Property surveys delve into legal descriptions of the land where your house is located. Then, surveyors go into the actual site and measure the area and topography of your lot. The output of this legal and field research are maps and reports that describe the boundaries of your property.
You may think that it is unnecessary to get a property survey, but it has proven to be beneficial countless times. This document will be of help, especially for lands that are near disputed assets. It will give you the legal assurance that the house and the land where it stands are indeed yours.
Ready for the Next Steps?
You just had a review of the essential documents needed by homebuyers to buy a new home. Hopefully, this article served as your guide of the procurement process associated with buying a house — from sending the letter of intent to signing the closing records.
Now that you have familiarized yourself with these necessary files, it is about time to get yourself ready for the next couple of steps. Assess your budgetary status, look for available mortgage loans, and look for someone familiar with real estate transactions. Then, start looking for your dream home!