- Apply for a loan: The buyer(s) applies to a lender for a loan. Usually this happens before the buyer begins looking for a property to purchase, in which case the buyer will receive approval for the loan as a pre-approval or pre-qualification from the lender. The lender assesses the buyer's ability to pay for the loan by looking at their gross salary (used to determine their debt-to-income ratio, or DTI) and their credit history (FICO score).
- Get a pre-approval letter: Assuming the buyer began the loan process before looking for properties to purchase, the buyer receives a pre-approval letter from the lender. This commitment is not necessarily binding on the lender and is contingent on the buyer finding a property that is worth enough to cover the loan amount. Some lenders will call the pre-approval letter a commitment letter or letter of commitment, but for most lenders, the letter of commitment comes after the loan underwriting process is complete.
- Tour properties: The buyer(s) and their agent find a property the buyer(s) want to purchase.
- Submit an offer: An offer is made and submitted to the listing agent (or seller's agent) along with a check to bind the offer (usually $1000). Contingencies are added to the offer like the inspection and the letter of commitment from the lender.
- Home inspection (s): Upon approval of the offer, a home inspection is run (usually within 10 days of the offer accepted)
- Mortgage: Complete Mortgage application
- Purchase and Sale agreement: When all the inspections are complete, a purchase and sale agreement is prepared (your lawyer and the seller's lawyer work on that together). Both Buyers and Sellers sign it. The Purchase and Sale agreement gives more detail of the transaction, including specifics on the property, the contingencies, and responsibilities of the buyer and seller. This is also where you will be expected to put down additional monies that will be held in the listing broker’s escrow account until closing. This amount is usually between 5% of the purchase price so make sure you have this money available.
- Title check: The lender's attorney (you can and should choose your own attorney that works with the bank on this point) checks the public records at the county registry of deeds to determine if the property suffers from any title defects. If it does, the seller must fix them before the closing.
- Appraisal: In parallel, the lender hires an appraiser to determine if the collateral (the property) for the loan is sufficient to cover the loan in the event of a default (failure to make payments). If the collateral is insufficient to cover the loan, the buyer will typically need to make a larger down payment, or back out of the sale.
- Letter of commitment: Assuming the lender is satisfied with the collateral, they give a letter of commitment to the buyer. This requires them to make the loan, so long as the buyer satisfies the lender's conditions stated in the letter.
- Smoke Certificate: Each home in MA needs to pass a smoke check done by the fire department. It's usually coordinated by the seller's agent UNLESS it's a foreclosure or an REO, in which case, it might be done by the buyer's agent.
- Homeowner Insurance: Some banks require that to issue the final loan and authorize the closing.
- Final Walkthrough: Before closing, you should have your agent arrange a walk-through of the home to make sure nothing has changed in the property since the purchase and sale agreement was signed. The “walk-through” is usually done the day before or day of closing.
- At closing, the lender makes the loan for the borrower. In return, the borrower gives a note (also known as mortgage note) as evidence of the debt, along with a mortgage securing the debt, to the lender. During the actual closing, deeds, loan papers, and other documents are prepared, signed and filed with the registry. Congratulations!
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