A Step-by-Step Guide to Buying a Home in Washington
- The state of Washington has an escrow process that is similar to other areas where an escrow agent is used to complete the process.
- During escrow, the buyer’s funds and the purchase contract are held by a neutral party. Once both parties have completed their roles, the escrow agent will release the funds.
- When buying a home in Washington, the escrow company will notify the seller’s agent once the title has been recorded. The seller’s agent will then give the keys to the buyer or buyer’s agent.
Phase 1: Property Disclosures and Inspections for Buying a Home in Washington
Once you are in contract with a seller, you’ll need to complete a variety of inspections. However, the current owner may have already offered disclosures on the property. In most cases, you can complete Phase 1 and Phase 2 at the same time.
The steps of Phase 1 generally include:
- The offer will first be accepted by the seller. A contract will be signed and escrow will begin.
- “Earnest money,” more commonly known as a deposit, will be placed with the seller’s real estate broker, representative from an escrow company, or a real-estate attorney. It must never be given directly to the seller.
- You will now review and sign off on any disclosures that have been provided by the seller. Disclosures are known flaws that are officially acknowledged by the seller, and can include various points such as previous improvements or repairs. It could also include potential environmental hazards. A disclosure package is usually provided by the seller in advance of placing the home up for sale. On occasion, the disclosures and defects are disclosed prior to an offer being accepted, as sellers believe that buyers will factor the disclosures into their official offer. Therefore, sellers may be reluctant to offer credits based on disclosures, as they have already been addressed and factored into the sale price.
- You can now elect to perform inspections if you wish. Inspections will need to be completed by a certain date, as defined in the contract. This date is called the “inspection contingency date.” Most buyers will want an inspection performed by a general contractor, as well as detailed inspections on roofs, chimneys, oil tanks, and sewer lines. When buying a home in Washington, buyers may also elect to have inspections for asbestos or lead paint, which are specialized inspections for health and safety.
- When the results of the inspections are finalized, the buyer can ask for repair work, a reduction in the sale price, or credits for the closing costs. The seller then has three options: they can agree to the buyer’s request, reject them entirely, or offer a negotiated solution. Once the seller responds, the buyer has a chance to make their own response. Negotiations continue until an agreement is reached, but the buyer can end the deal and recover their escrow money without penalty.
- The buyer now removes the inspection contingency by agreeing to a signed inspection response. If they fail to make an inspection response, they have essentially removed the inspection contingency.
Phase 2: Getting a Mortgage for Your Washington Property
While buying a home without a loan is not unheard of, the vast majority of buyers will use a mortgage to fund their purchase. The mortgage process is often the most stressful and extensive phase when buying a home in Washington, but you can improve the process by starting early.
These are the typical steps when getting a mortgage in the state of Washington:
- You will start by submitting a loan application to your lender, which can be done directly or through a mortgage broker.
- The lender will send a breakdown of the estimated closing costs, which is known as a “Good Faith Estimate” or GFE. This is a rough estimate, and the final costs will likely vary.
- Before you can write an offer, you will need to be pre-qualified for a loan. To complete this step, you’ll have to send numerous documents to the lender, including:
– Several months of statements from your bank accounts. This should include all bank accounts you own.
– Information related to current debts, including loans, liens, and lines of credit. It can also include rent payments and all other financial liabilities.
– Tax returns for up to two years. These are released to the lender using IRS Form 4506-T.
– Pay stubs and contact information from your employer. The amount of pay stubs will depend on the lender and the situation.
– Any information that is important to your financial situation. This can include child support, marriage licenses, divorce settlements, bankruptcies, liens, and judgements. Essentially, if it impacts your finances, it should be included in these documents.
– Credit inquiries are a statistical risk to lenders, so you may need to explain any recent inquiries if they appear on your credit report.
– Explanations for any large deposits in your bank account that are not regular income, such as gifts and personal loans. If you receive a gift, you may need the donor to provide a document called a “gift letter.” Gift letters explain the gift and state that the money is not a loan, and will therefore not need to be repaid. Lenders may ask for a gift letter if the amount is significantly large compared to your income. It’s a good idea to prepare a gift letter regardless just so you are prepared.
– You may also need to substantiate any of the information that has been provided. For example, your lender may ask for repeat or updated pay stubs. Remember that to a lender, anything can happen to a borrower’s personal finances and credit during the escrow process. Therefore, you may be asked to provide more than one document verifying the same information. Your lender may want the most recent pay stubs, bank statements, rent receipts, or other forms of information. If there are any material changes to these documents, or changes to your financial situation, the lender may need to reassess your loan.
- Using all the information provided, the lender will now render a decision. Assuming you are approved, they will give you are pre-approval letter, which states their intention to fund your home purchase once specific conditions are met. These conditions will include an appraisal, which helps verify the value of the home. It may also include a note that there should be no material changes in your situation. Once final approval has been completed, the loan commitment letter will be issued.
- In Washington, the financing contingency is different than many other states. A buyer’s financing contingency period goes on without an end date, but the buyer can waive it. The contract will state a timeframe, usually about a month, for the seller to request the buyer waive the financing contingency. If the buyer waives the contingency, it is removed as of that specific date. If the buyer does not waive it, the seller may terminate the contract after three days and the buyer recoups their escrow money. Remember that the financing contingency and its protection of the escrow money extends through the closing period as long as it isn’t waived. To use financing contingency as a means of ending a contract, the buyer will need to demonstrate that they performed their role properly, applied for the loan within a proper timeframe, and made a serious effort to obtain the loan. They will also have to show that they did not change the financing terms and the buyer must have a letter from the lender proving these points.
- An appraisal will then be ordered by the lender or mortgage broker. The appraiser will come from a directory, and while the lender can order a different appraiser, they are not allowed to order one of their specific choosing. If the appraisal comes in lower than the purchase price, the buyer as to deliver a Notice of Low Appraisal to the seller within three days. The seller can then lower the price, request a new appraisal, or reject the notice. If the seller rejects, the contract will be terminated and the buyer will be able to recover their money unless they specifically waive the financing contingency within three days. In that case, the buyer could agree to the purchase price and complete the financing at a lower appraised value, which will likely mean a larger down payment.
- If not already provided, the buyer will have to purchase homeowners’ insurance and provide proof of insurance to the lender.
The mortgage process can be long and often frustrating. However, it is an important part of the real-estate industry and if you prepare ahead of time, it will go much smoother. It’s best to gather these documents in advance. Also, do your best to avoid making changes to your financial or credit situation when your are pre-approved and searching for a home, as these changes can impact your loan and force the lender to reassess. Avoid changing jobs or taking on new credit until the buying process has been completed.
Phase 3: Closing the Deal for Your Washington Home
The closing process in Washington will take a couple of days to a week. This is different than attorney-review states. The transaction does not need to be completed with all parties at the same table at the same time, which makes the process more convenient.
The closing process in Washington generally looks like this:
- A title search will be ran early in the process. This will determine if there are any liens or assessments against the title of the property. If the title is clear, title insurance will be prepared and the closing will proceed as expected.
- You will send final loan documents to the escrow agent.
- You will sign all closing documents and the final loan documents. This can take place at the escrow office or at another location through a notary service. (Be sure to bring your ID to the notary appointment.)
- At a different appointment, the seller will sign the closing documents.
- The buyer now deposits the remaining funds of the down payments and closing costs. They are paid to the escrow agent through a cashier’s check or wire transfer.
- The escrow agent will give the signed loan documents to the lender.
- The lender will look over the closing documents and then wire the loan amount to the escrow agent. This generally takes one or two days.
- The escrow agent records the deed with the right municipality, usually a city or county.
- When the records come back from the municipality, the buyer will receive the keys to their new Washington property!
It’s best to plan on signing the documents a few days early if at all possible, and remember to avoid changes to your credit or financial profile until the process is complete.
This document is intended for general advice only, and should not be considered legal or financial advice. Always seek the advice of a qualified professional before making any decisions.