First Time Home Buyers: Step by Step

By August 29, 2017Buyer's Tips, Tips of the Trade

Congratulations, you’ve made a courageous leap into the world of home ownership! Getting there can be a bit frustrating, scary, and confusing at times. It can keep you up at night if you let it. Don’t let it, hire me instead. I’ll handle it.

I’ve created the following Home Buyer’s Guide to assist you on the path ahead. It can get bumpy so we’ll take it step by step.  

 

Step 1: Come Up With a Realistic Budget

Before you even begin to look through listings of properties, it is best to find out exactly how much you can spend on a house. You will want to talk to a lender to get pre-approved for a mortgage. There are a few options on where to get lending:

  • You can go with a traditional lending institution such as a bank or credit union. It can be a local or national bank; most of these have mortgage lending departments that specialize in home loans.
  • You can work with a mortgage broker. A mortgage broker is licensed with the state and can work with many different lenders to find the best rates and terms available for you. If you decide to go this route, I can happily refer a trustworthy mortgage broker to you.

Get Pre-Approved for Your Mortgage

Regardless of which type of lender you choose, they will request specific financial information from you such as your current income, job history, and credit history. They might also ask how much per month you are comfortable paying for your mortgage and how much cash you have to put down. This information enables the loan officer to calculate a monthly payment and overall mortgage amount that will fit your need. (You must also consider that taxes and insurance will be due every month so that will be factored into the mortgage preapproval also). They will generate a pre-approval letter that states for what amount you’ve been pre-approved. This amount is based on the information you provide them.

Your pre-approval is good for a certain amount of time, so be sure to get this done when you are ready to purchase something and not too far in advanced. If anything in your personal situation changes, like you get a new job for an example, you will need to get new approval. The advantage to having a pre-approval is that it makes you a more attractive buyer to the seller. If you and another person are both trying to purchase the same property, and you both offer the same amount, but the other person’s offer is contingent on them getting a mortgage and you are already pre-approved for your mortgage, the seller is much more inclined to go with you than the other person because you are a much less risky option.

Pick the Type of Mortgage That’s Best For You

There are several types of mortgages available and there are certain restrictions with each one. There are conventional mortgages, Federal Housing Administration (FHA) loans and Veteran’s Affairs (VA) loans. Each loan has specific qualifications and limits so it is best to use a mortgage professional to navigate the differences. This person can help you find out if there are special programs that you may qualify for, being a first time home buyer (there are some out there that can help with down payment assistance, among other things).

Step 2: Identify the Type of Property You Want to Buy

Once you are pre-approved it is time to decide what type of property you would like to buy. Are you looking for a house, condo, townhouse, or villa? How many bedrooms and bathrooms do you need? One story or 2 (or more)?  Is a garage or pool a must on your list? Do you desire a large backyard, or would you like something small? This is also the time to consider what areas you would like to live in. Something near the city or further out? Do you like small neighborhoods or lean more towards a large community? What type of neighborhood do you see your future home in? Any preferences you have will help your realtor narrow down the list and find a property you will love to call home. Your realtor can also help with some of these decisions too. Although ultimately it will be your decision, he/she can help you to narrow down some options. (For example if you desire a large yard, living in the city may not be an option.)

Step 3: Find a Great Realtor

Once you know how much you can spend and what type of property you would like to purchase, it’s time to line up your realtor.  Some people think that they can save money by purchasing homes themselves without a realtor. This is not true.

How Buyer Agents Get Paid

As a buyer, you have no obligation to pay your realtor for their time and for all the work they do on your behalf during a real estate transaction. Realtors get paid commissions only when the sale of a property closes, and this money comes from the seller of the property.

The Advantages of Working With a Real Estate Team

If you work with a team like ours, it’s a win win. Why? Because unlike two realtors who are not associated with one another, a real estate team works for the same company and will end up splitting the commission in the end, so you get two people working for you for the price of one. This is the best scenario if you can find a good team.

The Advantages of Working with a Licensed Realtor

The advantages of working with a realtor are numerous. Realtors are licensed with the state and know all current laws and regulations concerning home buying. They can answer any questions you may have and make the process a lot smoother for all parties involved. (If they cannot answer the questions, they will know where to find that answer and seek it out for you – at least the good ones will). They know their local communities very well and can offer insights and other facts that will help you make better buying decisions and make you happier with your new purchase. They can offer advise if you get conflicting information from different vendors (like say, your bank and your insurance company). In short, they are an amazing resource and give you a great advantage over trying to purchase a home on your own.

What To Look for In a Great Realtor

A good realtor is worth their weight in gold because they can save you a lot of time, money and hassle. When you are looking for a realtor, make sure that they meet the following criteria:

  • Besides being licensed with the state, they have a lot of experience and a long list of happy clients and are willing to provide you with references you can contact. A bad realtor will have problems offering up people who will vouch for them.
  • They have lived in the area for more than a year, or they have a demonstrable knowledge of the area. A realtor who is brand new to an area or who doesn’t know the neighborhoods and communities well will generally not be able to give you the best advice on making a good purchase decision and investment.
  • They are proactive and regularly call or email you back when you have questions. Realtors can get really busy sometimes, and so you want to be sure you work with a realtor who is very courteous and quick to respond to your calls and emails. This doesn’t mean they need to get back to you the minute you reach out to them, but it does mean they should get back to you that business day and won’t let your inquiries just hang out there for days or weeks. A proactive and responsive realtor is organized and treats their job like a business rather than a hobby.
  • You can read about my services and our team on the About page.

Step 4: Find The Property You Want to Buy

After meeting with and talking with your realtor, they will start searching properties for you. Most realtors use a search service called “The Multiple Listing Service” (or MLS for short) to search through homes currently on the market. There are many other sights that list homes for sale (Zillow, Realtor.com, etc.) but the MLS is the most accurate and current listing available. Once your realtor finds properties that meet your criteria, they will present them to you and work with you to finalize a list. Once that list is finalized, it’s time to house hunt!

What to Expect When Looking at Properties With Your Realtor

Your realtor may meet you at properties, or may pick you up and drive you to them. It’s best to let them know ahead of time which you prefer. It is also a good idea to be punctual to all appointments. A lot of times homes you are viewing are owner-occupied. The home owners take time out of their schedule to set up a showing and then leave the house so you can view it discreetly. If you are looking at many houses in one trip, it will be very easy to get off schedule if one party is late.

While previewing homes, please be polite and considerate of others people’s homes and privacy. Yes, you can open closets to see their size, but be courteous and don’t open dresser drawers! It is also a good idea to look past furnishings and décor of homes and try to get the real dimensions and feel of the actual house. Sometimes you may have to look past clutter and other things and envision a house completely bare and how you would furnish and decorate it yourself. Many GREAT homes have furnishings and decor that may completely put you off or be dirtier than your liking, but if you form your opinion based solely on those criteria, you may be passing up a fabulous opportunity! It’s also a good idea to bring along a tape measure or camera to record different rooms or features of the house. (If you want to take pictures of an occupied house, please ask for permission first.)

Finding the Perfect Property

Sometimes people find the home they want on their first trip out. For others, it may take longer. How long the process takes depends on the amount of inventory available and how well a home fits your criteria. A good realtor will have the patience to work under both circumstances. Remember, realtors do not get paid (commission-paid by seller) until the deal closes. Most realtors will show as many houses as it takes to get the deal done and put their clients in a home they will love. If you happen to go by an open house without your realtor, be sure to let the hosting agent know that you are represented and already have an agent. (You could hand them their card, or tell them their name.)

Step 5: Make Your Offer

Once you find the home you want, it’s time to put an offer in. Your realtor will guide you through this process.

Figuring Out What Price to Offer

Your realtor will show you recent comparables (comps) of homes that have sold, or are on the market in that area so you have a good feel for what the house is really worth. Many people have unrealistic expectations of what the prices of houses are when they are looking for one, so it’s best to know exactly how much similar houses have sold for and are on the market for, so you understand realistically what it’ll take to purchase the house you want. This is important in a market that is in fast growth or decline mode too, so you can factor that into the equation when coming up with your offer, as well.

Filling Out the Contract

When you come up with a figure you are comfortable with, you will sit with your agent and fill out a contract. The contract will then be sent over to the listing agent, and they will present the offer to the sellers. The sellers will reject, accept or counter the offer. Once the buyers and sellers come to an agreement on price and terms, both parties will sign a new contract with all the new terms on it.

Putting Money in Escrow

Sellers will also request earnest money to be placed in an escrow account with a title company. This is a small deposit that will be held in a neutral account (neither parties has access to it). The money placed in escrow will go towards the buyer’s costs at closing. Now you have an executed contract to purchase a home, this is when the real work begins. This contract will also have a closing date on it (usually 30-45 days from execution). This is the date set to get all inspections and other requirements fulfilled. This will be the day you “buy” the house and get the keys.

Step 6: Execute Your Contract

Now that you have a signed contract for purchase in hand, you are ready to actually execute the agreement and go through all the procedures required (both by law and for your own protection) to execute your contract and get ready for your closing (when ownership of the property legally transfers to you).

Mortgages/Loans

This is the time you really get to know your loan officer. The loan officer will request a copy of the executed contract. They will also request a lot of your financial information. They will need past pay stubs, credit card and debt information, job history information and other information in order to secure the loan. The main thing here is to be diligent and timely in returning the items they request. You would hate to lose a home because the deal took too long (Although contracts can be extended).

Home Inspections

During this time you will also complete a home inspection. The home inspection is usually paid for by the buyer at inspection. The cost of a home inspection varies with the size of the house: the more home there is to inspect, the more expensive the home inspection. The home inspection should be done by a licensed professional home inspector. They will go through the property with a fine tooth comb. They inspect electrical, plumbing, structure, roof, cooling and heating units and all other systems of the house. They will do a thorough inspection to find out if there are any defects with the house. This inspection is usually completed within 10 days of an executed contract (this is the inspection period). The inspector will send a detailed report with all of their findings. If there are major defects there are a couple of options for the buyer. The seller might make the repairs, the seller may credit a dollar amount to the buyer to do the repairs, or the seller may not make any repairs. The buyer has the option to walk away from the deal if they cannot come to a mutual decision (Earnest money will be returned to the buyer – there is a clause in the contract that protects the buyer in this instance). Once all goes well with inspection and any problems are remediated, the deal moves forward.

Appraisals

Unless you are paying for your home in cash, you will be in constant communication with your mortgage person to see how the loan is moving forward. Your lender will order an appraisal from a licensed appraiser (again paid for by the buyer, although this is usually put into closing costs and not directly paid out of pocket). This will give you an opportunity to see what a mutual 3rd party appraises the home for. This is an unbiased evaluation of the monetary value of the property.

Surveys

Also during this time the title company can order a survey of the property. This is a report that is completed by a licensed surveyor. The surveyor will visit the property and measure boundaries of the property, location of the property and any encumbrances on the property. You will get a copy of the survey at closing; it’s always good to know exactly what you are buying.

Insurance

During this time you will also shop around for homeowner’s insurance. You lender will have certain coverages that you will have to carry on the property. If you do not have an insurance agent, your realtor will be able to recommend some trusted agents in the area. During this time the title company will also be checking to make sure the title is clear on the property. This is to ensure there are no liens, debts or open permits on the property. The property cannot close unless all these are remediated.

Step 7: Close On Your Home

Now it’s time to buy the house – closing day is here!

Closing Costs

Before closing, your lender will send you a report that lists all the costs associated with closing your loan. You will have a chance to go over this report and see if there are any discrepancies. Your loan officer will answer any questions you have regarding these costs, but your realtor can also help you make sense of the report.

The “Walk Through”

The day before closing, or even the morning of closing, your realtor will take you through the property for one last inspection. This is called a “Walk Through” and it is to ensure that the house is in the same condition as it was when the purchase contract was signed and executed by you and the seller. You can inspect the home one last final time before the seller signs over ownership. If there are problems, your realtor will work with you to make necessary arrangements to reschedule the closing and address the issues, though doing so may require you to go through most of the purchase process all over again. Closings are rarely postponed because of walk-through issues as most sellers don’t want to go through the hassle of an additional sales process and are careful to leave the house in good condition. Postponements are usually done only as a result of major problems (like demolished walls or large cracks in ceilings or foundations) and not for small issues that are the result of reasonable wear and tear, especially during a move (like nicked doors or paint).

The Closing

The actual closing of the loan and transfer of title is usually done at the title company (although sometimes they have mobile titles that can come to you). At the title company you will go through all the terms of the loan. There are usually a very large stack of papers that go through all the details of the purchase and repayment of the loan. Both the sellers and buyers will have forms to sign. The lending institution will also wire money into various accounts to pay off fees and the seller (or their mortgage company). Once all documents have been signed and monies have been transferred you are officially a homeowner!  It is quite a process so it is important to pick professionals that you trust and are working towards your best interest.