One of the joys I get out of working in the real estate profession is helping first time homebuyers. To me, real estate is not about luxury, money, mansions, and penthouses. It is more about helping people achieve their dream of owning a home.
First time homebuyers are the people who, I think, need help the most. I feel that way because I was a first time homebuyer once and I remember how frightening and overwhelming that experience was.
Not to worry, I have created the ultimate guide that will help any first time homebuyer put their worries at ease.
Introduction: Home Buyer 101
Are you ready to purchase your first home? Looking for a home requires mental and physical preparation. I know that this sounds like you are about to go into battle against the competition, but in actuality you are. There are other first time homebuyers out there looking just like you. There are people looking to move or relocate.
Real estate investors are searching for their next “project” or investment property. All of these real estate shoppers have one thing in common, how can I get the best house, in the best neighborhood for the best deal. Whatever neighborhood or building you are interested in can be looked at as your battleground. Let’s GO!!!
As a future homebuyer and the tools available via the internet, you should have already started your search to get an idea of what is available and how much you can expect to spend. When you start searching, you are going to notice that real estate agents will use a lot of acronyms when describing a property. This is so that they can try and paint the picture for the buyer using as little amount of space as possible.
Here are some abbreviations that you might come across:
- A/C Air conditioning
- Appl Appliances
- BA or Bth Bathroom
- BR or Bdrm Bedroom
- BSMT Basement
- CH/A or CHA Central heat and air
- DR Dining room
- DW Dishwasher
- F-bsmt Finished basement
- Fncd yd Fenced yard
- FP Fireplace
- Gar Garage
- LR Living room
- SF or sq ft Square feet
- WBFP Wood-burning fireplace
- W/D Washer and dryer
After you have read this article, the first thing you should do is find a lender so that you can get pre-approved for a home loan. Getting pre-approved is the first key step into starting the process of buying a home. The pre-approval letter is going to tell you how much you should be looking to spend on a home because this is the max amount that the bank is going to allow you to take out for a loan. Read my latest post, How to get a mortgage pre-approval?
This is such an important first step because it saves you time and stress. Time is very important in real estate. Once a home is listed on the market, it could easily have a contract on it within that same week. The decrease in stress comes from knowing how much you can afford on a home versus looking at homes that you “think” you can afford and getting hopes up to get shattered. That’s no fun at all, for anyone.
Here are a few terms and definitions when discussing mortgage loans:
Remember growing up, if you liked somebody you gave them a “promise ring” to show that you were committed to dating them? Or was that just me telling how old I am? Anyways, the earnest money that you put down with an offer is sort of like that promise ring. This is your way of showing the seller how committed you are to going through with the purchase of the home.
There is no particular amount specified that you have to put down, but the average is between 1-2%. Of course, you can always put more down to show stronger commitment. That will really show your interest to the seller. Either way, whatever you put down gets deducted from the accepted contract price.
Be A Smart Buyer
The same way you will shop around for the right house at the right price, you should shop around for all purchases during the real estate transaction.
Shop around for different mortgage companies to see who has the lowest rate. Interview several attorneys, inspectors, home insurance agencies and real estate agents.
Make sure you have people on your team that you can trust and that will look out for your best interest. That is what makes me so successful, I have a great team that I refer to all my clients.
Save, Save, Save
If you have not done so already, start saving every extra dime that you have. You will need to have a decent amount of money that you need to use during the process and for closing costs. Like I mentioned in the previous paragraph, you will need to hire an attorney, a home inspector, and mortgage lender.
Once you have a pre-approval, you will have to put up money for a down payment. Also mentioned earlier in the article, you will need to write a check for the earnest money to submit with the accepted contract. Finally, once you have closed, you will have to pay for movers.
Of course, you will have to use some of your savings for these expenses, but you want to try and not use them at all. Try things to help save money like cutting back on cable, not eating out so much or staying at home on a Friday/Saturday night. This is only temporary and I promise it will be worth it. Are you worried about your credit? Check out my post, how do I repair my credit?
Preparation Is Key
Taking The Big Step: If you are a first-time homebuyer, you are probably somewhere renting a place or living at home to save a few bucks. Either one is perfectly fine. That is what this section is about, being prepared to take that first big step.
No matter what your situation, you are probably living in a place where you can call on someone to fix things around the house (i.e. landlord, parents) or not having to pay for certain things when they break down (i.e. air conditioner, heater, leaky pipe).
I know for me, that was the hardest step because I am not the handiest when it comes to fixing things nor did I want to start keeping up with when things needed to be replaced.
But to much is given, much is required. Unless you have the money to pay someone every time something breaks, you will start to learn how to at least try and fix things. Avoid these first-time home buyer mistakes.
If you are looking for a home, you definitely should have some money saved up in your savings account. This is going to be important because you are going to need to have instant access once these expenses start coming up that I mentioned earlier.
If you are not doing so already, start today, putting aside 10% of each paycheck into a savings account.
This will not only help you when buying a home, but this is good practice to be ready when this thing called “life” happens.
Credit Score, Report Cards for Adults
Did you think once you finished school that you would stop getting those report cards?? Not so fast! The adult version of a report card is your credit score. This is so critical for all homebuyers, especially the first timers. The only time where you can get your credit overlooked is if you have cash. If you have the significant amount of cash that it takes to purchase a home, you probably are not a first-time homebuyer.
If you are in the market to purchase a home, you should know a general range of your credit score. There are several website/resources that I will name later on where you can get a credit score for free. Find this out ASAP, as this will be required during the pre-approval process.
If your credit score is on the low side, it’s not the end of the world. You can still preserve your dream of owning a home; it just may not be at this moment. Talk to a credit repair professional to find out some steps that can help you on the road to credit recovery. When the time is right, your home will be there waiting on you. Trust me, it always works out that way!
Let The Search Begin
The Right Real Estate Agent, you are about to make the biggest purchase of your life. With this type of pressure and stress, you want a real estate agent that is going to have your best interest in mind.
You can start your search by referrals that friends and family members might know. These are people that you trust, so you probably have faith in their judgment.
If you don’t have a referral, research some of the top real estate companies such as EXIT Realty, Jameson Sothesby, Berkshire Hathaway, Century 21 or some of the other more reputable companies.
Once you find the right real estate company that you want to represent you, start looking for that trusted agent within the company. You should be able to get along well with your agent.
Good communication skills are probably one of the more important things you want to look for in an agent. The personality of your agent should be a personality of someone that you are going to get along with. You also want to have an agent with an incomparable work ethic.
Finally, like I have mentioned and this is the most important part, is to trust your agent. You have to trust that the agent has your best interest when it comes to negotiating offer, looking over the building to make sure everything is ok, and the ability to provide you with resources to make this process easy and smooth. Read more on get a realtor to ensure home buying success.
- Relationship: Like I mentioned before, you must have rapport between you and your real estate agent. That is a key factor in this relationship. Once the rapport is built. everything else sort of falls into place. If you develop a good relationship with your agent, you can contact him/her for more real estate transactions later on in life.
- Experience: Experience is critical when negotiating real estate deals. Of course, ever real estate agent has to start off at some point. The relationship is more important than the experience of an agent. Who cares if an agent has 30 years of experience but you don’t get along with them or all they care about is the commission.
- Reputation: An agent’s reputation is just like the experience in the sense that the relationship with your agent is more important.
- Work Ethic: A hard worker is hard to come by, especially in real estate. A lot of agents get in the business because of the money and they think it is easy. Newsflash, real estate is not easy!!! This is why you want an agent that is going to consistently work to find you a home and negotiate the best deal.
Which Town or Neighborhood Best Suits Your Family’s Needs?
Suburban or City: Are you a city person?? The city can have a fast pace life. Lots of going out, walking traffic, and consistent noise are some of the characteristics of the city life. Some people might say the city is more for single people as well. Properties within the city are a little more expensive and a lot smaller. This could be critical in your decision-making.
Living in the suburbs has a slower pace. Lots of couples with children out walking their dog. There is not as much noise in the suburbs. Houses are bigger and tend to be less expensive. This is probably the biggest plus that I get from my clients when favoring living in the suburbs.
School, Parks and Libraries: If you plan to have or already have children, buying a home in an excellent school district can be high on your priority list. Usually if there are good schools near by, that usually means there are great libraries. These are two critical aspects when considering your child’s education.
One of the other things that people who plan to have kids look for is parks. There is nothing like taking the kids to the park or playground and letting them run off all that energy. Parks can be great for people who might not have children. It can be very relaxing to go and read a book or just have a seat on the bench on a nice day in the park.
Popularity of The Area: Lots of people want to be where the “it” crowd is. They want a place that makes them and where they live be admired. There are several advantages of living in a popular area. This could be excellent for the resale value of your home. Buying in a popular area also has its negatives. Obviously, you will have to pay more when buying a home that is already in a popular are.
Lifestyle: The type of lifestyle that you have can affect your decision of which area best suites you. If you are someone that works long hours, you might want to live closer to your job. If you are someone that enjoys going out and meeting new people, then the city life might be for you!
Future of The Area: Just like every homeowner, you want your house to be worth more in the future than it is now. That’s the definition of appreciation. This can help you decide which area or neighborhood that is the best for you.
You have to think about all of these things before you start your search. This will help you find a property as soon as possible. Read more on, choosing the right home.
Let’s Make An Offer
How Much Should You Bid For? This is a critical moment in the process of buying a home. Why? Because its where the money comes in to play. If you have planned to make an offer on a property, at this point, it’s required you have a pre-approval letter.
Having that pre-approval letter will also help when calculating with your agent, how much you should bid on your property of interest. Obviously, you cannot bid more than the amount that you have been approved for, but in most cases it’s not wise to bid the max amount either.
There are several things that you should consider when making an initial offer. Consider how much your loan is requiring you to put down, the amount you want to put down for earnest money, the counter offer from the seller, and how much the actual purchase agreement will equal out to.
How Much Are You Putting Down For Your Loan
Depending on the type of loan you have (Conventional, FHA or VA), you may be required to place a determined minimum percentage down on the purchase agreement. Pending on the purchase agreement amount, this could a difference of a couple hundred dollars that you would not have to pay up front. This opens you to use this money elsewhere, like moving, decorating, earnest money, etc.
Speaking of Earnest Money
Like I mentioned earlier in the article, earnest money usually falls between the 1-2% range. Again, think about how much you have saved up, and that you can afford right now to help determine the amount you decide to put down for earnest money. This should be discussed with your trusted real estate agent.
Counter Offer From Seller
Very rare will you get an offer accepted on the first try. Unless, of course, you have cash or offer the full amount of what the seller is asking. More than likely, you will get a counter offer. Just like you want the property for the lowest amount possible, the seller wants to sell it for the highest amount possible.
If you have a particular price in mind, I would negotiate with the intention to agree to that figure. That means your first offer is probably going to be below the price that you are thinking. The seller will probably decline the offer and come back with a counter offer of his/her own. That’s the fun part about of negotiating.
We Have A Deal
Once all the negotiating is out the way and an agreement has taken place, we finally have a deal. Hopefully, the agreed upon price is what you and your agent were aiming for. Congratulations!! Sorry to bust your bubble, but you are not done yet. You still have several humps that you have to cross over before you get to the closing.
The Home Inspection
Before you close on any property, whether it is a house, condo, multi-unit building, you should get an inspection report. The only time and inspection report isn’t warranted is if a property is agreed to be sold “As-Is”.
The inspection report is your handbook to your future property so that you aware of what is good, what needs to be repaired, what should you pay close attention too, whether the place is stable, etc. Even though, in most cases, you will receive your inspection report after you and the seller have agreed upon a price.
You might ask, why do I place a bid on a property without knowing what’s wrong with it? If there are issues that come up in the inspection report, this can be used to negotiate the price even more. The seller might decide to fix it or give the buyer a credit towards the repair. When a price is initially agreed upon, it is usually dependent upon the inspection report.
That inspection is performed during the attorney review period. That is why the offer is still up for discussion. Attorney period is usually 10 business days. The attorney will discuss with the buyer the findings of the inspection report and decide on what to ask for. If the seller is not cooperating and will fix anything or give a credit, you and your attorney have the right to “kill the deal”.
A Thorough Inspection
When interviewing an inspector, you want to make sure that he/she is very detailed, fast, and very knowledgeable. You want your inspector to cover the entire unit, even the crawl space. The inspector should include everything even something as small as a light bulb that needs to be replaced. A thorough report is your best friend so that you will know what predicament you are getting yourself in to.
As mention in the previous section, the attorney review is usually 10 business days. This is why you want you inspector to be fast at producing the report. With the technology available now, the inspectors that I use, email the lawyer right on the spot. This way the lawyer has the max amount of time to review the report, request repairs and finalize the purchase agreement.
Present At The Inspection
As the buyer, you definitely want to be there during the inspection. This will allow you to see everything that is pointed out by the inspector. If it’s something that you are not familiar with, this is beneficial because you can ask for an explanation on the spot.
Problems and More Problems
Hopefully your inspection report will come back with a lot of green checks instead of red. This means that they are few problems with your new home. However, there are several items that could come up that you cannot see from the outside or you are not experienced enough to know what to look for. This is one of the reason you want your inspectors to be thorough and detailed in everything. As a buyer, you have the right to know every little area of concern.
I Need An Inspector
Because you are pressed for time, you will need to find an inspector quick. Unless you have been doing interviews on the side, it can be hard to find someone that you can trust. Your trusted real estate agent should have an inspector on his/her team of vendors. Because your real estate agent has gotten to know you a bit through the house hunting process, you should feel comfortable to know that they will look out for what’s best for you. This allows you to be able to trust a referral that they give you.
As soon as I know my clients are going to place an offer, I will email them the contact information of several vendors. I usually let the clients decided which one they want to use and go from there.
Getting Ready To Close
This is the day that everybody looks forward to, the closing!! If you have made it this far, you are 95% on the way to owning your home. This can be a day of rejoice but also a day of nervousness, especially for first time buyers.
The closing is an exchange of possession between the seller and you, the buyer. This marks the completion of all real estate and mortgage transactions. At the closing, those that should be present are yourself, your lawyer and real estate agent, the title representative and whoever is representing the seller. Sometimes, the lender will show up, but not always. You want these people present in case there are some hiccups that you come across.
Before The Closing
The day before the closing, its customary to do a final walk through of the property being purchased. This is just to make sure the property is still in the same condition since the inspection. Also, you want to check and make sure that anything the seller agreed to fix or update is done. That way, it can be brought up at the closing by your attorney and discussed how to move forward.
When a closing date is set, you want to prepare yourself for that day. Make sure you have certified funds of how much you will need to pay at closing. Your lender should give this amount to you. Make sure you have enough to pay your attorney, also whatever your closing cost will be. Later, I will provide you with a list of what is typically expected for closing cost.
At a closing, anything can happen. People can show up late, documents can get lost, wire transfers will not work, etc. There really is no telling how long a closing will last. For this reason, I suggest you just take the entire day off from your job, if you can. This allows you to be on the safe side incase an emergency comes up.
Closing times may vary, also. You might have a closing scheduled in the morning or the afternoon. If you close in the morning and everything goes well, you may want to take the rest of the day to celebrate or to start the moving process. If you are scheduled to close in the afternoon, you may be able to work a half-day, but be careful because again, hiccups tend to happen and you might be needed to send documents, sign forms and so forth. If you are at work, this might be a little difficult because your boss is going to want you focus 100% on your job if you are present. That is why I suggest take the whole day off. Make the best decision for you.
At The Closing
At this point, I hope you have been practicing your signature because there is going to be a lot of signing that you will have to do. You will sign so much that if feels like you are a rock start at an autograph table. In a sense, today you are a rock star because you are the one making the big purchase!
When you are at the closing table you probably have developed a good relationship with your agent and attorney and they both are there to complete their job and see the deal through. Trust them and let them do the talking.
But PLEASE ask questions if you have concerns. The attorneys will do most of the discussion and your agent is there for moral support. But be clear, they work for you so if you need to slow down, understand more, have something repeated, whatever, do it. This is your day, not theirs. This is why it is so critical to have a trusted relationship with everyone you hire to make this dream possible.
One of the more stressful things about a real estate transaction is the closing costs. This will be the last big, significant amount that you will have to pay up front. Lenders are required by law to disclose in writing your estimated closing costs and fees. This is known as a Good Faith Estimate.
Make sure it is clear between you and your lender and attorney the correct amount so there is no confusion during the closing. There are several items that have to be paid.
Here is a sample list of the closing cost and an estimated amount of how much they will cost. Obviously, these will vary based on your lender, city of where your purchase is located, type of loan, etc. Some items, which will come up, you have already paid for and those will not count against you. Read my blog post, navigating the process of closing for home buyers.
Make sure to bookmark this post for future reference. Let me know what you think about the post and comment below!