First time buyers

The home buying process can seem overwhelming. There are so many decisions to make, legal things to consider, and so much money on the line! Where do you start? How long will it take? We’ll do our best to answer those and other possible questions, and give you some helpful hints.

Set a budget

It’s wise to set a monthly, and even yearly, budget at the start of your home buying process. Know in advance how much you can afford, and take into consideration the cost of repairs and maintenance, and taxes.

Get pre-approved

Before you meet with a mortgage lender, be sure you know your credit score. Take the time to get your credit report. This way, you can ensure that it’s accurate, or take care of any inaccuracies so they don’t cause trouble when you try to get a mortgage.

Once you have your credit report, meet with a mortgage lender and get pre-approved for a loan. You can simply get pre-qualified if you prefer, but pre-approval will benefit you greatly when you start making offers on houses. A pre-approval is more appealing to a seller because it means your credit score, debt structure, and income have already been taken into consideration and all that’s left for you to do is sign the papers. Pre-approval also gives you a much clearer sense of how much home you can afford.

Don’t let a mortgage rep talk you into getting a bigger loan than you’re comfortable with. Most people are approved for mortgage loans that completely max out their budget, leaving no room for emergencies or other unexpected situations. That’s how so many people get into financial trouble and why so many homes are foreclosed. When getting a home loan, it’s wise to go one step beyond “living within your means” and actually live a little below your means. Then, if something unexpected does happen (as it inevitably will), or if you or your spouse change or loose a job, you’ll be in a more stable financial position.

Make a “need” list and a “wish” list

Know in advance what features and amenities you have to have, and which ones you can live without. This is where you have to take a step back and be objective, which can be hard! You may want an in-ground pool, but do you need it?

Being able to separate your wants from your needs will be very helpful when you start looking at houses. It’s easier than you think to walk into a home, fall in love with it, and convince yourself that you really do need those expensive stainless steel appliances. It’s especially easy if you walk into the home without pre-determined “wants” and “needs”.

Take the time to make a list. It’s worth it. After you make the list, use it to create a kind of scorecard or check list. Make several copies of your check list, and use one each time you look at another house. One of the risks of house-hunting is that after a while all the houses start to blend together. You can’t remember which houses had what features. A check list or scorecard for each house will help you keep it all straight, and enable you to do a real “apples to apples” comparison.

Find a Realtor

Though you may be tempted to go it alone when buying a house, it truly is in your best interest to work with a real estate agent. An experienced, professional agent will know his or her way around the market. He or she will know the process, and the paperwork (which can be considerable). In addition, a real estate agent can be your advocate if you end up either in a bidding war for a house, or you need to negotiate with a seller.

There’s a lot of “legalese” involved with buying a house, and it can be confusing, especially for a first-time buyer. You have rights and obligations that you may not be aware of. An experienced real estate agent will know about those things, and will be able to help you navigate through some of the more confusing legal jargon.

Finding an experienced agent can be difficult unless you already know someone. The best way to find a Realtor is to get referrals. Talk to friends and family who have bought homes, and ask them for recommendations. Get more than one referral. It’s wise to talk to two or three agents before deciding which one to work with. Not only do you want to be sure of his or her experience and level of professionalism, but you want to work with someone whose personality fits well with your own.

Look for an agent who is professional, experienced, familiar with areas you’re interested in, comes highly recommended, and is willing to dedicate him- or herself to helping you find a home that fits your needs.

Don’t be afraid to ask Realtors questions. Remember, a house is a major purchase, probably the largest purchase you’ll ever make. Be sure the person you’re working with is someone with whom you’re comfortable, someone who doesn’t mind answering questions – because you’ll have a lot of them along the way.

Here are some questions to consider asking:

• How long have you been a Real Estate agent?
• Do you work full or part time?
• Are you currently working with other buyers?

When you find the agent you want to work with, you’ll likely be asked to sign a “Buyer’s Agreement”. Don’t let this surprise or intimidate you. It’s common practice in the real estate industry, and it works to your benefit. By signing a Buyer’s Agreement, you and the agent are committing to work together for a specific period of time (typically 3 – 6 months). A Buyer’s Agreement also details the agent’s responsibilities, his or her commission, and who’s going to pay the commission. By signing a Buyer’s Agreement, the real estate agent now has what are called “Fiduciary Responsibilities” to you. This means that he or she must act in your best interests when helping you find and purchase a home. He or she must act in a manner that is trustworthy, and must not represent any client that creates a conflict of interests. While you probably expect your agent to be trustworthy and honest with or without a Buyer’s Agreement, it’s still nice to get it in writing!

How does the process work?

Once you’ve got your pre-approval, your check list, and your agent, it’s time to start looking at homes! If you’re lucky, you’ll find something right away. Often, though, it takes time to find the right house. Be patient, and be willing to take your time.

When you find a house you like, you’ll need to make an offer. Spend a fair amount of time talking this through with your real estate agent. One of the challenging realities of the real estate industry is that there’s no set price for anything. House values vary by market, and even (in some cases) by season.

Compare the home you’re interested in with similar homes; homes that have similar amenities, square footage, and are roughly the same age and condition. It will help you get a good idea of the fair market value for the home you want to purchase. Ask your agent to develop a Comparable Market Analysis for other houses in the area.

When you’ve determined the dollar amount you want to offer for a house, your agent will draw up a Sales Contract. Don’t let this scare you. Again, it’s a necessary part of the process, and your agent will talk you through it. Keep in mind, though, that this is a legally binding contract, so don’t make an offer on a house unless you’re sure it’s one you want. Because if you’re offer is accepted, you’re legally bound to follow through and purchase the home. The un-scary part is that the Seller is legally bound as well, and can’t withdraw the home for any reason unless you agree.

Here’s some of the information that included in a Sales Contract:

• Street address and legal description of the property
• Selling price
• Earnest Money Deposit (many Sellers will ask for at least a “good faith” deposit as evidence that you’re serious about purchasing the house)
• A list of inclusions and exclusions: this outlines specifics of what is and is not included with the sale of the house (appliances, for example, are often include and will be listed in this section)
• Warranties: some Sellers offer a Home Warranty for up to 12 months, after the home has been sold.
• Home Inspection Contingency: the house must be inspected by a licensed professional. This section specifies how quickly that must happen.
• Property Disclosures
• Acceptance: how long the Sellers have to respond to your offer

Most Sales Contracts contain additional information as well, about things like Insurance and Arbitration, but the above list covers the basics. Once the Sales Contract has been filled out and signed, your agent will submit it to the Sellers Agent for consideration.

At this point, the Seller has the option of accepting your offer, rejecting it, or submitting a counter-offer. It’s anybody’s guess as to how a Seller will respond. You may be asked to negotiate the selling price, the earnest money deposit, or even the list of inclusions. If more than one buyer in interested in the house, you could find yourself in a bidding war. If that happens, you need to immediately determine how much you’re willing to pay for the house. Bidding wars can get emotional, and sometimes people get caught up in the moment, or in the idea of winning, and end up spending more than they can afford or worse, more that the house is actually worth!

Eventually, you’ll make an offer that’s accepted by a Seller, and the next phase of the process begins.

If you’ve been pre-approved for a mortgage, securing the loan should be a relatively quick process. Not necessarily simple, because it will involve a lot of paperwork, but it shouldn’t take long. As soon as you know your offer has been accepted, call your mortgage rep and begin the process of securing your home loan.

When securing a mortgage, you’ll be required to provide homeowners insurance. You won’t need this to get the loan, but you will have to have it before you can officially close on the house. If your house in located in a flood plane, you’ll be required to secure flood insurance as well, which is typically a separate policy.

You’ll also want to arrange for a home inspection. Some buyers opt to skip this step, preferring instead to save a little money. However, a home inspection safeguards you against buying a house with some unseen, potentially expensive, problem. Most Sales Contracts include a Home Inspection Contingency that states the home must either pass inspection, or be repaired by the Seller until it passes inspection. The focus of a home inspection is not cosmetic, but material and foundational. A home inspector will look at things like the electrical system, the foundation, and the overall structure of the home. He will also inspect the water tank, air conditioner/heater, and any appliances that are staying with the house. Though a home inspection is an added expense, you’ll rest easier knowing you’re purchasing a house that structurally and materially sound.

At this point, there’s not much left to do but close on your home. At “closing”, the title to the house will be put in your name, and you’ll usually receive the keys. The closing may take place at a Title Company, Mortgage Company, or at the office of either the Buyers or Sellers agent. Prior to your closing, your agent should give you a “Closing Cost Estimate”. This outlines the costs that will be involved in closing on your home, and gives you a reasonable estimate of the funds you will need at closing. You should also have a copy of the Settlement Statement before the day of your closing. The Settlement Statement is basically a snapshot of the dollars and cents of the closing. It will list your Earnest Money Deposit, any tax adjustments that have been made, your mortgage amount, and the total cash due to and from the Seller and Buyer.

You will see several forms and documents at your closing, many of which will require your signature. Though specifics vary from region, here are some of the basics:

• The Sales Contract
• The Settlement Statement
• Title Insurance
• Loan Papers
• Title or Deed

Once all the papers are signed – congratulations! You’re a homeowner! All that’s left is to move in to your new place and start decorating!

The process of buying a home can be intimidating, and sometimes lengthy, but hopefully we’ve broken down enough to give clarity to the process and to ease some of your concerns or fears. If you have other questions, let us know. We’ll do our best to answer them for you. And if you’re ready to begin the home buying process, we’d be honored to work with you and help you purchase your first home!