First time home buying process simplified.
#1: How much home can you afford?
As a first-time home buyer, it’s important to have an accurate idea of how much money you can borrow for your new home and most importantly, how much you can afford. Those two aren’t exactly the same (depending on your financial situation), so always use what you can afford as your main metric for deciding how much house you should buy. One of the realities of first-time home buying is the frustration of finding that perfect home only to discover that it is not in your price range. Finding out how much home you can afford is actually not that difficult. Your mortgage banker will help you, of course,
#2: Should you get pre-qualified or pre-approved?
Often a mortgage lender will tell a potential buyer they are “pre-qualified” for a loan. This can confuse first-time home buyers, who think they will qualify for that amount. Not likely. With a pre-qualification, little information about your finances is verified (often none). You might find out later that the amount you were “pre-qualified” for is far different than what you actually will qualify for (or even afford). What you need is a “pre-approval” in which more information (your credit and other factors) is checked and you can have a better idea how much you can afford for your first home. With a pre-approval, you’re in a better position to negotiate because the seller knows that your offer is more solid. You’ll avoid wasting time looking at homes outside your price range.
#3: What kind of mortgages should you consider?
For first-time home buyers, mortgages can be confusing and a bit overwhelming. Ask your mortgage banker every question you can think of. There are no dumb mortgage questions, especially for first-time home buyers. A good mortgage banker will ask you numerous questions about your specific financial needs so that they can match you with the best mortgage.
The best mortgage for you will depend on:
#4: What documentation do you need?
Almost always, you’ll need these items to complete your mortgage application:
#5: Does low income disqualify you from home ownership?
No. Check with your mortgage lender to see what programs are available to you. There are state and city programs available in most area, some of these are limited and time sensitive.
#6: Decide location versus space before searching for a home.
Before shopping for a home, it’s important to set your priorities and decide which is more important to you: space, location, drive time, amenities. If you settle on this in advance, you can make thought-out decisions during the home-buying process and avoid the unsettling feeling of buyer’s remorse.
#7: Don’t commit before you’re ready
Owning a home is a huge commitment -- and a more expensive one than some homebuyers realize. Before buying a home, make sure you know exactly what you’re getting into so you can decide if you’re financially and personally ready for such a large commitment. In addition to your monthly mortgage payment, figure out how much you’ll be paying for property taxes, homeowner’s insurance, HOA fees and other monthly costs of owning a home.
(Most mortgages have the taxes and insurance (escrow payment) included in the monthly mortgage payment figure.)
#8: Earnest money vs. down payment
Consideration AKA Earnest Money Deposit (EMD) is required to create a contract to purchase. It is a sign of good faith that you, the buyer, will go through with the purchase once you initiate the offer. Remember, by agreeing to your offer the seller has severely limited their ability to market their house for sale during the time you requested to close the transaction. Almost everything is negotiable in this transaction and EMD is no exception. Offering too small an amount can paint you as an insincere buyer. It also may cause you to lose the purchase to a competing offer with a higher EMD. Conversely, I always advise my clients to offer as much as they can afford. If you ever have to default (breach the contract without an acceptable reason) you could lose your EMD. Remember to always make sure you have the money in the bank before you submit a check with your offer. The EMD will be turned over to the title company (usually within one day of acceptance of your offer) and they will cash it shortly thereafter. They place the money in a trust account until it comes time to close the transaction or until it is requested by either the buyer/seller. (The EMD will be verified by the lender) An interesting side note, even veterans have to put down an EMD. The same rules mentioned above apply to veterans as well (though they have slightly greater protections in regards to potentially losing their EMD).
The down payment is the amount of money the LENDER requires that the buyer put towards purchasing the property. For example, on an FHA backed mortgage the lender requires that the buyer put down 3.5% of the purchase price. In return, the lender agrees to finance 96.5% of the purchase price for the buyer. The seller DOES NOT dictate what the down payment requirement is. If the EMD is more than the required down payment, then the extra money can be used for other things. It can be used to pay for closing costs (including buying down the interest rate) or it can be partially refunded at close of escrow. Another important difference between EMD and down payment is the time in which the two types of funds must be committed. EMD must be submitted with the offer and down payment is usually required at close of escrow (at the end of the transaction).
#9: Sweat equity can save thousands
If you have the skills, the time and the patience to live with dust and debris for a while, do-it-yourself home improvement projects can save you a big chunk of cash.
#10: The school district will affect home value
Even if you don’t have kids, it pays to check out a neighborhood’s school district before buying a home, as living in an area with a sought-after school system raises your property value.
#11: Due diligence
You should never buy a home without inspecting it, and most purchase agreements are contingent upon inspection. Spend a few hundred dollars and hire a qualified/licensed professional to inspect your new home (before you buy it) —it’s the only real way to ensure the home is in good condition. The home inspector should provide a very detailed summary report listing the condition of each item, and recommending repairs. You should always be there when the home inspection takes place. It usually takes a few hours and you’ll learn not only about the condition of the house but how everything works. Ask questions as you go along. If there are problems, the seller may adjust the purchase price of the home or simply repair the problems. There’s always the possibility that the home is in such bad shape or has some monumentally costly problem that it’s no longer the home you want. If that’s the case, get your deposit back and resume your house hunting. These are the cases when you’ll be most happy you had an inspection.
A thorough inspection includes:
Other due diligence items you should look into are:
Air Quality tests that should be included are:
#12: Make sure any renovations were professionally done
Paying close attention to the aesthetic details of a home is just as important as the structural details when going through an inspection. Oftentimes, do-it-yourself remodelers looking for a quick fix use low-quality materials that turn into a problem for future homeowners. They key is to make sure any renovations were done by a professional contractor using quality materials that are meant to last. Inspecting details up front is very important so you don’t find yourself shelling out even more cash later on.
#13: Don’t overlook the landscaping
Updates to the exterior of a home can add up just as quickly as the interior. If you aren’t looking to spend much more on the details once you have found a home, look for a property that already has the amenities and the landscaping that you desire.
#14: Continue negotiating after the inspection
If a flaw is discovered during your home inspection, use it to your advantage. You can ask the seller to make repairs or reduce the price. Even after inspections, you still have another chance to get a great deal. Staying under budget when buying a home gives you extra cash to add the upgrades and decor you’ve always wanted.
#15: Reserve some cash for home improvements
Once to have closed the transaction and are starting to move in you will undoubtedly find items that need to be fixed or updated.
#16: Real estate is not a recession-proof investment
Just don’t panic. Home owners the held out during the housing crises of 2008-2010 are sitting better now than before. Owners that panicked and did a short sale of their homes or lost them to the bank are still trying to repair their credit.
#17: Don’t spend every dollar you qualify for
Make your payments comfortable. By not spending every bit you qualify for, you can open yourself up to more options and better possibilities.
#18: A creative bid strategy helps ensure a good deal
Work with your agent to creative strategy this can be very effective in today’s limited inventory market, especially when there are competing bids for the property.
#19: A higher price point might save money over time
After making interior and exterior renovations, many homeowners find that their budget has been stretched way beyond what they initially wanted to pay for a home. For this reason, it can be smart to adjust your price point a little to help you save money over time. By paying a little more upfront for a home that has all of the upgrades and extras you want, you won’t have to worry about paying for them down the road.
#20: Low-balling doesn’t always pay off
It gets discouraging being outbid or rejected multiple times. It’s usually not smart to look for homes at the top of your price range and making lowball offers -- plus asking sellers to contribute to their down payment and closing costs, these offers look weak and are usually rejected, outbid or ignored. If you find yourself incurring multiple losing bids, a change in strategy is in order. By giving a little bit, you can get a lot in return.
#21: Change a bid strategy that’s failing
Tweaking your bidding strategy can make the possibility of getting the house you want much more realistic. The key to remember is if you would like the sellers to do something for you, such as contributing to closing costs or the down payment, then you need to get as close to their asking price as possible.
#22: The closing process
If your team of professionals—particularly you’re realtor and lender—have been providing you with good service throughout your home search, you should be well-prepared for settlement.
Essentially, settlement day involves the formal, legal requirement of transferring ownership from the seller to you.
Settlement regulations vary from one jurisdiction to another, but two aspects of the process are usually the same no matter where you buy a home.
#23: What you need at the closing
Bring your identification and discuss with your lender how you’ll make the down payment and closing costs that aren’t rolled into your loan. You may be able to transfer these funds electronically based on an estimate before the closing, but you could also be required to provide a cashier’s check or certified funds.
You should bring your checkbook, too, for the difference between the estimated balance owed and the final amount.
#24: What happens at the closing?
As a buyer, you’ll sign a stack of legal documents including paperwork related to your mortgage and paperwork related to the transfer of ownership of the property. You’ll also pay closing costs and fees and the initially required escrow payments for your homeowner’s insurance and property taxes.
Traditions vary by location, but at closing, there’s usually a representative from a title company or an attorney. Typically your real estate agent and lender will attend your closing in case of any questions you or the closing agent have.
When your closing is finished, depending on your state laws, you may or may not receive your keys to your new home. Here in Utah settlement and closing are on different days. Settlement is the day you sign all your paper work and pay your moneys owed and closing usually happens the next business day when the lender sends funds and the title is recorded with the county. The stack of documents you receive at settlement are for future tax returns and when/if you eventually sell the property. These documents include your final Closing Disclosure outlining your mortgage terms, your mortgage note and your deed of trust.
I have a team of experts that will help you through the process, even if you’re not quite ready we can tell you what you need to do to get ready. We want to make sure you experience is smooth and easy.