Home buying is often an intimidating process, especially for first-time buyers. While seemingly complicated, first-timers are perfectly situated to take advantage of federally backed loans which don’t always require the usual down payment of 20%. This means keeping more of your money in the bank and not being “house poor” right off the bat. In addition, first-time buyers are offered specialized tax breaks and might qualify for specific state programs offering additional savings on what is often labeled “the largest purchase of a lifetime”. 

You might be surprised to learn that you qualify as a first-time buyer. The U.S. Department of Housing and Urban Development identifies a first time buyer as someone who has not owned a principal residence for three years. Perhaps your spouse owned a home, but you were never on the title. If that is the case, you would qualify as a first-time buyer. In addition, first time buyers are: 

• Single parents or displaced homemakers who only ever previously owned a home with a former spouse. 
• Anyone who has only owned a property noncompliant with building codes which cannot be brought into compliance for costs equaling less than the total worth of erecting a permanent home or structure.
• Anyone who has owned a principal home which was not completely affixed to a permanent foundation, noncompliant with building codes and regulations.

Buyers should always consider the type of home desired, area in which they’d like to live, realistic budget, type of realtor they’d like to work with and should seek mortgage prequalification before beginning the house hunting process. 

Preapproval and prequalification are not synonymous. Prequalification is an estimate of what a buyer might be able to borrow.  Preapproval is the specific loan amount which a buyer is authorized to borrow, pending underwriting. Over-eager buyers often begin the search process prior to prequalification and become fixated on neighborhoods and homes in excess of affordability. This is a huge time waster which only leads to disappointment.  

Upon prequalification, you can zero in on a search field best tailored to your budget,  saving time and limiting frustration. Begin by identifying long-term goals. How long do you plan to live in your new home? Do you anticipate family expansion? Would you like a home with a first floor bedroom for your golden years? What life stages do you anticipate experiencing in your new home? Are you looking for an investment or just a place to hang your hat? There is much to ponder, but start with four core considerations:

• Do you fully understand your financial status? Think beyond the price tag and consider the long-term expense of taxes, maintenance and upkeep, utility bills and continued contributions to your savings account. Don’t place all of your “nest eggs” in one basket. If you plan to grow in your new home, consider family expansion an ever-increasing additional expenditure. The wisest buyers will have savings set aside for an additional one year of expenses in the event of job loss, illness or other unforeseen circumstances.      
• Which financial institution is best suited to your needs? Don’t feel obligated to one particular entity versus another. Fees vary from bank to bank and are often based on the type of loan secured. In some cases, credit unions provide lower interest rates than traditional banks. Furthermore, search for a back-up lender. You have no guarantee that your current lender will fund your loan. You might make it halfway through underwriting only to learn that they will not authorize your mortgage. Each lender considers risk differently and having a back-up can save the transaction at the final hour of closing.
• Do you know which type of home is best suited to your long-term goals? Condo or townhouse? Two-story colonial or fixer-upper? Each option affects your budget differently, each with its own set of pros and cons. Don’t get more (or less) than what you bargained for. List the pros and cons, consider your “must haves” and note the things you cannot abide. Go into the search prepared.
• Who can best advocate for you in your home buying process? An experienced real estate agent is worth their weight in gold. Look for an agent who is skilled at negotiations, completes paperwork in a timely fashion, communicates clearly, effectively and voluntarily regarding possible pitfalls and unanticipated expenditures and is reputable in the specific zip code(s) in which you are hoping to purchase. Don’t go with an agent from the next county over. Go with a professional whose primary focus is your search area, who knows the market inside and out and ask for references. If the agent takes offense, move on. Great agents will be thrilled to offer references and will have plenty of them. Remember: buyers do not pay commission. The seller finances your agent’s commission. It is nonsensical to avoid utilizing expensive services which are FREE to you!

Once you’ve found your real estate agent, the search can begin. Have your agent present when visiting an open house. Dealing with the seller’s agent can place you at a serious disadvantage. Don’t forget that the goal for the seller’s agent is to get the house sold. They will always advocate for their own client.

If you are not operating under a strict timeline, look for homes with hidden potential. Perhaps you cannot afford minor cosmetic changes now, however you could increase a home’s value significantly by stripping wallpaper or adding on a sunroom over time as your budget allows. You might find a diamond in the rough! Cosmetic issues should not deter you from a home which meets your needs and long-term goals. Be on the lookout for a home to which you can slowly add value over time, thus increasing your equity.

Once you find “the one”, your realtor will advise regarding submission of a reasonable, yet competitive offer and will present your offer to the seller’s agent as soon as is physically possible as demanded by law. Realtors are not legally authorized to withhold offers. Your offer should be submitted in consideration of estimated closing costs (normally 2%-5% of the purchase price), repairs, commute, any necessary expenditures such as replacing appliances, HOA fees, taxes, insurance and the unexpected. It is likely your offer will be countered, so be prepared to play a few rounds of “tug-of-war” before the seller makes a decision and anticipate concessions by both parties. If the seller agrees to accept your offer, you will need to put down a deposit to be held in escrow. The seller will then officially take the house off the market and a home inspection should be scheduled to take place within seven days of the offer acceptance. 

Regardless of how good you might think the state of the home is, ALWAYS ORDER AN INSPECTION! A little paint can go a long way in hiding serious and costly imperfections. Don’t forgo a home inspection for the sake of saving $200-500 dollars and get stuck holding the bag filled with thousands of dollars of plumbing repairs, HVAC replacement or replacement of a new roof. Don’t hire your best friend to inspect your home. Enlist the services of an experienced home inspector who will verify the quality and safety of the home as well as potential problems or necessary repairs to be made.  Qualified home inspectors can generally offer estimates for the cost of unexpected repairs and identify serious defects undisclosed by the seller.  Don’t be discouraged as the most perfect house will have a list of some sort entailing various issues. Your agent can help you determine whether the issues warrant further negotiations regarding the sale price versus a total rescinding of your offer. Try to view the listed issues as a bargaining tool and rather than a deterrent.

Your mortgage company will get to work underwriting the terms and conditions of your loan. First-time home buyers shouldn’t forget their options: low/minimum down payment qualification or zero down payment required. Ask your mortgage broker about government grants and FHA loans as well as state programs offering financial assistance for down payments and closing costs or property improvement expenses. If you are a Native American buyer, you might be eligible for a 1.5% loan up-front guarantee with a 2.25% down payment. Consult your mortgage broker for the specifics. If you have a Roth or traditional IRA, you might be eligible to withdraw as much as $10K with penalty.