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:
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:
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.
Closing day is an exciting, momentous occasion that involves more paperwork than an office supply chain. This is a great day to practice spelling your name as you will sign a ton of paperwork granting you ownership of your longed-for dream home. You will pay for your title search, private mortgage insurance, loan origination fees, title insurance, possible credit report charges, taxes and surveys and appraisal if applicable. While not all lenders require an appraisal, the government mandates them prior to granting FHA and VA loans.
Once you obtain the keys…
This information is intended as an introduction to the home-buying process and should not be relied upon as the sole means of your real estate education. Real estate endeavors under the best circumstances are complicated and stressful, best navigated with an experienced agent at your side who is skilled at advocating for YOU! The better the agent, the less stressful your experience and the greater the chance of you getting the house you want at the price you can afford.