Advice for First-Time Buyers
The first time you buy a home can be the most exciting and the most nerve-racking experience. There is a lot of information to take in.
Here is the general roadmap for your happy house hunting!
Financing First
Before you even begin to start saving properties and calling agents, you have to get your finances in order. That begins with cleaning up old debts, improving your credit score, and building up a healthy savings to put down a 20% down payment if at all possible. Get this done first. Knowing exactly how much you are approved for can help you stay within your budget and locate the right house for you within your budget.
At the very least, most banks will require 5% down. Just know that lenders will typically require you to pay private mortgage insurance (PMI) if your down payment is less than 20%
Once you have your financial ducks in a row, it’s time to start preparing for the house hunt. The first step is actually going to a bank and getting pre-approved for a home loan.
Keep in mind that pre-approval and pre-qualification are two different things:
· Pre-Qualification: Only tells you how much you can afford for a home.
· Pre-Approval: Tells you how much the bank will guarantee to lend you for a home.
When budgeting for your home purchase, don’t forget to include other closing costs which typically are less than 2% of the price of the home. Lastly, you will now have to pay property taxes…on the plus side you will be able to deduct those costs on your taxes at the end of the year!
Wants and needs:
Now comes the fun part for first-time homebuyers. Put together your wish list for the house that you really want. You will want to have two lists to work from. One list is your list of needs:
These are the things that you cannot budge on. These may include a lot of other things like specific school districts or distance from your place of employment. That is your primary list.
· Specific Number of Bedrooms
· Specific Number of Bathrooms
· Square Footage
· Location
Your second list is your wants; things that you would love to have but are not a deal-breaker if they are not included. Things like:
· Pool
Fireplace
· Multi-Car Garage, Etc.
After you have completed these steps, it is at last time to call an experienced real estate agent. You have everything you need to give your agent a good idea about what you are looking for. Now let your agent take you through the next exciting steps! A thorough agent will preview most properties prior to showing them to you, making sure to eliminate any that would not fit your list of wants and needs.
Making an Offer
Coming up with a purchase offer that the seller will want to say yes to is one of the trickier aspects of the home buying process. Your agent will understand the local real estate climate, and provide you with the necessary comparative market analysis (CMA) which will provide a basis on what offer price to present.
Not every offer is going to be immediately accepted, especially if it’s for less than the asking price or if you’re proposing contingencies that the seller may not want to comply with, or if it is a market where multiple offers are common place. This is when having an experienced agent comes in handy. Your agent will take care of negotiating the best terms for you and will make sure that your interests are protected.
Researching the area and the house, and knowing the local market trends will help you gain leverage. Take for instance a home that has been lingering on the market for an extended period of time. There are many reasons why a home languishes on the market and many of them are negative.
Find out why the house has been on the market so long. Other questions that help you gain leverage include:
· Why is the seller moving?
· What is the sellers desired timeline in moving?
· Are there any neighborhood nuisances
Try not to get too emotionally attached to a property prior to your offer being accepted. Even if you are anxious to buy a house or to get out of your current one, never let on that you are desperate to buy.
Surviving Escrow and Closing
After you have found the home that you want, made the offer, and gotten the seller to accept it, you have a few more hurdles left to clear before the home is yours. It can be a very tense period for both buyers and sellers – but it doesn’t have to be!
One way to survive escrow and closing is to understand the process. If you are using an agent for the transaction, they will help guide you through the process. If you are doing it on your own, you have to have a clear understanding of all of your and the seller’s obligations.
Either way, it doesn’t hurt to know what to expect. Here is what you need to know in order to not only survive escrow and closing, but to close the deal smoothly.
Escrow
By the time you are ready to put your earnest money deposit into escrow, you and the seller already have an agreement in place for the purchase of the house. That agreement includes contractual obligations that must be satisfied before the deal is finalized. While those things are being done, a neutral third party will hold your down payment in escrow until all terms are satisfied.
This is the step where money starts to change hands, specifically your money. Whatever earnest money deposit you settled on will go into escrow, and the process typically takes 30 days (sometimes more, sometimes less). An escrow company is used as the intermediary and holds the money in an escrow account.
Initial funds get deposited within 3 days of acceptance of the agreement. The remaining funds to close escrow usually get wired within 48-72 hours prior to closing, well after all contingencies are removed.
Contingencies
Two of the main contingencies written into almost all home purchase agreements are financial contingencies and inspection contingencies. There may be many other requirements listed in your contract. These are the hurdles that must be cleared before your escrow check gets cashed, the deal is closed, and the home is yours.
• Inspection Contingency: (17 days) The inspection contingency basically allows you to back out of the deal if after the home is inspected some major issues that were not disclosed are discovered. This clause protects the buyer.
• Financing Contingency: (21 days) The financing contingency is designed to guarantee that you have the funds to purchase the home. If you are waiting on a loan approval and your loan is not approved, the deal is off. That is why it is best to get pre- approved long before you get to this step. This clause protects the seller.
Closing
Loan documents are normally signed the final week of escrow with your escrow officer. It is during this appointment, that you will learn the remaining balance needed to close escrow. You will arrange to have your final funds wired. Your lender will fund the transaction, and notify all parties. Escrow and Title will then notify everyone that you have officially recorded with the county (normally within 24 hours of funding) Congratulations, you are a new home owner!
