How to buy your first house
There are few things in life as intimidating as buying your first house. The knowledge needed to buy your first home will include learning about several different professional industries; including the mortgage, real estate, inspection, appraisal, title, and insurance industries. This article will give you an in-depth look at the home buying process, and help relieve some of the tension that you may feel as you venture through the home buying process for the first time.
In order to purchase a house, you will need to know how you are paying for it. Since this will most likely be the largest monetary transaction in your lifetime up to this point, it's highly probable that you will need to get a mortgage to pay for your first house. This may seem like common sense, but every Realtor® has had those buyers who send them a list of homes to look at before they have even thought about this step. Yes, it happens often. People want to go out and look at homes before they deal with their finances because looking at homes is much more fun that talking to a mortgage lender, but it's not the right way to start off.
First, you will need to find a mortgage lender who is highly skilled, understands your financial situation, and is easy to work with. You will be communicating extensively with this person(s) over the period of time that you are under contract to purchase a property, so it's important to choose someone who is professional, experienced, and competent. Most Realtors® can offer contact information on a few mortgage lenders if you have a hard time finding one. Realtors® are not compensated for these referrals. They refer them out in good faith as a gesture to help the loan close on time, with as little drama as possible from the mortgage company. Delayed closings are a nightmare for real estate professionals.
Where I live in Central Iowa people tend to prefer local mortgage lenders, because they are more accessible and can usually close quickly. Many of our local lenders have underwriters in the same building, and the loan file only goes through a few different people throughout the course of the transaction. National mortgage companies are notorious for being difficult to deal with because the file can go through so many people's hands, making the chance for a closing delay much higher. Do your research and find a lender with good reviews. If you use a reputable local lender, it can help to strengthen your contract offer, as opposed to using a national lender, because the listing agent won’t be as concerned about closing on time. Experienced agents know that an offer is only as good as the lender's ability to close it. Most agents in Central Iowa have had some bad experiences with larger national lenders, and they may be hesitant to promote your offer to their sellers due to fear of complications throughout the transaction. It's just something to be aware of.
Many first time home buyers are intimidated to talk to a mortgage lender, so they put it off until the last minute. In reality, mortgage lenders would love to close a loan for you. A good lender will do everything that they can to help you purchase a home. They are on your side. Don't be intimidated.
Remember that you are paying the mortgage company for their services. You will have closing fees, most likely in the thousands of dollars, which you are paying to your chosen mortgage company for generating your loan. It’s a terrible feeling to work with someone who is nice at first, but turns out to be hard to get a hold of and bad at communicating important details. At the closing table, you will be giving the mortgage company a good chunk of money for preparing your loan. You want to work with someone who you feel deserves this money. There are some wonderful loan officers out there, as well as some terrible ones. The loan officer that you choose can make or break your home buying experience.
The next step is to determine your price range. This is a crucial step to take before looking at homes online. Be smart when determining how much financial burden you are willing to take on when buying a house.Just because you are approved for a certain amount does not necessarily mean that is your price range. Look at your finances and determine how much you are comfortable spending per month and work backwards from there. Everyone's lifestyle is different. If you have expensive hobbies that you enjoy doing during your off time and you buy the maximum amount of house that your mortgage company will allow, chances are that you’re going to be strapped for cash when you want to do those extra things. It's known in the industry as being “house poor”. Sure, you may have an amazing house, but you will be financially tethered to it and unable to afford other things in life. For some people, this is okay as they spend all their time at home anyway. Be sure to assess your personal situation and determine where you want to be financially after you have signed the papers for your mortgage.
Knowing your price range is also important when looking at homes online. If you start looking at homes in the $300,000 range, but you are only approved for $220,000, your going to have a hard time with what you see available on the market when you come down to that price. Every $10,000 increment has different things to offer. If you start your home search in the price range that you are actually going to purchase a home in, then you will not have to deal with the disappointment after comparing your home to those in higher price ranges. You can work your way up to a higher price range in the future, but start off in the price range where you are going to live right now. This is a much better way to search for a home.
Third, once you have determined your price range and have found the mortgage lender you want to work with, remember to get a copy of your pre-approval letter and have it handy as you go through the process. It's your proof that you are a legitimate home buyer. As a Realtor®, I am always impressed by first time home buyers who email me their loan pre-approval letter at the beginning of the process. It shows maturity in how proactive they are as legitimate home buyers.
When you have found the house that you want to purchase and are ready to put together a written offer, your pre-approval letter will need to accompany the offer. If you have not yet received a pre-approval letter, your offer may get held up waiting on the letter and in a situation with multiple offers, this can be a deal breaker. Since you have already met with and chosen your mortgage lender, go ahead and get this step taken care of right away.
It's important to remember that there is a difference between a pre-qualification letter and a pre-approval letter. Ask for a pre-approval letter as it is a much stronger representation of your purchasing power.
This is the part of the home buying process that everyone loves the most. Shopping for a home is fun and exciting. The tips below will help you navigate the real estate market and find the right home for your needs.
Now that you have chosen me as your Realtor® and you have your pre-approval letter in hand, it’s time to go find a house. For most people, shopping for a home is much more fun than dealing with financing details and looking for a Realtor®. If you are not familiar with the area in which you are looking for a home, your first step will be to narrow down your search area. Researching schools, crime statistics, neighborhood amenities, and convenience to shopping are all details that you should spend time analyzing at the beginning of your home search. Once you have narrowed down the area(s) in which you would like to live, you can then gather your favorite listings and make an appointment with your Realtor® to show them to you. It’s best to only look at 5 or 6 at a time, because all of the details tend to get jumbled when you see too many homes at once.
It's common for first time home buyers to choose the best homes on the market within their price range, view them right away, but feel unsure about making an offer on one until they have seen 20 more homes in person. Just be aware that the first handful of homes that you choose are probably the best ones on the market, and will have the highest competition from other buyers. As a Realtor® who deals with many first time home buyers, I have witnessed this scenario many times. It’s okay if you’re not ready and need to see more homes. Just be aware that this is a common reaction when you look at homes for the first time, and remember that it comes with possibly negative consequences. This is even more critical in a seller's market where homes can go under contract in a just a day or two. Your favorite home may be gone before you have had a chance to make up your mind.
Another common scenario is the realization that homes usually look different in person than they do online. After months of shopping for homes online, it can be disorienting to look at homes in person. I often have buyers send me 2 homes and say “we know that this first one is the one we want”. Then, when they get to the property in person for the first time, it looks and feels completely different than expected. Be ready for this experience, it's very common. I advise looking at homes based on the criteria of the property details first, and not the pictures. If a home meets your search criteria but has ugly photos, you should still look at it. It may be the perfect home for you, but is just poorly presented online and listed by an agent who is not very skilled with displaying properties to their highest and best presentation.
Once you have processed through all of the homes that you are interested in and have found the home that you like the most, it’s time to move on to the next step, which is writing a sales contract and negotiating the deal. This is where all of the details of the transaction are documented and signed by both parties through written contracts. The competency of your Realtor® will play a major role in your success through this process. If you have an experienced real estate agent who has written hundreds of sales contracts, you should be in good hands. Make sure that you take your time and ask any questions throughout this process. There are no dumb questions during this stage of the home buying process.
A common first-time homebuyer mistake is to try and submit a lowball offer on their first deal. As a new buyer in the real estate market, you may feel as though you are entitled to a great deal. This is possible, but great deals do not usually happen unless you ar are buying a distressed property. No one gives anything away in real estate. In Central Iowa, our list price to sales price ratio is over 98%. That means that a lowball offer of 90% lp/sp would be way off track if the home is priced at market value and in good condition.
Once you have presented an offer, agreed upon all of the terms of the contract and both parties have executed the contract, you will now move onto the the home inspection process. As a home buyer, you will be responsible for hiring a 3rd party home inspector to make sure that there are no major issues with the property. As your Realtor® I will have a list of local home inspectors with whom I have worked with and can recommend if you need a reference. I am not be affiliated in any way or compensated for this referral btw. Once your inspection has been performed, it is likely that you will receive an inspection report which makes the property look like it is falling apart. Don't freak out! It's the job of the inspector to find every possible problem that they can find.
Even brand new homes can turn up lengthy inspection reports. Your job is to find the important issues with significant monetary value and determine whether you would like to ask for repairs on these items.
This may not be the last negotiating conversation that you have with the sellers, so keep that in mind as you work through the list of items that you want repaired or replaced on the property. You don't want to sour the deal by asking for 50 nit-picking items to be fixed before closing. Problems like water damage, AC/heating repairs, and broken appliances are common issues to have repaired by the sellers before closing. Asking for smoke detector battery replacement, new light bulbs, small nail hole sheet rock repair, and replacing cracked light switch plates are examples of items that can make you appear difficult to deal with, and may leave a bad impression with the sellers. Remember, the property still has to be appraised at value for the deal to continue to closing. If the appraisal comes back under value, you will have to negotiate a solution with the sellers to make the deal work. If you have bothered the sellers with a list of frivolous items to take care of before closing, they may be more difficult to deal with if you have appraisal issues or delayed closing deadlines during the rest of the transaction. Just deal with the big inspection issues that have a legitimate monetary value, and you will be more likely to have successful negotiations.
Now that you have done all the work of obtaining financing, choosing me as your Realtor®, finding a home, and negotiating the deal, you are on your way to the finish line. There are only a few more details to cover to get you through the home buying process and into your new home.
First, I will make sure that your mortgage company and title company have all the relevant documentation and information needed from you to close the transaction. I will be communicating with all parties involved to make sure that the transaction is being coordinated properly. Your sales contract will have dates and deadlines that have to be met on time in order for the deal to maintain legality. If you have a contractual closing date and your mortgage lender needs another week or two to close, the sellers have the right to keep your earnest money and put their house back on the market if you cannot close by the date on the sales contract. This does happen from time to time. I will make sure that I am watching the dates and deadlines, and are in communication with the parties involved to ensure that your closing is on track.
Next, once you are a week or two from the closing date and everyone involved in the transaction has confirmed that it will close on time, I will schedule your final walkthrough and closing time. A final walkthrough is a standard practice of walking the property before closing to make sure that there are no new major issues the property that would prohibit you from purchasing the home. If you agreed in the contract that all the appliances would stay with the home and you notice during your walkthrough that all the appliances have been removed, then you would need to resolve the issue before closing, or cancel the closing and seek legal advice on how to resolve the issue. For this reason, it is best to schedule the final walkthrough at least 24 hours before closing to allow time for any issues that need to be worked out. If you schedule your walkthrough an hour before your appointment with the title company, you may not be able to work these issues out in time. I have never had a final walkthrough go bad, but it does happen so be aware of this.
In Central Iowa, buyers and sellers usually meet at the closing table together and sign all of the docs in the same room. This allows time for any specific questions to be asked between the buyer and the seller. If you had a bad experience during the negotiations, and you do not want to meet with the sellers at closing, you may be able to choose to close at a different time in order to avoid having to deal with them in person.
The Grand Finale: As the buyer, the majority of the papers to be signed at closing will be yours. Be prepare to sign a stack of papers covering all aspects of your home purchase. The majority of the documents are generated from your mortgage company. If you are purchasing a government foreclosure (VA, Fannie Mae, Freddie Mac), you will have even more papers than the average closing. Most closings take about an hour. Once you have signed all of the papers, the title company will submit the papers to the mortgage company and the mortgage company will then send the funds to complete the transaction. Some of our local lenders will fund the loan before closing and you can receive the keys as soon as you are done signing papers. Most of the national banks will require a few hours to fund the loan. If you have a late afternoon or evening closing, the loan will not fund until the next day. This means that you will not be entitled to the keys until the next day, so plan accordingly. Once the loan has funded, you will receive the keys and be the proud owner of your first home!