9 Must-Do’s for the First Time Homebuyer

Congratulations on planning for your future and looking into purchasing a home.  There are things prospective first time homeowners can to make your first transaction go as smoothly as possible.

  1. Talk to a Lender – This step is essential!  Not only will a lender be able to give you a price range, they will also be able to talk to you about the different loan options.  There are often first time home buyer incentives that can help minimize or even eliminate the down payment and/or closing costs.
  2. Start Saving Today – The more you save before purchasing a home, the less interest you’ll pay for the life of the loan.  Even $50-$100 per month makes a difference.  Also, though not required, saving enough to make a 20% down payment means not having to pay for mortgage insurance, saving you money in the long run.  First time homebuyer may qualify for loan programs with lower down payments.
  3. Improve Your Credit – Any lender should be able to look at your current credit situation and give you tips for improving your credit score.  These tips may be as simple as making a large payment on only one card for this month and putting your expenses on different cards to diversify your credit across multiple cards.  The better your credit score, the better chance you have of getting the best possible interest rate.
  4. Prioritize – You have been to a lender and received a pre-approval, now it’s time to get realistic.  You have lots of options and your search will go more smooth if you are able to narrow things down a bit before beginning your search.  Do you want to live in a smaller house that’s full of character or condo in a swanky neighborhood downtown that is close to all the great restaurants, festivals, and boutiques?  Do you prefer to be in the suburbs where homes are larger but all quite similar, yards are larger than in the city but more manageable than a rural lot, and shopping is convenient?  Or is a rural location with a large lot and few neighbors your ideal?
  5. Establish a Budget – How much you’re comfortable spending and how much you’re approved to spend are probably two different figures.  Think about how much you spend on housing now, include utilities, cable, internet, etc.  Now realistically, can you comfortably afford to spend more than that and still have enough money to contribute to a rainy day fund, retirement fund, etc.?  Write down the total amount you are comfortable spending each month.  If this number is lower than your pre-approval amount, this is what you should use to set your price point.
  6. Choose a Realtor – Ask friends or coworkers for recommendations if you don’t already have one picked out.  Set up an initial meeting to make sure your personalities mesh.  You may or may not talk about real estate much at all during this getting to know one another meeting.
  7. Sweat Equity – Yes, you can hire people to move your furniture, paint your home, professionally clean your home, etc.  But those costs may be unnecessary.  Sweat equity can save you money.  If you can devote a couple days to painting, a day to renting a carpet cleaner, and a few days to packing your own moving boxes, you can save hundreds if not thousands of dollars.  Start helping your friends move today, then you’ll be able to ask them for a hand when it’s your turn to move.  All that extra money can be used to start a rainy day fund or for furniture and decor.
  8. Trust Your Instincts – When you find the perfect home for you, you’ll know.  The location, price, and home itself will just feel right.  You may know it’s the one for you before you even go look.  Go look anyways.
  9. Take Your Time – There’s always another house.  Take comfort in that.  If for whatever reason the first one does not work out, there is always another house.  Buying a new home is emotional.  All too often, eager buyers want to bite at the first property they think they love.  If you find that first property in the first week of your search, chances are you’ll find others that fit your criteria as well, and you may end up liking them more.  Relax.  Hope for the best, but know that there’s always another house.

You MUST Get Pre-Approved! Why?

Your Realtor is not just making you jump through hoops.  Pre-Approval serves two VERY important purposes.

Price Range

Take recently engaged couple Monica and Greg.  Monica is a teacher and Greg is in sales and is very busy.  Monica is going to do most of the home search and when she finds the right house, Greg will take a look and they’ll agree to purchase it.

Monica’s credit is not very good, so only Greg will be on the mortgage.

Monica says, “Greg has excellent credit and will easily qualify to purchase a $350,000 house, but we’d like to stay around $300,000.”

Two months later at house #30 – “We love it!  It’s priced at $295,000!  We want to make an offer of $290,000!”

Pre-approval is required to submit the offer, so they oblige and go to the bank.  They are approved to purchase a home up to $250,000 and are heartbroken they cannot afford that beautiful house in the perfect location with the fenced backyard for their dogs.  Monica had already started looking for a new sectional to put in the 3rd floor media room.

Over the next month, we look at another 15 properties that are in their price range.  Nothing compares to that perfect one with the yard, and the granite and hardwoods, in move-in condition.  No media rooms.  It’s all disappointing.  They wanted that other house.

Monica and Greg decide to just keep renting their current apartment.  Five years later, Monica and Greg are still living in that same apartment.

For your own sake, please get pre-approved so this doesn’t happen to you.

Offer Submission

Another story.  Lillian and Jason want to purchase a home.  They find the perfect house! Unfortunately, many people agreed that this was the perfect home, and we are now in a multiple offer situation.

We submit an offer at $3,000 over asking with no concessions and a 20% down payment / 80% conventional loan.  Our offer is not accepted.  The seller went with a lower offer (also a conventional loan) potentially because it was accompanied by a pre-approval letter.

A pre-approval is a free bargaining document.  It qualifies you as a legitimate and serious buyer.  Without it, you may have to offer thousands of dollars more and still your offer may not be considered.

Do yourself a favor.  Get in touch with a lender to get pre-approved before starting the home search.  It costs you nothing and can prevent a major headache when you find that perfect home.

Renting vs. Buying: Part 3 – Advantages and Disadvantages of Buying

There are advantages and disadvantages to owning your own home.  Which is best for you?  That depends on your current and future plans.  This guide presents the pros and cons for buying.

Advantages to Buying

  1. Customization – You can choose to what colors to paint, what renovations to make, and you can make your home more energy efficient.  The possibilities are endless without having to ask a landlord.  You’ll also not have to wait on a landlord to fix appliances or other problems with the home.
  2. Forced Savings – By paying your mortgage, you are building equity in your home.  After time, the mortgage is paid down and there is a good chance that you’ll be able to either sell it at a profit or use it to leverage other investments.
  3. Income Source – Your home can help make you money.  Renting out a bedroom/basement suite/guest house is a great revenue source.  In crowded cities, offering a parking space or garden for rent can also provide a secondary income.
  4. Tax Benefits – In a primary residence, deducting mortgage interest is the main tax benefit.  Other deductions may be available for specific situations (PMI, energy efficiency, etc).  Consult a tax professional for more information as well as tax benefits for investment properties as they can be extensive.
  5. Stability – No landlord can kick you out.  If you’ve chosen a fixed rate mortgage, your monthly payment should not increase (unless property taxes increase, which is typically a small change).

Disadvantages to Buying

  1. Illiquidity – When buying a home, your money is tied up and cannot be quickly and easily made available.
  2. Repairs – You are responsible for financing all repairs on your home, large and small.
  3. Mobility – It’s much harder to pick up and leave when living in a home.
  4. Value – The value of your home may not increase in the first few years.

I’ve decided to buy, now what?

Congratulations on the decision to purchase a home!  You’ve made the first step, now what?

Home Buying Process

  1. Consult your Realtor.  Don’t have a Realtor?  Email me.  I have an extensive network of excellent Realtors with whom I’d be happy to put you in touch.
  2. Speak with a lender.  Your Realtor may require that you’re pre-approved before going to look at homes.  Why?  Two reasons.  First, falling in love with a beautiful home only to find that it’s unrealistic stinks!  Second, in a strong market, often sellers require buyers be pre-approved.  We don’t want you to miss out on your dream home because you had to wait till Monday to get pre-approved and could not submit an offer.
  3. Start the search!  In looking at homes, the more honest you are in discussing your likes and dislikes, the better your Realtor will be able to meet your needs.
  4. You’ve found the home!
  5. Offer to Purchase.  Your Realtor will discuss your price, terms, and conditions and will submit an offer to purchase.
  6. Negotiations. If your offer is accepted, you skip the negotiations step.  If the seller presents a counter offer, you and your Realtor will discuss the counter and negotiate until an agreement is reached.
  7. Offer accepted!  Or go back to #3, but hopefully not!
  8. Due Diligence period begins.  Your agent will help you coordinate inspections, a survey, obtaining insurance, selecting a closing attorney, and applying for a loan (if not a cash offer).  The lender will order an appraisal, the closing attorney will complete a title search, the loan application will go to underwriting, and be approved or declined.
  9. Negotiate repairs.  Negotiate any repairs that came up during the inspection, survey, or appraisal.
  10. Schedule a closing date
  11. Final Walkthrough
  12. Closing day!  Deed is recorded, possession is transferred, the home is yours!  Congratulations!

This may sound complicated, but a good Realtor with clear communication and expectations can make this a relatively painless process.  After closing, your Realtor can be a wealth of information about anything from a good lawn service to restaurant recommendations to maximizing your renovation budget.  You just need to ask!