First Time Homebuyers – A Complete Guide

first time homebuyers guide

First Time Homebuyers

A Complete Guide

Home ownership is the American Dream, but as a first time home  buyer, the purchasing of your first home can seem overwhelming.  Although there is a tremendous amount of information on buying a home available, there are few complete guides that walk you through the entire process of becoming a homeowner.  No two real estate transactions are the same and very few of them go off without a hitch.  With years of experience in real estate, assisting many people with their first home purchase, we thought we would provide the complete guide for first time home buyers.

Deciding to Buy a Home

Many potential home buyers will start the process by searching homes for sale on the internet.  Although this can be fun, if you are serious about purchasing a home, you will want to be methodical in your steps to home ownership. Home ownership is not for everyone.  For some people, renting a home can be a better plan.  Its best sit down and truly see if owning a home is the right thing for you.  Here is a quick list of things you will want to think about when considering such a large purchase.

You Will Want to Examine How Long You Will Be Living in Your Area.

If you have any inclination to move in the immediate future, renting may be a better option for you.  If you have a job that may force you to leave town, you may not want to be tied down to a home mortgage.  On the other hand, if you feel confident you will continue to live in your current city, or if your job offers relocation assistance, you may want to take advantage of the benefits of home ownership.  If you plan on staying in your current city for an extended period of time, purchasing your first home will start to build equity and long term wealth for you and your family.

Make Sure You Can Financially Sustain a Home

Although in many instances, the note on a new house can be comparable to rents, there are additional costs you will incur.  You will need to pay for homeowners, and possibly flood insurance.  You will most likely incur some sort of a tax bill on your new home.  Lastly, you will need to plan for maintenance and upkeep of your new home.  We have a quick tip on assisting with unexpected repairs, but we will get to that later.

Check Your Credit Score

Many people think they have better credit than they truly do.  It can be easy to forget about a past cell phone bill where you were upset with your carrier and refused to pay!  It’s also not terribly uncommon to have identity theft or a simple credit “mix up” affect your score.  Even the smallest credit infractions can cause you to pay a higher interest rate or even not qualify for a mortgage. Today, it’s easy to get an idea of what is on your personal credit report.  You can first use one of the many free credit reporting services to get an idea of where you stand.  Be aware that these types of credit reporting systems may not be 100% inclusive or give you the most accurate FICO Score, but they are a good start.  Down the road, your mortgage broker will pull a true credit score with all three reporting agencies and let you know exactly where you stand.  If you see anything out of the ordinary in your preliminary credit report, you will want to follow up immediately with the credit reporting agency that shows the error.  These things can take some time to get cleared up.

Find a Mortgage Lender

Finding the right mortgage lender is a critical piece in buying your first home.  In many instances, having the wrong lender can cost you more than overpaying for your home.  As a general rule, you will want to find a local lender, someone that you can meet with face to face.  Your lender needs to be acutely aware of your financial situation and your long term financial goals.  You will want to have someone that comes highly recommended as they must be trustworthy in that they put you into the correct mortgage product.  There are hundreds of options in financing your first home, you can’t be aware of all of the details and will need to rely on the expertise of your mortgage lender.

The Difference Between a Mortgage Broker and a Banker

Many first time home buyers believe that it’s better to go directly to their bank to get their home mortgage.  Although this may be true in some instances, it’s important to know the difference between a bank and a Mortgage Broker.  A bank can give very good rates ON THE FINANCIAL PRODUCTS THEY OFFER.  Most banks have a niche that they cater to, meaning they offer very good deals to a specific borrower.  If you happen to fit that specific mold, your bank may be a good option.  On the other hand, a mortgage broker has many banks and lending institutions that they work with.  They look at your specific financial situation and find the best rate from one of their affiliates.  In many instances, although a mortgage broker has to make some money in the middle, their ability to “shop your loan”, understanding your unique financial situation, can save you money in the long run.

Set Your Budget For Your New Home

Once you have decided on a lender, they will work with you on figuring out exactly how much of a home you can afford.  They will look at your debt to income ratio and a variety of other factors to come up with a monthly mortgage note that you can pay each and every month without putting yourself in a bind.  Once you know the amount you can spend per month, you can then work a little backwards to see what homes for sale you can purchase.  Whether your lender does it for you or you do it yourself, you will want to use an amortization chart to see how expensive of a home you can purchase.  These types of mortgage calculators take into account your down payment and interest rate to show how much of a home your specific circumstance can buy.  You will want to make sure to add in your taxes and your insurance too in an effort to get a full picture.

Get a Pre-Approval Letter

Once you know how much money you can spend on your new home, you will want your lender to provide you with a pre-approval letter.  This is a simple document that shows you have had your credit run and spoken with a lender, who is claiming they will finance your new home for a specific dollar amount. This document will be submitted when you write an offer on a home.  It simply shows that you can purchase the home you are making an offer on, and is a very important part in the home buying process.

This is the first installment of First Time Home buyers – A Complete Guide.  We will update this exact post weekly until fully completed.  In the meantime, if you need immediate assistance for purchasing your first home, feel free to Contact Us directly and we will walk you through the process.

 

 

  • Deciding To Buy A Home
  • Checking Your Credit Score
  • Finding a Mortgage Lender
  • Setting Up Your Budget
  • Getting a Pre-Approval Letter

These are the first things that you need in place if you are considering buying your first home.  In Part 2, we will cover the remainder of the home buying process.

Find An Agent

Many first time home-buyers toy with the idea of not using a real estate agent to purchase their first home.  Many feel that somehow, they will get a “better deal” on a home if an agent is not involved.  This cant be further from the truth.

First of all, using an agent to buy a home is absolutely free from the buyers perspective.  The seller, when listing their home for sale, factors in both the buyers side agent commission as well as the listing agents commission.  So when a purchaser makes an offer on the home of their dreams, the final negotiated price is what you will pay.  The commission comes out of the proceeds from the buyers side.  Because of this, many first time home buyers believe that if they find a home that is NOT listed for sale with a real estate agent, they could “save that commission”.  Let’s go over a couple reasons why that doesn’t work.

First, when a seller chooses to attempt to sell their home without an agent, they are usually doing so to “save the commission”.  Although statistically, it is proven year over year, that using an agent to sell a home nets the seller more money. That being said, some sellers do insist to attempt to sell their home on their own.  Keep in mind, if you are looking at a home, where the seller choose NOT to use a REALTOR, they did so to attempt to save the commission.  Remember back, you are doing the same thing from the buyer perspective.  What you end up with is a seller, who is attempting to make MORE money and a buyer trying to save a commission. There is ONLY ONE COMMISSION — BOTH THE BUYER AND SELLER CANT SAVE IT.  In addition, usually the perspective of the For Sale By Owner is one of getting a higher amount for their home than recommended by an agent.  This means that your agent (from the buyer’s side) would generally say that home is overpriced.  You wouldn’t have that knowledge going in.  In addition, the home buying process can be very tricky, with a lot of money on the line.  You have NO ROOM FOR MISTAKES as they can cost you quite a bit.   We can go on forever all of the reasons to use an agent when purchasing your home, but that would be an entirely new post.

When choosing your agent, it’s important that you pick a REALTOR who is familiar with the area that you want to live.  For instance, if you are looking to buy a home in Lakeview, you would want to use an agent that specializes in Lakeview homes for sale. Each area of New Orleans has its own unique circumstances when purchasing a home and you will want someone familiar with the specifics of your new subdivision.

Set Up Your Property Search

Once you have decided on an agent, you will want them to set you up with a property search.  Needless to say, feel free to search the internet for homes for sale yourself, but understand that websites such as Zillow and Trulia DO NOT HAVE ALL OF THE LISTINGS!  Also, if you are using one of those 3rd party websites, many of the homes you see for sale have already been sold or expired.  The ONLY way to gain access to all of the homes for sale is to have your REALTOR send those to you, or to use a real estate website that is directly connected to the local Multiple Listing Service (MLS).  Only local real estate agents and broker have access directly to the MLS, so ask your REALTOR for some examples of good online search portals.

In addition to searching for homes yourself, your agent should have you set up to automatically receive new listings that come available that specifically fit your search criteria.  This is a critical step in the home buying process.  The hottest and best real estate deals go quickly, so being notified immediately when a new home suits you is important.  If upon looking at the home online, you think it’s a good possibility, let your agent know so they can set up an appointment to view the home ASAP. In some instances, your real estate agent may have already seen the property and can provide some valuable insight.

Placing an Offer On Your New Home

Once you have found the home you wish to purchase, you will want to place an offer.  DO NOT LOWBALL YOUR FIRST OFFER!  Many first time home-buyers think this is a good idea, but in truth it simply creates a bad starting point for negotiations.  Most sellers are emotionally attached to their home and to give a very low offer is insulting.  Have your agent review sold comparables to see how much off the listing price homes are currently selling for in your area.  Have your agent do a CMA on the home to provide its current value.  Lean on your agent for the right first offer.  Some people think that REALTORS want to have you pay more for your home because they make more money—- Nothing can be further from the truth.  First, the amount of additional money an agent makes off of a few thousand dollars is almost nothing.  Good real estate agents understand that a long term client who provides referrals are much better to their bottom line than making an extras $37 dollars on a particular home sale.  In addition, REALTORs have a Fiduciary Responsibility to you, which means they are legally responsible to look out for your best interest above their own.

Get Your Purchase Agreement To Your Lender

One your have finalized the contingencies and price in writing and have a purchase agreement signed by all parties, you will immediately want to get that contract to your lender.  Your lender will have a lot of work to do and this is where they get started.  Be sure to provide your lender with any additional information or documentation that they request IMMEDIATELY.  A very large portion of real estate transactions require at least one extension to the Act of Sale.  In most instances, those extensions are needed because the lender needs information.

Home Inspections

Upon finalizing on the details and price of the home purchase, you will want to set up your home inspections.  When negotiating on your property, your agent has most likely written into the purchase agreement that you will have a period to inspect the home (preferably using a professional home inspector).  Within this period of time, if you find issues with the home you can get out of the contract OR request a reduction in the sales price.  DO NOT use your inspection period as a point of renegotiation unless you find issues with the home that you didn’t see upon viewing it yourself.   This can cause you to lose out on your new home and cause unwanted stress on the sale.  It’s very possible that you may need an extension on your closing date, and the seller will need to approve that in writing….don’t make them an enemy.

Get Insurance Quotes

Since you know the address of your new home, you will need to get the appropriate insurance.  It is usually wise to shop around for the best rate, but make sure that you compare apples to apples.  There are many discount homeowners insurance rates available, but they may not give you the security you need if you ever need to make a claim.  In most instances, your agent can direct you to a reputable insurance agent who will find the right balance between your cost and security.  In addition, your lender will require that a certain amount be insured at the proper levels.

Choose a Title Attorney

You will need to get all of your contracts for the home, as well as your lender information to a Closing Company or Title Attorney.  This is the party that will actually facilitate the closing on your new home.  They will act as an in-between for acquiring your title search, loan documentation, insurance and all needed documentation to buy your home.

Order Your Appraisal

Once you have successfully made it through the inspection period you will want to have your lender order your appraisal.  This too, if not done in a timely manner, can cause a delay in your act of sale.  Keep in mind, any delay or extension to an act of sale must be approved by all parties.  That means you could potentially lose your home and your deposit if the seller chooses to NOT agree to an extension.  Needless to say, there are many contractual details on this, and your REALTOR (who wrote the contract) can walk your through.  Although it can vary from contract to contract, you will generally order your appraisal AFTER your inspections as to avoid paying for an appraisal for a home that you end up not purchasing.  Once again, refer to your agent for details — they are there to protect YOU.

Final Walk Through

Generally speaking, you will want to perform a final walk through of your property either the day of, or the day before your closing.  You will be looking to verify that the home is in the same condition as when you made your offer and that any repairs (per the property inspections) have been completed to your satisfaction.  You will also be verifying that any items you requested to stay in the home are still there.

Attend Your Closing On Your New Home

This is the big day.  This is the day that you sign all of the paperwork and get the keys to your new home.  Make sure to show up to the closing with proper identification and any additional documentation that the closing company or title company may have requested.  In many instances you will also need to bring a certified check (for any additional down payment) to the closing.  DO NOT BRING A PERSONAL CHECK — as they are generally not accepted.

Change The Locks

One of the most overlooked tasks in purchasing a new home is changing the locks.  With all of the excitement and emotions of purchasing your first home, it can easily be overlooked.  Be sure to change ALL of the exterior locks prior to moving in your new home.

Conclusion

Every real estate transaction is unique.  No two sales are identical.  This has been provided to explain the basic steps and processes for buying a home.  It is all but guaranteed that your home purchase will have many aspects to it not mentioned here, but that is why you have an agent to hold your hand and walk you through the process.

 

 

 

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