12 STEPS FOR THE FIRST-TIME HOMEBUYER
Buying a home should be an exciting experience. Unfortunately, for many first-time homebuyers, the confusion that comes from not understanding the process overshadows their experience. You don’t need to be a real estate expert to understand the ins-and-outs of buying a home. You only need a willingness to learn. If you have that willingness, keep reading. I will lay out—as simply a possible—the home-buying process from start to finish.
#1 – GET A HOMEBUYER FINANCIAL SNAPSHOT:
Before you begin your search for a home, you need to know where you are financially. It’s not as simple as having the deposit for your new home, you need to take into account other factors. You’ll want to take a comprehensive look at your credit report to make sure there is nothing on there that could prevent you from getting a mortgage. You may also want to pause any new credit activity so you don’t get any hard inquiries on your report before you apply for a home loan.
Most home loans require a 20% down payment. However, for a first-time homebuyer, there are programs that allow you to put down as little as 3%, possibly even nothing. If you don’t have 20% to put down, explore your options. And remember, the down payment isn’t your only expense; you’ll need to budget for inspections, appraisals, loan application fees, closing costs, and moving costs. You may need to adjust the amount you’re looking to mortgage to make up these differences or take more time to save.
#2 – DETERMINE WHAT YOU CAN AFFORD:
It can be hard to stay within budget, especially when you see a house you love that is slightly above your price range. Many people will go over budget, honestly believing they can make up the difference with frugality, but living with financial stress is the quickest way to kill the joy of owning your first home. You may know what you can afford for a monthly mortgage payment, but there are other monthly expenses that come with homeownership: possible HOA fees, homeowner’s insurance, landscaping, and maintenance.
The benefit of renting is not having to worry about the cost when the A/C breaks down or having to pay for the upkeep of the landscaping. Minor repairs and maintenance around the house will now be your responsibility. It’s like buying a car at a payment you can afford, only to find out later you can’t afford the insurance or even a set of new tires (the price of tires these days makes my head spin). Keep all this in mind when deciding your budget. A great rule of thumb is to never spend more than 30% of your income on housing (this includes all your housing expenses).
#3 – MORTGAGE PRE-APPROVAL:
Your home-buying process go more smoothly with a mortgage pre-approval letter. Not only will it give you an idea of your budget, it can help you get the house you want over another buyer who doesn’t have a pre-approval. Make sure you get a pre-approval and not a pre-qualification. Pre-approvals hold more weight. Remember at this point you’ve already determined your budget. Just because your pre-approval amount may be higher than your budget, doesn’t mean you should permit yourself to spend more than you were comfortable with. It’s always smart to stay below your pre-approval limit.
#4 – FIND THE RIGHT REAL ESTATE AGENT:
It’s important to find the right buyer’s agent
. After all, you will be spending a great deal of time with this person while searching for homes. Every state has a regulatory board. Check with this board to make sure your agent is licensed and hasn’t had any complaints or disciplinary actions. Find out how long your agent has been licensed through the licensing authority.
Check to see how many listings your agent is working on. Too many could mean you don’t get the attention you need, but too few should also leave you questioning if the agent has a healthy business. If you are able to, ask to speak to your agent’s most recent clients. These are the people who will give you the best information about the experience working with your agent.
#5 – DECIDE WHAT TYPE OF HOUSE YOU WANT:
As a first-time homebuyer, you will probably be in the house for at least 3-5 years. It’s important to make sure you know what you want based on your lifestyle. How many bedrooms will you need? Will your family be growing while you’re in the house? Do you prefer a house or a condo? What area of town do you want to be in? What will your commute to work be? These are all questions to ask yourself to determine what works for you.
When searching for a home, you may need to compromise. Decide what the most important elements are that you want and let the little things go—unless, of course, you find the perfect house for the perfect price; miracles do happen. It’s okay to take as much time as you need finding the right home. Remember to take pictures of the homes you like (if you look at a lot of homes, it can be hard to keep track of the details) and evaluate the neighborhood. The perfect neighborhood can be just as important as the perfect home.
#6 – GATHER INFORMATION ON THE PROPERTY:
You know your budget, you have your pre-approval letter, and you found the right house. Before making an offer, take the opportunity to learn about the property you’ve chosen.
Sellers are required by Florida law to disclose
to the buyer any issues that are not observable or discoverable.
You also need to know the seller. Many home sales in Florida consist of sellers who are not Florida residents. Sometimes the seller lives in another state or another country
. The seller could also be an estate, a corporation, partnership, or developer. In any of these cases, there may be special requirements: notarization of documents, corporate resolutions, trustee affidavits, and/or orders form the probate court authorizing the sale. The more you know about the property, the better, so gather as much information as possible to prevent surprises down the road.
#7 – MAKE AN OFFER:
Work with your real estate agent to negotiate a fair offer on the home you want to buy. Your real estate agent will have the expertise to guide you through this process; however, stay informed and do your research to ensure you are making a fair offer and not overpaying. Consider these things before making an offer: determine the current housing market, find out how much the seller paid for the property, find out the seller’s mortgage balance, examine comparable sales in the area, analyze list price to sales price ratios for the last 6 months, and find out if the home was an expired listing that has been re-listed.
After making an offer that both you and the seller agree upon, the house will go into escrow. Escrow is a period of time it will take to complete any remaining steps to the purchase.
#8 – GET A HOME INSPECTION:
Within a short time after your accepted offer is a scheduled home inspection. The home inspection protects you from purchasing a property without the knowledge of any defects. If you find structural issues during the inspection, you can withdraw or renegotiate your offer, without penalty.
It is important to know that the inspector can only report on issues discovered visually. For instance, if the home has low water pressure, the inspector will report this, but will be unable to report the cause. It is your responsibility to hire specialists to determine the cause of any issues discovered by the inspector. In the case of low water pressure, there could be issues with corroding pipes. Only a plumber can determine this.
#9 – APPLY FOR A MORTGAGE:
When you apply for a mortgage, you will need to provide many documents: tax returns from the last two years, pay stubs, and employment verification, among other things. Be prepared to pay for a bank appraisal during this part of the home-buying process. A bank will not finance a mortgage without a formal home appraisal.
You may be offered multiple loan options, but it is important to know about a mortgage rate lock
. A mortgage rate lock will protect your interest rate for a specific time period. Typically, offered rate locks are at 7, 15, 30, 45, and 60-day periods. Locking your mortgage rate will protect you should the rate go up. The earliest you can lock in your rate is upon the completion of your mortgage application.
#10 – BANK APPRAISAL OF THE PROPERTY:
Again, you will need to pay for the appraisal. The bank appraisal is provided by a third-party. The appraisal ensures the price you and the seller agree upon is a fair market price for the home.
Typically, the appraiser will determine the appropriate value of the home based on comparison data of recent, similar home sales in the area. The appraiser will also be looking for potential safety issues. Any needed repairs must be done prior to bank funding. You will need to negotiate with the seller if any safety issues arise and repairs are necessary.
#11 – SCHEDULE A FINAL WALK-THROUGH:
As a buyer, you have the right to walk through the home one last time to ensure nothing has changed since the purchase offer. The walk-through gives you the opportunity to check that needed repairs were performed and performed up to standard.
During the final walk-through, you should test plumbing, lighting, heating and air-conditioning, and get a meter reading for utilities in case there are any discrepancies after closing. Do not skip a final walk-through, for it is your last chance to resolve any issues before your closing.
#12 – CLOSING ON YOUR NEW HOME:
Be prepared to sign a lot of paperwork. A closing agent
will guide you through the process by explaining each document you sign. If your closing agent doesn’t explain a document to you, ask that he/she does. The closing agent is also responsible for gathering the documentation from both the buyer and seller: Deed, Affidavits, Bill of Sale, etc. Make sure you know the chain of title
to your property.
During closing, you should take out a title insurance policy to insure the title to your real estate is marketable and your property is free of defects that could impact the value of your property. Once your transaction is complete, the closing agent will send the Deed and Mortgage to be recorded in the public records for the county. You will receive the keys to your new home after all your documents have been signed!
I hope this 12-step guide helps clear up any confusion so that your home-buying experience is enjoyable; however, we are here at Home Clicks Realty
to offer any advice or help you may need. Don’t hesitate to reach out, and when you are ready to buy a home, we hope you’ll choose us to guide you through the process.