The Essential First-Time Home Buyers Guide
Buying your first home can be one of the best days of your adult life, but also one of the scariest. Finally a place to call your own, to paint and decorate how you want! Getting to that point can be exhausting. Navigating through the mortgage and purchase process is a battle all its own. Once you do own the home, then what? Being prepared is a must, but you need to be prepared for both the purchase of the home, and for the homeowner life after closing as well. Home ownership is something you cannot take lightly. Don't make the rookie mistake by just one day deciding to buy a house, it takes a lot of prep work. Buying a home is an investment, both monetarily and personally for your future. You wouldn't trust your investment broker to tie up your money for 30 years without doing some research...would you?
This guide is to help you, the first-time buyer, be ready for what lies ahead. Not everyone has the same situation, but getting the process started months in advance can really help set you up for real estate success. Use this as a guide to make sure you are ready to make a move when the time is right! My website is also a great resource for information. Click here to be directed to my site!
Step 1: Financing and Credit, 6-12 Months Out
Your credit score is the starting point for buying a home. How much home you can afford and what it will cost are typically the first questions a FTB (First-Time Buyer) will ask. You are entitled to one free credit report per year from each of the three credit bureaus; Equifax, Experian, and TransUnion. Repairing issues on your credit report takes time. This is why it is imperative to start here. Your credit score is what can determine your interest rate and loan type, thus affecting your loan costs, fees at closing, and even the type of home you can purchase.
Most lenders want to see a certain percentage when it comes to your debt-to-income ratio. They typically don't want to see a debt-to-income ratio of more than 43% of your gross income. Your lender can provide you with information about what a typical monthly mortgage payment will be at a certain price point. There are also many different mortgage apps and online payment calculators that can provide you with some basic info.
Ideally, if you partner with a Realtor, like myself, ahead of time, we can get you in contact with a trusted lender that can help you get the process started. A good mortgage lender will work with you ahead of time and suggest ways to make budgets adjustments to make the most impact on your financials. For instance, getting a bonus from work could payoff your student loan and free up monthly cash, however, that may not be the best use of your money in regards to your creditworthiness. Let an experienced lender guide you and help you plan to save for a down payment.
Step 2: Home Essentials, 6-9 Months out
Start prioritizing what you are looking for in your first house. If you are buying a home with someone else, spouse, friend, etc, you need to decide ahead of time what you want in a new home. Are you looking to stay in a certain area? Close to work, family, friends? Are you looking for move-in-ready or don't you mind getting your hands dirty a bit? Settling on what you are looking for can be a big decision. Understand what is on your "priority list" and what is on your "want list". Many first-time buyers try and swing for the fences right away, getting everything on their list checked off, unfortunately that may not always be possible. You may get the 2 car garage, but the home is a little dated. You may get move-in-ready and stainless steel appliances, but just not in an ideal location. Understand that this is your first house, and chances are it will not be the house you retire in. Keep this in prospective and find a home that meets your needs now and for the foreseeable future, then when the time is right, go get your dream house and don't compromise. Just keep resale value in mind!
This is also when you want to start budgeting for all of the miscellaneous expenses associated with buying a home. A good home inspection is typically going to run you at least a few hundred dollars. You may want a survey done, termite inspection, etc. Shortly after you close on the home and take possession you may have some small maintenance costs: wall paint, blinds, some furniture. Keep all of these things in mind. Owning a home comes with homeowner expenses. That garage door opener stopped working? $200. Garbage disposal started leaking? $100. Not to mention you will need to budget for trash service, water bill, lawn care expenses, snow removal, etc. Don't be scared away by this, but just be ready for them. There is a lot more to do to maintain a home than an apartment, but it is oh so worth it!
Step 3: Gathering Financials for Lender, 3-6 Months Out
Stay in contact with your lender. This is when you can start working with them to get the loan application process started. They will need you to gather all of your financial records.
- Tax returns. More than likely 2 or 3 years will be needed
- Recent paystubs
- Bank Statements
- Credit card and loan statements
- Any investment/brokerage account statements
- 401K statements
Going through these now will save you time down the road. Also, by going through these ahead of time, it will help you stay focused on your budgeting and savings! Bonus!
Step 4: Shopping and Touring Homes, 2-4 Months Out
This is when you want to have your preapproval in hand from your lender. All your work up to this point is about to payoff! Your lender has all the documents he/she needs, the credit score and savings are on track, and they have issued your official preapproval letter! Your lender will help you pinpoint a budget with a mortgage payment you are comfortable with. Typically, lenders will approve you for more than what you want to spend, just make sure your lender and your Realtor (me) know what your max budget is and where your comfort level is. Your Realtor will also need to know the type of loan your are using and how much you are putting down. It is very important to understand the different loan types, Conventional, FHA, Rural Development, and VA since they all have very different requirements when it comes to the condition of the home. For instance, although you may be a very qualified DIY'er or contractor and would like to buy a fixer-upper; if you are qualified for an FHA mortgage, you may not be able to purchase the home you want. FHA has certain requirements that the home must meet in order for an FHA loan to be used. Meaning, not all homes will qualify for FHA financing, especially if they are in rough shape.
Once you are comfortable with everything, it is time to finally start touring homes! The more information you feed to your Realtor, the better. I can help search for homes that meet your criteria and within your budget. Once you start touring homes, it is important that you understand that most buyers buy on emotion. You hired your Realtor to be your guide through the process, so don't be alarmed or offended when your agent points out flaws with the home you have just fallen in love with. Your agent's job is to work in your best interest. If they see something that could potentially derail a transaction, they should point it out. They aren't home inspectors, but their experience will show through just in the tour. Again, don't be offended, they are only there to make sure you have as much information as possible to make an informed decision.
Step 5: Getting Your Offer In, 1-2 Months Out
The home stretch! You have just found a home you can't live without! It's time to write an offer! All of your financials are in line, let's make it happen! Make sure you ask questions to your agent as you go through the purchase agreement. Understand what you are signing for, what is included in the purchase, what items stay with the home, and so on. There are a lot of things that, if it is not handled properly in the purchase agreement, can become issues down the road.
Understand your own timeline. If you are under a hard deadline to move out of a rental or apartment, you need to know when you could potentially move into your new house. A typical pending period is around 30-45 days. And depending on the situation the sellers, it could be another 15-30 days after close before you get possession. For instance, from offer acceptance to possession, you could be looking at 3 months.
Writing up your first purchase agreement can be a little scary, but a good Realtor (like myself) will go through the purchase agreement in person and explain what each section of the contract means. There are a lot of things to consider in the offer and you need to know the pros/cons or ramifications of certain sections. For instance, is the seller paying any and all assessments on the property? Does the township require a smoke detector certificate of compliance prior to close? How are you prorating property taxes? Make sure to ask questions if you aren't sure!
Step 6: The Pending Process:
After your offer is accepted, make sure to get a home inspection! Yes, a good home inspector may cost you $300-$400, but a good home inspector is worth their weight in gold. Most Realtors, myself included, have a few inspectors they have worked with and trust their judgement. From my own experience, a lot of first-time buyers can get very anxious when issues arise from the inspection, but don't fret, there is no reason to over-react. Get with your agent and decide what the best course of action is. Keep in mind, you are in the driver's seat. There is usually some back and forth negotiation regarding what items the seller will take care of and which items the buyer will take care of after the sale. This is where having an agent like myself really pays off! We want to make sure you are comfortable moving forward with the sale after inspections are complete.
Next comes the appraisal. After you and the seller have settled on the inspection items, your lender will order the appraisal. The lender needs to know that the value of the home is equal to the amount you are purchasing it for. Appraisals can take a few days to get scheduled and can take up to a week+ to get the report back. As the buyer, you are the owner of the appraisal report and you are entitled to receive a copy of it. If there is an issue with the appraisal, again don't fret, there are courses of action your Realtor can take to keep the transaction moving.
So close! You have made it through inspections, the appraisal came back right where you needed it to be, the title company has finished the title transfer, you are getting the last few documents your lender needs, is there anything else you need to do? Just a couple - 1. Make sure you get your homeowners insurance lined up. Start with the company that your vehicle is insured through. Multi-policy discounts are always good. You can always ask around too. Your agent or lender might have a good referral for you. 2. This is optional, but a final walk-through is never a bad thing. Making sure the house is still in the same condition it was when you saw it the first time, all the appliances are still there that should be, and to just get excited about closing is always a plus! Just make sure you don't get to excited and go open a credit card to buy new furniture, or buy a new car to put in that garage. These can be deal breakers for your lender!
There are a lot of parties in play to get you to the closing table. From your Realtor, lender, lender processors and underwriters, home inspector, appraiser, and title companies; there are a lot of moving parts! On average there are 27 people that are involved in your transaction from start to finish. It is no simple feat to get there! Be proud! The title company will provide the final numbers for closing, typically your agent will go through the settlement statement with you prior to close to make sure you understand where everything is coming from, and your lender will let you know how the funds will need to be brought to closing. Some lenders, if you bank with them, will wire the funds directly, others will have your bring a cashiers' check to the closing for the amount needed. But, either way, you made it! After a slew of signatures and a hand cramp, you are officially a homeowner!
Congrats!