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What should you expect when you’re buying your first house? Here’s everything you need to know!
I truly believe that buying a home is one of the secrets towards building generational wealth. When you have a fixed monthly payment and are building equity every single month, it is much easier to get ahead than when you are renting.
Granted, I’m lucky enough to live in a very affordable market (Tampa), whereas you might be living in an area where rent ends up being significantly lower than a typical mortgage. If that is the case, then I urge you to look into buying an investment property elsewhere (like Tampa…)
The financial process is a little different for investment properties, but the actual home buying process is virtually the same (besides the added factor of calculating the investment value).
If you are buying your first home, or need a quick refresher on what goes into the home buying process, then this guide is for you!
Related Content:
- 8 Steps First Time Homebuyers Should Take Right Now
- Hidden Costs Of Home Buying
- How To Find A Realtor
1. PICK A REALTOR
The very first step to home buying involves picking a Realtor! Some may argue that picking a lender should come before this, but a Realtor will be able to recommend trusted lenders to you so I would advise finding a real estate agent first.
There are numerous ways to find a Realtor, but among the most popular ones are social media, Zillow, Realtor.com, open houses and referrals! I go into more depth on finding a Realtor in my article here.
Why do you need a real estate agent to represent you? What do they even do? Below are the responsibilities of a Buyer’s Agent:
- Be there for you.
- Listen to your needs and discover what you are truly looking for.
- Provide a list of trustworthy vendors for the process (lenders, home inspectors, contractors, etc.)
- Educate you on the process.
- Share tools that will make your experience easier.
- Preview homes and be up-to-date on the current market.
- Research neighborhoods, schools and market trends.
- Negotiate repairs, find home insurance quotes, fight low appraisals, and the rest of the steps covered by this article.
Buying a home is an adventure. There will be moments of anxiety and splashes of excitement. There will be tough days but they will be outweighed by the joy and relief you will feel when you cross the threshold to your new home. In order to make the journey as smooth as possible, it is important to find a Realtor who will prioritize your needs, and hold your hand as they lead you towards the finish line.
Your Realtor will serve as your guide, friend, and therapist. You need to find someone who will fight to find the answers to all of your questions and be there every step of the way.
Read: How To Pick The Best Realtor For You
2. get PRE-APPROVed
Now that you have picked a Realtor, the next step in the home buying process is getting pre-approved for a mortgage! (If you’re paying cash then you can skip this step!)
Most people tend to try their current banks first to determine eligibility, but I would advise you to consider the lenders your Realtor recommends as well. Chances are they have someone on their team who is trustworthy, and can provide you with a competitive rate. Larger banks like Chase and Bank of America can sometimes charge you hefty discount points so it’s important to pay attention to those as well.
You can find a lender by running a quick google search, or scouring social media, Zillow, or Yelp!
Here are some of the questions you should ask your Lender:
- Do you work weekends and nights? – This process is very time-sensitive so you need someone who will act immediately on your behalf.
- What do you charge for discount points? –These can help lower interest rates and are also tax deductible, but they can get quite expensive.1 discount point= 1% of the loan amount.
- What do you charge for Credit Reports, Origination Fees, Appraisals, and Recording Fees?
- Do you have underwriters in-house?– If underwriters are in-house, this can speed up the process.
- How long does it take you to close a loan?- On average, it should take about 30 days to close a loan. Some lenders are able to speed this process up if the file is less complicated (perhaps even 21 days!)
- Are you a mortgage broker or direct lender? – Mortgage brokers work with numerous direct lenders and shop around for the best rate for you. Direct lenders are the actual lender and typically have their underwriters in-house. Both have their own pros and cons, so it’s important to speak to both when shopping for a mortgage!
Pick at least 3 mortgage lenders to speak with and ask them to provide you with loan estimates.
In order to get the most accurate pre-approval and loan estimate, you will need to provide them with the following documents:
- W2 or 1099 depending on your employment.
- Pay stubs
- Bank statements
- Tax documents
The lender will be able to provide you with a rough price range you’re eligible for as well as a monthly payment. Take note of the monthly payment because if you’re shopping in neighborhoods with high HOA fees that can make a huge impact on your eligibility.
Read: What You Should Know About Buying A Home Right Now
3. have a BUYER’S CONSULTATION
Once you have your pre-approval, you’re ready to discuss your needs with your Realtor! The longer and more in depth the buyers consultation, the easier it will be for the agent to find your perfect home.
This is the step in the home buying process where you discuss all of your priorities and help paint a picture of the home you’re looking for. Be completely honest about your needs. If you don’t know what you’re looking for yet, check out some open houses! Here’s my guide to attending open houses and why they’re useful!
After discussing the characteristics you’d like in a home, ask the Realtor to go over the contract and the rest of the process with you!
These consultations can be held over the phone, e-mail or in person. Usually the agent will do their best to accommodate your preferences.
Read: What Should You Do At An Open House
4. go HOME SHOPPING
The most exciting home buying step you’ve been waiting for!
Depending on your criteria, your Realtor will set you up on an automatic drip of homes that comes straight to your inbox! They can also show you any homes that you find on Zillow or Trulia.
One thing to note, depending on your loan type, you might have to be careful about what properties you look at. FHA and VA loans have stringent requirements for eligibility, especially for condos. And, for the property to qualify for the USDA loan, it must be located in a specific area).
The Realtor should also be on the lookout for any red flags that are associated with the property. In the Multiple Listing Service, there are Realtor Remarks that may mention a previous sinkhole, lack of permits, prior damage, etc. Your buyer’s agent should be honest with you about any material defects with the property and this will help save time if you want to avoid those homes.
Once you narrow it down to a few homes, you can go home shopping! An important thing to remember is that no home will be perfect, so you have to reflect back on your priorities list and decide which home meets most of your criteria! More often than not, you will feel a certain pull towards your home and it will be the emotional connection that will end up winning you over.
5. submit your OFFER
Once you’ve landed on a home that you want to offer on, the agent should go over the seller’s property disclosures with you as well as any potential red flags such as lengthy time on market, previous financing falling through, and other items that the sellers or listing agent have disclosed.
This market is HOT and most likely you will be entering a multiple offer situation. There are a number of ways to have your offer stand out during a multiple offer situation. Some of the more popular ones are an emotion-evoking handwritten letter and family photograph or a video where you and your family discuss what the home means to you.
The offer should be submitted with the pre-approval letter from your mortgage professional or proof of funds from the bank if you’re paying cash.
6. INSPECTION AND DUE DILIGENCE PERIOD
This is one of the most important steps when buying a house. The inspection period is typically around 10-15 Days (the shorter it is, the stronger your offer).
This is your time to complete any due diligence you need on the property. If financing, you will be required to complete a few necessary inspections depending on the home and the loan type.
All homes will need a 4-point inspection in order to satisfy the home insurance companies and in turn, the loan programs. This inspection only covers the Electrical, Plumbing, HVAC and Roof systems. In order to feel more prepared for future issues, I advise getting a full-home inspection that will provide thorough information regarding the home’s condition.
The wind-mitigation inspection is optional but it might lower your insurance payments if the home has hurricane protections in place.
FHA and VA loan programs require termite inspections to be completed as well.
Mobile homes will require a structural inspection if you are going with the FHA loan.
If the home has a septic tank, a well, structural issues or any other unique characteristics, it is highly recommended to have those inspected during this period.
The inspections typically take about 2-3 hours and the reports should be completed and returned to you within 1-2 days. Budget about $600 for the inspection reports to be completed depending on how many you want to get done.
You can go over the 4-point inspection report with an insurance agent who will disclose what needs to be fixed in order to obtain insurance. Once you decide on the necessary repairs, your agent will negotiate to get the sellers to complete as many as possible.
Read: Hidden Costs Of Buying A House
7. APPRAISAL & Title commitment
The appraisal is basically the lender’s way of qualifying the property. They send out an appraiser who will run an inspection of the property and make sure it fits their standards and they will run their own Comparative Marking Analysis to determine whether the purchase price is on-par with market value.
If the appraiser requests any repairs to be done to satisfy the loan, the sellers and you will have to negotiate the completion of them.
If the appraisal price comes back equal or higher than the purchase price then you have nothing to worry about! But, if the appraisal comes back to say that the true market value is lower than the purchase price, you and the sellers will have to work together to either lower the purchase price or cover the difference in cash.
The title commitment is provided by the title company or law firm. This is basically a way to ensure that any legal issues in the past have been resolved and you are not entering a property that has legal issues such as heirs claiming ownership, liens on the property or other alarming items the title company might have discovered.
8. CLOSING!
You made it through the home buying process!! Congratulations!
The title company will send you a settlement statement that will list the “cash” you will need to bring to closing. This will be wired to the title company (you can do this ahead of closing to prevent any last minute mishaps).
BEWARE OF WIRE FRAUD. It is running rampant across the country so TRIPLE CHECK the wiring instructions you’ve received by calling and confirming with the title company. Call the phone number you’ve found online rather than in the e-mail with wiring instructions. Be very careful.
Most title companies will require 1 form of identification to be brought to closing, but confirm with your Realtor or the title company that they do not need two. You can use your Driver’s License as an ID.
During closing they will go over the settlement statement and the legal documents. As soon as your loan is funded, and all parties have signed the paperwork you are officially a homeowner!!
(The sellers typically sign separately than the buyers).
Congratulations!!!
Related Content:
- How To Find A Realtor
- 8 Steps First Time Homebuyers Should Take Right Now
- Hidden Costs Of Home Buying
