My spouse and I just bought our first home together. YAY! We are grownups! Although it is very exciting, I must say most of time I felt like I was in the dark. More often than not, I would be in the car on our way home from a meeting with our realtor googling lingo she was throwing around. We all have to admit that no one ever really teaches you about this process and you really don’t want to look like some punk kids trying to buy a house. You want to appear knowledgeable and professional, but as we all know, that is not the case.
Here are a “few” things that this Newbee learned along the way. Hopefully this will help fellow First Time Home Buyers.
Step 1: Meet with Lenders
Mortgage Lender vs. Mortgage Broker
You definitely want to know the difference between these two professionals. Lenders are private institutions (ex: banks) who give the loan directly to the borrower (you). Brokers will work with private lenders to ensure that borrower gets the best deal. Brokers will shop around for you to find the lowest rate and the loan that meets your needs.
What will you need?
- W2s for the past two years
- Two most recent pay stubs
- Two years of Tax returns
- Two most recent bank statements
- Copy of license
This information is important for your lender to better determine what you Pre-qualify for. This number will help you determine what the best price range you should be looking at based on your income and what you have in the bank. Your lender will give you a pre-qualified letter to be provided to your realtor to best determine which house will fit within your budget.
Step 2: Finding a Realtor
I will say that we lucked out in this department. A family friend happened to be a realtor in the area that we were hoping to buy in. We also found out that one of the brokers we met with also had worked with her. This was a major plus as they both only had great things to say about each other’s work. But, there is nothing wrong with shopping around for a realtor.
Realtor vs Real Estate Agent
Both are licensed to sell homes, so no worries there. The biggest difference is that a Realtor is a part of the National Association of Realtors, which means they have to follow a code of ethics.
What should you consider?
- Have they worked within the area you are looking to buy?
- How long have they been in the biz?
- Have they worked with a budget like yours?
Step 3: House Hunting
Homes that you see online are not going to be as great in person. Trust me out of 10 homes we really liked, only about 2 of them met our expectations.
Not only are you going to want to look at the house itself, but you will also want to look at the comparisons (comps). This is something that your realtor can provide for you. This will be a breakdown of similar homes recently sold in the area. Comps will give you an idea if you have any bargaining chips.
What to look for:
- Look up! Check for mold, asbestos, and water damage most of these things can be found on the ceiling or along the floorboards in the basement.
- Stucco is usually a no go. You will soon find out that stucco is used to cover up flaws such as cracks and bubbling on walls or ceilings
- Look beyond the wallpaper, tile and color. These are all things you can change either right away or over time.
- Appliances are not everything, but heating and cooling systems are a big deal. Make sure to check them out when view the house. The newer, the better!
- Roof, siding and brick work. These are three major expenses when it comes to updating. Make sure that all are in good shape before you even consider putting in an offer.
Step 4: Making an Offer
So you found your future home and you are ready to make an offer! This all happens really quickly. We made an offer and after two counters and a day later, our offer was accepted. AAAAHHHHH! It all happened so fast and was unreal.
When you make an offer, you need to be sure to account the comparison report you received from your realtor. This was extremely helpful, as we soon realized that the home we wanted was way overpriced for the neighborhood. The report provided a gage on what we felt the home was actually worth and what our offer should be.
Also, you want to be sure that you don’t low ball. Yes, we all want to get the lowest price, but too low the seller might not take you seriously. Make sure the offer is realistic. Don’t worry about consulting your realtor about this.
Finally, stay firm. If you don’t want to go any higher than don’t. The seller’s agent might be a bit more aggressive but don’t let that sway you. In our case we stayed firm and got our home $45k below the asking price. Not too shabby!
At this point, you will also hear the term Earnest Money being thrown around. This is something I knew nothing about, but is a big part in the process. Earnest Money is a deposit that you (the buyer) agrees to pay to the seller. This shows that you have true faith in the deal and will not back out. If all goes well, you will be refunded or credit this money upon closing. If you back out, well you are out the money
Step 5: Offer Accepted, Cue the Confetti!!!
There are five things you must do after your offer is accepted. Keep in mind all of this has to be done quickly, as majority contracts will state you have to do it within 1-7 days after the offer is accepted.
We had to have our inspection with 5 days of the offer being accepted. Your realtor should be able to recommend someone. You should really attend the inspection, as they will draw up a report. Once you receive that report it can be a bit overwhelming, but if you attend then your inspector will be able to break down what is a priority versus not so much. This is a very important part of the process as it gives you an idea of the overall condition of the home.
- Call your Attorney
Make sure to call your real estate attorney to review all the paperwork and inspection report. From there, they will ask you what portions of the report would you like addressed. They will then list this out and send it to the seller attorney for negotiation.
- Get a Quote
Get a quote on home insurance. Like mortgages there are insurance brokers who can shop around for the best deal. That said, if you currently have auto or renters, call your provided. Bundling is usually cheaper and insurance companies like loyal customers. We learned that quickly.
- Call your Lender
You want to call your lender and get all the numbers on the house. Make sure that everything matches up and get an estimate on all your closing cost. You also want to make sure they still have you locked into the percentage they originally promised. To ensure this you will have to bring them a ton of info. (W2s, Tax Returns, Pay Stubs, SSC, ID, last 2 bank statements, quote from homeowner insurance, copy of earnest payment) From there, they will send you the mortgage agreement. This is really long paperwork. Make sure to read it!
- The Appraisal
Before your lender officially approves your loan, there has to be an appraisal done on the home. So we were told this is usually a piece of cake. But in our case, this caused a major hassle! The appraisal came in at 13k less than what we offered for the house. One might think “Sweet! We are getting it at a cheaper price.” Not always the case, as the seller has to come in price. Although you think they would have to, but they don’t. We had to fight tooth and nail, not to just get him to come down in price, but to continue to fix the major issues that were found in the inspection process. Luckily for us, he did!
Step 6: The Closing
The day has finally arrived! You have sent an insane amount of paperwork to your lender, countless pay stubs. Fixed everything about your finances that the underwriter told you to. You made it and you are about to hand over a crazy amount of money!
Usually, both the buyer and the seller will attend the closing, along with their attorneys. Your realtor will also be there to pass over the keys, and sometimes even your broker will show. You will sign paper after paper. This process can take 30 minutes or it can take 3 hours. It really depends. Each piece of paper you sign is important. Your lawyer will do an brief overview before you put pen to paper on every page. If they aren’t doing this, ask them too. There is too much legal mumbo-jumbo for you to understand it all.
Then you wait. You wait till you get the final say that the loan has officially been processed and the checks has been cut. After that, a few handshakes and you have yourself a new home.
This is A LOT of information to take in. That said, I wish I had known half of it beforehand. It does not matter how much your parents tell you, how much you read, you are going to run into bumps on the road, but at the end its all worth it. Now, ENJOY YOUR HOME NEWBEE!