FIRST-TIME HOMEBUYERS STEP 1: PRE-APPROVAL
Hooray! You made the big decision to buy a home. Good for you! So now what? We’ve put together a step-by-step tutorial to help you go about this process in a logical and educated manner. Well, don’t just sit there, let’s get started!
You probably already know that buying a home will require some money for a down payment. This often is the biggest obstacle for first-time buyers. It may come as a surprise how small that down payment needs to be. There are programs that provide loans with as little as 3.5% down. That means if you are looking at a home for $500,000, that’s just $17,500. This could come from savings or from another source, like a gift from a family member. The bad news is, if your down payment is less than 10%, there may be other fees attached to the loan. Rule of thumb is if you can put down at least 20% (with excellent credit), you will get the most favorable type of loan.
Once you have the down payment in place, the next step is to speak to a knowledgeable lender. There are many of them, but we can make an introduction to one who will take good care of you and understands your specific needs (http://www.newamericanagent.com/robbriggs). The lender will require documentation to evaluate your borrowing parameters. If there is going to be more than one of you on the loan, you will both (all) be required to provide the same documentation. This may include, but not be limited to: two years of tax returns, pay stubs, bank statements, the name of the first person you kissed (ha!, just wanted to see if you were paying attention), verification of employment, lists of all debts and balances and credit history. Once all this is processed, the lender will tell you how much you can qualify for and will provide you with a “Pre-approval Letter.” HIGH FIVES! This becomes your ticket to begin looking at properties in earnest and will be necessary when you eventually submit an offer. This is when the FUN begins!
FIRST-TIME HOMEBUYERS STEP 2 – SEARCH
The second step is the search, which can take place (and probably will) through several actions on your part. Obviously, most listing data is available to consumers online through websites like Realtor.com or any agent website (like www.Csira.com) that subscribes to MLS services. This is a good way to identify some properties of interest, but you will not have access to what is referred to as “Private Remarks” that are only available to agents. Sometimes these remarks eliminate the property from contention (e.g. “Foundation Crack,” “Purchase Price represents 1/3 ownership in property.” etc.). The second way is for your agent (hopefully, that’s one of us!) can set up a specific search for you with the criteria you establish. This sends you notifications when a new property comes online that meets your search parameters or if there is a price change on one of those properties. Finally, there’s no substitute for a physical walk around a property. This is the only way to get a feel for the home, the neighborhood, experience the natural light, hear the road noise and on and on. Again, an experienced agent will help point out the negatives as well as the positives. If you start to zero in on one or two properties, make multiple visits at different times of the day. Talk to a couple neighbors (the neighbors ALWAYS know the dirt). Make sure it’s a proper fit and don’t rush your decision.
FIRST-TIME HOMEBUYERS STEP 3 – WRITING AN OFFER
Once you find the best match (we hesitate to use the work “perfect” as that is probably just a fantasy), you prepare to write an offer. Before you do, you should know what “like” properties have sold for recently and what represents a fair price. There are many theories about what to offer, but our guidance is usually to offer something fair as to not insult the buyer, but represents an amount that you feel good about (i.e. Not trying to take advantage of someone). The entry level market that most first-time buyers are shopping in is extremely competitive, so it is very likely you will miss out on a few offers. It is common for first-time buyers to make four, five or more offers before getting one accepted. Very often, this turns out for the best, as your knowledge of particular homes, floor plans and areas gets refined. But, we are getting slightly ahead of ourselves – once you write an offer, it is very likely that your offer receives a counter offer (referred to as “Seller Counter #1), to which you may counter (referred to as “Buyer Counter #1), to which they may counter (Seller Counter #2) and so on. You get the picture. The best advice is to be patient and not get discouraged. This is excellent practice for when the right property presents itself…
FIRST-TIME HOMEBUYERS STEP 4 – ESCROW & DUE DILIGENCE
Once all the counter offers are done, we open escrow. Yay! Or Yikes! This is when you send in your “earnest money deposit” (usually 2%-3% of purchase price) and begin your due diligence period. All of these details will be in the purchase agreement your agent fills out for you and (hopefully) goes through with you in detail. You will receive all the disclosures (reams and reams) from the seller and conduct your own inspections, with the assistance of your agent and his/her contacts, including a very thorough home inspection. Once all this information is digested, you can submit a “request for repairs.” The operative word here is “request” as it is not a requirement or demand and the sellers can refuse. It basically asks the sellers to fix items that you feel are necessary before you remove your inspection contingency. Ahhhh, the inspection contingency…what’s that, you ask? This is basically your “I-can-walk-away-from-this-purchase-for-any-reason-I-want” clause and is usually within 17 days of when the offer was accepted. Once the condition of the property (with whatever repairs were negotiated) has been deemed satisfactory, you remove your inspection contingency. This typically leaves your loan contingency (standard is 21 days from acceptance) and maybe an appraisal contingency. This is where your lender becomes critically important; Once you lift these two final contingencies, your earnest money goes hard, meaning if you can’t perform or back out, you may risk losing your earnest money deposit.
FIRST-TIME HOMEBUYERS STEP 5 – CLOSING
After all your contingencies are removed, the next step is for your lender to issue you a “Closing Disclosure” or CD for short. This spells out the exact terms of your loan and all the expenses you will incur as the owner of the property. You will have three days to review and sign off on that document before sitting down and signing the actual loan documents a few days later. At that point, you deposit the balance of your down payment in escrow, the lender funds their portion for the loan and escrow records and closes the transaction. TADA! You’re a homeowner.