When it’s time to buy your first home, it’s tough to know where to start. You’re looking at houses, pricing homes in different areas, checking your finances and tons of other things to get yourself ready. With so many things to consider it’s tough to know what’s really important, what to expect and how to be smart about home buying. Here are 10 things you need to know as a first-time homebuyer so that you are fully informed and equipped to dominate the market.
1. Find a professional you can trust.
Finding the right agent is the key to having a great home buying experience. Your agent will become your best friend, confidant, lawyer, financial expert and more – if you find the right one. There are three different types of real estate agents: Listing (or Sellers) Agent, Buyer’s Agent and Dual Agent. A listing agent works exclusively for the seller to get them the best price on the home they’re selling. A buyer’s agent works exclusively for the buyer to help them find the right home. A dual agent is licensed to represent both parties.
Since this is your first time buying a home, you’ll want to go with a buyer’s agent. They will give you their full, undivided attention and walk you through the process step-by-step. Search for an agent and be sure to thoroughly research your choice before you make a decision. You should read reviews, check out their sold history ask for references once you’ve found someone you’re interested in working with. Hearing from a past client could give you invaluable insight into what it will be like to work with them.
2. Check out first-time homebuyer programs.
Chin up, real estate is looking out for you! Banks, cities, states and lots of different institutions offer first-time homebuyer programs to help get you into a new house. For example, California Housing Finance Agency (CalHFA) offers different types of loan programs for first-time homebuyers with fixed interest rate mortgages and a Zero Interest Program for down payment assistance.
Your agent is also a great resource in this department. They’ve been through this time and time again with other buyers so they know what’s available and which program will be best suited for you. When you review your options, it’s a good idea to have your agent with you to answer all questions that pop up along the way. They can answer questions quicker and much more succinctly than Google.
3. Know what you can really afford.
Buying a home costs more than your mortgage payments. When you own a home you also have to pay property taxes on the land, homeowners insurance, utilities, and general home maintenance. Make sure that when you budget for your new house, you keep all of those expenses into consideration.
You may be able to afford a bigger house, but can you afford it plus all of life’s surprises that come your way? Play it safe and make sure your monthly budget after your home purchase accounts for mortgage payments, home expenses, family needs, and savings for a rainy day.
4. Pre-Qualified vs. Pre-Approved.
There is a difference and it’s important to know what it is. Lenders will tell you that they can pre-qualify you for a mortgage and it’s important to understand that this does not mean you have any rates or deals set in stone. When a lender pre-qualifies you, they take a cursory look at your finances and estimate what you might be expected to pay for a home loan. Sound wishy-washy? That’s because it is. Getting pre-qualified doesn’t mean you’re ready to look at houses; it’s just the first step in the financial planning phase.
Getting pre-approved on the other hand secures a mortgage amount that you are officially approved for. In order to be pre-approved, a lender will do an extensive financial background check, have you fill out an official home loan application and offer you a specific rate. After you’re pre-qualified, THEN you can start looking at houses with an exact rate and number in mind of what you can afford.
5. Consider your mortgage options.
There are several different mortgages to choose from for home buyers and you want to know your options before you settle on one. Do your own research on types of mortgages available and of course, you and your agent will work with your lender to find the best fit for you. Most first-time homebuyers opt for a 30-year fixed-rate mortgage because it’s consistent and easy to create a budget around.
6. See a home for what it really is.
This means looking past the ugly gnomes in the front yard and evaluating each home objectively. You can easily repaint unsightly pink shutters and landscape the front yard once you move in, but it’s not so easy to redesign the layout or widen the hallways.
Also, don’t be taken in by strategic staging tactics like lavish flowers and home décor. When you move in, it’s just going to be blank walls and the bare bones of the house – so make sure you like your new home’s structure. And of course, a home is more than just four walls and a roof, it’s the feeling of safety and belonging you get from the entire community where you settle.
7. Research before you bid.
Look into competitive prices to see what homes nearby are selling for so you have a well planned bid to offer on the home you’re looking to snag. Your agent will also help you craft a bid that fits the current market and individual seller specifics.
8. Home Inspection.
The home you want to buy might look perfect on the outside, but what about all the things you can’t see? A home inspection will look at every detail of the house to make sure it is up to code, structural sound, etc. Looks can be deceiving and you don’t want to find out your home has a terminal termite infestation AFTER you’ve moved in and signed all the papers. This is particularly important if you’re buying a home that someone bought to “flip”. Some flippers are responsible, paying attention home details from head to toe in order to fix and flip a home to make it more valuable. Other flippers cut corners, focusing on cosmetic fixes and ignoring structural ones.
9. Title Insurance – It’s a must!
A real estate purchase is probably the single most important investment you’re going to make in your life and the way you take ownership of a home is through “The Title”. It’s a pretty big deal, and that’s why there is Title Insurance. It protects your interests in the property from things that happened in the past and are beyond your control. Here are some examples:
- Outstanding mortgages, deeds of trust or tax liens
- Deeds, wills, and trusts with legal mistakes
- Incorrect notary acknowledgments
- Easements, CC&R’s, and Rights of other parties
10. Have a backout plan.
When you find a home you want to buy, you offer the seller a proposal contract with your chosen terms, they agree and the house is yours. The idea is simple enough, but there will likely be negotiating and renegotiating of terms, and you want to make sure you have contingencies set in place so that you have an out if things end up going sour. If your lender refuses your loan at the last minute, if the home inspection reveals a flaw you can’t resolve, if something happens that you can’t control then you can back out of your deal without paying penalties IF you have these contingencies written in.
The home inspection we told you to get? That’s a contingency. Your agent as always is there to help you come up with a list of contingencies so you’re protected in case you need to back out of a deal.
