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Information for First Time Home Buyers

Now is a great time to buy that first home - mortgage rates are at or near an all time low and there is a huge inventory of homes on the market.  The home buying process can be stressful even for a seasoned veteran.  Below is some information based on my various experiences with buying homes.  I hope I can pass along some information that will make the home buying process not that stressful. 

Before moving on I want to stress that if you are going to buy a home make sure you have a steady and secure income (I know this sounds like a ‘no-brainer’ but people are still getting loans that they can’t afford).

Purchasing that first home can feel overwhelming but it doesn’t have to be particularly if you trusted professionals who are representing your interests.

1) Mortgage Process -  This is best place to start once you determined that you are ready to buy a home.  People rush out and start looking for homes to buy once they make the decision to become home owners.  I know it is exciting but take a step back and understand the mortgage process and that the type of mortgage you get will have a great impact on your house closing and your future enjoyment/financial situation.  It is absolutely important to find a reputable and trustworthy mortgage lender.  Start by asking friends and neighbors for recommendations.  Another great place to start is with a credit union because of low/no fees and lower interest rates. 

Once you find a trustworthy mortgage lender have them explain, and make sure you take the time to understand, the mortgage process, any upfront costs and fees.  For example, some lenders may charge an Application Fee that may cover the cost of a credit report and some administrative costs.  Make sure you get a “Good Faith Estimate” of all the closing costs related to the home purchase and mortgage loan.

I highly recommend that people get “Pre-Approved” for a mortgage.  Pre-approval means that a lender has verified your income and based on your income you can afford a home up to a certain purchase price.  This is very helpful when you start house hunting and in some cases a seller may require/ask if you are pre-approved for a mortgage loan.

It is very important that you understand all of the costs of home ownership.  The cost of home ownership is more than just a mortgage payment.  There is home owners insurance premiums, property taxes, utility costs, maintenance costs and don’t forget potential unforeseen repairs.

2) House Hunting - This can be the fun part particularly if you have a real estate agent that truly understands what you can afford and what you want for your first home.  It is absolutely wonderful to find a real estate agent that is very familiar with the home buying process and the real estate contract.  Find a real estate agent you are comfortable working with because you may be spending a lot of time with them.  Don’t be scared to “interview” agents before deciding to work with one.  Remember, a real estate agent that represents you has a duty to represent your interests in the real estate transaction.

When house hunting try not to schedule too many house viewing in one day because after awhile it becomes difficult to remember which home is which.  Make sure to take notes about each home you view so that you can go back and compare the homes to narrow your list of prospects.  Once you have narrowed your prospects, go back and view the houses again, bring a friend or relative whose opinion you value and it would be great (but not necessary) to have someone with experience in the home building trade to view it with you.  Having a second pair of eyes look at the home can help with pointing out any positives or negatives that you have missed. 

3) Making Offer - once you decided on a home it is time to make a written offer to the seller.  Most written offers are made on a form real estate contract that your agent will provide.  Offering price is very important - make sure you discuss the offering price with your real agent.  Ask them to research past sales in the area so that you have an idea of what maybe the “market” price for homes in the area.  Typically, the offer will include the offering price and any potential mortgage financing that you are trying to obtain.  Be prepared for some negotiating in the purchase price - seller may make a counter-offer meaning that they reject your offer and make an offer of a purchase price that is usually higher that what you offered.  You don’t have to accept the counter-offer but there has to be an agreement on price otherwise there is no contract - no deal.

4) Purchase Contract and Attorney or No Attorney - you don’t have a contract until by the buyer (you) and seller agree to the terms and sign the contract.  Once you have a signed contract make sure you give a copy to your mortgage lender so that they can start their due diligence on the property (appraisal, preliminary title report).  In some states it is common practice to have an attorney review the purchase contract and assist with the closing.  The purchase contract may include a 5-10 business day attorney review period.  Some states, such as California, an attorney is not used in the transaction. 

Make sure you understand the provisions in the contract.  The most important ones are contingency provisions such as mortgage contingency and an inspection contingency and closing date.  A mortgage contingency usually states that you/buyer have so many days (ie. 30 days) to obtain a loan approval from your mortgage lender and if you cannot do so within the stated period of time you can void the contract and have any earnest money you paid returned to you - a very important provision.  Another important provision is inspection contingency, this contingency states that you have so many days to inspect the property and notify the seller of any deficiencies or whether the property’s condition is acceptable.  It is a good idea to have a certified building inspector or trustworthy building contractor to inspect the property with you.  Make sure to notify the seller in writing of any deficiencies.  If the property is being sold “as is” you should still perform the inspection because it may uncover building defects that may be too costly to repair and the inspection contingency will allow you to void the contract and have any earnest money returned to you.  The important thing to remember about contingency provisions is the expiration dates on the contingency provisions. 

5) Closing - so you have made it.  The seller is ready to provide you with “free and clear title” - meaning that the title will be free of most encumbrances such the seller’s mortgage and any other liens that the seller caused to be filed against the property.  Your lender is ready to provide the loan.  You are ready to sign a ton of loan documents.  One of the most important things to review at closing is the loan terms that are stated on the loan documents (particularly the Promissory Note and Mortgage).  Make sure the loan terms on the documents match with you anticipated the loan terms to be and that were stated and disclosed to you by your mortgage lender.  If the loan terms don’t match you need to figure out why immediately.  This may require that you talk with your mortgage lender.  Don’t sign any loan documents until you understand the loan terms.

Congratulations you are now a home owner.  I kind of glossed over the process but the important things to remember are to ask questions, get and put things in writing and never sign anything until you fully understand what you are signing.  Home buying is an incredibly expensive venture that should not be taken lightly but also doesn’t have to be incredibly stressful especially when you have people who you can trust helping you. 

Good luck.