The complete guide for first time homebuyers
Purchasing a home is one of the biggest investment and decisions in our lives. That's why it is important to be well informed about the process, current market trends and options available.
When I was first time homebuyer, I remember how confused I was. Later, I wanted to educate more people so they don't feel so disoriented.
1. Meet with lender
It's always a good idea to get the numbers you're working with before searching for homes: what is your price limit, what your down payment is going to be, what interest rate you can get, etc. A lot depends on your credit score (your history as a debtor) when your lender is pre-approving you for a loan. This is also a good moment to "shop for loan" meaning to go and ask who is going to give you the best terms on loan.
2. Choose a real estate professional
You need a trusted professional who is going to lead you through the very comprehensive and often exhausting process. She will set up goals and strategy upon your criteria and keep you informed and well educated.
Why is hundred times better having your own broker to represent you and your interests than working with listing agent in so-called dual agency? First of all, listing agent is the agent representing the seller and owing him the fiduciary duties. He cannot reveal any information that will harm seller in the transaction. Dual agent needs to be very careful, and therefore he is rather no one's broker. That's not a broker you want for yourself. Your broker should be there to fight for your rights and for your benefit, to find a best deal for you and negotiate the best possible deal.
Find an agent who will represent you like representing her or his own interests.
3. Plan for the costs
A lot of people who never purchased a home before will think "I have been pre-approved, I have certain amount for down payment. Let's find a house and sign the papers." Not exactly.
You will need to count in closing costs. In the hot market, like we are in right now, you cannot expect seller's concessions toward closing costs. If you want that house, the closing costs are on you, the buyer. They are variable, but going usually around 1% of the purchase price. You can find on my website another blog post: Closing costs itemized.
Earnest money is one more expense you need to prepare for. Earnest money is showing your severity in purchase. The more money you put in, the more serious you look in seller's eyes. It all goes towards your down payment, or returns to you if the deal breaches.
It's good to have home inspection done by licensed home inspector. But that is another cost to count in. It goes around $300, but can be lower or greater depending on the area home is in, specific inspector and most likely on the home's size. You can do pre-inspection before filing the offer, or make condition in offer for inspection to be done after acceptance by seller (that's a conditional clause, and if you are not satisfied with the inspector's report you can walk away with earnest money returned to you - but in hot market it is risky doing this - you are competing with lots of other potential buyers for the home and any condition in the contract is weakening your offer). I always recommend home inspection to be done so you know what condition home you are purchasing in.
One more way to find information about home is in seller's Form 17 - Seller's disclosure, and that should be available in the moment home is listed for sale, but this form should only be a spare information, not substitute for official home inspection.
4. Search for the property
Now comes the fun part, the part many start with (which I don't recommend). Depending on your lifestyle you're going to be more oriented toward downtown or less urban location, marital and family status would probably influence on the size of the home needed, if you have or plan to have kids maybe school rating will be important to you (though even if you don't have and/or don't plan to have them in the near future, it is wise to purchase home in a good school area for the greater resale potential), or you prefer shorter commute time to work. Whatever you decide to pursue, your broker is here to navigate the search process. Brokers have access to all new listings coming on the market, thanks to syndication with Northwest Multiple Listing Service (NWMLS). It's the greatest data base of active listings and mostly up-to-date listings. The only difference between Zillow and all other NWMLS associated websites is that you may find homes listed as FSBO (for sale by owner) on the Zillow that are not inputted in NWMLS database, but that's a home or two difference in most cases. I will write some other time why is not a good idea considering FSBO's, but here I want to point out that there is no need to go to Zillow ten times a day. You're not loosing anything. Your broker has all available listings that match your criteria at that time.
As soon as you feel like touring some home, your broker can open any of the home listed for sale with their active key. When I was home searching for myself I thought that only listing agent can show me the house I found, but later I discovered that my agent can show me any house I wanted to see.
5. Making an offer
I am always surprised to learn that people believe they can dial the seller's number and tell him what price they are willing to pay. Things are going a little bit different. It is not everything about the price. What about other conditions? Do you need time to get financing? Do you need something to be removed by seller or left in? Do you need to sell your home first before purchasing this property? So - everything needs to be in writing. And not just that - your agent is writing the contract, so as any other contract he puts all of the conditions that apply, and if not signed it's not binding. Any contract needs at least two sides (one side is not contract). Broker usually puts 24 hours for offer before expires, but can be longer if it's expected for seller to be out of town or needs more time for response. In hot markets, like we are in right now, it is not going to harm anyone if buyer relates to seller with personal letter, saying for example what they like in the home and how much they will enjoy having this home.
If seller do not respond, offer is not accepted. If he responds, but he wants to change some of the conditions or change the price - this is called counteroffer and beginning of negotiations. It can be many counteroffers until making the deal that both sides are willing to accept. The final detail accepted and signed (remember - all offers and counteroffers need to be signed, electronically in almost all cases) is called a mutual acceptance.
6. Contingencies and escrow
Depending on your contract, you'll have some contingencies. First working day after mutual acceptance you need to go to the closest (in the contract named) escrow office to open the escrow and deposit the earnest money. In three days after mutual acceptance you'll need to apply for loan. If you chose inspection to do, you'll have ten days for it, etc. Depends on what you put in the contract that much work from your part is needed. Your lender is ordering an official appraisal, that is another contingency (you are paying for that appraisal and the cost of it is added in the closing costs). One day prior to closing you have the right for final walkthrough to double-check everything is in condition when you first saw it.
Now you are watching for the escrow officer's instructions about time and place for signing the documents and for wiring the money (closing costs). I love to remind my clients to be extra careful in this step for fraudental and false instructions of possible scammers. Do not wire money until escrow officer call you, or you CALL him/her to make sure everything instructed is true. Wire fraud is happening and don't let that happen to you. Always have phone number of your broker and escrow officer with you and call before wire.
Safe wiring, signing the mountain od closing papers and getting the keys from your broker - all of that mean a HAPPY HOMEOWNERSHIP!!!
8. After closing
It is good to move right away in the new home or as soon as possible, because vacant home calls for burglars. If you, for example still have the lease and you're not rushing to move in, check the house every day and leave the lights on.
Change the lock, switch utilities on your name, forward mail.
Get to know your neighborhood and your neighbors (the sooner is better than later).
Take good care of your property. Until you pay off that mortgage, the home belongs to the lender and he would like you to take a good care of it.