10 Things First-Time-Home-Buyers Should Know!
Buying your first home is a big decision and it can be a daunting task but also an exciting journey! Before you dive right in, here are a few things you should consider.
1. Having a Buyer's Agent is so Important (and FREE!)
Commission to the Buyer's Agent is typically paid by the Seller. Which means that it is Free to the Buyer! So there's no reason not to have someone working on your behalf. Without a contractual agreement between an Agent and a Buyer (called Buyer's Agency), any agent involved in the transaction is by default legally working in the best interest of the Seller. Eek! A Buyer Agency contract creates a loyalty between both parties and ensures that the agent can share advice, pricing details, and can legally negotiate on your behalf. Find someone that you trust and enjoy their company, you will be spending a lot of time together!
2. Things can get Competitive
Depending on the time of year, your location, and your price point, things can get pretty competitive out there. It's currently a seller's market which means there is a shortage of listings and a plethora of buyers. You will likely be up against other offers and you might even miss out on a couple houses before you get the winning bid! Houses are moving quickly, sometimes within days or hours from being listed, so when you find the perfect house, you need to be ready to pounce on it! It's important to mentally prepare for this and realize that it's a journey. This is also why it is especially important for you to have a Buyer's Agent on your side to help guide you through the process and negotiate on your behalf. Talk to your agent about strategies you can use to strengthen your offer!
3. It takes a while (except when it doesn't)
The timing can really vary so much. I've had buyers that take 1 day to find the perfect home and others that take years. But for most cases, it takes a few months from start to finish until you are in your new home. It's important to see a variety of houses and neighborhoods when you're searching for the right home so that you can gain a frame of reference. But remember, certain times of year, thing can get very competitive and houses sell quickly. So it’s important to have all your ducks in a row before you start looking so that when you find the perfect home, you are ready to jump on it. Also keep in mind that, depending on what part of the month you close in, you'll have 1-2 months after closing before your first mortgage payment is due which is important to note so you can avoid having any overlapping payments between rent and mortgage. Discuss this further with your agent and your lender.
4.Get pre-approved BEFORE you start to look
There are so many mortgage options out there, especially for first-time home buyers and not all lenders are created equal (more on that in #5). You need to what you are comfortable paying so you can narrow down your search and stay realistic with your expectations. It can sometimes take a little while for your lender to go through the pre-approval process so getting it done ahead of time is important. You will be expected to provide your pre-approval letter when you submit your offer so you need to have to ready to go. I have seen too many people lose the house of their dreams because they were not pre-approved ahead of time.
5. A Good Mortgage Lender is key
I can't stress enough how important it is to work with a lender that is responsive, easy to work with, fast, and local! Trust me, you do not want to find out a week before closing that your lender dropped the ball and you can't buy your house! Also, most buyers don't realize that the lender you go with can make or break your offer. Realtors work with a lot of lenders and tend to know the "good" lenders from the "bad" ones. If you are working with a lender that is known for being difficult to work with, unresponsive, or for dragging out financing, they will be much less likely to accept your offer. If you are shopping around, keep in mind that each lender will check your credit. If you keep it to no more than 3 lenders within 2 weeks it should only count as one “hit” (inquiry) on your credit score. Whoever you choose, you will be associated with this lender for many years to come. Finding a lender that is local and reputable is so important (and for the love of God, No Rocket Mortgage!!) A good lender goes a long way in making the home buying journey smooth and easy so ask your Agent for some suggestions on great lenders in the area.
6. You don't necessarily need a 20% down payment
It's been drilled into our heads that you need 20% down to buy a house. But that is no longer the case and it's not realistic for many buyers. Some First-Time Home Buyer loan programs offer as little as 3% down and some with $0 down! Some banks require PMI (private mortgage insurance) for less than 20% down and some don’t (depending on your credit score). Your amount of down payment, your interest rate, and your price range will all affect your monthly payments. So make sure to ask questions and work with a lender to crunch those numbers!
7. Consider your Future Plans
How long do you plan to stay in this house? Is this your forever home or your starter home? If you plan to move in 3-5 years, consider re-sale value. If you plan to have kids soon, consider schools (but also keep in mind that you'll have at least 5 years before your new baby grows into a school age child). If you plan to do a lot of traveling, maybe consider a condo instead. If you plan to have dogs, think about whether or not the neighborhood allows fences. All good things to think about!
8. Be Willing to Compromise
I have never met a couple that agrees on every aspect of the house they are looking for. And even without having to agree with each other, you might need to compromise on your own expectations. Are you willing to live a little further out of town? Sometimes an extra 15 minute drive can get you more options and more bang for your buck. Are you willing to do some updates yourself? Do you really need that fourth bedroom or could you make three work? Think about the things that matter most to you and your deal-breakers, and then think about what you can be flexible on.
9. Don’t forget about the “other” costs
Buying a home has more costs than just your down payment and monthly mortgage payments. Once you find the house of your dreams and get an accepted offer you will need to send earnest money (typically 1% of the purchase price). Then in the next week or so you will need to pay for the home inspection (typically $400-$500) and any other additional inspections that are necessary for that particular property (ie: fireplace, radon, pool, well, septic, etc). Then there are closing costs with your lender which include the home appraisal, processing fees, etc. Then make sure you are accurately budgeting for the costs of owning a home. On top of your monthly mortgage payment you will have your home owners insurance and property tax payments (often escrowed). In fact, the first full year of your home owners insurance is typically paid up front at closing. And don’t forget about higher utility bills. You can usually look up average costs associated with a specific property to get an idea. You might also want to consider a Home Warranty. Often paid for by the Seller but not always. It’s usually about $500 up front and would cover appliances and mechanicals (after a small deductible) for the first year if they were to fail. In general, budgeting around $5000 should be enough to cover closing costs and pre-closing payments throughout the process. But speak to your lender to find out your specific closing cost amounts and to discuss if you qualify for assistance.
10. Most Importantly… ENJOY the Journey!
With all of the joys in life comes a little chaos too and it's important to embrace it and enjoy the ride. Whether you are planning a wedding, getting a new puppy, having a baby, or traveling the world, all of these joys come with a little bit of stress. Finding your new home is no different. For most cases, the journey takes a few months from start to finish until you are in your new home. The process can be stressful at times especially when there is competition involved. Knowing what to expect and having a good attitude going in to the process can make a huge difference. Fulfilling your dream and finding your home is worth every second. So enjoy the journey, no matter how crazy it gets, and enjoy your new home!