The first time homebuyer has a lot to learn. With unfamiliar language and long contracts, it’s easy to be overwhelmed. It’s the largest purchase many will make in their lifetime, and being a first time purchaser doesn’t mean you should go in blind. The following is not intended to be all inclusive, but a general guideline for first time homebuyers. There is much more to homebuying and homeowning that is not covered here.
Lenders First
The first and most important thing to look at when buying a new home- what is the ultimate monthly payment you want to end up with?
Before ever stepping foot in a model home, or having a real estate agent line up multiple viewings, you’ll want to have spoken with a lender. A good lender will ask you questions about your job, your credit history, and be able to put together a plan of action if you’re not currently in a position to own a home. It’s a five minute process over the phone, and they will be able to get back to you within a few days with a pre-qualification. Most of my clients hear back within the hour, but it depends on your circumstances and which lender you get in touch with. Once you are a pre-qualified first time homebuyer, you are able to actually put an offer on a home you want to purchase.
As a real estate agent, I’ve worked with lenders from many different companies. I have my preferred local lenders who believe in providing excellent customer service and amazing rates (contact me today to talk with them!). If you’re set on using a large bank as a lender, know that you won’t necessarily be using whoever you speak to. Many new loan officers get their first job working for a large bank, putting in hours at the branch to get new clients. However, if you contact your local real estate agent, they will be able to refer you to an established local lender who works for your bank. You want your lender to be as responsive as your agent, as a bad lender can cause a deal to fall through!
Depending on your circumstances, you can qualify for special first time homebuyer programs. You can see my quick guide to loans for deciding which type of loan would be right for you.
Look At Homes
The part everyone loves (Home Searching)! If you’re looking for your first home and enjoy using the internet for searching, you’re going to run into some things that might not be obvious. First and foremost is you’ll learn that sites like Zillow and Trulia can be very misleading with what’s actually available. Often times homes are shown as available when they are not. We as real estate agents do not have any control with what these websites post. Getting set on a search will provide you with up to date listings. If a home that is sent to your search goes under contract, you’ll be notified as soon as the MLS is updated.
Once you’ve spoken with a lender, you’ll know what price range is comfortable for your needs. Having an idea of how many bedrooms and bathrooms is important, as is narrowing down what area you want to focus your search in. Oftentimes I’ll set up a first time homebuyer on a broader search so they can see all the options available. It’s important to note that most people want 2 or more bathrooms. Depending on which area, if you’re under the 200k price range, expect to find very few homes that have 2 full baths. It’s important to know what each area offers. Often I’ll have buyers that say “if only this house was in x location”. Well, if it was in x location, then it wouldn’t be in your price range anymore. You’ll need to decide if the area or the upgrades are more important.
After you have been pre-qualified and have your search set up, you’re ready to start seeing houses! As a first time homebuyer you may not immediately discern potential issues in the home. Part of my job as your buyer’s agent is to help you notice anything that could potentially be an issue with the home. I show homes every day of the week, and when you find a home you’re interested in seeing, contact me to set up showings.
Make An Offer
In Virginia Beach, the average days on market for January 2018 was 34 days (the entire MLS average is currently 40 for Hampton Roads). Inventory is low. The federal reserve is expected to increase mortgage rates 3 to 4 times this year. If you want to be a first time homebuyer in this market, you have to be proactive. During the months between January-April you can expect many multi-offer situations. This applies to new properties on the market. The fixer upper that’s been sitting for six months will probably not fall into this category. Unless of course there is a significant price drop, then you can expect an influx of interest.
To make an offer this is what you’ll need:
- A letter from your lender stating you can qualify for the amount of money you’re offering.
- An earnest money deposit. This can range from $500 to $1000 for a loan, and will be taken out of your deposit for your mortgage. For cash offers on bank owned properties, you can expect to pay a percentage of 10% as an earnest money deposit. The earnest money is cash you must have on hand, and it will be held in a designated escrow account until closing. The most commonly accepted form is a cashier’s check. It will go into the escrow account only after the contract has been accepted and ratified.
- A closing date. Typically both buyers and sellers want to close quickly. 30-45 days is average for a loan, however sometimes the seller or buyer will want a later closing date.
- Any items to convey? Did you absolutely love those drapes in the master bedroom? Ask for them! Make sure you tell your agent if there were any items in the house you had to have. Many times they can be worked into the contract. It’s common to ask for appliances such as the fridge, stove, and dishwasher. The seller may want to bring that new $3000 fridge with them and have their old one in the storage shed to leave for the new owner.
Once you’ve decided on the offer, it’s time to write it up! The standard purchase agreement is 14 pages and is a legally binding contract. You want an agent who will take the time to go over the contract with you, and explain each paragraph as needed. In addition to the purchase agreement, there are often addenda and informational forms to sign.
After the offer
What can you expect after you submit your offer? The listing agent submits your offer to the seller for review. The seller then can chose to accept your offer, or can counter offer. If they counter, it means that the offer you submitted is no longer a valid offer. Instead the counter offer is now the offer that exists. You can accept their counter, or counter back. In the Hampton Roads, especially in Virginia Beach, it’s common for full price offers or very near full price offers. If the property has just been listed and is priced fairly, the listing agent and seller will expect an offer very close to full price. If you offer too low, the seller may chose to simply not respond to your offer. It is not a buyer’s market right now, and sellers can be choosy if they have a desirable property.
Once you or the seller has accepted an offer or a counter offer, you are officially under contract! You must apply for financing from your lender as stated in the contract. Generally this is within 7 days. I recommend immediately starting the process. Anything can cause delays in closing, so getting everything in order quickly always pays off. In the offer, you undoubtedly had a few contingencies as well. These are to protect you as a buyer from any surprises that the house may have. These allow you to break the contract and retain your earnest money deposit. The only reason you would lose your earnest money deposit is if the contract is breached. If you don’t apply for financing, or falsify information, these could cause you to lose your deposit to pay for seller damages.
Contingent On What?
You’re not going to be idly sitting by in those 30-45 days til closing. There is a lot to do. The first thing you’re going to do after you’ve gone under contract? Home inspection! Say it again. GET A HOME INSPECTION! This is the most important contingency and the one I recommend every single buyer gets. The only time you wouldn’t need an inspection is if you are going to demolish the property and are buying for the land. For my buyers I generally give a 10 day contingency. That means you have 10 days from the date of offer acceptance to inspect the property and request repairs. If there is substantial damage that you don’t want to bother repairing, you are also able to break contract and get your earnest money deposit back. In fact if there is anything in the inspection that is unacceptable, you can break the contract.
Are you buying a condo? Is your home in a neighborhood that has an association? Are you getting a co-op? All of these create contingencies. Getting a homeowner packet is costly and takes time, so it usually isn’t done until an offer is accepted. VA and FHA homebuyers may not be able to purchase that condo. It has to be in an association approved by the VA or FHA. That homeowner’s association may have a provision that doesn’t allow your four dogs. That foreclosure may not be such a great price after you see how much it owes in unpaid dues. Again, this allows you to walk away from the home you are buying if there will be an issue with the property.
Been a while since you purchased your home so not a first time homebuyer? You’ll want to have your contract contingent on selling your current home. You won’t be able to make an offer until your home is under contract. Once that occurs you’ll be able to begin submitting offers. If your sale falls through, you won’t be obligated to follow through with the purchase and can get your earnest money back.
Your offer will always be contingent on financing if you are not making a cash purchase. As long as you provide your lender with all the necessary information, don’t make any frivolous purchases, and make your best attempt to obtain a loan you will not lose your earnest money if you are unable to get financing. Financing is also contingent on the appraisal.
Appraise!
If you are obtaining financing, you’re going to need an appraisal. Different loans require different guidelines. FHA and VA appraisals are stricter. The home has to meet certain livability requirements. No matter what type of loan, your property needs to appraise at a price higher than the amount you are paying. No lender is going to loan more money than the house is worth. However, if you absolutely must have that house, you can pay the difference yourself. Once the appraisal has been completed and all the contingencies met, you are clear to close!
Walk-through
You’ll do a walk-through inspection of the property prior to closing. This is typically done the day of closing. As your agent, I will double check repairs prior to your walk-through inspection. On walk-through we will make sure that all the repairs have been done in a workmanship-like manner. We will check all the appliances, the heating and cooling, the faucets, the plumbing, and make sure anything that was supposed to convey is still in the property. This is your chance to make sure the property is in the same condition as when you agreed to purchase it.
All Closed
Everyone’s favorite day…CLOSING DAY! This is the day you will actually officially ‘own’ the property! You’ve gotten your financing approved. You’ve received your clear to close, and also the closing disclosure which will show how much you need to bring to the table for closing. Generally, I have the sellers pay for my buyer’s closing costs. Not every time will we get it 100% paid for though, so sometimes you will owe on closing day.
Sometimes closing can be delayed by financing or title issues. If this occurs you are protected by the contract to extend closing another 10 days, or whatever amount you chose. While we aim to close on the closing date we chose, have a little flexibility. You’ll head to the attorney’s office and sign all the paperwork. Once that’s complete, I’ll hand you the keys to your new home, and that’s it! You are now a proud first time homebuyer! You can expect the actual deed to be recorded anywhere from 2 weeks to 3 months, depending on which city in Hampton Roads you are purchasing in. It will then be mailed to you.
