Being a first time home buyer is scary and it is a big financial decision. There are several things that you need to do and need to consider as you begin this process. First is what can you afford? I would recommend that you speak with at least 3 lenders within your local area to determine who has the best interest rates, loan programs and what will fit with the down payment money that you have saved. Bankrate.com also has some mortgage calculators available for you to use to help you determine what your approximate house payment will be. The general rule of thumb is to stay within 25-30% of your gross income to be allotted as a house payment. You do not want to be house poor. You will want to obtain a pre-approval letter from the lender that you should choose to use for your financing.
Once you have secured your financing and you are confident that you will be able to qualify for a loan, then the house hunting is ready to begin. You want to decide where you would like to live, the type of house you are interested in, and do some searching Online to see what is available within your price range and your areas of interest. Take the time to drive by some of the properties if they are of interest to you. Sometimes once you drive by the home, you may just remove it from your list. Next, you should interview 2-3 real estate agents and determine which one of them you feel will best meet your needs. You can obtain a referral from a reliable friend.
As you begin to look at houses you will want to take notes about each property and what you liked and disliked about the property to help you narrow down your search. When you find the house that you like best, I always recommend that you look at this property more than once. Don’t hesitate to take someone back with you when you view the property a second or third time. A lot of times you will see things the second time around that you did not notice the first time. Remember this is a big financial purchase that you will be living in for a long time.
Once you have found the house of your dreams it is time to put in an offer. There is a lot of information available to you Online for you to do some of your own research. Your local county auditor’s website is a valuable tool for you to look at local property values to see what they have sold for and what they are currently valuing the properties at now. Your local real estate agent will be able to assist you and should be able to provide some local sales info for you as well. Because the market is always changing it is wise to make your decisions accordingly and you do not want to over pay for the property because you like it and get into a bidding war if there are multiple offers. Always be cautious.
When you write your offer, you will need to decide things such as are you going to have a home inspection? Who is going to pay for the home inspection? Does the area that you are looking in require a local governmental inspection prior to closing? If so, has the inspection already been completed and who is going to be responsible for repairs if any are required? This inspection is different from the general home inspection. Does the property require a well & septic test? Radon test? Wood destroying insects test? How do you want the deed to read? Are you going to ask the seller for any selling concessions like a contribution toward closing costs, Home Warranty, or appliance allowance? Your local real estate agent should be able to assist you with these items. Once your offer has been written, your real estate agent will present the offer to listing agent and the listing agent will present the offer to the seller and the seller will respond in one of three ways. They will either accept the offer, reject the offer, or counter the offer. If they counter the offer, then the offer/contract is back on the table for renegotiations. You will continue the negotiations until both you and the seller have agreed on terms that you are both happy with. Then the contract will be initialed where changes were made and/or maybe a new addendum has been prepared to spell it all out. (Because a lot of documents are now signed via various software programs, do not hesitate to ask to meet your real estate agent in person, so all of the paperwork can be properly reviewed with you or have your attorney review it with you so you are aware of what you are signing. Technology has taken some of the person to person contact out of this process, which sometimes leaves first time home buyers unaware. There are no stupid questions. I’ve always been taught that the stupid question is the one not asked.)
Now the fun begins. If a home inspection was negotiated, then it will be time to schedule and complete this inspection. There are typically time constraints on this inspection and it needs to be completed as soon as possible. If there items in the inspection that need to be repaired, you will need to re-negotiate who is going to pay for these items or accept the home “as is” and this issue will fall back to the contract and what is allowable in this document. Once all of the house issues are settled it is time to start the financing.
Whether you meet with a lender or select an Online lender you will want to make sure that you have all of your documents ready to provide to them. Lenders typically want the 22-24 months of steady employment which your pay stubs and tax returns will verify, they will want to know where the down payment came from, which back statements will verify this information. They like to see that these funds have been in an account for at least 2-3 months with documentation of where the funds came from. (i.e. tax return, steady contributions into the savings account, bonus, etc.) The lender will run a credit bureau, they require employment verification, and they will require an application fee that typically covers the cost of the credit bureau and the appraisal. The application fee is credited back to you at closing. Some of this information may have been provided to the lender at the time you were obtaining your pre-approval letter. Most lenders will require a one year pre-paid home owners insurance policy to be provided. This way as they collect your escrow payments, they will be able to pay the next insurance bill when it comes due. You may also need to prepay 2-3 months of your monthly insurance premium at closing.
Buying a house is very stressful for everyone involved. It is stressful for the buyer who does not always know what to expect, it is hard on a couple and their marriage, it is hard for the real estate agent that is trying to keep the process moving smoothly and it is stressful for everyone when it comes time to move. The best thing you can do is to take the sting out of this process by being prepared and educated on how it all works.
Once you have loan approval, the closing will occur with a local title company or attorney. This is where you will meet with a notary and sign all of your paperwork. At least 48 hours prior to closing you should receive a settlement statement from the title company. You and your real estate agent should review this document to make sure all of the figures are correct. This statement will tell you the final dollar amount of the funds that you will need to bring in to close the transaction. These funds may need to be wired directly to the title company or certified funds may need to be brought in. The title company and the local real estate agent should be able to walk you through this process and all of your documents. These documents should be reviewed prior to closing in case you should have any questions. You can ask the title company or the mortgage company to provide them to you as well. If you do not receive these documents ahead of time, DO NOT feel rushed at closing, read them so you understand them. If you do not read them, and later on you should run into a job loss, medical, etc. these documents tell you what the mortgage holder can and cannot do when they start their collection process. Or you can be like everyone else who just signs because they want the closing over so they can get the house, then they read the documents, or then they fall on hard times, and then the issues arise.
A lot of times there is nothing you can do but agree to sign these documents or you do not get the loan because it is their standard verbiage. But, it pays to be educated and know what you are signing.
Just because you attended the closing does not mean the sale is closed. The title company does not typically record the deed until all parties have signed all the documents and all funds have been received. It will also depend on what time of day you are meeting to sign your paperwork. The deed may be filed on the next business day. In some states, the deed does not need to be recorded at all. Ask you real estate agent and/or the title company to notify you when it is closed and completed.
When does the property become yours and when do you get the keys? The property technically becomes yours when the deed is recorded. However, this will also fall back to the contract and when you negotiated the time of possession. Your real estate agent should keep the lines of communication open between the listing agent and you, their buyer. Your real estate agent should be facilitating the transfer of the keys to the property from the listing agent and their seller, to you, the buyer. (Your real estate agent should also notify you on when to transfer the utilities into your name as well.)
Because each State and each city and/or municipality have their own laws and local rules, you will want to make sure that you check with your local real estate agent(s) and/or attorney to make sure you are adequately covered. Take charge and do some of your own research as well so you can ask questions that are of importance to you during this process.
Happy House Hunting and I sincerely hope that you find the house of your dreams and this process turns out to be more relaxing and exciting as you purchase your first home now that you know a little more about the process and what to expect!
For disclosure purposes, the author of this post is a licensed real estate broker.