FIRST TIME HOME BUYERS GUIDE
Brought to you by Merri Joy Moylan, Realtor®, Kelly Right Real Estate
Buying your first home is one of the most important steps in your life. It can also be one of the most complex from an emotional point of view: all the dreams you’ve cherished and the plans you’ve made, coming together with not-so-dreamy things such as interest rates and mortgage loans.
The entire home-buying process can be bewildering if you’re not familiar with it, and it’s all too easy to make expensive mistakes, time-wasting assumptions and
misunderstandings, and frustrating set-backs. Guesswork may take the place of informed, fact-filled decisions.
That is why I am bringing you this e-book, so that your first home choices will be informed and easier for you. This book is divided into three chapters.
1. Step-by-step Guide to Purchasing Your First Home
2. 10 Most Common Mistakes of First Home Buyers and How to Avoid Them
3. A Comprehensive Checklist to Find the Home You Really Want
Chapter One: Step-By-Step Guide to Purchasing Your First Home
Step One: Get Prequalified.
Many first-time home buyers are completely unaware that getting prequalified is actually the very first thing to do.
True, you could go house-hunting with a Real Estate Agent before getting prequalified, but then what happens if you find the house you want?
Chances are that the house-sellers won’t even look at your offer if you’re not prequalified. Why? They have no way of knowing that your offer won’t fall through, leaving their side stranded. Prequalified buyers always have a massive advantage over non-prequalified buyers because of this.
Also, getting prequalified gives you and your Realtor® some solid, hard facts to work with when deciding on your mortgage budget. You avoid wasting your time over homes that are outside your feasible price range, and go straight for the ones that are worthwhile for you.
Step Two: Determine Your Price Range
Now that you’re prequalified, determining your price range is the logical follow-up. Your mortgage lender can help you figure out just how much you can spend, and want to spend, on a monthly mortgage payment for the number of years it will take you to pay your
house off. Keep in mind that housing costs also include any home owners’ association fees and taxes.
Both Realtors® and mortgage lenders look at your gross income to determine your optimal monthly mortgage rate. That means your income without subtracting your expenses, current payments, or budget. Make sure that you clarify your living expenses yourself.
Industry guidelines say that up to 43% of your gross income can go towards your mortgage. That’s top dollar, though. A more conservative figure, recommended by leading financial advisors, is 25% for viability and peace of mind.
If you want to find out how practical your budget goals are in real life, try this exercise for a month. For one month, set aside the amount of money you propose to spend on your mortgage, and leave it untouched. At the end of the month, ask yourself honestly how it went. Did it
work? Did you have to make sacrifices? Were those sacrifices worth it? Was life still liveable? Are you being realistic?
Step Three: Contact a Realtor®
Couldn’t you just go straight to the selling agents of the homes you want to look at?
Theoretically, yes. But just remember that the selling agents are on the look-out for their own clients, as they should be as the legal representatives of those clients. It’s their job to get the best bargains and deals for their clients, not for you. That doesn’t mean that they’ll be dishonest in any way; many a deal with one agent on both sides has worked out fine. But if you’re not a seasoned market-savvy buyer, having an agent who is your own legal representative in the deal can save you a lot of $$$ and head-aches.
It’s even more important to have a professional Realtor® at your side if you choose a for-sale-by-owner house. Then you’re dealing with a seller who is perhaps even more ignorant than you are about property sales, legal documents, paperwork, and contracts (and, even more frightening, may not even be aware of their ignorance!).
If you’re wondering if the 3% sales commission charged by a Realtor® is worth it, think of it this way: without a Realtor®, you risk overspending tens of thousands of dollars on a deal that is all on the seller’s side, plus getting drowned in convoluted legal papers, details, and stress. Pay the commission, and you will probably end up spending the same or less amount of money, plus have a professional handle all the negotiations, paperwork, contracts, and legalities for you, saving you stress and days’ – maybe weeks’ – worth of time.
Step Four: Fill Out the Checklist
In the third chapter of this e-book, I provide you with a comprehensive checklist detailing exactly what you may be looking for in your future home.
There’s a difference between knowing what you want, and being able to convert what you want into viable, concise details. Your Realtor® cannot enter inside your head and look at your image of the perfect first-home. You need to take time to explore what’s really important to you.
Then you need to figure out how that importance translates into concrete specifics, such as style of house, number of bedrooms, and levels of significance of certain home features to you. For some people, a fireplace is a must-have. For others, it’s a sunny living room, or a well-kept garden.
Sometimes, you may like a feature, but be willing to sacrifice it in exchange for another. For example, some people are willing to go without that nice patio in order to buy the house with the number of bedrooms that is really important to them.
Every buyer is different, and that’s why you have to define the home in your head onto paper before your Real Estate Agent can start house-hunting for you.
Step Five: View Houses with Your Realtor®
This is where it starts getting exciting! Your Realtor® will help you select houses for viewing, based on your price range and checklist.
Although it’s popular on TV shows such as HGTV to have the Realtor® begin by showing the buyers a home that’s way above their price range, and then
move on to demonstrate how they can get a similar house for tens of thousands of dollars cheaper, that’s not how it works in real life … or how your Real
Estate Agent will work with you.
I myself never try to encourage my buyers to stretch their budgets past what they’ve already decided. I also don’t believe in encouraging setting your standards
far beyond what’s realistic and practical. I work within both my buyers’ budgets and the down-to-earth specifics that they’ve given me in their checklist. My job is
to find you a home that will work for you and your future. The more level-headed we remain through-out the process, the more satisfied you will be with your home
in the long run.
Some buyers switch from agent to agent, looking for the “right” one with the magic dozens of houses-for-sale that they will be able to choose from. The fact is: all
agents have access to the same houses for sale through the same MLS websites. If your desired home isn’t there, then nobody can “find” it for you. Be patient if
your Realtor® informs you that either you will have to alter your wish list, or wait for a few days to see if some more houses come onto the market.
A practical rule-of-thumb is: no house will ever be 100% “perfect”. Prepare for a home that is 80% perfect for you, 10% you can change, and 10% you can learn to
live with happily. It’s up to you what parts of your wish list fit into which categories.
Altogether, viewing potential homes can be a fun and satisfying experience, as you clarify even more just what you’re looking for, what will and won’t work for you,
and envision your future life within a home of your very own.
Step Six: Make an Offer
Just for those buyers who are very new to the home-buying process, an offer is a proposed amount of money that you would be willing to pay for the house. You may propose to pay exactly the price that the sellers are asking for it (called the “asking price”), or you may propose to pay a little less to see if they’re willing to back down by a few thousand. If the market is extremely competitive (there are more buyers than available houses in a certain area) and you’ve fallen in love with the house, you may even offer higher than the asking price to prevent another buyer’s offer being accepted before yours.
Figuring out just how much the house is actually worth (some sellers overprice their homes, which means that other buyers are unlikely to be offering the asking price), what the current market is doing, and how likely an offer is to get accepted, takes a lot of market know-how and information.
There’s no hard and fast rule when it comes to offering the right price. A low offer could be accepted above a higher one if the low offer comes from cash-paying buyers. Or there may be several cash-paying buyers offering simultaneously, meaning that the fact you have cash becomes meaningless. Some types of loans may impose certain requirements upon the seller, which also affects the seller’s decision.
Sellers are human, so just which offer they’re going to accept is unpredictable. Your Realtor® has had years’ worth of selecting offers that got accepted, so listening to her is the best thing you can do at this stage. Remember that your Realtor® has also had many years’ experience in working with sellers as well, so she knows how the seller’s mindset works and what things the other side is likely to consider when viewing your offer.
Your Realtor® is best qualified to help you choose an offer that will be fair in the seller’s eyes while getting you a viable deal.
Once you’ve settled for a possible price, it’s your agent’s job to write up the legal documents that provide your offer to the seller.
Step Seven: Choose Your Loan Program and Lock into Your Interest Rate
Assuming that your offer is accepted by the sellers, you are now on your way to homeownership!
The first thing to do is to actually get your loan program going. Your home loan specialist will help you select the right loan program for your needs and lock you into your interest rate. (That way, your interest won’t fluctuate as the market goes up and down; rates can vary from day to day, and even hour to hour, depending on the national and global economy, so you need to lock into a specific rate in order to buy your house.)
Step Eight: Arrange for a Home Inspection
This is where potential problems with the house, such as leaking, poor electrical wiring, or a structural flaw, will be found out. Your contract arranges for you to be able to back out of your offer if the house is in poor condition and you choose not to buy it because of this.
As a Real Estate Agent, I cannot stress the importance of a home inspection by a licensed and qualified inspector enough. I am not a qualified inspector (no Realtor® is or should be) so I can no more spot dangerous, illegal wiring or leaky plumbing than you can. There are few things more tragic than an enthusiastic first-time homeowner finding out …after the fact …that they have been sold a disaster waiting to happen. All this can be prevented by a home inspection before the closing date of the transaction.
Finding something seriously wrong with the house doesn’t mean that you can’t still buy it. A home inspector will be able to tell you just how much it will cost to fix the damage, whether it’s $500 or $50,000. You can take this cost into consideration as you renegotiate your offer with the sellers. Maybe the sellers are willing to lower the price, or pay for the repairs themselves. However, your contract will allow you to take back out of your offer if you chose.
Step Nine: Arrange for Home Owners Insurance
Assuming that the house is safe and sound and you’re going ahead with the purchase, now is the time to arrange for house insurance for your future home. It can take an insurance company 2-3 weeks to come up with a quote, so give yourself plenty of time.
Step Ten: Consider Getting a Home Warranty
This can cover the cost of repair and replacement in your new home for up to one year after the closing date.
The warranty can be included as part of the sales negotiations. Under your and the seller’s individual circumstances, you can come to an agreement as to who will pay for the warranty,you or the seller. You won’t have to discuss this issue with the seller; all negotiations are done legally, on paper, between your Realtor® and the seller’s agent.
Circumstances vary, depending on how much your offer is, how badly the seller wants to sell quickly, how motivated you are to have the house, how important the warranty is to you, etc.
Step Eleven: Review Your Closing Disclosure
About 3 days before the closing date, your closing disclosure will be given to you by your home loan specialist, and you will have the opportunity to review exactly what your payments and costs are going to be before the transaction goes through.
Step Twelve: Get Ready to Move!
Once you reach this point, it’s time to start getting ready to move into your new home! A few things to keep in mind:
• Give your current landlord 30 days or more notice.
• Contact your utility companies about an up-coming change of address and account changes.
• Begin packing and organizing for Moving Day!
Chapter Two: 10 Most Common Mistakes of First Home Buyers and How to Avoid Them
Buying a home is one of the most significant things you’ll ever do in your life. You’ve probably never spent so much money in one go, nor have you dreamed, planned, and saved for a purchase as big and momentous as this one. That being said, the market place is full of pitfalls for the inexperienced. That’s why I’m going to tell you some of the most common – and often disastrous – mistakes that newbies make, and how to avoid them.
Mistake #1: Not Establishing a Price Range
When you fail to take a serious and committed look at your present financial circumstances, you set yourself up for what may be the biggest disaster of your life.
Your Realtor® cannot evaluate your expenses for you; she can only go off what you claim it to be. Don’t turn your “dream home” into your “dream budget”. Get all the facts before deciding how much you can spend; make practical, realistic plans, and remember that most homes that foreclose were bought by people who failed to be realistic and honest with themselves and their agents about their finances.
Mistake #2: Not Getting Prequalified
Putting off the prequalification process can lead to disappointment and frustration. You may have found the right house that is “perfect” for you, only to have your offer disregarded by the seller because you are not prequalified. Remember: selling a house is a significant step for the seller as well; he or she wants reassurance that your offer won’t fall through if accepted.
Mistake #3: Not Using a Realtor®
Some buyers think that doing it on their own will save them money, because they will not have to pay the agent’s 3% commission. However, the facts proof them wrong.
Some of the most common things to go amiss when you are “winging it” on your own are:
• The deal falls through. Many times, when both buyer and seller are working on their own without legal representatives, the transaction doesn’t go through because of basic ignorance on the part of either or both parties as to how to conduct the transaction properly. But remember, you may lose hundreds or thousands of dollars in earnest money without a Realtor® to help you get it back legally and honestly.
• Things that a Realtor® would take care of for you, such as parts of the contract that allow you to back out in the case of poor conditions in the house, such as flood damage, weak foundations, etc. are neglected. You may end up with a house in such poor condition that it costs you tens of thousands of dollars to repair it. If you cannot repair it, you can’t sell it either, except to a buyer who is also working without a Realtor® and doesn’t know the pitfalls. But do you really want to do that to someone else?
• Dealing straight with the sellers directly can be extremely stressful. Would you hand over the majority of your life’s savings or your most valuable belongings to a stranger and except them to be 100% honest and caring about you? Almost certainly not. Yet, that is what both sides are practically doing when they are trying to make a transaction without a Realtor®. Even with contracts and legal documents, there’s a reason why Realtors® receive mandatory classes and training on how to interpret and write them!
• Without intimate knowledge of the current market or price fluctuations, you can easily end up overpaying for a property that isn’t even worth a fraction of the cost. Remember, this can happen even if the sellers themselves have a Realtor®; it isn’t their agent’s job to spare you from your own decisions. If you ever want to resell your house, you may be unable to get your money’s worth back on it.
Mistake #4: Making Extra Purchases After Your Credit Has Already Been Established
Once you have been prequalified for a loan amount at a certain interest rate, don’t change your credit! If you change your credit score after you’re prequalified, you will also change the amount of money which you are eligible for in a home loan.
Significant purchases like new furniture, a new car payment, etc. will all change your credit score. If you make these purchases while going through the home-buying process, you can drastically increase the amount of interest you will have to pay on your new home, or you can make yourself completely unable to get certain types of loans at all. You can also cause transactions to fall through, due to being unable to obtain a loan that both you and the sellers believed you could get.
Hold off on big purchases until you’re safe and sound in your own house!
Mistake #5: Making Late Payments on Bills and Credit Cards
Late or unpaid bills and credit card debt will also alter your credit score and change the types of loans you can get and the interest rates you will have to pay.
Mistake #6: Changing Jobs
Any significant change in your job status or your pay check can cause the loan to be refused or the types of loans you are eligible for to change.
Remember that the bank sees your loan and its consequent interest as an investment, and wants to be sure that you can pay it back. The best way to prove this is to show that you have a steady job and income.
Mistake #7: Making Large Deposits or Opening New Bank Accounts Within 60 Days of Closing
Think of it this way: you’re making the bank nervous about your loan when you show that your circumstances have changed in any way.
Remaining steady and consistent with your income and your handling of money is reassuring to the bank that you intend to pay your loan.
Anything out of the ordinary will cause the bank to request extensive documentation, look into the sources of the change, and possibly alter your credit score.
Mistake #8: Not Getting a Home Inspection Done
No matter how beautiful the house looks on the outside, or how much you think you’re in love with it, nothing will compensate for weak foundations, serious fire hazards, flood damage, leaking, etc.
As a Realtor®, I have seen just about everything, from cracks across the foundations, to burn marks from non-standard lighting, to entire house sidings that had warped.
Mistake #9: Closing the Transaction Before All Specified Repairs Have Been Done
Once the transaction is closed, it’s over and done with. The house is no longer the seller’s responsibility, and they don’t have to do any of the repairs they may have said they would do. If you specified that certain repairs would get done before the transaction closed, then make sure they get done.
Mistake #10: Taking Sellers’ Words for It
Sellers don’t mean to be dishonest, but they’re human, and life happens to them too. Often, simply taking the seller’s word for it that their tenants will be out on time, that the septic will be looked after, etc. can lead to it not being done.
Get everything on paper to protect you both from an extremely sticky situation. This is especially important if the house you are purchasing is currently occupied by tenants, who may be reluctant to move, may cause damage to the property, and so on. Your Realtor® will be aware of these things and will be able to draw up the contract for you so that your rights are protected legally, honestly, and fairly.
Chapter Three: A Comprehensive Checklist to Find the Home You Really Want
On the next page is a comprehensive checklist exploring just what you want in your new house.
As I have already said, being a Realtor® doesn’t enable me to mind-read what you really want in your new house! I need some concrete facts to be able to house-hunt for you and come up with homes that are worth your time and effort visiting.
What is my ideal asking price? __________________________________________________
What age of house? __________________________________________________________
What style(s) of house? _______________________________________________________
No. # of Bedrooms? _________________________________________________________
No. # of Bathrooms? _________________________________________________________
Square Footage? _____________________________________________________________
Size of Garage? _____________________________________________________________
Size of Lot? ________________________________________________________________
Basement? Finished or not? ____________________________________________________
Attic? How big? _____________________________________________________________
Property Tax Rate? ___________________________________________________________
What parts of the house do I want to have already updated / renovated / recently repaired? Circle those that apply. Kitchen Bathrooms Roofing Other: _______________________________________
Do I want proof of warranties for the above? ______________________________________
Do I want appliances included? _________________________________________________
What type of HVAC? _________________________________________________________
HVAC Specifications (for example, “New” or “Furnace”) ______________________________________________________________________________________________________________________________________________________
On a scale of 1-5, 1 being least and 5 being most, how important to me is:
Storage Space: 1 2 3 4 5
Room for Future Expansion: 1 2 3 4 5
Quiet / Distance from noise pollution: 1 2 3 4 5
Yard Space / Garden: 1 2 3 4 5
Privacy: 1 2 3 4 5 House Hunting Checklist House Hunting Checklist House Hunting Checklist Exploring What You Exploring What You Exploring What YouExploring What YouExploring What You Exploring What YouExploring What YouExploring What YouExploring What You ReallyReally WantWant Want
What shops / amenities do I want close by? Circle those that apply:
Grocery Store Walmart / Target Post Office Gas Station Restaurants
Hospital Parks Public Library Fire Station Other: _______________________________________________________________
What schools do I want close by? Circle those that apply:
Elementary Junior High High School Other: _______________
Any particular school district? __________________________________________________
How short of a commute to work am I looking for? _________________________________
This means that my house must be within a _____________ mile radius of __________________________________________________________________________.
What Major Highways do I want to be near? _______________________________________
On a scale of 1-5, 1 being least and 5 being most, how important to me is:
Attractive Neighborhood: 1 2 3 4 5
Clean Neighborhood: 1 2 3 4 5
Well-lit Streets: 1 2 3 4 5
Low Crime Area: 1 2 3 4 5
Trees: 1 2 3 4 5
Parks: 1 2 3 4 5
Anything else I want to specify on my Wish List?
Electric / Gas? ______________________________________________________________
Garbage / Cable / Internet / Other? ______________________________________________
For Rural Properties:
What purpose in mind do I have for my rural property? Circle those that apply.
(Clarifying my purpose will help me envision just what I’m looking for.)
Lifestyle Small Animals Large Animals / Need Pasture Landscaping
Size of Acreage? _____________________________________________________________
CCNR’s* – okay or not okay? __________________________________________________
Ideal distance from which town(s)? ______________________________________________
What water source do I want (for example, well)? __________________________________
Gallons per minute? __________________________________________________________
Type of Land (e.g. flat, hills, trees, lawn, etc.)? ______________________________________________________________________________________________________________________________________________________
Do I need buildings for livestock? Barn? Chicken coop? _____________________________
Can I have a non-paved driveway? Or do I need a paved one? _________________________
Can I have a sloped driveway? Or do I need a flat one? ______________________________
Analyse My Budget:
Can I afford to dig a well if there isn’t one already? _________________________________
Can I afford to install a septic system if there isn’t one already? _______________________
On a scale of 1-5, 1 being least and 5 being most, how important to me is:
Having a shop: 1 2 3 4 5
Having a view: 1 2 3 4 5
Having trees: 1 2 3 4 5
Already installed well: 1 2 3 4 5
Already installed septic system: 1 2 3 4 5
* restrictions on the use of the land, for example, types of animals
THIS BOOK IS BROUGHT TO YOU BY MERRI JOY MOYLAN, REALTOR®
Feel free to contact me at any time: (208) 277 8000 or e-mail me at: [email protected]