Table of Contents
Introduction
Being a first home buyer is an exciting time. We remember it well, even though it was a VERY long time ago, well, maybe not that long ago. We have some fond memories of moving from our apartment to our first home, but it was also overwhelming in many ways. While we have only been a first-time homebuyer once (obviously 😉), we purchased 9 homes since then over our 35 illustrious years of home ”ower”-ship. So let’s discuss some of the basics, and I’ll add some interesting insights from our experiences, of which, span 6 states.
From financial preparations to navigating the complexities of buying your first time home, there are many factors to consider. But have no fear, we’ll lay out the important steps in this process to help you along in this important journey. To help you make the best decision, we’ve compiled this comprehensive guide of must-know tips for first-time home buyers. These tips may also be of interest to the seasoned pros as well, so stick with us and read on.
Finding the Right Real Estate Agent
A reliable and experienced real estate agent can make your first time home buying experience incredibly fulfilling and even fun. However, a bad real estate agent can make it a nightmare. We have worked with some fantastic agents over the years, as well as a few duds.
In many instances, we have found real estate agents by calling about a listing of a house we were interested in. When you call about a listing, you may get the listing agent for that particular property. If this is the case, the agent represents the seller for that home. They can become a dual agent representing both the seller and buyer, but we try to stay away from that situation and most agents will also. If the agent is a good fit for you, you typically feel the connection right away. They will discuss options with you and become your sole agent. Then they will begin to work with you, understanding your goals, asking about your family, getting to know you and start taking you to other properties that meet your needs.
That’s been our most common experience, however, it doesn’t always work that way, so here’s other ways to find the right agent:
Local Knowledge:
- If you know people in the area you are looking to purchase a home, get recommendations from friends, family, or colleagues who may have recently purchased a home. They may know an agent personally, or know of someone who can recommend one with a proven track record and positive client testimonials.
Educate Yourself:
- Make sure you clearly understand the role of a real estate agent: Your agent will assist you in searching for homes, scheduling viewings, negotiating offers, and handling the paperwork. They will also provide valuable insights and advice based on their expertise. It’s important for you to know these things when evaluating an agent. Don’t sign any agreement up front. If you are not happy with how they are handling things after a few showings, you are not obligated to stay with that agent, move on and find another. I clearly remember one agent who hardly asked us any questions, was un-organized, and stood outside of every showing we went to and smoked a cigarette waiting for us to come out. We only went out with that agent one time, as it was a bad experience. Not sure how she ever made a sale?
Communicate Goals Clearly:
- Communicating your goals and expectations. Clearly communicate your budget, preferences, and any specific requirements to your agent. This will help them tailor their search and ensure you find a home that meets your needs.
Establishing Financial Readiness
Before diving too deeply into the world of real estate, you need to assess your financial situation and ensure you are ready for the responsibilities of homeownership. Here are some tips to help you get financially prepared:
Determining affordability:
- Take a close look at your income, expenses, and savings, and be realistic! Make sure you consider all of your monthly expenses and include disposal cash for things you like to do. Being house poor isn’t fun, you don’t want your first home ownership experience to completely cripple your lifestyle.
Readiness Checklist:
Below is a list (may not be all inclusive) of things to help you plan: I’ve also included a link to an excel file for a very easy to use Amortization Table. Play around with this to help determine a comfortable purchase price for your offer, and how much of a down payment you need to make.
- Mortgage Payment (Principal and Interest)
- Property Taxes
- Homeowners Insurance
- Private Mortgage Insurance (PMI)
- Homeowners Association (HOA) Fees
- Utilities
- Home Maintenance and Repairs
- Pest Control
- Home Security System
- Internet and Cable
- Cell Phone Service
- Groceries and Household Supplies
- Transportation
- Health Insurance
- Car Insurance
- Personal Loans or Credit Card Debt
- Student Loans
- Childcare or Education Expenses
- Disposal Cash (Entertainment and Leisure)
- Savings and Emergency Fund Contributions
Down Payment:
- How much do you need? There are many types of loans available which you should discuss with a qualified mortgage agent. However, conventional loans typically require 20% (of the purchase price) down to avoid paying Private mortgage insurance (PMI). Additionally, be aware of other costs involved, such as closing costs, moving expenses, and potential renovations or repairs.
Getting pre-approved for a mortgage:
- Seek pre-approval from a reputable lender to determine the loan amount you qualify for. Research different mortgage options, such as fixed-rate mortgages or adjustable-rate mortgages, to find the best fit for your financial situation. Pro Tip: We have found it easier to deal with smaller local lenders or community banks rather than large national banks. Local lenders often offer a more personalized approach. In many cases, they also have more flexibility in what they can offer with their mortgage products.
Defining Your Homebuying Criteria
Knowing what you want and need in a home will help narrow your options to help find the perfect match. Consider the following tips when defining your homebuying criteria:
Identifying your needs, preferences, and non-negotiables:
- Make a list of features that are essential for your lifestyle, such as the number of bedrooms and bathrooms, a backyard, storage space, energy efficiency, low maintenance, open concept, updated kitchen or a home office. Differentiate between needs and wants to prioritize your requirements.
Determining the desired location and neighborhood:
- You have probably heard the 3 most important things about buying a house are: 1) Location, 2) Location and 3) Location. I can hear my dad saying this over and over, and he was right. This can be a challenge when buying your first home. The more desirable neighborhoods typically carry higher price tags for similar properties. You may need to compromise some, but don’t go too far! You may find the house you really want is affordable in a less desirable neighborhood. However, if this is your first home, it’s not a forever home. Don’t overextend yourself, but stretching a little to buy in a better location will pay dividends when it comes time to sell.
Other factors like proximity to amenities, schools, and transportation:
- Think about the amenities that are important to you, such as parks, shopping centers, or recreational facilities, movie theaters, etc. Additionally, evaluate the quality of nearby schools if you have children or plan to start a family.
Making the Offer and Negotiation Process
So, you found the house you want – fantastic! Making an offer and negotiating with the seller can be a delicate process. Here’s how to navigate this stage successfully:
Understand The Market:
- Is it a buyers or sellers’ market? This is dependent on a myriad of economic conditions, and if you’re not sure, your agent can help answer this for you. If it’s a buyers’ market, you may have more leverage in making a lower offer. If its a sellers market, the opposite is true.
- For example, a house listed for $300K in a buyers’ market might garner an offer of $290K or maybe even slightly lower. However, making an offer of $250K might simply get ignored.
- Remember, unless the owners have paid off their mortgage (which is rare), they still owe an amount of principal on their loan. Going $40K-$50K below an asking price may put them underwater with what they owe on a property, and your offer won’t get taken seriously.
- How Long has the property been on the market? If it’s a new listing, it meets your needs, it’s in a good neighborhood. and there’s a lot of activity on it, the offer will need to be more aggressive. Many times, in a desirable area with a nice property, the seller may set the selling price relatively low, to attract multiple offers to start a bidding war. In this case, the property often sells for much higher than the asking price. If this is the house you really want, you may need to start with an offer substantially higher than the asking price. We were fortunate enough to be in this situation when we sold our last home. We had a lot of sweat equity in the property. We owned it for 13 years, and it was a sellers’ market. We listed the property for $450K and in 1 week we had 5 offers and sold the house for $485K after a short bidding war.
Make a reasonable offer.
- Unless the house has been on the market for an exceptionally long time and the seller is very motivated, severely low balling an offer usually doesn’t work. If this is the case, there are reasons why the house has not been sold, so make sure you fully understand what you are getting into if you make a low-ball offer on a house like this. If it’s a “fixer upper”, make sure you understand what needs to be fixed and you can do the upgrades (physically and financially).
- Work with your real estate agent to determine an appropriate offer based on market conditions, comparable sales, and the property’s condition. Consider including contingencies to protect yourself during the negotiation process.
Understanding contingencies:
- Familiarize yourself with common contingencies, such as financing and home inspection contingencies. Be aware of important deadlines and carefully review contract terms to avoid any surprises.
Negotiating effectively:
- Remain open to negotiations and communicate your expectations clearly. Focus on finding common ground and be prepared to compromise on certain aspects to reach a mutually beneficial agreement. Remember, this is the largest transaction that most people will ever make.
Conducting Thorough Home Inspections
So, you have an accepted offer on the house you want. You now need to have a thorough home inspection completed to uncover any potential issues or hidden problems. Waving a home inspection is rarely recommended. However, in some situations, such as a strong sellers market with a lot of competition for the house you want, waiving the home inspection might be advantageous to make your offer more attractive. If you decide to go that route, make sure you purchase a home warranty to cover any unseen issues that may be lurking behind the scenes. I mention this because over the last few years, the market has generally been a strong sellers market and getting the house people really want has become more difficult.
- A professional home inspection can reveal underlying issues that may not be visible during a casual viewing. It helps you make an informed decision and negotiate repairs or price adjustments, if necessary.
- Choose a qualified and experienced home inspector to conduct the inspection. Accompany them during the process to gain a better understanding of the property’s condition and any concerns that arise.
- Pay close attention to the inspector’s findings and ask questions about any potential issues. Understand the severity and implications of these issues to determine if they affect your decision to proceed with the purchase.
Completing Due Diligence and Closing Process
The due diligence and closing process require careful attention to detail and timely action. Consider the following tips to ensure a smooth closing.
What State Are You Purchasing In?
The requirement to complete a home purchase varies from state to state. In some states, it is customary or legally required to involve an attorney in the real estate transaction process, while in others, it is not mandatory and not necessary. Here are a few states where involving an attorney is commonly required:
- Connecticut: In Connecticut, it is customary for buyers and sellers to have an attorney represent them during real estate transactions.
- Delaware: Delaware requires an attorney to be involved in real estate transactions, as they play a vital role in examining title records and ensuring the transfer of ownership is legally sound.
- Georgia: Georgia law typically requires an attorney to oversee the closing process and handle the necessary paperwork in real estate transactions.
- Massachusetts: In Massachusetts, an attorney is typically involved in both residential and commercial real estate transactions to protect the interests of buyers and sellers.
- New York: While not legally required, involving an attorney is highly recommended in New York due to the complex nature of real estate transactions and the prevalence of attorneys in the process.
We have purchased properties in New York, New Jersey, Massachusetts, Ohio, Michigan and Pennsylvania. The differences can be stark. Closing on a property in New York, compared to Pennsylvania are like night and day. Spend some time on this topic and discuss it in detail with your agent at the beginning of your search so you are prepared for what’s to come!
Conducting Necessary Research:
Perform due diligence by researching the property’s history, such as past repairs, renovations, or potential liens. Review property disclosures, title reports, and any other relevant documents.
Reviewing disclosures:
Carefully review all the paperwork involved in the transaction. Seek legal advice if needed to ensure you understand your rights and obligations as a buyer.
Finalizing the mortgage:
Work closely with your lender to finalize your mortgage application and secure homeowner’s insurance. Provide all necessary documents promptly to avoid delays in the closing process.
Planning for Homeownership Responsibilities
Becoming a homeowner comes with ongoing responsibilities. Here’s how to plan for the financial and maintenance aspects:
Budgeting for ongoing homeownership costs:
Develop a budget that includes mortgage payments, property taxes, insurance, utilities, and maintenance expenses. Plan for unexpected repairs by setting aside funds in an emergency fund.
Familiarizing yourself with homeowners’ association rules and responsibilities:
If purchasing a property within a homeowners’ association (HOA), thoroughly review their rules, regulations, and associated fees. Understand your responsibilities as a member of the HOA.
Creating a maintenance plan and being prepared for unexpected expenses:
Regularly maintain your home to prevent costly repairs down the line. Create a maintenance schedule for tasks like cleaning gutters, servicing HVAC systems, and inspecting the roof. Additionally, be prepared for unexpected expenses by setting aside funds for repairs and replacements. I wrote an article earlier this month titled: Homeowner Hacks: 25 Common Sense Tips. This is a great guide for the first time home buyer!
Conclusion
Congratulations, if you’re still reading, you made it to the end of the article – Thank You! I hope this helps you along on your journey as a first-time home buyer! By leveraging our experience and following these tips, you’ll be better prepared to make informed decisions and navigate the home buying process successfully. Remember, seek professional advice, communicate effectively, and stay organized throughout the process. Embrace the excitement and satisfaction that comes with owning your first home and enjoy the new chapter in your life!
Disclosure: We are not real estate agents or attorneys, but we’ve been down this road many times. Feel free to add any comments or ask us any questions, we’d be happy to offer our free advice based on our experiences.
Happy House Hunting!
John
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