But how do you buy your first home when you are competing against more savvy buyers that have done this before? How do you make sure you don't get taken advantage of as you are making this decision?
You have come to the right place! Here are the 10 things you need to know in order to buy your first home.
1. Have a qualified agent represent you.
Did you know as a buyer the commissions are all paid for by the seller? Did you know that if you don't use an agent to represent you the only person who wins is the listing agent. You still pay the same price. Hire someone who is patient, and can help guide you with your goals. An agent like Heather or Mark Stevenson with The Stevenson Team (sorry for the shameless plug! 😀)
This real estate game is a small industry, and if you are in a multiple offer situation, the agent you choose can mean whether you get the home or lose out.
2. Get pre-qualified by a reputable lender.
Get a referral from your real estate agent on who is good lender, and you might be surprised to find out that Wells Fargo, credit unions, and other big banks aren't the best to go through for your home loan. A direct lender with a good loan officer, processor and underwriting department are worth their weight in gold. Your agent will be able to direct you to someone who will get the job done for minimal headaches.
We use Jason Vaughn with US Lending - he is amazing and can be reached at (714)343-8345, you can thank me later. Verify your housing budget BEFORE you go out and look for a property. It's free to get prequalified and just plain smart.
3. Be clear about what you want to have in a home.
Need 3 bedrooms, want a turnkey home or are you looking for a fixer you can put your personal touches to? Share as much about your dream as possible.
4. Explore where you would like to live.
Be open to your agent's suggestions based on your needs, wants, and housing budgets. If your budget doesn't allow for a certain area, be open to explore recommendations from your real estate agent.
5. Be realistic.
I can't tell you home many times I have had a first time buyer tell me that they want to spend $200,000 on a home with a pool in an area that is selling for $450,000 to $500,000. In order to stay in their budget we have to go to Palm Springs or Hemet, not in their desired location. Here is a funny video on a buyer that was unrealistic with his housing budget, and wait till the end to see what he decided to do 😂
6. Concentrate on saving for your down payment, and other resources in order to get the down payment necessary. Saving for your down payment is easier if you religiously follow your budget and work on saving money every day. Instead of going to Starbucks, make coffee at home. Pack your lunch, eat at home and overall reduce your spend.
FHA loans allow for gift funds from Mom and Dad. I had a couple who once asked for down payment money instead of gifts for their wedding. Just be sure to communicate with your lender before using gift funds or placing them in your account to make sure they are properly tracked and seasoned.
7. Realize the tax advantages of owning.
A good accountant is a must in this day and age, and most will give you free advice. Contact an accountant who can give you detail based on your income, how much you are saving by buying instead of renting. This is the number one thing that first time buyers don't realize until they have been in their home for a year.
8. If you are afraid you can't afford the monthly payment. Set it up to pay the higher payment for 3 months prior to going out and looking for a home.
For example, if you rent is $1,900 and your house payment will be $2,900 - for 3 months when you make your rent payment put $1000 in your savings account (toward your down payment). You will be surprised that the stretch isn't that hard.
You can also discuss with your tax professional (which I am not one) if it is a good idea to up your deductions in order to bring home more money.
When Mark and I bought our first home we didn't change our deductions and instead of bringing home more money, we ended up getting a large refund. Each year we would put it all toward either our principal loan balance, or home improvements.
TIP: Did you know that by making 1 extra payment per year you can drop your loan from 30 years to roughly 15 years, as that 1 extra payment would be all going to your principal balance?
9. Hold off on any big expenses and pay down debt.
I know you want that Tesla, but trust me - don't do it! I am a Dave Ramsey ELP, and he speaks about the debt snowball. There is a free app to be able to help you with budgeting and planning. You can check it out HERE.
10. Once you find the perfect home, follow your agents advice on how to get it.
They will review comparable properties with you in determining the offer price. We will contact the listing agent to see the demand and what we need to do to get it. Sometimes we write letters from our buyers explaining how much they want it. Speed wins. If you get to a point of putting in an offer, sooner than later should be your motto!
Most of all don't freak out when it is time to write an offer - it will be awhile before it is final, and plenty of time to absorb what you are doing.
Typically these are the timelines that are followed in a real estate transaction:
1. Offer is written and the seller has 3 days to respond, but some will take longer.
2. A counter will be received and reviewed and typically have 24 hours to respond.
3. Once there is agreement escrow is opened and the buyer has 3 days to wire their deposit into escrow.
4. The buyer has 17 days to complete their property inspections. If there are items needing to be repaired it can be requested and the seller will either approve, disapprove, or counter what they are willing to do. If agreement cannot be obtained then the buyer may cancel and receive a refund of their deposit, less any inspection fees that we already paid.
5. The buyer has 17 days to get the appraisal results, and if the appraisal comes in below offer price the seller can reduce the price, the buyer can pay over appraised value, or the buyer may cancel and get their money back less the inspection and appraisal fees.
6. The buyer has 21 days to get the final loan approval. If the buyer cannot qualify for the loan, then the buyer may cancel or the seller may cancel and the buyer would be refunded their deposit less inspection and appraisal fees.
7. Day 21 - buyer has completed the appraisal, inspection, and has loan approval. They will then remove their contingencies with the Contingency Removal Form. Once that is signed then their earnest money deposit is made non-refundable.
8. The CD (Closing Disclosure) is issued within 7 days of closing.
9. The final walk through is conducted 5 days prior to closing.
10. Loan documents are signed 2 days before closing, and full deposit is wired in by the buyer.
11. The loan funds on the day of closing and released to the recording office. Keys are delivered once we have "confirmation of recording".
12. All utilities need to be changed into the buyers name.
So as you can see, it isn't until day 21 that the deposit is non-refundable, typically.
In conclusion, planning and preparing are key benchmarks in order to have a successful transaction!
For more tips and tricks, as well as a complete strategy whether you are thinking about buying now or years later it is great to get together sooner than later to plan. Contact us today by clicking HERE, and we will get right back in touch with you!