Purchasing your first home can be a daunting and intimidating process. I bought a house at the height of the bubble and was bait and switched by the loan officer, deceived by my own real estate agent and the sellers. All of the injustice that I went through cost me so much money, and I’m still dealing with the costs. As a first time home buyer, I didn’t receive guidance. Checks and balances did not exist at the time, and every single aspect of the handling of my loan was shady. Since then, we have weathered many storms. We had to invest more money to preserve our structure. This is money that should have been taken off the purchase price. I’m here to make sure that the same doesn’t happen to anyone else, potentially saving each viewer tens of thousands of dollars and heartache. Be well informed and very involved. I provided some simple “do’s and don’ts”, several checklists and links to articles that will assist you during this very pivotal time in your life.
Put your EMOTIONS in check. Once you decide you are financially ready to buy a home, you should also make sure you are emotionally ready. It can be stressful talking about finances and divulging every little debt you have. Also remember, no more landlord or homeowner’s association to do the dirty work. You will have to handle every little thing.
Do not rush, finding your dream home takes time. Do not let intimidation or fear rush you into a home. Do not let anyone tell you that if you don’t bid now, you could lose the house of your dreams. Do not feel pressured to do anything that makes you uncomfortable. If it is not meant to be, so be it.
Know your financial limits. Do not impose deadlines on yourself. Your time will come to own a home.
Get your finances lined up. Get a copy of your credit report and make sure there aren’t any errors. The best time to do this is several months before you start looking. This will allow time to clean up any potential errors. Don’t open or close any accounts during the search and financing of your home since it lowers your credit score. Get a credit monitoring service, and look for unauthorized inquiries while you are in the home buying process.
Your monthly mortgage payment should be no more than 28% of your gross monthly income. Period. Use this mortgage calculator to find a target home value and mortgage payment based on your income. Shop around for the best interest rate and get pre-approved. This shows the seller that you can afford the home and have funding.
Save money for this purchase, no matter what. Many people can get away with putting less than a 20% down payment on the home these days. However, it is an excellent idea to figure out your price range and try to save as much as possible, using 20% as your goal. This will save you loads of money when it is all said and done. It is reasonable to have at least 10% to 15% of your target purchase price saved. Even if you don’t put all of it towards a down payment, you will need it for closing costs. Don’t forget, the odds and ends that you have buy for your home will add up.
Choosing your team. You are going to deal with the real estate agent, the loan officer, real estate attorney, and the sellers (your real estate agent should deal with the sellers for you, but dealing with their personality is inherent to the process at some point). Your real estate agent will be your right hand woman or man during the house hunting process. Finding the right agent and loan officer is key to taking away stress. They need to be trustworthy, intuitive, intelligent, and honest. Interview at least three real estate agents or more. Find out the status of their real estate license status by going to your state’s Department of Real Estate. Verify if they are a member of the National Association of Realtors at Realtor.org.
When the time comes to read and fill out documents, have an attorney read and interpret documents for you. This will ensure an unbiased translation of the documents. Read your documents before you sign escrow papers. Do not wait until signing to read and understand escrow documents. You may feel rushed and may not get the whole story.
Finding your dream home. If you decide to look for a “fixer upper”, it is best to find the worst house in the best neighborhood. Any equity deficit you may have (compared to other homes in the area) will close up quickly. Fixing up the best house in the least desirable neighborhood will not help your equity. Be smart and research different areas online. Here is a link that will help you find your dream neighborhood online (compliments of TheNest.com again).
When you find a home, check on Zillow.com for the comparable home values in the neighborhood. Make an offer based on comparable prices. Once you make an offer, do not post on Facebook or Twitter that you found your dream home and will pay anything. Realtors are using social networking sites to find out buyer’s feelings and weaknesses. Keep the enthusiasm to yourself and wait for the news.
If your offer is accepted, have a real estate attorney read all of the documents that your real estate agent gives you. This is very important!!
The home inspection is your bargaining chip and is a must. YOU need to select the inspector. If the real estate agent or sellers choose the home inspector, it is a conflict of interest. If there is anything not disclosed about the home or if there are any problems, the inspection will tell you. In return, you can lower your offer and re-negotiate.
Closing the deal. My loan officer ran my credit every day until my credit score dropped into a lower category. This pushed back my escrow closing date and raised my interest by another 2%!! My mortgage payment went up over $400 over night. During this time, keep a close eye on any activity of your credit, make sure you loan officer and real estate agent are in a solid working relationship and that everything is on time.
Do no sign escrow papers until you have received your final walk through. Again, make sure you satisfied with the property and that the sellers fulfilled their duties before you sign escrow. Here is an article on what to expect during a final walk through.
After you get your keys, you can relax and breathe for a moment. Be proud of yourself and soak in what you just accomplished! This is the largest purchase of your life! Be involved and informed, every step of the way. Utilize all of the online tools out there. With this post alone, you well on your way. Remember that living great doesn’t have to break the bank, and not breaking your bank comes from being in the know!
Here are a few more helpful links: