BASIC GUIDELINES FOR FIRST-TIME HOMEBUYERS
The thought of buying a home can seem overwhelming and intimidating for a first-time homebuyer. You already know that it is much more than just selecting the right home. But beyond that, you don’t know what you don’t know. You want to be in control, you want to know the process, and you want to understand the things that will help you make a wise decision. Here is a concise guideline.
The very first thing you should do is to establish a good relationship with a local real estate broker and with a local lender. These two people will guide you through the maze of homebuying. Notice that I used the word “local”. Although you can find any number of home loan providers on the internet, a local lender can provide you with the convenience of doing things online combined with personal service. Believe me, there will come a time either in the loan processing or after you are making payments, that you will want to be able to go to the lender’s office and speak with them about a concern or question you have. Likewise, a local real estate broker can help you avoid making costly mistakes and can save you time in your search. You may find what appears to be a great home on any number of homebuying websites, but a good broker will be familiar with the homes on the market and will know what you are looking for. That person is an expert and will help you find the right home. You should also know that most brokers do not charge a retainer fee – they are paid a commission by the seller once they sell you a home – so utilize the services of a professional broker.
Start your homebuying process by getting prequalified with your lender. That involves a relatively quick and painless application process in which the lender will check your credit and gather information about your monthly income and expenses. This will determine how much home you can realistically afford, what the best loan program is for you, and how much of a down payment you will need to make. Remember, down payments can be as low as zero or 3%, depending on the type of loan program.
Once a lender gives you a prequalification letter you become a strong home buyer. You will want to choose a real estate broker with whom you feel comfortable and who is willing to work hard for you. Sign a Buyers Agency Agreement with that broker and work exclusively with him or her. Any broker in our market can show you any home in our market, no matter what agency has it listed. Armed with your prequalification letter and your broker, you can now tour any home on the market that you and your broker have identified.
Once you find a home, your broker can assist you in making an immediate offer and negotiating that offer. S/he will go over the contract terms with you. Your prequalification letter goes with the offer (making it a strong offer) along with an Earnest Money Deposit (EMD). There is no set amount for that EMD and your broker can help you decide an appropriate amount. The EMD shows that you are serious about purchasing the home and it will be applied to the purchase price. Once you have successfully negotiated the price and any other concessions, you and the seller will both sign the contract and the EMD will be deposited into an escrow account. Your broker will send the contract to your lender and to the closing attorney of your choice. If you do not have an attorney, your broker can supply you with a list of attorneys’ names and telephone numbers from which to choose.
At this point, the process becomes three-pronged. One prong involves the lender side of the transaction. The lender will help you determine what the monthly payment will be, including principal, interest, taxes and insurance (PITI). S/he will go over interest rates with you. There will be a number of financial documents that you will be required to provide so the lender can process your loan and send it through underwriting where everything is checked and examined. The lender will order an appraisal to make sure the home is valued at or above the price you offered. S/he will ask you to shop for homeowner’s insurance.
The second prong of the process is happening simultaneously with the broker. The broker is helping you through a Due Diligence Period. You will have the opportunity and be encouraged to have the home inspected and surveyed. You can have a general home inspection, termite inspection, well inspection, septic system inspection, and research any easements, zoning, schools, etc. Inspection and survey costs are the buyer’s responsibility. Once you have an inspection report, you and your broker will review it and determine if there are significant findings that should be negotiated with the seller. If so, your broker will submit a document requesting those repairs be made prior to closing at the seller’s expense. The seller may negotiate those with you. If any repairs are to be made, they must be completed prior to closing and you will receive proof that they have been performed.
The third prong of the process is with the attorney who is working on a title search of the property to make sure there are no issues. The attorney is also preparing legal documents and loan documents in conjunction with your lender.
All three of these processes will come together just before closing. The lender will send a closing disclosure to you three days in advance of the closing date which outlines the various closing costs and terms of the contract. There should be no surprises to you since the lender will keep you updated throughout the process. The attorney will issue a similar document to you and give you instructions on how much to bring to closing. Your broker will review these documents for accuracy.
On closing day you, your broker, and your lender will attend the closing at the attorney’s office. We are all there to represent you. The attorney will go through all the documents with you and get you to sign each one. You will hand over a check to represent your down payment and/or your portion of any closing costs. You will receive a copy of the documents which you can take to the local utilities company to have utilities switched to your name. Your lender will fund the loan, the deed will record at the county courthouse, and you will receive the keys to your new home. It’s time to move in!
If you are a first-time homebuyer, please call me if you have other questions. I love working with first-time homebuyers and would be pleased to work with you in finding that perfect first home.
Moorefield Real Estate