 Your First-Time Home Buyer’s GuideHey, first-time home buyers... Congratulations! You should be excited!!! Even if you’ve only just started the process, it's one of the biggest decisions you'll ever make - and that's worth celebrating. Unfortunately, it can also be one of the most overwhelming ones. There's so much that you might not even know that you don't know - especially as a first time home-buyer. That's why we’re here to help. From your first decision to buy a home to getting the keys to the next chapter of your life, we’ve compiled a step-by-step guide for you to follow. Whether you’re just starting out or already halfway through the process, this guide can serve as a holistic resource for all things first-time home buyer related. Feel free to skip ahead to the sections most relevant to you - and if you have any questions, just ask! Who Are First-Time Home Buyers?First-time home buyers make up 33% of all home buyers in the US. As a first-time buyer, you are given access to unique state programs, federally backed loans, and tax breaks that you wouldn’t otherwise qualify for. The technical definition of a first-time home buyer is broader than just someone buying a home for the first time. According to the US Department of Housing Urban Development (HUD), a first-time home buyer is someone who:
That said, let’s talk about your finances. Step 1: How Much Home Can You AffordYou need to take your finances into consideration before you buy. This will better help you understand your current financial situation and what your options are when you start narrowing down your search. This is also where having a good lender comes in handy. Work with a LenderIf you’re not planning on paying for your home in full, you’re going to need a mortgage lender. Mortgage lenders are banks, credit unions, or private individuals that lend you money so that you can buy property. They're there to help you organize your finances and determine if you can get pre-approved for a loan. If you can't, they can present you with the options, including a financial roadmap that will help you buy a home. You can count on these representatives to provide you with competent, truthful financial information. They can also answer any questions you have about your financial situation (and hand-hold if necessary). Lenders are also responsible for ensuring that you can pay back the money that you borrow and determine the amount of money for which you’re pre-approved. To streamline this process, gather every financial document that you can think of - your latest bank statements, pay stubs, tax records, stock portfolio, etc. In order for lenders to run all of the numbers, they have to have all of the information. You’ll probably still forget something - and that’s okay. Once they have everything they need, they'll run a credit check to determine if you are pre-approved for a loan, and if so, how much you’re pre-approved for. UPDATE: As of mid-2020, 15.7% of FHA borrowers were behind on their mortgage payments. In response to this, some lenders, including Bankrate, are creating guides that walk mortgage holders through ways to navigate obtaining a loan or apply for forbearance. MG Real Estate tip: Your lender might approve you for a number larger than which you’re comfortable. You are in your full right to only take out a loan for how much you’d like, as long as it’s within the amount you’re approved for. Qualities to Look for in Your LenderWe can’t emphasize enough - especially for first-time home buyers: you need to work with a quality lender. Good lenders aren’t the type to flat out say, “I’m sorry, we can’t make this happen,” or hit you with a DENIED stamp. Good lenders help you determine where you are, where you need to go, and how to get there. This involves a deep dive into your savings to determine if you’ve saved enough for everything you’ll need. They should also be interested in hearing about your long-term goals and how buying a home fits into your plans. There are many reasons to buy a home. Some of these include:
We don't recommend going with large banks, and you should stay local when making your choice. You need to be able to contact your mortgage lender on the fly so that they can run numbers and get back to you quickly. Larger financial institutions often lack the agility to do so. Mortgage lenders also need to be communicative and easy to get ahold of. This person (people) is helping you get started on your home-buying dreams - so make sure they’re worth your time. Your Savings and Spending HabitsThere are 4 main cost categories that you need to consider: your down payment, your closing costs, your ongoing expenses, and your emergency fund. We’ll talk more about all of them in steps 4 and 5 - and your lender will go over them with you, too. Either way, you should know what they are before they come up. You don’t want any surprises. Keep your savings accessible during the home buying process - and somewhere that will provide a good return to keep up with inflation rates. If you have a year or more’s worth of funds saved up with the intent of buying, we recommend getting a certificate of deposit or purchasing a short-term bond or fixed income portfolio. You won’t strike it rich, but you won’t be in a volatile stock market, either. If you have less than a year saved, keep it liquid and put it into a high-yield savings account. Shop around to see what banks and credit unions are offering. You’ve got plenty to save for, so watch your spending habits. Write a list of everything that you spend money on each month:
Figure out exactly what you make and what you spend each month. If it varies, apply the law of averages. Also, anticipate any major expenditures you may have coming up, like a vacation or your pretentious sister’s namaste destination wedding. This information will help you determine how much you can spend on a mortgage payment. You can also plan to edit some of this down so that you’re spending less and saving more. Financing and Helpful ProgramsFirst-time home buyers have a variety of options at their disposal. Federal Housing Authority (FHA)-backed mortgages can be a great help in this instance. Many of their programs can require you to pay only a 3% or 5% down payment - and few of them don’t require one at all! Washington state has programs that can offer financial assistance for other costs as well, such as closing and funds toward property improvements. First-time home buyers can also withdraw up to $10,000 without having to pay the 10% penalty of withdrawing the money too early. You do have to put it back in within 120 days - otherwise you will be charged that penalty. You also have to decide the length of your loan. Most first-time home buyers choose to do a 30-year mortgage, but there are many advantages to doing a 15-year instead - if you're able to do so. Credit Check Your mortgage lender will run your credit check and - since you've listened to us and found a good one 😉 - be able to guide you from there. To qualify for a pre-approved loan, you typically need good credit and a history of consistently paying your bills on time. You’ll also usually need a maximum debt-to-income ratio of 43%. This ratio is determined by combining all of your monthly debt payments and dividing them by your gross monthly income. If you believe that some of these factors could prevent you from being able to purchase a home, it’s still worth checking with a lender. They often have access to resources that can help you. For example, if you are or were in the military, you might be able to get help through the VA. Banks also sometimes hold seminars for first-time home buyers. There are a myriad of other assistance programs out there that can help you get started on the right path toward home ownership. Even if you’re not “there” yet, they can help get you on your way. MG Real Estate tip: Don’t make other large purchases while you’re trying to buy a house. But… Is Now Even a Good Time to Buy?You’ve probably heard the terms “buyer’s market” and “seller’s market” before. A buyer’s market occurs when the supply of homes up for sale exceeds the demand for them, whereas a seller’s market is just the opposite. The easiest way to tell what kind of market you're currently in is by checking the inventory of homes available for purchase. Typically, a buyer’s market occurs in June-August, then switches to a seller’s market in the winter months. Seasonal fluctuations are just one of the many determining factors of the housing market. If you’re in no rush, waiting for the market to shift in your favor can produce both short and long term benefits for you. Also, it will give extra time to save the money you need to buy the home you want. Step 2: Narrowing Down Your Search Now that your financials are squared away, it’s time to start thinking about qualities you want in your home. Okay, you’ve probably done some of that already - but now it’s time to dive deeper. Your Home ChecklistSit down (even by yourself or whomever you’re buying with) and write a list of everything you want out of your home. Feel free to create a list that is as long as you’d like - it’s your first home, after all! Here are a few things to consider:
This list can go on and on and on - and it should. You’re a first-time home buyer. You’re probably planning on staying a while. Once you have a list fully compiled, split these items into three separate columns:  Keep this list with you at all times. Better yet, email it to yourself. It will be immensely helpful to both you and your real estate agent as you embark on the home buying journey. Let’s explore a few of these main qualities a little further… Home Size As opposed to having a typical 1-year lease, buyers on average live in their first homes for 11.4 years. You will usually need to stay in your first home for at least 3-5 years just to break even on the mortgage. A lot can happen in 11.4 years, and if you’re planning on building a family or turning an extra bedroom into a guest room or home office, you’ll want to keep that in mind when thinking about the size of the home you want to buy. Home Cost By now you know what you can afford, so it’s time to think about your price range. Just because you might be able to afford a $1.2 million home doesn’t necessarily mean that you want to spend - or need - that much. There are plenty of apps and websites you can check out to get a good idea of how much homes cost based on their size, location, and other demographic information. Redfin and Zillow are great sources for this. After some browsing, you’ll get an idea of how much your home should cost based on your wants and needs. You’ll be able to better discern what home type you’d like from this information as well. Neighborhood“Location, location, location.” You’ve heard these words before. Seattle itself has well over 100 neighborhoods - and that doesn’t include nearby cities like West Seattle, Bellevue, Renton, and Federal Way. Each of these neighborhoods come with their pros and cons, and they’ll be weighted differently based on your wants and needs. There are three factors that you should always consider when determining whether or not you want to live in a neighborhood:
MG Real Estate tip: visit the neighborhoods before venturing too far into your buyer’s journey. If you can, visit them both during the day and at night to get an idea of where you might be moving. IF you have to move someone before getting to see your new neighborhood, look it up on Google images. Once you have your home size(s), price range, and neighborhood(s) determined, you’re ready to speak to an agent! Step 3: Your Real Estate AgentWhat? Your real estate agent doesn’t come into play until step 3?! Not necessarily. Many first-time home buyers started working with a real estate agent long before this stage - sometimes even before step 1! Your real estate agent can guide you through everything up until this point. However, this is the stage where we graduate from “having a real estate agent is helpful” to “having a real estate agent is essential.” Here’s why: What is a Real Estate Agent?A real estate agent helps you purchase, rent, or sell property. These agents are there to look out for your best interests while guiding you through the home buying process. The process can be stressful or scary - especially for first-time home buyers - so having an expert in your corner can provide you invaluable relief and peace of mind. Do You Need a Real Estate Agent?You can buy or sell your home without one, but we really wouldn’t recommend it. The commission you’ll be paying your agent comes with a lot of perks - and they more than make up for the cost. Real estate agents live and breathe the housing market and can negotiate on your behalf to get better deals. If you ever want to sell, they can help ensure that you're selling at the right amount and can give you tips on how to bolster the value of your home before putting it on the market. Real estate agents also cover a lot of the costs you might not think of, such as photography, marketing, and staging and cleaning. Not only are they paying for these, they also know what people are looking for and have connections to these services. They also take on the liability, which can save you a ton of cash in the event that something goes wrong. Your real estate agent is also the one going to bat for you. You can hire contractors to perform the multitude of tasks involved with buying or selling a home, but none of them are representing you. The buying/selling process can be stressful enough as it is sometimes. You won’t want to take on the extra stress of doing it all by yourself, and it’s not worth it in the long run. What Qualities Should You Look for in One?No real estate agent is going to be the best fit for everyone. You’re going to (or at least should) have a close working relationship with your agent, so you’ll want to hire an agent that can meet your needs. For example, if you’re a first-time home buyer, it’s not likely that you’re going to want to hire an agent who almost exclusively works with veteran sellers. Your agent should be eager, but experienced. They should have an established portfolio and a wealth of resources at their disposal. As a first-time home buyer, you’ll also want them to be patient, because odds are you’re going to have more questions than someone who has gone through the process before. You’ll also want someone who is easy to get a hold of, communicates with you clearly and often, and listens to your needs. They should be able to discern what you like and don’t like, help you further narrow down your options, and even present you with new ones. Most importantly, your real estate agent should be someone you can trust. They should be able walk you through the home buying process, tell you what you should expect, and warn you of any red flags associated with a property. You and your real estate agent are going to work together to help you through one of the greatest milestones of your life. Don’t settle for anyone who isn’t up to the challenge. Real Estate Agent Red FlagsIt’s a controversial opinion, but we don’t believe that large real estate companies are the best fit for first-time home buyers. While they have the backing of well-established household names, many of them have systems in place to streamline the buying process. These processes might make the things more efficient, but also lack personal touch. You might find yourself working with multiple agents and never see the same person twice. They’re not getting to know your goals, fears, pet peeves, or understand the underlying reasons why you prefer one house over another. Without that established relationship, they may be less likely to fight as hard for you in a bidding war or the negotiation process. Real estate relationships should begin casually over lunch or a cup of coffee. You have to see if you’re a good fit for one another. If you’re not sold by the end of that first conversation, they’re probably not the real estate agent for you. Speaking of that first meeting… Questions You Be Asking Your AgentWhen you have that first meeting with your agent, you should have a set list of questions ready for them to answer. Here are a few that you should ask to get started:
There are plenty of other questions to ask. Look out for an extended list soon! MG Real EstateHere's our shameless plug: We specialize in working with first-time home buyers. We inspire our clients to dream bigger and stress less while we strive to make home buying a delightful experience! Also, we’ll shower you with gifts. And now onto step 4! Step 4: The Buying ProcessHere’s how the buying process works in a nutshell... Open HousesBegin planning open house visits with your agent. They don’t always have to be there, but if you’re seriously looking, you should at least mention to the person running the open house that you have an agent. You don’t want to start working with the seller’s agent before contacting your own. When you first walk into a place, try to envision yourself living there. Where would you put the furniture? Can you see yourself having a morning coffee in that living room? Will you enjoy cooking in that kitchen? If it doesn’t feel right, then it’s probably not the home for you. MG Real Estate tip: Don’t get caught up on the superficial stuff like choice of paint or ugly wallpaper. Those are easy fixes. Like what you see and it’s in your price range? Then it’s time to make an offer! Making an OfferIt’s your real estate agent’s time to shine. Once you’ve decided to make an offer, your agent will go over a strategy with you. Your initial offer should be lower than the maximum price that you want to pay. If they believe that it’s going to sell quickly or have a lot of interest, you might want to consider going above asking price. However, every situation is different - hence why developing a strategy is so important. Your offer should include the following:
Contingencies are clauses that give you the right to back out of a sale if they aren't met. Something written like Buyer has 30 days to secure a conventional loan is an example of a contingency. These can make or break a deal - especially if you’re going to be competing with multiple other offers. A good real estate agent should have insight on what the seller is looking for in your offer. Your offer should be in the form of a purchase and sale agreement. Your agent will take care of this, walk you through it, and have you sign or e-sign it before submitting. If the seller accepts your offer, this document becomes legally binding and it’s official - you’re buying a house! The purchase and sage contract is now a key part of your transaction paperwork. If they decline your offer, it’s time to move on. If they choose to counter it instead, then it’s time to negotiate. MG Real Estate tip: If you think it will help, sweeten your offer by also making an emotional appeal, such as a letter detailing why you want this particular property or other personal details that you think might connect with the seller. NegotiationsNegotiations can go back and forth for a while, depending on what is being negotiated. Price isn’t the only factor here. Sometimes agreements must also be made on who pays closing costs and how much, repairs, contingencies, and the closing timeline. Eventually you and the seller will either agree on a contract or part ways. If you do agree, the next step is to bring in a home inspector. Home InspectionsBefore your buy, it’s essential that you have a trained professional to a full home inspection of the property. These inspections might sound scary, but they are necessary. It’s better to know you’re looking at $10,000 in additional repairs open signing closing paperwork than before reaching for a pen. If the inspection reveals serious defects that the seller failed to disclose, you’re usually able to rescind your offer and get your deposit back. You can also negotiate with the seller and try to convince them to cover the cost of the repairs. After all, if they’re looking to sell and this is the deciding factor that causes you to back out, they will likely run into this problem again. Closing PaperworkIf you and the seller have reached an agreement and the home inspection didn’t reveal problems that could inhibit it, then you’re ready to close. We strongly recommend that you do some hand exercises before closing day because you’ll be signing more paperwork that you’ve ever signed in your life. For practice, pick up a novel that’s larger than the first Harry Potter but smaller than Game of Thrones and write your signature on the bottom right of every page. Okay, don’t actually do that - but you get the point. The main categories of paperwork that you’ll be signing include an agreement between you and your lender regarding the terms and conditions of the mortgage, and an agreement between you and the seller over the transfer of ownership. Other documents you may be signing include having the home appraised, obtaining private mortgage insurance (PMI) if you’re not putting 20% down, and an agreement to conduct a title search to ensure that the seller is the only one who can claim the property as theirs. Down Payment and Closing CostsYour down payment is how much cash you need during the onset of your purchase. Most down payments for homeowners range between 5%-20%, but this number varies. You can determine how much your down payment will be based on your conversations with your lender, your real estate agent, the financial assistance or loan programs that you may be a part of, your bottle of rose, and the cost of the home you’re buying. Closing costs are the fees for the services and expenses required to finalize your mortgage. They can include:
Closing costs are, on average, 2%-5% of the loan cost (closer to 2%), including property taxes, mortgage insurance, and more. Often, who pays what is negotiated - and likable agents teeming with experience and delight can help alleviate some of these costs. Still, we recommend expecting to pay closing costs and - if you don’t - you can toast to it later. Step 5: You Bought a Home! ... Now What?First thing’s first: breathe. Relax. Take a moment to celebrate this huge achievement in your life. Next, remember that all of that money you just spent you spent with the intention of buying a home. Your bank account is going to look a little weird for a minute - and you might even feel some buyer’s remorse - but that’s okay. That feeling will fade away. And in the meantime, you got stuff to do! Stop Looking at the MarketSeriously, stop. At best, you can snicker at the homes that cost more to buy that aren’t as nice as yours. At worst, you’ll be screaming into the void because your “dream home” just went on the market for $80,000 less than what you just bought. Just because there are other homes on the market that you like doesn’t mean that you’d get them - or that they don’t have their own baggage. Would you go on a dating site the day after you got married? Probably not, so don’t be ogling some fresh trim and a new coat of paint when you’ve got four sturdy walls of your own. Have Money Saved for Ongoing CostsYour lender (remember her?) prepared you for these. If not, you knew in the back of your mind that they were coming. Your homeowner costs don’t disappear the moment you close. You still need money for ongoing expenses such as moving fees, painting, remodeling, new kitchen appliances, and furniture, to name a few. Write a list of everything you think you might need and go over it with your real estate agent. Once you find the home of your dreams, revisit and revise this list and try to get as close to an accurate number as possible. The more detailed you get, the more you’ll be prepared you’ll be. MG Real Estate tip: Don’t overspend once you move in, either. Create a timeline of upgrade goals and revisit it regularly. Make a Moving ChecklistWe can write an exhaustive post about what you need to prepare to do before moving, but Bed, Bath, and Beyond has already done it. Instead, we’ll cover the highlights:
Make a Maintenance ChecklistDo another walk through and reread your home inspector’s notes. Make sure that you have a plan for anything that needs to be repaired or regular maintenance. Also, find a way to remind yourself to keep up with said maintenance. You don’t want any small problems to become big ones - especially since you own the place. By being proactive about your home’s maintenance, you’ll save a lot of money - and stress - in the long run. You Bought a Home, Not a Retirement PropertyDon’t rely on your home to fund your retirement. It’s true that some people downsize when they retire, but you might want to stay in your home (or whatever one you buy next). Basically, we’re just saying to keep saving for retirement because you never know what could happen. We know you just bought a home and have a million other things on your mind, so this is just something to think about. Plan the HousewarmingDon’t make it too soon and stress yourself out, but definitely plan your housewarming party. It’s a great way to celebrate this amazing milestone in your life. And don’t forget to invite us. We’ll bring the wine! By Anthony GreerAnthony Greer is a content writer and brand messaging developer.
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