Buying a home can look like a challenging process, especially to someone looking to buy a home for the very first time.  Taking the right steps and working with the right professionals means setting oneself up for success with the least amount of hiccups.  With a home being one of the largest purchases one will make in their lifetime having a good knowledge of the process is important.  Check out some of the great first-time home buyer tips in this article.

Mortgage

Unless one is buying a home with cash, the mortgage process should be the very first step the home buyer starts with as everything after that might not happen without a mortgage.  With the mortgage the home buyer is providing their financial background to a lender in order to get a pre-approval letter which most sellers will require as part of any offer.  As part of the mortgage application the home buyer will learn how much in total they can borrow as well as how much their interest rate will be on the mortgage.  The lower one’s credit score is (to a certain point, a score too low will not qualify for any mortgage) the higher their interest will be.  Higher interest rates mean higher monthly payments.

Home buyers should be carefully considering their monthly payment in relation to what amount they can borrow.  Just because a home buyer can borrow a large amount does not necessarily mean they should borrow the full amount if it will put a strain on their monthly budget.  Owning a home involves more than just paying for the monthly principal and interest payments.  If put into an escrow account the monthly payment will include taxes, insurance and any HOA fees.  With a fixed mortgage rate the principal and interest payment will remain fixed over the term of the loan, but the taxes, insurance and HOA payment can (and usually do) go up over time.

Owning a home involves much more than just paying the Principal, Interest, Tax & Insurance (PITI) payments.  If anything goes wrong with the home, the homeowner is responsible for getting it fixed and paying for the repairs.  There are home warranty options that come with a yearly fee that can cover some repairs, but not necessarily everything.  Homeowners should still be expecting to come out of pocket for home repairs.  Letting a home get into disrepair is a quick way to lose home value and maybe even lose the home entirely if it becomes unlivable.

Real Estate Agent

Unless a first-time home buyer is comfortable with going on their own to buy a home hiring a real estate agent to represent them in buying a home is a smart step.  Listing agents/seller’s agents while able to help a home buyer make an offer, work for the seller.  Depending on state laws some listing agents can represent both the buyer and the seller but then must become more neutral towards both parties.  A first-time home buyer who has their own agent, has someone who will be representing their best interests.  An experienced real estate agent will help home buyers find the right home and guide them through the process from the initial process of searching for homes to closing and beyond.  Many agents have a deep network of contacts with mortgage lenders, contractors, insurance providers, and more.

Recent changes within the way National Association of Realtors (NAR) require buyer’s agents to interact with home buyers means that home buyers should be expected to sign a buyer representation agreement with sets forth the terms of how the real estate buyer’s agent will represent the buyer and how they will get paid.  Many states have put these changes into law as well so first time buyers should not be surprised for a buyer’s agent to go over these documents with them prior to showing them any homes.  As with anything the buyer is fully within their rights to ask questions and get a second opinion (preferably from a real estate attorney) when being asked to sign any documents.

Once the home buyer finds a home they like their agent will help them with preparing the offer.  Real estate offer documents contain quite a bit of language which are written to protect the rights of the home buyer and seller and as a result must be filled out currently.  There will be a number of time frames within the offer that need to be met.  For example, time lines controlling when the home inspection must be performed, when repair requests must be submitted, when can a home buyer cancel and not only ask for their earnest money to be returned but also cancel without being forced to “perform” on a contract by a court of law.  There will be additional time lines and contingencies in the contract that home buyers need to fully understand and a knowledgeable real estate agent should be able to help with that.

Home Inspection

A home inspection while not required when buying a home is highly recommended to have performed.  A home inspection will let the buyer know the condition of the home and allow the buyer a deeper insight into the operations of the home.  All buyers should be attending the post inspection walkthrough if the home inspector provides one.  If the inspector does not provide one it might be better to work with an inspector who does provide an opportunity to walkthrough with them so they can show the home buyer about potential issues and answer questions about the home.  

Home buyers should be asking potential home inspectors for some sample inspection reports and for any home inspection guides they have.  It is better to research home inspectors ahead of time so there is no rush at the last minute to figure out which qualified home inspector a buyer wants to work with.  Qualified home inspectors can have their schedule fill up fast so it is important to get in touch with the inspector as soon as possible after an offer has been accepted.  Having a backup inspector in case the first one is not available is a good thing to do as well since if an inspection is not done within the time frame specified in the contract the home buyer will give up their right to ask for repairs or cancel the purchase offer due to an inspection related issue.

Home Appraisal

When it comes to buying a house with a mortgage usually an appraisal will be required.  There are certain exceptions such as the buyer putting more money down on the purchase, the property having a high value in relation to the purchase price and there could be other lender reasons why an appraisal might not be required.  That being said the decision to have an appraisal or not is not something that can be controlled by the home buyer or the lender.  The reasons why an appraisal might be required include government rules, property requirements, lender requirements and more.

The home buyer usually will be responsible for paying the appraisal fee and will pay for it whether or not the home buyer closes on the transaction.   As a result most lenders will wait on ordering the appraisal until the home buyer has passed the inspection period.  If there are no issues with the inspection or the buyer and seller have successfully negotiated resolution to the issues then the buyer can request the lender move forward on the appraisal.

There are different types of appraisals that a lender can order.  There is the desktop appraisal, a drive by appraisal and a full appraisal.  With a desktop appraisal the lender will ask the appraiser to generate a value just based on the information alone they get online.  With a drive-by or exterior only appraisal the appraiser will use the steps found in the desktop appraisal but will also visit the exterior of the home in order to take pictures and determine the condition of the home.  With a full appraisal the appraiser will visit the inside of the home as well as look at the outside.  The type of appraisal chosen is based on lender requirements, loan requirements and more.  It is not something the home buyer can specify.

Title Company

The title company is the company that will handle all the background research needed for the deed to properly transfer and will be involved with title insurance.  Title insurance is required by the mortgage lender to cover their portion of the value of the home based on the loan amount.  The home buyer can also request title insurance for their portion of the value of the home and especially if the home buyer put a large amount down getting title insurance for themselves is a wise move.  Title insurance protects the lender (and homeowner) in the event there were undiscovered liens, fraudulent deeds, unpaid taxes and more.

The title company is usually chosen by the buyer.  The buyer can ask their lender or their real estate agent for some title company names if they have no preference.  Title company fees can vary so it can help to shop around to compare fees if one has the time.

Final Thoughts

Bobby Knight said “The will to succeed is important, but what’s more important is the will to prepare.” When buying a home preparation is an important step to ensure success.  Home buying is one of the most expensive purchases one will make and doing it right will ensure a smooth and successful process.

About the Author: The above post “First Time Home Buyers Tips” was written by a human, Paul Sian, Mortgage Loan Originator in Ohio (NMLS#2732987) and Real Estate Agent in Ohio & Kentucky. To inquire about a mortgage please contact me here.