Buying your first home can be much less complicated than you may think. Most first time buyers are not sure where to begin and what to expect.
It’s common for new home buyers to get confused and distracted by information overload. Taking a simple, organized approach is best.
This first time home buyer's five step, simple guide will outline the basic steps you should take to ensure that your first experience is a good one and you are happy in your new home.
1. Pre Approval
Unless you are paying all cash and have plenty of extra money for reserves, you must get a Loan Pre Approval from a lender before you will be considered a serious buyer. Do not skip this step.
Here is what you need to do:
Contact your lender and ask if they will provide you with a written “subject to” loan approval. This means that they are willing to underwrite and approve you as a borrower before you have chosen a specific property to purchase
Some lenders will do this and some will not
- Discuss the terms and the loan amount that you will request on your application with your Loan Officer
- Complete the lender’s loan application
- Allow them to run your credit
- Provide them with all requested supporting documentation that will prove your employment history, savings history, and income
- Complete and return all initial disclosures in a timely manner
Once you have been approved, and have the written Loan Approval (subject to a specific property) in your hand, you are now ready for step 2. If you are unable to qualify for a loan at this point, find out exactly why and discuss your options with your loan officer.
I know you’ve heard that real estate is all about location. It is, as long as it’s the location that you desire. If this property will be your home, you probably already know where you would like to live.
If everything went well in step number 1, then you are able to afford a home in your desired neighborhood. If you determined that you cannot afford to purchase in your dream neighborhood, it’s time to decide if you still want to become a homeowner in an area that you can afford.
Assuming you are moving forward, now is the time to find a Realtor to help you. They are neighborhood experts and will help you understand what drives property values, and what the strengths and weaknesses are in each neighborhood.
According to a recent study by the National Association of Realtors, over 88% of new home buyers use a realtor.
Ask your loan officer for a few names of local specialist who focus on the areas you are interested in. Remember, the seller will pay the realtor’s commission, so why wouldn’t you have a local neighborhood expert working for you? And now that you have an actual Loan Approval in hand, you will be taken seriously by even the best agents.
So get some help for this step, your long term happiness depends on it!
Having an experienced Realtor on your team will be very helpful for the next two steps in the home buying process.
3. Property Selection
Now for the fun part. It’s time to get out there and start looking. Your Realtor may suggest you drive by certain properties and neighborhoods first before inspecting any available properties. Please do this. Do not be lazy, and just request appointments to see anything that looks good online. Not understanding local neighborhood dynamics can cause problems down the road (literally!)
Make sure your expectations are realistic for the neighborhoods you are choosing to look in. for example, if you are finding that most available properties need a lot of work, please call your loan officer and discuss your options for getting approved for a largerloan amount or putting less down and using some of that money for property improvements.
Do be afraid to ask your Loan Officer and Realtor for ideas on how to make things work. If you find a property you are interested in, get their input on how to structure a deal that makes sense.
Now that you have followed steps 1-3, this part will not be as stressful. You know what you can afford, you are happy with the neighborhood, you found a nice property, so make an offer.
Please take my advice here. When my wife and I purchased our home almost 10 years ago, I had been in real estate for over 15 years at that time and thought I knew a lot. I chose to contact a Realtor who I trusted when we found the property and simply asked him how he thought the deal could be structured. I was blown away with his response. He suggested a plan and was able to negotiate far better terms than we had expected. I am glad I kept my mouth shut and asked for his advice first. Lesson learned.
Remember, your Realtor has viewed most (if not all) of the recent sales of similar homes in the area. They understand why these recent sales obtained their prices. When it’s time to make your offer, you will be using factual (recent sales) data to support your offer. If you do not base your offer on recent sales of similar properties and simply come up with a number that you “would like to pay”, unless it’s very reasonable, you may not even get the seller’s attention.
At this point you are doing well. You are pre-approved, like the neighborhood, found a nice property and are making a “factual based”, reasonable offer.
Once your offer is accepted, you are ready for the final step. In most states, you will use a closing agent to complete the property transfer or “closing”.
Here is what you need to do:
- You or your Realtor will open the order with the settlement agent by providing a copy of your accepted purchase agreement and the earnest money deposit
- Contact your lender and send them a copy of the accepted offer. Your lender will order the appraisal and title report from the title company or closing agent. Once these items are received, reviewed and acceptable, your loan approval will become a final approval and the lender will be ready to fund the loan
- Complete any property inspections that you have requested
- Review all disclosures, documents and reports that have been provided by the seller, lender, closing agent and realtors
- Let your Lender know you are ready for loan documents once all items are acceptable
- Sign loan documents and deposit your down payment with the closing agent
- The closing agent will send all signed documents back to the lender for a ‘pre funding” review
- Once approved by the lender, they will fund the loan to the title company who will pay off the sellers existing liens, then send the remaining proceeds to the closing agent and record the new deed with the county recorder with you as the new owner
- You will receive an official settlement statement at closing with your keys
Congrats, you are now a homeowner!
I hope this article is useful. Please contact me with any comments or questions.
You can reach Brian at 800-607-1941 x220 or firstname.lastname@example.org .
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