I hope everyone is staying warm out there this chilly season. As I can expect, many of you will be looking to make your first real estate transaction this coming spring, and what a wonderfully scary thing that can be. First off, let me say as a buyers agent my job is to help you manage that stress to make this transaction as blissful as possible. With that being said I'm sure you are wondering where to even begin, so let me help you. Below are going to be the steps you need to take before you're ready to go on a showing tour, and what happens after!
1) Reach out to a Realtor
As a buyer there is little reason not to use a realtor, especially as a first time home-buyer. These real estate professionals see the market everyday and are ecstatic to talk to you. A consultation should cost you nothing but your time, and they will help you pinpoint what you are looking for and what areas would work best for you. Plus, once you do get a house under contract the seller will typically pay the buyers agent's fee. That means you have a trained professional working for you on someone else's dollar! What could be better than that? Also, remember you can shop around a bit, like interview a couple realtors and find out who matches your personality best to see eye to eye on your goals, and not to mention someone you trust to do a fantastic job! Once you found the one you can ask about exclusive buyers agency. This agreement may not be entirely necessary. However, what it does do is bind you and the realtor together for an allotted amount of time, and legally binds the realtor to work in your best interests. Just remember this will bind you to them for that amount of time as well, so make sure you are working with a good realtor!
2) Get Pre-Approved
Most likely as a first time buyer you will be financing your new home. It can be a scary thought, and you could be worrying about how you are going to afford a down payment, your mortgage, and what you are going to need to actually purchase this house. Your realtor from step one will be able to help you navigate this. They will have a long list of lenders specializing in all different types of lending to match your situation best. I personally as a realtor prefer to work with the lenders I know well because I trust they will do a good job for me if they want to continue receiving my client's business. Be sure to talk to them about different financing programs such as Conventional, FHA (Federal Housing Administration) , and RD (Rural Development) type loans to figure out what will work best for you. There are also lots of first-time home buyer assistance programs such as MSHDA, which will loan you (without interest) up to $7500 to help assist with down payment and closing costs. Also figure out your down payment; depending on your qualifications, you can get into a house with zero, or very little cash up front. Make sure you talk to your lender about all this before going to look at houses, so you know what's in your price range.
3) Go look at Houses!
Yay! Finally the exciting part! Once you have a letter of pre-approval you are ready to ask your realtor to set up some showings for you. Also, ask them to set up a search for you, and what the best way to look at houses online is. Mine is www.rinksrealty.com where not only can you search everything linked directly to the MLS (what realtors look at) but you can also view market statistics and run mortgage estimators right from the site. Narrow it down and go look at 3-4 houses at a time, and don't feel bad if they weren't exactly what you wanted, a good realtor shouldn't be upset. In fact, they should understand your criteria that much better, and be able to more effectively serve you. Just remember if you're ready time is of the essence. With this low inventory market there are likely a handful of buyers looking at any property that looks like a good deal, so make sure your realtor has that letter of pre-approval from step 2 ready to use at any time because lots of times you may only have days, or maybe even hours to get that offer submitted. Otherwise you may miss out on that house of your dreams!
4) Submitting an Offer
This is where, if not already; your realtor will become your best friend for the next 3-6 weeks. They know their purchase agreement like the back of their hand, and know all the right questions to ask you. Also, they should provide you with all relevant information to make an educated offer. You should never make an offer you are not comfortable with, so what I do is pull all numbers and comparisons on the subject property prior to writing that offer, which we will go through line by line together to make sure you know exactly what you are signing before submitting it. There are lots of different twists that can go in there to strengthen (or weaken) an offer. This is paramount to understand in this multiple offer market we are in. Essentially it's a bidding war where the highest and best offer wins. Make sure your realtor consults you on this so you understand all risks, and remember.... DO NOT SIGN IF YOU ARE NOT COMFORTABLE. Make sure your realtor understands your apprehensions. Once done, get it submitted and wait to hear back for acceptance or a counter-offer. This can be nerve racking, especially when you are set on the right house, just remember there will be more and try not to get to upset if you don't get it as long as you tried your best. Get up, dust yourself off, and go look at some other houses.
5) EMD, Inspections, Negotiating, and Appraisal
Congratulations! Your offer got accepted! Now what? First things first, your realtor surely discussed the earnest-money (good faith) deposit with you. Typically 1% of the purchase price (due within 72 hours) will be held by the brokerage to come back to you at closing as long as you don't break contract illegally. Then most likely you are going to do inspections. In my contract (unless otherwise noted) you have 10 days to do any and all inspections/investigations. If you don't have an inspector already in mind your realtor should be able to set you up with one. For a general inspection it will run you around $300 to the inspector up front. During this time the contract is very much in your favor. If you find anything in inspections you don't like, or didn't expect you are able to get out of the contract under the inspections contingency and walk away with your EMD. However, you will be out that cost for inspections, and this gives you a great chance to negotiate with the seller for a better deal. Who knows? You could very well get a brand new roof paid for! Your realtor should be there to advise you every step of the way, so make sure to take advantage of that! Also, inspections are for you, and you alone. Never tell your lender anything that turns up. They don't care unless the appraiser calls it out, but if you send them the report they may raise a red flag and kill your deal. Lenders do their own appraisal for their security. This is where they determine the value of the house, and if they will loan on it. If the appraisal comes back at or above purchase price you're all good. You could already be sitting on a chunk of equity! If it comes back low they wont give you more than it appraises for, so either a) negotiate purchase price with seller or b) come up with the difference in cash. If it's a government loan (FHA, RD) they may call something out that doesn't fit code to lend on, so again this is where you have to negotiate with the seller to fix those concerns and get re-appraised. Once all that is clear you are ready to close, and the title company should be receiving all the documents from your realtor and lender.
6) Closing Day!
So everything went as smooth as possible and you are ready to sign for your new house. The day and time will have been set, and you will meet at your chosen title company with your realtor. This is where you review all documents, and bring a check to cover down payment and closing costs. Your lender should have sent you numbers days before. It's a big stack of papers, and will take about an hour. Review it all, and have your realtor look over them too. Then get signing, once done you are now officially a bona fide homeowner! Congrats rock star! This is where you will either accept the keys to your new house, or begin the possession period pre-determined in the contract. The possession period gives the seller time to move out (not usually longer than 30 days). Lastly, have your realtor come to the house with you to make sure everything is in order (you can also request a walk through before closing).
There you go, hopefully you feel much more comfortable with going about purchasing your new home. Also, don't be afraid to check up with your realtor once in awhile, and they should do the same. This way you can see how your market value is doing. As a first time home buyer you are most likely going to move from your starter home within 5 years, so it's good to know how much equity you're sitting on when it comes time to upgrade.
Thank you so much for reading,
Justin Rinks
Century 21 Affiliated
Realtor