There are so many “firsts” in life. One of the most important firsts is buying your first home. This is such an exciting milestone in life but can also be very stressful (and confusing). Lucky for you, we have put together a guide for first-time homebuyers to help you in your home-buying process. Here are some tips for what you should expect when searching, putting an offer in, and closing on your house.
When searching for a home
1. Get Credit ready
Before looking for a house, make sure you have built a good credit score. A higher credit score means you may qualify for a lower mortgage interest rate, which means your payments will be lower than with a low credit score.
2. Find a real estate professional:
Finding a professional you can trust will make all the difference. He or she will be in your corner and walk you through every step along the way.
What’s the difference between a realtor and a real estate agent? The main difference is the certifications. A realtor is a real estate agent who has extra training through the National Association of REALTORS.
3. Get pre-approved
Don’t skip this step. Once you have figured out a good price range to look, you’ll need to get pre-approved for a mortgage loan for that amount you are approved for. Getting pre-approved gets you one step closer to owning a home.
4. Know what you can afford:
It’s hard to know what you can afford, so we suggest talking with a bank or mortgage lender and doing your own research to determine what makes the most sense for you and your financial situation. Some people think they should buy as much house as they’re able to get a mortgage for, but this can be bad for your budget down the road. Make sure your monthly mortgage payment is something you can afford every month, in addition to your regular bills and other financial obligations.
When putting in an offer
Your realtor can help you walk through this process, too, as everyone’s situation will be different. Here are some things to consider if you want to position your offer in the best way.
Make the offer clean
As a buyer in a seller’s market, you want your offer to stand out. A clean, no-contingency offer means that you’re waiving all contingencies to make your bid more competitive and appealing to the seller. Your offer should also be free of seller concessions, which basically means things outside of the offer price will fall on you as the buyer, i.e., closing cost.
Don’t let the thought of offering over asking price stress you out. Most of the time, you only need to offer $2,000 - $3,000 over asking price to show the seller you are serious and to make your offer that much more aggressive. Another thing to note is that offering above asking price won’t make the monthly payment on your mortgage change significantly unless you offer an amount way above asking.
Earnest Money Deposit (EMD)
This deposit shows that you are a good-faith buyer and shows the seller that you are serious about buying the house. The deposit can be anywhere from 1 – 3% but in a more competitive setting, the deposit can range from 5 – 10%. The money you put down for an EMD can contribute to your down payment at closing cost.
Write a letter
You may think writing a letter to the homeowner seems weird and desperate, but it can be an effective move on whether the seller chooses your offer. As a seller, moving can be a sensitive topic so reading a letter on why someone wants to buy your house can help put a smile on their face (and make for a no-brainer decision). Be as personal as you want with your letter.
Tips for Closing
Your offer got accepted, YAY!
When your offer gets accepted you have about ten days to get a home inspection. Most of the time your realtor will suggest a home inspection company or give you a list to choose from. The inspector will go through the home and look for any problems. They will test electrical systems, roofing and more. After the inspection, they will write out a list of things they found that need to either be replaced or fixed. Now, at this time, you can either ask the seller to pay for those things or split the cost with you. They might come back and say “neither” so you will have to cover it, but it doesn’t hurt to ask.
A lot of paperwork is to be completed in a home’s closing, so buckle up. Your mortgage processor might ask you for these things: W2s from your employers in the last two years and at least two current pay stubs. If you were in school the last two years, you may need to show your transcripts.
Read all paperwork before signing
From the time your offer gets accepted to the day of closing, you will receive a lot of paperwork from both your mortgage processor and realtor. When you get those papers to sign, READ EVERYTHING. People make mistakes, it’s normal, so make sure everything looks correct on the paperwork before signing.
The closing check
A few days before closing, you will have a final walk-through of the house. This is to make sure the home is still in its expected condition. It’s a chance to see if the seller switched out any light fixtures, doorknobs, blinds or anything else with cheap products. Basically, the house should look like it did when you first looked at it. Your realtor will also have paperwork of what was fixed or replaced from the home inspection, and you will verify all of that at walk-through.
Through this whole process, you should have been saving for a down payment and closing cost. Without breaking the bank, it’s a good idea to put as much as you can down at closing. Make sure you have that check with the exact amount at closing with you.
Acronyms to know in the home-buying process
From the time you start looking for a house, to the day of closing, you will hear many acronyms that you have never heard before. No one expects you to know this lingo beforehand, but it does help you feel more confident through the process.
EMD - Earnest Money Deposit
Another saying for this would be “good faith deposit,” which simply means a sum of money that you put down to show your seriousness about buying a home. EMD acts as a deposit on the property you are interested in buying.
APR - Annual Percentage Rate
This refers to a yearly rate of a loan to a borrower.
PMI - Private Mortgage Insurance
PMI provides financial protection to the lender should the buyer default on their mortgage. This allows borrowers to purchase a home with a down payment of less than 20% of the mortgage loan amount.
LE - Loan Estimate
Loan estimate is a form meant to provide disclosures that will be helpful to borrowers in understanding certain features, costs and risks of the mortgage for which they have applied.
CD - Closing Disclosure
This is required to be delivered to the borrower at least three business days prior to closing. This form must contain all final costs for a borrower’s mortgage. The amount on the CD is what you bring to closing.
FHA - Federal Housing Administration
FHA is the largest insurer of residential mortgages in the world. This loan is often referred to as a “first-time homebuyer loan” because of the low down payment requirement.
ARM - Adjustable Rate Mortgage
This is a fixed interest rate for a short duration (3, 5, 7 or 10 years) and may adjust annually based on changes in a pre-selected index.
FRM - Fixed Rate Mortgage
A fixed-rate mortgage is exactly how it sounds. Your mortgage rate is fixed for the entirety of your loan duration unless you choose to refinance. Fixed rate mortgage products usually have a longer time period (e.g. 15, 20, 25, or 30 years) as compared to an ARM.
PITI - Principal, Interest, Taxes, and Insurance
Refers to the entirety of your monthly mortgage payment, including principal, interest, taxes, and insurance. This can also include homeowners’ association fees.
The journey to your first home can be a confusing process. Having the right professional by your side makes all the difference. Just like having the right insurance agent! Your home is likely one of your biggest investments. Protect it with a homeowners insurance policy from Alfa®. Call one of our local Alfa agents for a free quote!