How to Buy Your First Home
By Kelly Ann Kimball
If you’ve been paying attention to the economy lately, you might have noticed that many markets are seemingly out of whack. With the semiconductor chip shortage, we notice few cars out on dealership lots, allowing dealers to charge “dealer markups” on cars. With people and companies moving around frequently (fueling supply and demand issues), we’ve seen a housing boom in which sellers are hoping to receive offers well over asking price in addition to buyers willing to waive appraisals and inspections. What a wild time! If you want to buy a house this year, you might be entering a more aggressive market than you’ve ever seen before. You might have to give multiple offers and come up with some creative incentives. But let’s say you decide you do, in fact, want to enter this chaotic housing market; how would you go about buying a home?
Get pre-approved
Unless you plan on giving a cash offer for a home, you will likely (like most of us) have to go to a mortgage company to take out a loan which will fund your house while you pay mortgage payments over time, thereby adding equity into your house. Getting a mortgage can be tricky depending on your work history, credit score, risk level, and many other factors that can weigh into not only whether you can get a mortgage, but at what interest rate you will pay back over time. Getting preapproved allows you to have an honest conversation with a lender who will try to guide you in the right direction/give you next steps. I personally found my lender, Summit Funding, through my real estate agent. You can also find lenders by going online and setting up phone calls to talk through your specific situation!
During this process, the lender will look through all of your credit history, work experience*, and a plethora of other things which will, at that point, determine the maximum amount that a particular lender is willing to lend you based on your risk and potential income assessment. After receiving the maximum amount that you are approved for, you can start the home search for a house within a comfortable price range based on how much you can put down (as low as 3% for first-time homebuyers) and how much you can afford monthly. Affordability is often best calculated based on monthly payment ability.
2. Start the home search!
Once you have a price range that you are willing/comfortable spending on a home, you will know where to begin looking. Something to note is that in the past, you could offer lower than the asking price of a house and be accepted, but in today’s market, you will likely have to offer exactly the asking price or even over. I have known multiple couples this past year who have offered anywhere from 30k to 50k over asking price – AND had to do an appraisal and inspection waiver (more on this later).
You will also want to choose a realtor – and one that you can really trust to guide you in the right direction. Thankfully we had a realtor (Michael Castro) that we could trust to tell us about the market conditions in the areas that we were doing our home search. He advised us as to what we should offer, and what we should be willing to spend for certain homes. He was also quick and worked in the evenings to make sure we were the first offer on our home, which helped us secure the house to go under contract!
3. Pick a house – and make an offer!
Once you’ve found your perfect home and can already picture where your dining table will sit, it’s time to make an offer! Hopefully, you have picked a good realtor by this point who is ready to send in your offer right away, and can advise you on what kind of offer to make. After making an offer, you hold your breath to see what the seller says!
This is also where the heartbreak comes in for a lot of buyers. As mentioned earlier, the markets are so competitive that even good offers are getting turned down. Some people swear by writing letters to the sellers, demanding to know from the seller how to lock in the offer that evening, and a plethora of other things, but personally, I believe that timing is one of the most important factors. Oftentimes, being the first offer can be a good thing – especially if the seller wants to sell quickly. On the other hand, if a house has been sitting on the market for a month or so, it might be worth waiting a little longer to try and offer a lower price. Ultimately, your realtor will know what the best move is! Just try to stay positive and trust that the right house will be waiting for you!
4. Under Contract
Congrats!! If you have made it to this stage, then your offer was accepted and you are now under contract! During this period, usually about a month, you are gathering and signing paperwork, verifying income, and getting appraisals, inspections, and surveys on your future home. Usually you have an option period where you can pick and poke at the house for a certain number of days and back out without any penalty. We had a six day option period with which we did the inspection. Sometimes, when you receive your inspection report, you can show it to your seller and ask that they fix certain things!
While this period of time feels like forever, it is a critical time to get ready for closing and make sure that your house really is all that you expect it to be. For us, the scariest part was making sure our house met appraisal. Usually, houses are appraised based on what other houses in the neighborhood are selling for. If a house doesn’t meet appraisal, that means that the mortgage company will only lend you what the house does appraise for.
5. Pending
Once you have had all of your information and documents submitted for underwriting, then your house is pending! You are SO CLOSE to being a homeowner at this stage. All that’s really left at this point is closing!! Once everything is submitted to underwriting, they may ask for several more documents. For us, we had to provide proof of income and employment once more in this stage as well as updated bank statements. The good news is that if you pass this stage, it’s an affirming indicator that you truly can afford your home!
6. Closing day
Whoop! You’ve reached closing day! On closing day, you will likely have the option to do a final walkthrough of the house – just to make SURE you didn’t miss anything. We used this time to check EVERYTHING. Garage door openers, faucets, sink drainage, ease of opening windows, door locks, etc… If you asked your seller to fix anything from inspection, this is the time to make sure that they actually did fix all of the things they said they would!
Once you’ve done your final walkthrough, you can head to closing! Be prepared to show up with a cashier’s check with your exact closing amount, your driver's license, and any additional blank checks in case the amount comes out slightly different from what was expected. Also rest your hand the night before, because you will be signing a LOT of documents!!!
Once this is all done, make sure to spend some time setting up utilities under your name.
7. CELEBRATE!
Congratulations! Take a sip of champagne and announce the good news to family and friends!!
Photo via @Reagans_official
