First Time Buyers: A Step By Step Look at Home Buying
First Time Buyers: A Step By Step Look at Home Buying
As a first time buyer, you may find yourself wading through a vast array of estate laws and customs. Depending on your location, the steps may differ which can convolute the process or the difficulty in which the tasks are performed. Before you become a first time buyer, read through our top 11 steps for first time buyers and they will help you when you begin the process:
Step 1 – Get Your Credit and Finances in Order
Your credit report is the primary factor that determines your interest rate and how much money a bank is willing to loan you for the purchase of your property. A first time buyer needs to know their financial history and credit before applying for a mortgage, as errors on credit reports are common and often require time to clear up.
Step 2 – Get Familiar with the Mortgage Industry
Familiarize yourself with the loan process and research your lender before you begin the process. Do not pick the first person you come across, but do your research and find someone you are comfortable with and who fits your needs. Your realtor is an excellent resource for this step, as they may be able to provide you with a list of trusted professionals to work with.
Step 3 – Get Pre-Approved for a Mortgage
Once your credit and finances are up to date, apply for a pre-approved mortgage to establish how much you can afford. First time buyers can sometimes be shocked at how much, or how little they can afford, so this step sets up a baseline for buyers to budget around. The pre-approval also helps if you are involved in a bidding war for a property, as the potential buyer with a pre-approved will get preferential treatment from the seller.
Step 4 – Determine Your Wants and Needs
Grab a piece of paper and divide it into three columns. If you’ll have a co-owner, have that person make a list too, but don’t share ideas just yet.
Column 1 – List Must-Have Features:
- List every feature you feel is a must.
- If the house must be located in a specific neighborhood or school district.
- If the house must have 3 bedrooms, a 2 car garage, a large kitchen, or a view.
- If there must be no restrictions against a home-based business.
- If the home must be one level, or with few or no steps.
Column 2 – List Features You Would Like:
- A basement or a deck.
- Whirlpool tubs, walk-in closets.
- A certain type of architecture.
- Gas heat.
- Central air conditioning.
- List all features that are important to you–but that you might be flexible about.
Column 3, List Features You Do Not Want:
- List all features you absolutely cannot accept.
- A home located next to a highway or in a congested area.
- Certain types of architecture.
- Homes that need a great deal of work.
Review your home buying list. If your co-owner made a list, compare each list and see if your priorities match. If they don’t, you’ll need to compromise, revising your lists so that both of you are happy.
First time buyers and veteran buyers should get in the practice of making a list. Writing lists is an excellent exercise because it forces you to think about all your wants and needs. Invariably, this list will change and evolve when you start to look at houses and begin to narrow down exactly what you want based on the market’s availability.
Step 5 – Select a Qualified Real Estate Agents
There are many qualified real estate agents to choose from, and this process can often be overwhelming. However, there are some qualities you should look for when searching for the right agent to fit your home buying needs:
- Makes you feel comfortable.
- Has an excellent website that provides you with educational resources, information about the area and has a good MLS search listing for many properties.
- Offers you prompt professional service.
- Is knowledgeable and will help guide you through the real estate process.
- Provides referrals and lets previous customers tell you how the agent serviced them.
- Suggests an appointment for you to sit down with them to discuss marketing tactics, placement in MLS, services offered, commission rate, etc.
Step 6 – Start Searching for a Home
A good realtor will have many tools at their disposal to help a new home buyer through the process. They will assist you by searching the multiple listing service (MLS) system to find listings that match your desired criteria, providing you with comparative market analysis (CMA) reports and lend their knowledge of the area, school systems and more to your buying decisions.
Step 7 – Handle Pre-Offer Tasks
Decide whether or not you want to buy a house involves a look at its structure and its features, however, many other topics are every bit as important to your purchase.
Step 8 – Make an Offer
You have finally settled on a house that you want to make an offer on. No matter what your strategy is, you should have an excellent idea of the home’s market value before you make take this step:
- Find sales information: Reach out to your courthouse or local tax collector and ask the staff to explain how to decipher deeds or other records that indicate sales prices. Discover the selling history of properties in the area and get sketches and facts about the home’s structural components.
- Asking price: Advertising gives you a feel for average asking prices, but your focus should be on sales prices. You’ll find the sales price can vary by property and you should be aware that all prices are negotiable.
- Order an appraisal: Order an appraisal before making the offer, but make sure the results will not be shared with others. Keep in mind that opinions from different appraisers can vary.
- Determine tax values: Tax valuations are not a good measure of a property’s market value. Your community might have a general guideline, such as tax value = 80% of market value, but the figures are not usually reliable. Take a look at a home’s tax value, but never assume it matches the market value of the property.
Other Factors that Affect the Home Buying Price:
- How long has the house been on the market? If only a short time the sellers might not too motivated.
- How does the house compare with others for sale in the same neighborhood?
- Is the house in need of repairs or massive updates? Updating items such as windows, plumbing, electrical systems, kitchens, and baths can be costly.
- How much time is left in the roof?
- What about the neighborhood, do you foresee home values climbing, staying the same, or possibly taking a downturn?
Bottom line when sending in your offer:
- A low offer: Be realistic, some sellers take a lowball offer as a personal insult and may not be as anxious to deal with you on your next offer. Sometimes a property is very overpriced, but an extremely low offer can create problems with future negotiations.
- A high offer: Come in too high and you may not find the seller’s low point.
- Asking price: If you come in at asking you may have left yourself very little room to negotiate on price. However, in the event of a bidding war, your offer could be tempting to the seller as your offer is more in line with their price.
Before making any offers, analyze the home’s condition and compare it to others on the market, but your final offer will likely involve a good deal of gut instinct. Is it the house for you? If you’ve been searching for a home for a while, you will probably know the answer to that question the minute you walk in the door.
Step 9 – Home Inspections and Other Tests
In some states, home inspections are completed before the final purchase contract is signed. In other states, inspections take place after an offer is finalized. No matter when you do them, it’s critical to decide which inspections and tests you want to perform. Talk with your real estate agent or other advisors to find out when inspections should be handled and if additional types of testing are important for your specific area.
Step 10 – Avoid Last Minute Problems
As your closing date nears, everyone involved in your real estate transaction should check the progress on a daily basis. Staying on top of the process means you’ll know immediately if there’s a problem that must be dealt with.
Step 11 – You’re on the Way to Closing
Most of your home buying problems are behind you now and you’re on your way to closing! The closing process is the event called settlement where the seller transfers ownership of the property over to you, and your realtor and the closing agent will help you with the paperwork that will guide you to your new home.