First Time Home Buyers - Deer in the Headlights Don't Let This Be YOU!
Ahhh the first time home buyer experience. I have to say I love working with first timers. They are so excited to be taking the leap into home ownership, proud that they have come this far on their life journey. I find that many “virgins” really do not understand the entire process of what it takes to get from POINT A to CLOSING and getting your new set of keys… kinda like deer in the headlights.
My goal is to walk you through the steps explaining each along the way so that you have a clear picture of what is going on, what you are signing and to answer every question that you may have as best as I possibly can. There are many steps to climb throughout the process of buying a home, some can be scary (the home inspection) and some thrilling (finally getting those keys). Buying a house is a roller coaster ride so fasten your seatbelts and let’s go!
Step 1 – THE MOST IMPORTANT THING THAT YOU NEED TO DO FIRST – Get a mortgage preapproval. Call a lender, whomever you bank with is a good place to start or ask around for referrals from friends, family or your agent. Be sure to ask the lender to disclose their fees upfront. Get your preapproval BEFORE you start looking for your new home. Don’t you want to know what you can afford before you shop?
Step 2 – Be comfortable in your preapproval. What does that mean? I don’t want to see you as a foreclosure statistic in a few years! So … you’ve been preapproved for a 300,000.00 loan? OK, Great! Now ask yourself – do you want the MONTHLY mortgage payment that comes with a 300,000.00 loan? Your mortgage payment typically includes Principal, Interest, real estate Taxes and home owners Insurance (PITI as we were taught in real estate class). If you put less than a 20% down payment towards the loan, you may have to pay PMI (Private Mortgage Insurance) until your reach 80/20 Loan to Value (LTV). PMI stays with the loan until you reach “80/20 LTV” by either paying 20% into the loan over time or if the market takes an upswing, by having the home reappraised to show that you now have 20% equity into the home. If you are purchasing a condo or looking into a development with a home owners association, you need to also factor in monthly condo/home owner association fees. The bottom line is YOU NEED TO BE COMFORTABLE with YOUR monthly expenses not with what the bank SAYS you can afford. Does that make sense? If so, then let’s go to step 3. If not, then please give me a call (215-510-2149) and I will help you understand.
Step 3 – If you haven’t chosen a real estate agent, please do so now. As a buyer, you need an exclusive buyer’s agent in your court, someone working solely for you to get you the best deal, explain to you all of the steps as you go and to represent your BEST interest throughout the process.
Step 4 – THE FUN PART! Shop! Go over your ideal home with your agent, but be flexible, know what you can do without because no home is perfect. Make a list of everything you want then divide that list into sections of must haves and then things you can do without if need be. Your agent will have access to a local Multiple Listing Service (MLS) which has the most current information available on the Internet but is only accessible by a licensed real estate professional. Your agent can then send you properties as they become available or are reduced in price that may match your needs. Choose the properties that appeal to you and your agent will make appointments to take you out home shopping. Your agent has a trained eye to pick out the “yucky stuff” that you may not notice as a deer because you are too busy and excited staring at the gleaming hardwood floors and granite countertop. But please remember, most agents are NOT licensed home inspectors, appraisers or building engineers. So please get a home inspection! I am getting a few steps ahead of myself here.
Step 5 – THE ONE. You’ve found it! The moment you walked in you felt IT. You will know what I am referring to when you feel “IT.” Now it’s time to make an offer. Here in PA an offer is not one simple piece of paper saying I want to buy your house for X amount of dollars, please sign here if you are OK with that. Oh No, No, No. You will sit with your agent for about an hour or so signing page after page and discussing contingency after contingency that are all part of the initial offer. Contingencies are “conditions” to the terms of your offer that need to be met in a timely fashion in order to get to closing, the seller must agree to the contingencies of your offer. There are inspection contingencies, insurance contingencies, mortgage contingencies and so on. Time is of the Essence and it is crucial that you stay within the terms of the contract or you could default on the contract. Your agent will make sure that you follow the contractual terms and remind you when things are due. It is NOT a fully executed contract (Agreement of Sale) until buyer and seller have agreed on all of the terms of the offer. Once everything is agreed upon, the date of the last initials is the date that the clock starts ticking!
Step 6 – YAY! Offer accepted! You and your agent have successfully negotiated the terms of the contract with the seller and their agent. A copy of the Fully Executed Agreement of Sale now needs to go to your lender. Your agent will do this and will work closely with your lender and you to make sure that you meet your mortgage commitment date and contingency. You will need to supply your lender with every piece of paper imaginable to prove that you can qualify for this loan. The days of NO DOC loans are pretty much gone (for now). You will need to look into home owners insurance because you will need to supply your lender with proof that the property is insurable by giving them a copy of the declaration pages. Your lender will order an appraisal on the property (the appraisal process is another blog in itself). You will have a home inspection (a general inspection of the property going over things like the roof, electrical system, plumbing, windows and more), you may have also chosen to have a termite inspection, radon testing, mold testing, lead paint testing, all of which are usually additional charges to the general home inspection. Make sure your inspector is licensed. Getting your Uncle Joe to inspect the home because he fixes things is not a valid home inspection. As an exclusive buyer’s agent, I would not ever recommend that my clients waive the general home inspection as the expense of one NOW could save you thousands in the future. Once you’ve gone through the inspection(s), you will need to respond to the report by providing the seller (in writing) with a list of things you want fixed or that you are asking them to credit you for or that you are accepting the house AS IS. Basically, this is like renegotiating the sale because if you and the seller cannot agree as to how to address the report, the deal could die. If you are financing via FHA, they will have their own inspection, but this is NOT the same as a private home inspection. FHA inspections are like a safety checklist. They may have an additional set of repairs required to be completed before they will grant you a loan.
Step 7 – Title Review & Use and Occupancy Certifications. Your agent will look over the title supplied by the title company to make sure there are no liens or judgments against the property and to insure that you are given a free and clear title. If anything comes up on title, it needs to be addressed before settlement! Different townships, cites, counties or boroughs have different, individual guidelines for getting Use and Occupancy Certifications or Township Certifications in order to ‘OK’ transferring title to you. Some townships require that the property be physically inspected whereby the inspector will go over a list of items that need to be met before the home can be transferred to you. Some cities, townships, etc. will just run the address through a computer and if there are no violations against the property, they issue a clear U&O certification. Again, your agent will be handling all of these things by working closely with the conveyancer, lenders, title clerks, and cooperating agent.
Step 8 – Hooray! Everyone was able to successfully negotiate the all of the contingencies. You’ve made it. You are over the hurdles. I can’t tell you how many times I have heard, “I hate the word – contingency.” Now it’s time to start calling the utility companies to have everything transferred into your name effective the date of settlement. Your agent can provide you with a list of local utility companies.
Step 9 – DID I LOSE YOU YET?? ARE YOU STILL READING??? Good! This means you are becoming devirginized.
Step 10 – Settlement is FINALLY here. You have probably spent at least 6 weeks to 2 months or more working with your agent getting you from POINT A to CLOSING. You arrive at the settlement table and you now sign your life away to the mortgage company. There will be a pile of papers that you will be signing before you are handed your new set of keys. Your lender should be there to explain to you what you are signing. You will need to bring the balance of whatever you owe towards your down payment, your photo ID and your big smile. Once you’ve signed the mortgage documents the lender’s underwriter will give the final OK and will disburse funds and you are now a happy home owner! Congratulations it’s time to start planning your house-warming party and don’t forget to invite your Real Estate Agent! You may now begin building your future, earning equity, enjoying the nice tax write off, painting, redecorating and kicking up your feet in your most favorite room in your new home!
Whew! And to think this week someone compared my profession to a that of a used car salesman, which I am not knocking used car sales people, we all need to keep a roof over our heads … but I think I do just a little bit more! I haven’t even gotten to what happens on the SELLER’s SIDE!
There's Only ONE 1st Time! Make It A Good One!
Contact Kim Schreiner:
Kimberly Schreiner, ePRO, Realtor® PA License RS291767
RE/MAX Affiliates, NE
Kim’s Official Website
Cell 215-510-2149 Direct 215-992-1726 Office 215-335-6900
Serving Philadelphia, Bucks and Montgomery Counties