The exciting news I’ve been waiting to officially announce: my husband and I are homeowners!
We decided a year ago to start learning about the process and we went to a home buying seminar and browsed listings online. It wasn’t until this year that we got serious and went to a few open houses. We soon realized that we were going to need agent and we signed a contract with Leigh Slaughter, who I met through my alumnae network.
Are you thinking about purchasing your first home? If so, you may want to continue reading. I’ve asked Leigh some first time homebuyer questions. The questions are in bold with her answers below them. Leigh has a lot of great advice and if you’d like to learn more, I recommend following her on Facebook.
I’ve heard many times that the first step is to get pre-approved. We started the process by going to a home buying seminar and looking at homes on realtor.com before getting our pre-approval letter and finding an agent. What do you recommend as the first step? And what information do first time home buyers need to gather in order to be able to start looking?
Being educated and prepared are the first and best steps you can take. Owning is not out of reach if you tackle two obstacles–the first is setting aside enough money for a down payment and closing costs. The second obstacle is overcoming the fear that you will not have enough cash or won’t qualify for a loan. There is an overabundance of home buyer information, resources, and programs on a local, state, and federal level available to you, so you can be a participant and not a bystander. Also, know what your credit score is and explore all financing options. You may not need a huge down payment, due to many loan programs and your individual financial circumstances.
Getting pre-qualified is the initial step; but it is not a sure thing because it is an abbreviated process and doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly vetted. Because the market is so competitive, it is important to get preapproved. You will be supplying more financial information and will complete an official mortgage application when seeking pre-approval. Getting preapproved enables you to move quickly if you find the perfect house and want to submit an offer.
What categories should homebuyers focus and prioritize? Should they hone in on their preferred neighborhoods first, for example? How do you recommend homebuyers narrow in on neighborhoods and other important categories for their future home?
Prospective home buyers should focus on their favorite neighborhoods, and start narrowing the list of where they want to be versus where they can afford to be. Do you want to live in the suburban sprawl or are you comfortable living in the high-end enclaves in the city? Do you want to bike to work or hike to work? Test drive through the neighborhood during rush hour or on the weekend to get a feel for the neighborhood at different times of the day.
You can do this by leveraging technology to your advantage–use your knowledge and expertise to search listings; call, text, and email an agent, and set yourself up to receive alerts about homes and neighborhoods. Look at YouTube videos, go to seminars, read up on market trends. The National Association of Realtors (NAR) reports that 90 percent of home buyers start online or on mobile technologies.
Are there any additional costs or hidden fees in addition to the down payment and mortgage? I was a little surprised by the closing fees, for example. Is there an average or percentage that a first time homebuyer could expect to spend on closing fees?
There should not be any “hidden” fees. With the new mortgage disclosures the process of getting a mortgage is easier to understand because of the new Know Before You Owe Rule is now in effect. The new mortgage disclosure rule, which was mandated by the Dodd-Frank Act, combines the required federal disclosures for most mortgages. It requires lenders to give you your Closing Disclosure 3 business days before you close. This 3-day period gives you time to understand the terms of your loan, and compare it to the Loan Estimate you were given, and ask your lender any questions. For more than 30 years, lenders were required to give you two different forms when applying for a loan, with much overlapping of information. The new form streamlines the process and does not delay settlement.
The average percentage a first time homebuyer spends on closing costs is 3 percent of the purchase price—that is the general rule of thumb.
One question I kept asking myself when we were looking at homes: could we see ourselves living in the house for the next 5+ years? What other important questions should first time home buyers consider?
Yes there are several questions: How much house can you afford? What if we want to add an addition? Are their any barriers to renovating your home? What if an aging parent needs to live with you, are you prepared to accommodate them? Should I rent or should I buy?
One important question is who you pick for an agent. While experience is important, realize that all agents get their information from the same database—usually MRIS. That means that we all have access to the same information. But the key is how an agent analyzes the information and translates that data into an offer or a sales price. Experience counts, but it is not the only thing. Neighborhood experts do have a cumulative knowledge, but careful analytics and research can make any agent knowledgeable.
An agent should be able to represent you adequately, pay attention to detail, follow up, understand the process and market trends, contract documents, and have the requisite communication and negotiation skills to get you the house and then get it to closing. It should be worry free and seamless, because after all, an agent must ultimately protect your interests. So, look for trust, convenience and expertise.
When someone is ready to make an offer, what are some things they can do to make their offer more attractive? What is a good earnest money deposit and down payment?
I think a personal letter to the seller is very effective—sellers want to know that you love the house as much as they do. Here are some things that will make your offer stand out: make it the strongest offer you can; have a shortened home inspection and/or financing contingency—also choose the least complicated inspection choice; consider removing the appraisal contingency, include a thoughtfully prepared escalation clausse.
What can first time homebuyers expect during closing day?
You should expect to close on time. If you have a good agent, you will sail through to closing. But issues do arise and here are a few of them: lender is not ready to close, lender reduces closing cost credit, incomplete home inspection repairs and last minute walk through issues; seller did not have a licensed contractor make agreed upon repairs, your EMD check does not clear in time for settlement, storm and related weather/force majeure issues, sellers removing fixtures from the property before settlement, and mechanical systems (HVAC) failing immediately after settlement.
Could you please explain a buyer agency agreement?
I have found that many prospective home buyers are hesitant or reluctant to sign a Buyer Agency Agreement. Let me take the mystery and fear out of signing a buyer agency agreement with a real estate professional by explaining several nuances.
An agency agreement is a binding document that states that the real estate professional will represent you in a real estate transaction and owes you the duties of reasonable care which include: loyalty, disclosure, confidentiality, diligence and accounting. An agent representing you will represent your best interests exclusively.
If you do not sign an agency agreement, that real estate professional, by law, represents you as a “customer” vis a vis a “client.” A customer is entitled to honest treatment and disclosure of material adverse facts known by the agent.
The agency agreement merely spells out the responsibilities of the agent and that of the client. If you do not know the agent showing you properties, or you are not sure whether it is a “good fit” yet, you can specify that the agreement is good for one day or one property. You can also mutually agree to terminate the agreement after 1 day or 30 days.
Many jurisdictions require agency agreements by operation of law; and it really is to your benefit to sign one when touring properties. In many areas, if you do not sign an agreement to see a particular property, the agent “stands in the shoes” of the seller. This means that the agent technically “represents” the Seller as there is no written agreement. You will not benefit from the agent’s knowledge or expertise.
So the next time you wish to see a property and the agent showing you the property asks you to sign an agreement or disclosures, do so-–don’t hesitate because he or she is only trying to help you.
And who begins work without a written document enumerating the responsibilities of the parties? This is what professionals do. And make sure you are dealing with a real estate professional when buying or selling your home—that’s why they are licensed by the regulating state. You wouldn’t have eye surgery with someone who is not a licensed professional would you?