Tips for Buying your First Home
Buying your first home is one of the most daunting tasks you'll face in your adult life. Some people may never even attempt it because the responsibility (both emotionally and financially) can be completely overwhelming. I definitely experienced that first hand. But I can also tell you, just a few days into owning a home, it's so rewarding. I learned so much in diving into this process that I thought I'd bestow some of my new found knowledge on to you.
Make a list. My very first task was prioritizing what I wanted from buying a home. I made a list of what was non-negotiable and what was "nice to have." Here's what that list looked like for me: I had to have a short commute, a yard for my dogs and the payments had to be at or lower than what I was paying for my downtown apartment. Everything else was negotiable. That first non-negotiable was definitely the most difficult, but I knew that going in. Finding an affordable house close to downtown was going to end up meaning sacrifices in several other areas, but I came to terms with that early on. The key to this making this list is being realistic.
One thing I did learn early on was how shows like Fixer Upper and Property Brothers can give an unrealistic idea of what you may be capable of getting if you choose a non-move in ready home. I figured because proximity to downtown was a priority, I could get exactly what I wanted by finding a house needing some work. What those shows don't tell you is that Chip and Joanna or Drew and Jonathan are the ones who purchase the home and front the cash for all those beautiful updates then they sell the home to the buyer for the price agreed upon after the work is completed. When a buyer on those shows get pre-approved for a specific amount, that does not mean the lender will give it to them. (This will be important later on.) I realized the fixer upper dreams I had were not going to be a reality as I didn't have a cash cow ready to pour in the necessary funds even though I was willing to do the work myself. If you do have a lot of money saved up, or are going with a conventional loan, please feel free to put shiplap all over the place and make your own Magnolia farmhouse. :) I just so happened to be working with minimal down-payment money and an FHA loan in my future.
Get a loan. This takes me to an important first step... deciding on how are you going pay for your home. There are plenty of sites who will compare FHA, VA and conventional loans for you, so I would advise starting there. Talking with a mortgage broker is going to be your best bet. I can only tell you what worked for me and that was as low of a down payment as I could get at 5%, (which incurs a monthly PMI insurance fee). Private Mortgage Insurance is required if you're putting less than 20% down on the home. Just be sure to factor this in to your monthly payments if you're going this route. (Good news is you can ask your lender to drop this once you've paid down the balance to 80% of your home's original appraised value... yay lower payments!!)
Research. Zillow and Trulia became my best friends. I started setting my parameters and clicking through endless pictures of homes and scrolling along maps to figure out what price ranges were average in various neighborhoods. This was important to set some expectations early on. I made a list of houses in my price range and set out driving to the addresses myself just to see them in person, and at varying times of day. (Of course this really only works if you're buying a home close to where you already live.) Those sites are great to see the house, but tells you little about your surroundings. Do the neighbors have a yappy dog? What are the conditions of the neighboring houses? Google street view only tells you so much; and be aware of how outdated they can be. Once I got a better idea of commute times and how the neighborhoods really looked, I made a short list and reached out to a lender to get pre-approved. You may want to start by getting pre-qualified or pre-approved first, then searching. It's really up to you!
Find an agent. That brings me to a very important step in the process- your real estate agent. As a first time home buyer, this is going to be essential to everything that comes next. My agent came to me through a suggestion from my lender. I met with him and told him what I was looking for, and we were off to the races. Your situation may vary, but you could end up having a long relationship with your agent, so make sure they are a good fit. They will be your guide through the insanity that is home-buying. My agent, Rob Muzyka, also became my counselor/therapist through the twists and turns that was my experience. He set up showings in the neighborhoods and helped me narrow things down quickly.
I knew early on in my research before finding my agent that I had my heart set on a particular home in a neighborhood very close to my apartment. It's close to my friends, my dogs' vet, my grocery store and, most importantly, work. My hesitance came from the neighborhood, which I knew going in would be a sacrifice I had to make. I did some research on crime rates and gentrification in the area and thought there was potential for upside along the way. I was set on this house and decided to make an offer after seeing about 20 other homes across a few other neighborhoods that simply didn't measure up.
Negotiate. I put in an offer under asking price and what I thought was fair for the home. In my case, this was an investor who had flipped this house and was looking to turn a profit. I was luckily buying at a slow time of year and in a neighborhood not in-demand (yet). My offer was accepted and we were moving on to the next step. (More negotiating to come!) For many people buying in more popular neighborhoods, going above asking price is common. Just remember to have that cash on hand, because your lender won't cover anything over the appraised value of the home. (More on that momentarily.)
Get a home inspection. You need to be aware of what you're getting into when owning a home. No one wants a money pit! Your big five things to make sure are sufficient are: roof, foundation, HVAC, plumbing and electrical. Your agent should have some connections on home inspector. It's a good idea to be on site for a least a portion of this as they will walk you through their findings. I wanted to be as fair to my seller as I could, but when I heard the some of the electrical was original to the house (built in 1924) I determined that would be the one big ask for my contract. Everything else was fairly minor and I didn't want to jeopardize the deal. Four out of the big five had been updated within the last two years, so I was in good shape if I could get the money for electrical repairs.
Now back to the step above: negotiating. If your inspection comes back with some big ticket items needing work, don't be afraid to ask the seller to cover the costs. That inspection will follow the seller to the next potential buyer and they'll start back at square one and risk not finding a buyer willing to take on the costs of those repairs themselves. I submitted an estimate from an electrician and got a decent offer back from the seller. (Remember I was already under asking price, so the seller was apprehensive to give me too much.) Stick to your guns on any necessary repairs, but don't get too caught up in the smaller stuff.
Appraisal. Once a contract is agreed upon, the lender gets to work. They will get their own appraisal and this is where things could get interesting. It certainly did for me. Two days before closing, we received the appraisal and it was $5,000 less than our contracted price. I thought there was no way the seller was going to go for that. I started thinking I had just lost my house. Rob calmed me down and we were back at the negotiating table. The only thing on the table to give on was the electrical repairs, which were vital to the safety of my house. I wasn't willing to give much, so I gave a little and held my ground. We submitted a final offer at the appraised value in writing, and the seller agreed. Appraisals are opinions, so this is always going to be a bit of gamble. It worked in my favor this time!
Home insurance and warranty. Do your research and look into bundling your home and auto insurance for the best rates. Your home insurance will be paid for by your mortgage lender, so it all gets rolled into one easy monthly payment. I ended up finding my renter's insurance provider was willing to give me the largest discounts and therefore, the best deal. You may get a discount for staying with the same provider. Same sentiment goes for a home warranty. My seller offered me a credit for a home warranty, so I found a provider willing to do the most bang for that buck. Bottom line on this step: research and compare!
Closing. Be prepared to pay your share of closing costs. Work with your lender ahead of time so you don't get surprised by your cash to close total. Your real estate agent will guide you and can even negotiate some of the closing costs into the contract for the seller to pay. My closing took less than an hour and I signed my name countless times. It was fairly painless! Take that picture at closing. It's been a long, stressful ordeal and it's worth commemorating when it's all over! Here's my big milestone moment:
Remember this is all based on my experience in the last six weeks, so my best advice is to seek out professionals to put in your corner to help you get the home you're looking for at a price you can afford. Every home buying experience is different and completely depends on the market you're in at the time. If it's a seller's market, be prepared with some extra cash and patience as you may lose a few homes in the process. If it's a buyer's market, be a strong negotiator and get yourself the best deal you can. Be as patient as you can be either way. That's the tip I could've used when I started all this. It was extremely stressful, especially with the end of my lease looming in the very near future.
I hope this helps if you're considering diving into home ownership. Fun fact: I'm now paying less for my house than I was paying for my apartment! :) It might be worth the investment in the long run...
Coming soon are tips for sprucing up your place on a budget, because even though this house was "move-in ready" there's always work to be done when it's yours! Feel free to reach out and ask me questions if you're toying with the idea. Happy house hunting!