First Home Buying

Before a buyer’s agent will take you out to look at properties for sale, you need to furnish what’s called a lender letter. You may be a willing buyer, but the lender letter shows the agent that you’re an able buyer as well – it’s proof that your personal financial information has been reviewed and the lending company has decided that, as long as everything you told them about your financial status is true, you will likely qualify for a loan for X amount of dollars. The letter gives an exact amount, which is the maximum value of the loan they’re offering to give you.

Many people don’t realize that there’s a difference between being pre-qualified and pre-approved. They think, “great, I’m pre-qualified! Now I can go out to find my dream house and buy it right up!” But being pre-qualified only means that you look good at first glance. The lender letter only comes after you’ve been pre-approved; pre-qualification is nothing more than an unofficial verbal confirmation that you have the means to make a mortgage payment.

First Glance or In-Depth Look?

Have you ever gone to a play at the theatre and remarked on how good the lead actor or actress looked from your seat in the 25th row? After the production is over and the cast goes back to stand in the lobby for meet-and-greets, some of these actors and actresses don’t look quite as good, do they? Then again, others may be just as pleasing to the eye up close as they were from afar. The same concept is true when it comes to being pre-qualified; it just means that the lender has a basic overview of your finances and has said “okay, this looks pretty good. Here’s how much you could probably get.”

The pre-approval, on the other hand, is that close-up look. It’s where the lender gets down to crunching some more numbers and gets to the point where they can tell you “hey, here’s an offer in writing.” Once pre-approval has taken place, they’ll send you that all-important lender letter that tells your real estate agent that you are indeed ready for the bigtime.

Getting out there and looking for a home is the first step toward finding out what you have available to you, but if done incorrectly it can be the equivalent of walking barefoot and blindfolded across a room full of mouse traps. That would be fairly unpleasant, unless you were watching, in which case it could be really funny.

Anyway, it’s imperative that you have an idea of how homes are selling in your area – or the area you want to move to – before you go shopping. The last thing you want to do is to start flashing exhorbitant offers or writing up miserly ones. If you don’t have a solid gauge on what the market is doing and how homes are selling in relation to their list price, you’re either going to get ripped off by paying too much, or you’re going to offend someone with a chintzy contract.

You can look on the internet day in and day out, but until you start working with an agent who knows the local market, you may find that you lack the information you need to maintain an accurate picture as the weeks and months go by and the market shifts and changes. In some markets you may find yourself getting caught in bidding wars with other bloodthirsty, ravenous buyers. Not that this describes you, of course. Oh no, not you!

If you’ve ever used eBay, you understand the way people get when they perceive that something they want is also wanted by others: it drives the price of the object in question upwards. So you’ll need to be armed with the tools to know how high to go and when to quit. These tools include common sense, a firm grasp of your finances, and the knowledgeable aid of a qualified real estate agent.

In slower markets you might have the opportunity to receive concessions from the seller. Whenever it’s especially hard to sell a home, or the longer a home has been on the market, you’ve got a better shot at asking for help with closing costs, working out gift funds with the seller, or trying to get money for repairs or updates that need to be done to the property. An agent is like a pair of glasses to replace that blindfold, and your own research is the pair of shoes to put on your bare feet.

Ask questions of your agent, as often as possible. More than likely, she’ll be working with a few clients at a time and will be able to tell you plenty of stories that relate to the consistency and the overall tone of the current market. The agent I worked with when I bought my most recent house was able to print out market data that spanned the previous six months. The data showed an increasingly positive trend in the number of homes sold with a slight reduction in median sales price and available inventory.

I had written three offers up to this point, providing full list price but asking the seller to pay my closing costs. Each of those three offers was outbid, but once I saw the market data my agent provided and realized that the market was heating up, I made sure to go a little higher than the list price on my following offer and I ended up getting the house!

I’ve said it before and I’ll say it again: do your homework! The web is a great place to start, but you need to talk to not only your agent but also friends or relatives who have recently bought or sold a home. Ask them what the experience was like, how the process went and, if you need some specifics, politely ask for details as long as they don’t mind sharing them. You’ll find that most people are fairly forthcoming with information about their experiences, especially if it’s information about a new home they are proud of or a deal done with a previous home sale in which they believe they negotiated a good transaction.

Looking online is a convenient way to gauge what the market is like, so I’ve provided a list of some of my favorite sites for housing information. Below that is a little piece on what your next step should be once you’ve exhausted your list of online destinations.

Realtor.com
A good place to start. You can find a listing of homes in any town or zip code, along with pictures and descriptions of rooms, features, age, square footage, and a host of other information.

Redfin.com
Map-based site that is MLS-powered to show listing information based on location and address. Search based on price range, zip code, city and state, or any combination of criteria. A great feature of this site is that when you’re looking on a top-town map of a given area, an icon is shown for each listing in that area. Hovering over the icon gives you a pop-up that displays the list price and the number of beds/baths.

Live Maps
This isn’t a real estate website, but it has great overhead and birdseye view maps so that if you find a home listing you can check out the property and the surrounding neighborhood.

The Bad

Most of the negative aspects of owning a home tend to be outweighed by the positives over the long-term, but people with certain lifestyles might be less inclined to purchase a property for some the following reasons:
1. Homes Are Expensive
It’s a simple truth, but it’s worth thinking about. Buying and owning a home can be very costly, but renting can be just as pricey. You might pay less each month in rent than you would on a mortgage, but at least your mortgage is going toward something you know you’ll be thankful for down the road – your equity. Rent, on the other hand, goes to line the pockets of a landlord or investment company. That isn’t to say the property owners won’t put that money to good use, but when it comes to your money, the best way to spend it is lining your own pockets – even if you don’t see the benefits right away.

2. When Something Breaks, I’m The One Who Has To Fix It
If you’re like me, the thought of doing handyman work makes you cringe. I’m terribly clumsy and I have a more artistic mind than a mechanical one, so I’m always paying people to do things for me; professional people who I’m certain can do these things better and faster than I can. With all the things that can go wrong in a house, you can end up spending a lot of time and money trying to get it repaired. When you rent, you don’t have to worry about things like this. You call the landlord and they (hopefully) send someone to do the job.

3. You Have To Pay Taxes On Property
As one of the only two certainties in life, taxes can be a big turnoff for potential homeowners who would rather not fork over thousands of dollars a year in property taxes to the government, when they already feel like they give up so much in income tax. But think about it this way: your landlord pays taxes. So if she needs to set the price of the property you’re renting at a threshold that covers her costs, essentially that means you’re already paying taxes. Except instead of paying your own taxes, you’re paying your landlord’s taxes for them.

4. You Can’t Stay In One Place
A wandering heart can be a legitimate deterrant your first home buying experience. If you aren’t sure you want to stay in the same town or state, or if you’ve lived in lots of different places and are planning to keep up that way of life, you probably aren’t looking for things to tie you down. More often than not, home ownership is only a truly profitable venture down the road, when you’ve had time to build value in your home. You might not know if the town you live in is where you’ll end up, or you might already be planning your next great escape to a new locale. If this is the case, owning a home may not be for you – at least, not yet.

5. The Market Stinks
We’ve had a lot of this kind of situation to worry about over the past few years, and we’ve seen the markets volley from one end of the spectrum to the other. This can be disconcerting, and in fact many people have lost their livelihoods and everything they have when their homes were foreclosed on. We can take a hint from history, but even if it repeats itself you should protect yourself against a bad market by living within your means and maintaining a financial cushion – one or two months’ worth of finances. Still, you may find yourself in the position to buy and the circumstances indicate that it’s simply a bad time to do so. In that case, patience remains a virtue.

The Good

There are a lot of good reasons to own a home, and among the most popular of them are reasons that involve personal freedoms and independence. Take a look:
1. Homes Provide Shelter
Again I’m starting off with the most obvious point on the list here, but a good home really does keep you clean, warm and dry. But you’re also sheltered from the outside world, and everyone, no matter how extroverted, needs their own space sometimes. Owning your first home might be a means to get away from your oppressive landlord, or it could be your big leap out of living with an annoying roommate. Maybe you love your parents, but you find yourself getting old enough to live by your own rules. These examples are some of the big reasons why having your own home means comfort and shelter to so many people.

2. Keeping Up The Place
About a year and a half after I bought my first home, the heat pump stopped working. In order to find out what was wrong I had to call an HVAC specialist to come out and charge me an arm and a leg. He told me it was something that could be repaired, but it was such an extensive fix that I might as well replace the whole system (because it was getting to be that time anyway). Two weeks and several thousand dollars later, I had a newly installed heating and cooling system. My electric bills immediately went down by between 25-30% per month because the newer machine was so much more efficient than the old one was. If I’d kept the older machine and simply had it repaired, it would have been less expensive at the time but could have cost me hundreds or thousands of dollars over the next few years in electric bills anyway.

3. Tax Breaks On Mortgage Interest
As in #3 above, while you do pay property taxes on a home, you also get a pat on the head from Uncle Sam in the form of a tax deduction. Under federal law, you can deduct all the mortgage interest you pay (which is a large chunk of your monthly payment when you first start out) from your tax return each year.

4. Settling Down
Getting married and starting a family have their time and place. The place, before long, becomes somewhere you can be alone with your spouse; somewhere for the little ones to run around and be kids. This is along the same lines as shelter, but it’s unique because in addition to comfort and a roof over their heads, a home promotes togetherness and a sense of community within your family. You always hear people talk about “the house I grew up in.” The value of a home in this case becomes sentimental in nature; it’s the collective memory of every creaking stair, bedtime story and Saturday morning breakfast.

5. Opportunity Knocks
Remember that the way our financial systems function, the economy goes through cycles; it’s the natural progression of things, and in most cases you shouldn’t let it drive you away from achieving your goals without good reason. Often it’s when the market is at its worst that the most lucrative buying opportunities arise from the ashes. If it works out in your favor, more power to you. But don’t be overly focused on trying to ‘time’ the markets. Even if your home loses value, a stock portfolio can never keep the rain off your head and government bonds don’t come with air conditioning.

1. Shop around for lenders who can provide quality loans with good terms. Take every aspect of the lender into consideration. Keep in mind things like the reputation of the lender, interest rates offered, length of the loan, the type of loan you want (fixed or adjustable), whether you’ll have to pay points, and whether pre-payment is an option. Look at loan fees and ask for terms of the loans offered by each lender in writing.

2. Get pre-approved for a loan, not just pre-qualified. Getting to the next step in the first home buying process with a pre-qualification is like bringing a knife to a gun fight. Pre-qualification is at most a verbal agreement that you generally appear to be a good candidate for a loan. Pre-approval requires a much more in-depth review of your finances, and results in a lender letter that shows the amount you can borrow. This letter is just about the only thing that will get the attention of a buyer’s real estate agent when you approach them.

3. Hire a buyer’s agent and put them to work for you. Remember, it’s free! You don’t pay a cent to the buyer’s agent because they are working off commission from the sales prices of the home you buy. So essentially, the person you buy your home from pays both their agent and yours!

4. Make a wishlist of your criteria for a home. Write down everything that comes to mind; your wants, needs, and “nice-to-haves” are all good starting points to work from. Think about the number of rooms you’d like, square footage, whether you want a yard – big, small, or none – and the location, neighborhood, and any nearby amenities or features that would make living there convenient and enjoyable for you.

5. Start searching for homes after you’ve gone over your big list with your agent and find out what kinds of property exists in your price range.

6. Make an offer on the house that’s right for you – something only you can really decide – and make sure that your contract and your offer are sound and that they resonate well in the current market. Your agent can provide recent sales data to help you in this endeavor, and will explain each page of the contract as you go over it together.

7. Negotiate a deal if your original contract is not accepted by the seller outright. Maybe you’ve been outbid by another potential buyer or the seller is not willing to concede to all of your demands. Be assertive, but be wise; you will most likely not be dealing with the seller directly in cases where both you and they have an agent, so make your agent fully aware of where you’re coming from at all times. Know when to stay and when to walk away; it’s okay to fold ‘em if things just aren’t going your way. This is not the only house out there!

8. Coordinate your tasks once you have an accepted offer and a ratified contract. There will be many things to take care of, including the home inspection, taking out a homeowners’ insurance policy, land surveying (if applicable), getting the home appraised, choosing a title company, and going over your costs with your loan officer. Some of these will be taken care of by your agent or your loan officer, and often they will each have resources in the requisite businesses to help you get things moving.

9. Deal with the results of the inspection and the appraisal as necessary. If problems turn up when the inspection takes place, you may be able to re-negotiate some of the contract terms with the seller. Likewise, if the home does not appraise for the full asking price, the seller may be willing to make concessions in order to get the home sold. Be aware that in most cases a lender will only provide as much money as the home is appraised to be worth, so in instances where the sales price is above the appraisal amount you may need to come up with the difference!

10. Know your costs before you get to the closing table. By the time the closing date arrives, you should have received a clear picture from your loan officer of your approximate costs, and a form called a HUD-1 that itemizes them and lists them out exactly so you know how much to bring to the table. Closing will consist of you and the seller each signing several forms; this time, the title attorney will review each form with you. Be ready to sign your name and initial dozens of sheets of paper. Then get the keys and start enjoying your new home!