First Time Homebuyer Guide
So you’re ready to buy your first home, huh? We think that’s great! Buying your first home is a big step in life and we want to be there to help you through the process. What’s a home inspection? Do I need one? What happens when I write an offer? How much house can I afford? These are all questions that are running through your mind right now and we’d like to help. In our First-Time Homebuyer Guide, we’ll break down everything you need to know about buying a home and what you can expect. And, if you have more questions – we’re always here.
Visualizing Owning Your Home
When working with buyers, we often find that many of them consider buying a home based on their wallets versus their lives. Sure, there are some clear financial benefits to owning a home; however, buying a home is a long-term commitment of, normally a minimum of three to five years. Now think about that for a moment. Life can change a lot in three to five years. Will your home fit your life now or will it continue to fit your life as it changes in the future? No, you can predict the future, but you can make an educated calculation of where your life might be. Considering taking a job elsewhere next year? Probably not time to buy a home. Landed a job you love? We should chat.
Understanding where your life is going to be includes your finances too. Are you moving on up at work? Maybe you can take a payment that will only be a short-term burden but a long-term payoff. Are you changing jobs? Probably not the best time to buy a place. You see? There is a lot to consider!
Finding a Hood
Sure, a lot of agents recommend waiting until you’ve spoken with a lender to start looking. There is some validity to that school of thought, but we say have at it! Search our site to familiarize yourself and gain some comfort with the idea of owning a home. Start to understand your possible commute. And most importantly, find your neighborhood! The old real estate adage is “location, location, location!” And you know what, it’s right! One thing that you can never renovate about your home is where it is, so be sure to take the time to find a neighborhood you love.
You don’t have to start by knowing the neighborhood inside and out. It is our job to help you with that. What we recommend you try and do is explore various neighborhoods and identify qualities of neighborhoods you love. Even go as far to start collecting some listings of properties you like. This helps us visualize what you tell us and deliver more of what you want and less of what you don’t. Just understand that unless you are pre-approved, it is likely that the house you saw online may not be available when you are ready to make an offer. This is why it sometimes makes sense to get your financial ducks in a row…so to speak.
Time Is Money
Speaking of those financial ducks…this is a critical piece to the homebuying puzzle. Speaking with a lender is no different than a conversation with a friend. A lender’s job is to help you evaluate your financial picture to help you understand where you are today and if necessary, help you plan for tomorrow. They will ask for personal information such as income statements, debt obligations, etc. so don’t be alarmed. This is just to give you an accurate estimate of what you can afford and hopefully, a pre-approval letter.
Now, what is a pre-approval letter? A pre-approval letter is essentially a statement of good faith that a lender will approve you for a certain loan amount based on most of your financial picture. In our market, it is expected to have a pre-approval letter accompanying an offer to purchase. This is why we suggest having this conversation before you find the house you love.
Talking to a lender early in your process can save you a lot of time, money, and hassle later on. It will always put you in the best position to act on a house that you love because you are pre-approved for a purchase price giving the sellers confidence in your ability to get to the closing table.
Get House Hunting!
Now comes that time you’ve been waiting for – beginning your house hunt! You’re now in the position where if you happen to come across the home you’ve been dreaming about, you’re ready to buy. You know what areas you think you’d like to focus in, you know how much you can afford and have a lender backing you (with a pre-approval letter in-hand), and you’re ready to go.
This stage of the process is about thinking about what you want in a home beyond bedrooms, bathrooms, and style. You know what type of home will fit your budget, now let’s find you a home that will fit your life.
Some questions that we suggest considering:
- What type of neighborhood would I want to live in? (Older neighborhood with historic homes? New construction subdivision? Condo building?)
- What do you want happening outside your home? (Are you happy on a quiet side street? How do you feel about a commute? Do you want to live in the heart of downtown?)
- What might matter in the next few years? (Will school districts matter to you? Do you need space to grow? Are you getting a furry friend?)
- What is a want vs. a need? (Sure, you’d like a granite countertop or a fenced yard, but do you need to have one to buy the house? We suggest taking a look at the cost of doing some small work yourself to price out if it is worth purchasing a turn-key home or if you might actually save money in the purchase price if you took on some smaller projects.)
- What are your deal breakers? (We’ve all got them. We might as well acknowledge them now. What you don’t want is just as telling as what you do want. Make sure you keep a running list of things that might be a deal breaker for you and share them with your agent. It will help the process tremendously.)
During the process, some of your criteria will likely change. That’s okay. Having trouble verbalizing some of the features that you might like? Try sending your agent listings (even that aren’t in your criteria or city) that fit what you’re talking about. Remember, you’re painting a picture of your dream home for us to help you search for. The better we understand your likes and needs – the better we can search.
Your agent will likely be sending you ongoing lists of the new properties to hit the market that meet your criteria. Comb through them and keep your communication with your agent open. Once you have found some houses that you are interested in, let your agent know that you’d like to schedule showings. We suggest that you narrow your list of properties to roughly 5-10 prior to scheduling showings. On any given outing (unless time doesn’t permit) keep your number of showings to 5 or under. Seeing more than 5 properties in one trip can muddy your memory of individual properties and make it hard to compare. Well, you’re ready to get house hunting. Here are a few of our favorite tips for touring homes!
*Tour Like A Pro Tips*
- Share a time when you know that you can give the process your full attention to go see property.
- See more than one home! In our experience, it is very difficult to make a decision when you’ve only seen one home. Even if you have a gut feeling that you’ve found “the one,” choose one other for comparison.
- Take notes! Some buyers find it helpful to bring their list of wants vs. needs with them and use it as a “gut check” for evaluating properties. Or, feel free to download the Tour Like A Pro Checklist provided by our friends at Doorsteps.
- Bring your decision makers. Does your spouse need to see the house? Wait to see property until you both are available.
- Don’t waste your time. Walk through the front door and know this house just isn’t the one? That’s okay. Let your agent know and move on to the next. No need to waste anyone’s time!
- Bring water! Your agent may have some as well, but we suggest staying hydrated! Touring homes can be an all-day affair. Come prepared.
- Ignore decor. Remember, when purchasing a home – you’re buying the walls and floors. Not the furniture. Although sellers normally try and stage their homes to be as neutral as possible, sometimes their style will clash with yours. Don’t let an ugly couch chase you away from a great house!
Let’s Make A Deal!
Once you have decided on a house, you’re ready to submit an offer. You’ll want to make sure that you have considered everything in context, meaning that you have reviewed any disclosure materials, you understand what will convey, and you have arrived at your “best and final” number. Although purchasing a home is a negotiation, you will want to lead with your best foot forward.
Your agent will have spoken to the listing agent to try and get insight as for what matters most to the seller. While price almost always matters, it is almost never the only consideration. There are many other factors that come into play including timeline, terms, etc. Still, ensure that whatever your offer is submitted with – you are okay with. At this stage, you’ll also want to share with your agent what your highest and best number would be. This is the number that you would pay to not lose the house should there be competition. This is not necessarily the price you will initially submit in your offer, but it does help your agent negotiate on your behalf when they have a strong understanding of your “buying power” and the terms you value.
Some things your agent will need to know to write up your offer:
- Purchase price. This will be the price you will purchase the home for due and payable at closing. While you personally will likely not pay the full amount at closing (unless you are purchasing all-cash), this will be the amount your lender puts up. It will also include your down payment, your earnest money, and anything else you submit noted in the contract.
- Your closing costs. Closing costs vary by price point. They are impacted by things such as taxes, lender fees, etc. Your agent will provide you with an estimate of the closing costs prior to submitting your offer that can prepare you to bring that amount to closing. Unless otherwise stated in the loan terms, closing costs are paid in addition to the purchase price of the home and not rolled into loan amounts. Closing costs also can be credited, either in part or in full, to the buyer by the seller. This would be noted in the contract at the time the offer is submitted.
- Your due diligence amount. Your due diligence fee is essentially a fee written to the seller to take the property off the market. This fee is non-refundable and is due and payable at the time of offer submission. The due diligence fee is normally tied to the due diligence time period, which is a length of time where the buyer is able to terminate the contract at no penalty (except for forfeiting their due diligence fee). Due diligence fees vary widely, but are normally around $250.
- Your earnest money amount. Earnest money is different than due diligence. Earnest money is normally a larger amount of money and is held by either the closing attorney or one of the brokerages. Earnest money is designed to show the seller your serious in your intentions of purchasing their home. This money is fully refundable up until the end of the due diligence period, at which point it becomes the property of the seller as “damages” should you terminate the contract outside the terms agreed upon. The earnest money applies toward the purchase price at the closing table.
- Your date of closing. When do you want to call the property home? This is where your agent’s conversations with the listing agent come into play. Does the seller have a new home they are purchasing? By helping to meet their timeline, your agent can often negotiate a better deal. Average times from offer to closing are 30-45 days. You will want to ensure that you also check with your lender to ensure that they can meet the timeline agreed upon between you and the seller.
- What will convey? Make sure that you have a firm understanding of what will and will not convey with the home. If you want to add things to that list, they must be stated in the contract.
- Condition of the home. Although home inspections will, in most cases, not have occurred prior to offer submission, we suggest that you evaluate potential repairs that the home inspector may recommend. Repair agreements will be negotiated during the due diligence period and potentially impact your contract, but it is a good idea to understand what you might want prior to that point.
You’re Under Contract, Now What?
Well, a lot happens after you go under contract. The contract period begins with due diligence, which is when you will have all of your inspections, appraisals, etc. completed. Due diligence is the time for you, as the buyer, to complete any in-depth examination of the property to ensure that you want to go through with the purchase. Once the due diligence period is over, you will be locked in to your contract and termination will likely result in forfeiting your earnest money deposit. North Carolina is unique from many other states that have individual contingencies for each stage such as the inspection, appraisal, financing; however, this is all lumped into the due diligence period in North Carolina. Your agent can advise you as for what a reasonable
Some of the things that normally occur during due diligence are:
- Home Inspections. A home inspection is one of the best things you can do as a homebuyer. While the price of a home inspection varies based on things such as the size or type of the property, we suggest budgeting $350-400 for a home inspection. If you need a referral for a home inspector, your agent can provide you with some trusted names. A home inspection will be a visual inspection of the property designed to discover and diagnose potential problems with a property. A home inspector often (but not always) has a background in construction or engineering, so they are knowledgable about things such as structure, systems, materials, and conditions of homes. You will receive a detailed home inspection report that will serve as the basis for your Repair Agreement that you may submit to the sellers asking for repairs to be made. Although this is your purchase, our experience has been that the repair agreement should focus on more serious, costly repairs and/or safety hazards, rather than smaller aesthetic items. In lieu of repairs being made by the seller, you also can ask for a seller subsidy. Many buyers choose this route because it offers a monetary amount credited to the buyer at closing (toward their closing costs) rather than the actual repairs. The advantage of this is that it gives the buyer the ability to choose the timeline and the service provider that will conduct the repairs vs. no control over the seller’s course of actions beyond the repair actually being completed. Some caution should be given to this course of action though. Lenders will restrict the amount that can be credited to the buyers at closing. We suggest checking with your lender prior to submitting anything to the sellers regarding a seller subsidy to ensure your loan terms will allow for it to occur.
- Appraisal. If you are getting a loan, you will most certainly have an appraisal done on the property. The appraisal cost again varies, but will be rolled into part of your closing costs. An appraisal is the bank’s way of ensuring the value of the home is at or above the amount of the loan. Although your agent can follow up with the appraiser and the lender to ensure the appraisal has been ordered and comes in at value, the lender and the appraiser are kept “at an arm’s length,” to ensure an objective valuation occurs. If the appraisal comes in below your purchase price, you have a few options:
- Negotiate a lower price. At this stage of the transaction, a seller very well may accept the appraised value of the home rather than lose the sale. From their perspective, if they lose this sale, they risk another low appraisal if they go under contract with someone else. Some may not want to risk it. Others will.
- Pay the difference. Your bank will not finance loans above an appraised value because it creates too much financial risk for them. That said, you can lower the amount of the loan by paying the difference in cash. We understand that this isn’t an option for all homebuyers; however, it may be for some.
- Terminate the contract. You are within your contractual rights to terminate the contract during your due diligence period. Keep in mind, this is why it is incredibly important that the appraisal is completed prior to the end of due diligence.
- Second appraisal. In some cases, banks will accept a second appraisal. Prior to ordering a second appraisal, you may want to check with your lender to ensure you aren’t having another appraisal done in vain. Also, keep in mind that you will incur an additional expense by having a second appraisal completed. In some cases, you can even negotiate for the sellers to pay for an additional appraisal. Second appraisals can also often occur in addition to one of the other options. For example, sometimes a buyer will negotiate to have a second appraisal happen and if the value still isn’t there, they will pay the difference.
- Document Review. Is your new home in a subdivision with a home owner’s association? A condo building? Well, this is the time to read those documents. Your agent will help you secure a copy of the documents prior to the end of due diligence. Remember, you’ll be living by what they state in terms of restrictions, so make sure you read them thoroughly and understand them.
- Title Search & Title Insurance. Upon ratifying a contract, your escrow agent or attorney will begin a process of the title search. During the title search, they are looking to uncover three main things:
- Can anyone else legally claim ownership to the home? Only the true legal owners can sell the property. Sometimes a title search can uncover additional owners. Normally this is just an administrative hiccup, but just keep in mind that it is something you should be aware of.
- Liens on the property. Property liens are essential debts owed to service providers that have now been filed against the home. These liens could reference either the previous or current owner. Liens uncovered should be paid by the seller at closing.
- Identify easements. Easements are legal access/use of the property by someone other than the owner. Documentation of the easement will show both the location of the easement as well as the purpose/legal use of the property. These are important for a new homeowner to know about.
- Obtain Insurance. Many homeowners forget that this is when they should be working toward securing their homeowners insurance. You may want to check if you qualify for discounts based features in your new home. Remember to confirm with your lender that you are getting the appropriate coverage for your loan terms.
- Loan Approval. Perhaps one of the most important parts of due diligence is getting the loan approved. Many factors have a role in getting a loan approval, such as the appraisal, so this will likely be one of the last things to occur prior to the end of due diligence. Again, this why we recommend confirming with your lender prior to offer submission that your due diligence dates are a timeframe that they can work with. Failure to do so may leave you in a complicated situation!
- Anything and everything! The unique dynamic with due diligence is that it isn’t a one size fits all contract period. Depending on the terms of your agreement, the nature of the property, and the concerns that you have – the activities within the due diligence period may vary considerably. We suggest having a conversation with your agent at the beginning of due diligence to get your ducks in a row and ensure that everything is completed in a timely fashion, leaving you the room to negotiate any changes to the contract as a result.
Becoming a Homeowner
We strongly believe that buying a home is never just a transaction. Sure, money exchanges hands, but buying a home is about so much more than money or keys. Buying a home is about a transition to the next stage of your life. We want to help you savor those moments.
You will legally become a homeowner once your deed is recorded. Unlike many other states where keys exchange hands at the closing table, North Carolina homebuyers will not receive keys to the home until the property deed is recorded at the local county office. Because of this, we never suggest late afternoon or close to holiday closings, unless absolutely necessary. Still, even when necessary, you need to prepare yourself to wait until the deed is recorded, so keep this in mind when scheduling your movers and service providers that may be wanting access to the home.
At the closing table, most of the work will be done (except of course the signing!). We suggest that you bring your personal checkbook to cover any expenses that may have accidentally been omitted from the closing statement. While these are never expected, clerical errors do happen from time to time. It is best to come prepare. You will also need a government-issued photo ID for the closing attorney to make a photocopy of.
Once the deed is recorded and you receive your keys, the home buying process is technically over; however, you should continue to utilize your agent as a resource for any questions that you may have. Our agents expertise and training makes them a valuable resource before, during, and after the transaction. We are here to help – wherever you are in the process.
*This First-Time Homebuyer Guide was created in partnership with Doorsteps.