FAQs for First Time Buyers
As a first-time homebuyer, the task ahead may seem daunting, but being armed with information is the best defense. Millions of people own properties: your turn! Set yourself up for success by reviewing these frequently asked questions.
What is the First Step To Buying a Home?
The first step to buying a home is finding a knowledgeable, local real estate agent. Then, comes the time to get pre-approved for a mortgage loan by a local lender. Getting pre-approved by a local lender gives you legitimacy so you can go on property tours and request open houses.
Once approved, your lender will send you an approval letter via email that you can submit when you make an offer on your dream home. This is essentially a letter that states how much you are qualified to borrow. All other activities are limited if you don’t have this letter.
To get started, call up local lenders and find out what their specialties are and what works with your particular situation. Do they offer rate-locked options? What are their estimates? Will they have your best interests at heart? Some lenders even offer special programs for first-time buyers.
Check out this blog post detailing how you can find and navigate the lender relationship.
What's Next?
Once you are pre-approved for a loan, you have a budget in mind to start house-hunting. Start your research by identifying what you want out of the property. Do you value the school system, safe neighborhoods, or a titillating nightlife? Your real estate agent can help you pinpoint neighborhoods that cater to your wishlist and budget.
Next, you find an ideal home and make an offer. I have a more detailed blog post about what to do after your offer is accepted, but, briefly, you need to:
Schedule a home inspection
Get a quote on title insurance to protect you from errors and omissions
Review and sign all the paperwork on closing day
How Much Is The Buyer's Agent Fee?
Good news – the payment to the buyer's agent is, in most cases, not your responsibility! The listing brokerage pays the listing broker a commission, and they pay the buyer's agent a portion of their commission in exchange for bringing YOU, the buyer, to the transaction.
Especially if it's your first time buying a home, you should always retain a buyer's agent to help you through the process. They will shed light on facts about the neighborhood, help you find properties that match your budgetary needs, negotiate the offer, navigate the home inspection process and negotiate repairs with the seller, and help decipher the difficult legal jargon in the paperwork.
Is the Down Payment Part of Closing Costs?
The short answer is no. The down payment is what you initially pay toward the property.
Closing costs include taxes, HOA fees, condo fees, title, title work, deed preparation, financing costs such as lending, lending fees. These typically make up 2-4% of the purchase price.
Your lender is the best resource for an estimated closing cost disclosure. Have this conversation – surprises in real estate are rarely a good thing!
Where Does the Earnest Money Go?
Earnest money is a check made out to the title company in the amount of 0.5-3% of the sales price. Submitting earnest money shows that you have some “skin in the game.” This money eventually goes toward your closing costs.
How Do I Buy A Home During the Coronavirus Pandemic?
Mortgage rates are at an all-time low due to the COVID-19 pandemic. In most markets, there is a massive demand for real estate and a low supply. This makes it more difficult to find the property of your dreams. Furthermore, most properties are selling well above the listing price because they're getting so many offers. If you find a property you love, make sure to make an offer promptly.
The process, however, is still very similar to how it used to be. Start by getting pre-approved for a mortgage with a qualified lender and find a reliable agent that understands your needs. You can do most of this online. Virtual home viewings have increased dramatically due to the pandemic.
What Are Prepaid Costs When Buying A Home?
Prepaid costs, or “prepaids,'' are the costs associated with purchasing the home and not the transaction. Whether or not you have a loan or not, you will have prepaid costs. Some expected prepaid costs include:
Homeowners insurance
Prepaid interests
Upcoming tax bills (seller provides proration credit)
HOA dues (might need to prepay to fill out documents)
Recording fees (local government files the deed and records online)
Transfer taxes (usually the seller but keep it on your radar)
Escrow (taxes and insurance placed in an escrow account to provide a cushion to keep your taxes and insurance current)
How Does Buying A Foreclosed Home Work?
Foreclosures are a great way to get the best deals on properties. Foreclosure is when the lienholder takes possession of the property, usually because the homeowner defaulted on payments or taxes.
Once you find a foreclosure property that you want to buy, it is time to meet with your agent and make an offer. You need to hire an inspector to ensure the property is in decent condition because foreclosure properties are sold as-is. The lender The closing process is usually handled by the title company.
What is Title Insurance When Buying A Home?
Title insurance protects you and the lender from incurring a financial loss from past events such as liens, encumbrances, or defects in the title. If you close on a property with a faulty title, you will bear the financial burden even if the previous owner is responsible. One out of three properties typically has an issue with the title.
Most lenders require you to get a lender's title insurance policy. If you are smart, you will also get a buyer's title insurance policy.
Get Started With an Agent
As you can see, having a reliable real estate agent is imperative to every step of the homebuying process. They help assuage all fears and make the process go very smoothly. If you have any other questions about buying a home or need a buyer's agent, don’t hesitate to send me a message.
