Buying A Home For The First Time? What You Can Expect From A Professional Realtor
Updated: May 11
Buying a home for the first time is so much fun! There’s so much anticipation to live somewhere new and have a place that’s yours. You should be stinking excited!
The problem is, new homebuyers don’t realize that there’s a lot beyond the dreaming part. There is the day of closing, there’s a lot to do with your finances, and even more to do with getting approved for a mortgage.
Is buying a house hard? Sure! Is it worth it? For sure! If you’re a new homebuyer and you want to look into the process of buying a home, not necessarily every little detail, but rather what it may look like for you as a first time homebuyer, than this guide is for you. Here is what you can look forward to when buying a new home.
Have a Vision of Your Future Home
Before you get started house hunting, it’s wise to know what kind of home you’re looking for. Are you looking for a home with a lot of land, or a small yard? Do you want a one-story home or two story? Swimming pool or no pool?
These are things that you may want in a home. Many times, you may not be able to find the exact dream home that fits your standard, but that doesn’t mean those other things can’t be added later on.
I suggest jotting down a list of things you have to have, and things that are optional or that could come later.
What Type of Home?
Oh yeah, there’s more than just regular single-family homes. On your list of must haves and optional haves, list down what kind of home you may want to have.
Single family homes are those that are homes meant for just a single family. It means that it’s a home that sits on its own land and has one family dwelling within.
Condominiums are similar to apartments. Condominiums are apartments with more control and more responsibility. They can be financed with a lender and you are able to remodel, and style it the way you want to.
Determine what type of home you’re looking for in order for you to find the right home more easily.
How Much House You Can Afford?
Can you afford a big house or a smaller house? During the process of looking for a home, look for homes within your price range. An easy way to find out how much of a payment you can afford each month, take your full income and multiply that by about 30%.
Your house payment or rent payment should be no more than 30% of your total monthly income.
So, if you make about $2,000 a month, then your affordability range would be about $600. This is a great rule to live by. If you don’t have any debt other than your mortgage, then you can maybe bump it up to 35% or 40%, but that’s really pushing it.
Never, make your house payment half of your monthly income. Of course if you make more than $10,000 a month then you really don’t have to really use this rule, just make sure you keep it affordable enough so you can also save money at the same time.
Talk With A Lender
Consult with a lender to find out how much of a mortgage you can get approved for as well. They will tell you how much of a mortgage that you can apply for in the first place.
Find a Realtor
I (Tyler) am a realtor in Oklahoma, and having a realtor help and advise you does make a difference. For one, in order to see most homes, you have to have a realtor be with you to see the house. The only case that you don’t need a realtor is when you look at a “For Sale by Owner” which is just a seller that didn’t list their home with a realtor. They are taking the sale of their home into their own hands, essentially.
Finding a great realtor is another step that is involved when buying a new home. If you’re not the type of person that can negotiate and work with the seller on issues that pop up, then a realtor is the best person to hire.
Research Realtors Near You
Odds are, there are plenty of realtors near you. Research to find the best rated realtor that you can connect with. A great realtor can advise you on what to do with making an offer or how to deal with sellers. They can’t tell you or push you to make an offer or buy a house, but they can help you make a decision.
A simple search online will pull up the best realtors. Read the reviews and schedule a meeting with one. They will want to get to know you so that they can help you in the best ways possible with finding a new home.
Determine the Right Kind of Mortgage
The right kind of mortgage will depend on your finances and credit score. Whether you’re a first-time homebuyer or a seasoned homebuyer, you will need to decide on what kind of mortgage loan you’ll be applying for. Some of them require different down payment amounts and some don’t. Read on to know what the varying types of loans are.
Can You Afford A Down payment?
When you buy a home, depending on what kind of mortgage loan you go with you will probably need to put some money down.
Determine whether you have enough money to put money down or not. If you can put a certain sum down, then this will help influence which mortgage to go with. Your credit score will also influence which type you ultimately go with.
A conventional loan is one of the most widely used loans people go for. Within this loan, it includes:
Typically, a 620 credit score or higher
As low as 3% down payment
PMI (private mortgage insurance) if down payment is less than 20%
No PMI if down payment is 20% or more
PMI goes away once the Loan-to-Value ratio is 80%
FHA stands for “Federal Housing Administration”. This means this type of mortgage loan is insured by the FHA. They are more for individuals with lower credit scores. The characteristics of FHA loans are:
Typically, 580 credit score or higher
Down payment of 3.5%
MIP (Mortgage Insurance Premium) regardless of down payment amount
MIP stays on the loan for 11 years, and involves further work to get it taken off
In order to save the most money, we recommend looking at the conventional loan option versus the FHA, but if you have a lower credit score this can be a great option also. You can find out more about how the MIP rates are determined here.
VA loans are for those that have served in some form of the military. So, if you have served in the military, this type of loan might be for you. VA loans don’t require a down payment but does come with a funding fee. The funding fee changes from year to year but can range from 1.25% to 3.3% of the loan amount.
This loan is great for those that don’t have enough funds to put enough money down on their loan. USDA mortgages are zero down payment loans for rural and suburban homebuyers. Similar to a VA loan, USDA loans do not require a down payment.
If this sounds interesting to you, then consult with your lender to find out if you qualify and how much you can afford. They are meant to help lower income families as well, so definitely ask if there is an income limit with your lender.
There is a maximum amount that you can actually be loaned out for a home on a conventional mortgage loan. The max can vary from state to state and county by county, but in most cases it’s around $548,250.
This means that if your loan exceeds this amount, it’s considered non-conforming, meaning that they exceed Fannie Mae’s loan standards. A jumbo loan is riskier for most lenders, and they usually require applicants to have a credit score of 700 or higher.
Get Approved for the Mortgage or Wait?
The next step when getting ready to buy a home for the first time is to get your credit in order and apply for a mortgage. Here’s why!
When you finally find the right house you’ve been dreaming of, of course you’ll want to make an offer right away. However, if you make an offer without getting pre-approved for a mortgage first, the seller will most likely reject it before looking at it.
Maybe you find the house you want to buy, but you wait to make an offer until you get approved by your lender. What if the house goes under contract before you submit your offer?
While it isn’t required, I always suggest as a realtor that you should try to get a pre-approval from the lender as soon as you can. It will increase the odds of beating others to make an offer, and you don’t want to look at a house before knowing if you can even afford it. Strive to speak with a lender first, and then make an offer once you have the approval from the lender.
Make sure your credit is in order. Do you have a bad credit score? You may want to get your credit score up before applying for a loan. If you have lower than a score of 580, it might be harder to get approved.
That’s why we have written a guide to help you raise your credit score quickly. Check it out here!
Also, check out Experian®. They offer this really cool service where you can boost your credit score instantly. Click the ad below.
Consider Any Current Debt
When you apply for a mortgage, they will take into consideration any current loans and debt you have. If you think this will affect your loan approval amount in a negative way, try paying off your debt first.
Having less debt when getting approved for your mortgage loan will help you get approved for more of a mortgage. This is something every homebuyer should think of during the process.
Looking at a Few Homes
Alright, so you’ve made it this far and you are ready to start looking at homes. This process can take anywhere from 3-6 months and even a year or more.
To make the process of finding your home faster, make sure you have your must haves and optional list. This will help you with finding a home more quickly, instead of mindlessly looking at houses and not really knowing what kind of house you want.
Here are a few tips for looking at houses:
Look at at-least 3 houses. Never go with the first house you look at. You may look at the second house and like it even more. Give yourself options.
Be ready to make an offer.
Ask your realtor to point out anything they think will impact the property negatively. (Not every house is perfect).
Only look at homes in your price range.
Take a day to think about any homes you’re interested in.
Ask your realtor to help decide on an offer amount, and how to make your offer stand out.
Making an Offer
So, by this point you’ve now found the house of your dreams, or maybe that fixer upper, and you’re ready to make an offer. That’s awesome! It should be smooth sailing from here right? Wrong!
When you decide to make an offer, it doesn’t have to the most stressful event in your life. It may not be easy, but as long as you read this whole guide, you’ll be ready to face the known, and the unknown.
Making an offer involves many things, and one of those that is submitted to the seller from the buyer with the offer is earnest money. What is it?
This is a good faith deposit. You can choose how much you want to submit, but it basically shows how trustworthy of a buyer you may be. Once submitted, the money goes into a trust or escrow account held by the broker of the real estate company you’re dealing with.
They hold this money until the day of closing, which will be discussed here in a bit. As long as the buyer and the seller hold up to their contracts and don’t do anything to back out or void the contract, then the money is applied to the buyers closing costs.
However, if the seller backs out after accepting your offer, or does something to breech the contract, then you get the money back in full and you move on. Also, you may lose that money if you as the buyer back out of a deal once it is accepted.
So, you decide how much to risk when making an offer, but the higher the earnest money the better your offer may look to a seller.
The offer contract is the legal form that outlines and the details of an offer that is made. The most common type you will see in a real estate offer is a purchase agreement.
Your realtor will be the one to fill this out, making sure to explain the contract to you, and getting your signature. The purchase agreement includes:
The buyers offer amount
Earnest deposit amount
Estimated closing cost amount
Details of the property and parties involved
Proposed closing date
Any contingencies (Things that would have to happen to make the deal go through, like financing, or the seller fixing something)
A deadline of acceptance
Proposed financing arrangements
Other details that your realtor can explain
Upon receipt of your offer made on a property, the seller can either reject or accept it, or he will counter the offer changing something in the offer the buyer made.
The seller maybe wants a higher offer, or maybe he’ll accept as long as he doesn’t have to pay closing costs. The counteroffer should be explained by your realtor in full before accepting it.
If you don’t like the counteroffer that was made, you can either counter the offer again, or flat out reject it and move on. This is really just the buyer and seller negotiating.
The seller may have rejected your offer for a number of reasons. Don’t panic! Just move on. If you get rejected, ask your realtor if they can reach out to possibly have the seller counter with a new offer.
The seller of a property may reject your offer because he got a better deal and went with it. Don’t worry though. Move on to the next property and be ready to make another offer if you like it.
This is one reason that it can take a while to get the home you want. Expect that you might get rejected from time-to-time. This may mean that you need to be more competitive.
Schedule a Closing Date
In the offer that is presented, it will present a suggested closing date. This will be discussed more in detail in a bit.
This is the day that completes the real estate transaction. Everything comes together and is finalized. The date may be negotiated, as it is typically 30-45 days after the offer is accepted. It is scheduled far out in order to give the parties time to complete the requirements of the contract.
What is an appraisal? This process happens after a deal is made usually as soon as possible but can take anywhere from 1-2 weeks to have it completed. It’s not always required, except when a lender is financing it, and then it’s usually always required.
This involves an appraiser who comes to the property to evaluate the property’s worth, or value. Your lender will only loan out up to whatever the appraisal comes out to be. This can be good and bad.
If a property you make an offer on is overpriced, the lender will not typically loan out any amount over the appraisal amount. So, if you offer $150,000 and it’s only worth $130,000 then you could be required to pay $20,000 down to make the deal successful.
“An appraisal does cost to have done and can cost around $300 or more.”
The fees assessed are applied to the closing costs at the end.
Let’s say you made an offer on a home, and the appraiser comes out and says the value of the home is right about what you offered. This means that your lender may or may not require a down payment to make the entire payment on the home.
A required down payment is dependent on the type of mortgage you apply for. It also depends on what the lender will loan up to. It’s typical that a lender will only loan out up to 85% or more of the appraised value.
So be ready to place a down payment on any home you intend to buy. 20% down is really good if you can, otherwise check with your lender to find out the minimums required for your loan.
Does Not Appraise
As I mentioned before, if the property does not appraise for the whole amount the seller is selling for, then your lender will not likely lend out more than what the appraisal is.
If the property ends up not appraising, then you may be required to pay more down. Typically, you’re going to pay a certain percentage down on the home anyways, so it won’t always be an issue. Always have enough to put a down payment towards a home if necessary.
Ahh, the good old inspection. It can make or break a real estate deal. This is the part of the deal where a home inspector comes and makes sure that the property involved meets livable standards, as well as the lenders standards.
If the home inspector finds any material defects or anything that is required to be fixed, they will inform both parties.
The seller and buyer can negotiate if they wish, or the buyer may back out if the contract allows it. Talk with your realtor or attorney about your options in case you get a bad home inspection.
Are There Fees Involved?
As with an appraisal, a home inspector will charge anywhere from $300 to $500. This fee will be assessed upon closing day.
Required or No?
This depends on whether you’re financing your purchase or not. If so, then you will likely be required to have a home inspection done. This part is usually done after the appraisal is completed.
According to Legal Match,
“a material defect is any fact that may have significant and reasonable impact on the market value of the property. A material defect may also be any condition that poses an unreasonable risk to other people. Additionally, any zoning issues, environmental hazards, and easement violations must be disclosed.”
Any known defects are required to be disclosed.
Any Hidden Defects
If there are hidden issues, the seller does not have to disclose these because he is unaware. However, the seller should make sure that a home inspector is hired in order to find anything that the seller may not know of.
If in the case that a seller intentionally does not disclose certain information that should be, the seller could be held liable. Talk with your agent and/or attorney.
Alrighty, now you’ve made it to closing day! Heck freaking yeah! This is the day that you finally claim ownership of your home. If you’d like to know more about closing day and costs involved, then check out this blog post.
This an important part to always make sure gets done on or before the day of closing. Before going to close on your home, the terms outlined in the purchase contract should all have been honored and completed.
You should always go and make sure the house is still in great condition and that the seller has done what they have agreed to do. A final walkthrough is the buyer and their realtor or agent visiting the house and verifying the contract was honored.
If everything looks good, then you head off to the title company or closing office that will be handling the transfer of title. After this is complete, you are handed the keys to your new home and it is officially your new home.
What Is Closing?
There’s a lot involved with the day of closing. Everything you do from the very beginning of looking for a home or property will lead to closing.
What are closing costs on a house? Essentially, closing is when the buyer and seller sign documents and pay any fees due from them and finalize the transfer of title to the new owner.
If you want to learn more specifically of what’s signed at closing, head here!
Common Fees Involved
Here are the most common fees associated with the day of closing. I suggest have a realtor and/or attorney explain to you what these are if you do not understand. So, what are closing costs on a house? Fees typically include:
Property Related Fees
Title Insurance (Typically optional)
HOA Fees (if applicable)
Mortgage Related Fees
Points (or discount points)
Loan Origination Fee
Mortgage Insurance Payment (MIP or PMI)
Flood Determination Fee
Homeowners Insurance payment
Prepare for Closing Fees before Making an Offer
Try to prepare for the day of closing before making your offer on a property. Understand what fees you need to be ready for and save for.
If you have read what fees are involved and feel it’s too much money, maybe you should wait to make an offer until your finances are in order. If you have enough to pay for the fees related to closing then, with advice from your agent, continue with your real estate transaction.
Your agent may negotiate with the other party to split the closing costs, making it easier for you to afford the day of closing.
“Once you make it to closing, you will need to bring at-least 2 forms of ID. You will also have received a closing disclosure which totals the costs you owe. You need to make sure to have a certified check made out to the place of closing.”
When is Closing?
Closing is the final step in the real estate transaction process. This depends, as the day of closing can vary from 30 days to 45 days or more. This will depend on what you negotiate with the other party and if they agree to the closing date suggested.
Moving in And Beyond!
After you close on your home, and you’ve paid closing costs, you’re basically finished at this point.
After this, you are allowed to move in and make the home your dream home.
Thank you for reading this guide on what takes place during a real estate transaction. As a first-time homebuyer, you should prepare yourself always so you can face everything with confidence.
Remember to consult with your agent or attorney in order to understand any contracts you come in contact with and to see what advice they have to offer during the process.
Feel free to comment and offer any advice or ask any questions. Check out our other blog posts below and learn everything involved in real estate.