My best friend just bought his first house last week. As I work in the banking industry, I never realized how complex the home buying process really is when it’s your first one. He gave me the idea of creating these quick 18 things you need to know if you want to buy your first home this year. They are not in any particular order; I just wrote them as they came to mind:
#1 Prepare your proof of income and assets
In all cases, you will be required to provide proof of your income and assets. Gather your latest pay stub, year end income summary and investment portfolio statements. You will be ready when it will be the time to meet with your banker / mortgage broker.
#2 It’s easier to shop for your house if you have a preapproved mortgage from your bank
This is very true especially in the case of a first time home buyer. Why? Because both the Real Estate Agent and the seller will know that you are serious, qualified and that you are not just walking around to “see what’s on the market”. Go to your bank and ask for a preapproval. This is a document certifying the amount the bank is willing to lend you in the case of a purchase.
#3 Don’t overestimate your mortgage payment capacity
After getting your preapproval, you may have the feeling that you can buy the house of your dreams. WRONG! Most of the time, the preapproved amount is ridiculously high. It’s not that you can’t afford the mortgage payment, but you will have to make some serious decisions with regards to your budget (forget about nice restaurants, cool activities and new clothes for a while ;-) ).
#4 Your real estate agent can be a great help to find a property
I don’t really like real estate agents to be honest. However, I really like them when it’s time to buy a property. You can give him all your criteria and he will find properties within your budget, neighborhood and including your desires as well. They can book appointments and visit the house with you. They are very useful to buy properties.
#5 Your real estate agent will always tell you that there is an offer coming through
The real estate business is rough and agents are only paid when they sell a property. Therefore, they could be tempted to rush first time home buyers to make an offer as soon as they realize that you like a property. My advice; take an extra 24 hours to think about it. Once you are in the process of making an offer, it’s hard to back off.
#6 Your real estate agent may seem disappointed by your first offer
Then again, the higher the first offer is, the better are the chances to close a quick deal. Real Estate Agents are known to put their own property for sale for a longer time and selling them for a higher price. This is a great stat showing you that they will try to facilitate the negotiation toward the fastest closing time.
#7 Don’t be shy to start low and negotiate your price
Even though the Real Estate Agent will be disappointed, starting with a lower offer will give you more negotiation room in the process. If you negotiate properly, this could save you an extra $5,000 or more. This is more than enough to cover other purchase fees (transaction fees, moving, new furniture, etc.)
#8 Don’t be shy to make a 3rd offer
You make an offer, the seller comes back with another one and you close the deal. Really? Why don’t you try to grab an extra 3 to 5K? It often works since the seller certainly doesn’t want to go through this process again (visits, offers, counter offers, etc) for a few thousand. The negotiation game is an interesting one. Be patient and rational. Even though it’s your first home, it is also your first occasion to make a good deal!
#9 If you are buying with an agent, you can’t contact the vendors directly
The real estate agent represents the vendor. Therefore, all communications must go through him. It is sometimes a pain but this is the way it works. Sometimes, having a middle man is a good thing, especially during negotiation time ;-). If you wish to discuss a specific detail, you can always ask the agent for permission to contact the vendor.
#10 An appraisal doesn’t count as an inspection
There is a clear difference to make here: an appraisal will be done by an appraiser which is specialized in determining the value of houses compared to the market. The inspection is made by an inspector which is specialized in house structure and buildings. Therefore, he will not give you a value of your house but will rather tell you what is in good shape and what requires minor (or major) renovations to keep it up-to-date.
#11 You will need an official letter of approval once your offer to purchase is accepted by the vendors
Your preapproval from the bank is not enough. Once your offer is accepted, you need to go back to your banker with the offer and the house listing. Then, you can negotiate your lending conditions (term and rates). Once your mortgage is officially approved, the bank will send a confirmation letter to the real estate agent.
#12 Shop your rate with a mortgage broker first
If you want to make sure that you have a good rate, go see a mortgage broker first and he will give you the best rate around. Warning; some mortgage brokers are aware of this shopping method and will charge a file opening fee before starting working with you. Sometimes, it’s a $250-$500 well invested. And it doesn’t mean that you won’t do business with him ;-).
#13 You can ask your bank to pay for the appraisal fee
Once you are done negotiating with the vendor, you can start negotiating with your bank ;-). Ask for a special rebate or to have the appraisal fees paid since you are a first time home buyer. It usually works like this with bankers ;-). On top of that, they probably gave you an “okay rate” since it’s your first house and you are not used to negotiate. They certainly have more room to pay other fees.
#14 You can ask your bank to pay for lawyer fees
You don’t have enough with the appraisal fees paid? You can always push your luck to have your lawyer fees paid too. Worst case scenario, the banker will say no. But he will never cancel the deal based on your request ;-).
#15 You don’t have to get your mortgage where you had your preapproval
I know, this is not really fair with the original banker that dealt with you. However, if you are feeling ripped off by the high rate (remember, first time home buyers tend to get so excited about getting their first house that they completely forget about the rest), you can still shop around for a mortgage once your original mortgage is approved. Just make sure you are in line with your timing according to the offer to purchase (avoid last minute mortgage shopping!).
#16 Life insurance is recommended but not mandatory
Some advisors will tell you that the life insurance is mandatory to any mortgage. This is because they sometimes make even more with the insurance than with the mortgage itself ;-). Don’t get me wrong, insuring the biggest debt you will have (especially in the case of a first time home buyer) is very important. However, you should have the right to shop for the best product available.
#17 Creditor insurance vs Life insurance
An important point, as I mentioned before, for first time home buyer is insurance. You don’t have to take creditor insurance as you can also look for a term life insurance that matches your mortgage amount and term. This is usually cheaper. A good insurance shopping session with an insurance broker is suggested.
#18 Normal Steps in the buying process for the first time home buyer
– Get your budget in order
– Get your paper in order
– Go see your bank for a preapproval
– Go see a real estate agent to shop
– Visit at least 5 properties
– Make an offer (negotiation process)
– Get back to your bank for the official letter of approval
– Negotiate rate with your banker and a mortgage broker
– At the same time, you need to get an inspection done on the house you are buying
– Start looking for a lawyer to close the transaction
– Shop around for insurance
– Sign your documents at the lawyer and receive your keys!
– Move and enjoy ;-D
So that’s it for me, do you have any other great tricks people should know about being a first time home buyer?