First Time Home Buyer
16
Step Guide For Buying Your First Home
Any first time home buyer can purchase the
home of her dreams using this easy to follow, step-by-step guide to
buying your first home. The home buying process can be quite
challenging and complex, even for those who have been through it
several times. For the first time home buyer, the
process can seem impossible. This guide breaks down the home buying
process into 16 easy to follow steps, with ample information and
resources provided to make each step easily achievable.
Additionally, each state offers first time home buyer grants and low
interest loans for those within specific income limits. Find your
state for descriptions of those programs and links to the state
agencies. Most of these programs can make the difference between you
being able to afford your first home or not. As a potential first
time home buyer, we recommend you bookmark this page and print a
copy to use as a checklist.
Here are the 16 steps to buying your first home:
1. Establish good credit.
The first step in the home buying process is establishing good
credit. As a first time home buyer, you are likely going to need to
borrow the money to purchase your first home. Banks and mortgage
lenders will not lend to potential borrowers unless the borrower has
a provable history of borrowing money and paying it back in a timely
manner. If you have absolutely no credit references, you will need
to get some. The most basic way to do this is to visit a local bank
and deposit a small amount, let's say $500. You would then apply for
a $500 loan, using the money that you deposited as security for the
loan. This is the simplest, quickest way to establish a good credit
report.
If the loan term is for 6 months, make payments for the first 3
months, then pay the entire loan off. Repeat the process with larger
and larger amounts. This will build up an excellent track record. Do
this repeatedly, and you'll progress to a point where you don't need
to deposit any money as security, your track record will be strong
enough to be able to borrow with just your signature.
Unless you are independently wealthy, or come from a wealthy family,
the process of becoming a first time home buyer starts with
establishing a good credit history. At the same time that you are
building your credit with bank loans as just described, you should
also be using credit cards responsibly as well. In the beginning,
you'll likely have to start with a pre paid credit card or a secured
credit card. It is important to use the credit card, but it is also
just as important to keep the outstanding balances at zero or at a
minimum very low. You'll learn why in the next step.
2. Raise your credit score.
A high credit score is one of the most important elements to the
first time home buyer. Home buyers with high credit scores are able
to get the lowest interest rates on home mortgages. As a first time
home buyer, it is doubly important to have a high credit score. Not
having a high credit score will not only mean you don't get low
interest rates, you likely won't get any interest rate at all.
Here are the basic tactics for getting a high credit score. For more
in-depth details, go to
www.creditsc0re.com.
1. Always pay your bills on time.
2. Keep your credit card balances at zero, or at least very low.
3. Make more than the minimum monthly payments.
4. Negotiate to remove negative items from your credit report.
5. Borrow great credit from a relative or close friend.
3. Save for a down payment & closing costs.
When buying your first home, you'll need some money for a down
payment as well as closing costs. This applies to previous home
owners as well as first time home buyers. Lenders want to see that
borrowers have a vested interest in the property. If you've put your
own money into the property, you will be less likely to walk away
from the property leaving the lender to clean up the financial mess.
Additionally, if the lender does have to repossess the property,
even though the property will be selling at a discount due to
distressed circumstances, the lender should still recoup its losses.
Your down payment is a safety cushion for the lender between what
the house would sell for at auction and what is owed on the
property.
It is very important to start saving immediately. Set aside a
certain amount every pay period and stick to it. Learn to live on
what remains. Save now for your future, and your future will take
care of you.
4. Keep detailed records of money spent.
First time home buyers (and everyone else for that matter!) should
develop a sound budget. To gain control of your money and how you
spend it we recommend that you keep track of every single purchase,
no matter how small, for a period of one month. At the end of this
period, categorize this information to see the exact breakdown of
where your money is spent. With this information you'll be able to
easily see where there is room for improvement in your budget. The
important point to stress here is to live within your means. Live
frugally. The more frivolous spending that you eliminate from your
budget, the more you'll be able to save. And the more you save, the
quicker you'll reach your goal of becoming a first time home buyer.
5. Develop a financial plan.
When constructing a house, builders use a set of blueprints as a
detailed plan they follow to accomplish the goal. In like manner,
first time home buyers need a financial plan to follow in order to
achieve the goal: buying your first house and moving in. To buy that
first house you should set a goal of saving 20% of the purchase
price to use as the down payment. There are programs that will allow
you to put less than 20% down, including mortgage insurance where
you can purchase a home with a down payment of 5% or less.
We cannot stress enough that the first time home buyer need to
develop a financial plan and stick to it. -
6. Establish a relationship with an agent.
Any potential first time home buyer would benefit greatly by early
on establishing a relationship with a real estate broker that
specializes in working with first time home buyers. As with any
profession, the range of expertise will vary from agent to agent.
Shop around until you find one that you are satisfied with. Remember
to inform each prospective agent that you are a first time home
buyer, as many agents have their specialties. Some agents like to
work only with real estate investors. While some prefer to
specialize in mountain property. By declaring up front that you
are a first time home buyer, you won't be wasting time trying to
develop a working relationship with an agent that specializes in
commercial property.
Your agent will be your link to all the property in your area that
is currently for sale. Agents can provide a treasure trove of
information on the entire buying and selling process. As a first
time home buyer, you definitely want the help of a professional
agent.
7. Study market values.
When buying your first home, you will not want to pay more for a
house than the house is worth. Along the same line, you will likely
want to find a great deal. The only way to find a great deal is to
study the market values in your area. Over time you'll development a
mental database of comparable properties and get a sense for which
properties are overpriced and which ones are under priced. Your
first home will likely not be your last. The average American sells
her home and moves into another every 7 years. As a first time home
buyer, you will benefit greatly when it is time to sell if you
purchased a home for less than what it is worth. This instant equity
that you received upon the purchase will boost the profit and cash
to you when it is time to sell.
8. Get Pre-approved for a mortgage.
Not all lenders are created equal: some will be very efficient and
helpful in dealing with the first time home buyer, and some will
not. However, getting pre-approved for a mortgage is an important
step in the first time home buyer process. With a pre-approval, your
offer will carry more clout with the seller, and you'll be in a
position to close on the purchase more quickly. This is important to
many sellers. Offering a quick closing is also a powerful tactic in
negotiating a discount off the purchase price.
9. Decide your needs and wants within your budget.
Builders, brokers, and bankers all know that the typical first time
home buyer has a tendency to be overly enthusiastic; they've all
seen it repeatedly. As a first time home buyer, you'll need to be
aware of this temptation and really focus on making choices that fit
within your budget. Everyone would like 5 bedrooms and 5 baths in
their first home, but not everyone can afford such luxuries. When
you buy your first home, you'll be taking on a major financial
commitment. There will be lots of incidental expenditures. As a
first time home buyer, those incidental costs can really add up and
strain your budget. Be careful not to overspend on the house that
you choose.
It is important to spend ample time on steps 4, 5, and 8. These
steps will help you know and understand your budget. Once you know
your budget and the price range of homes your budget will allow,
you'll be able to shop for the right home. Again, avoid the trap
that most first time home buyers fall into: don't stretch your
budget beyond what it can handle.
10. Shop for the right home.
With the exception of moving in, shopping for the right home will
likely be the most exciting step for first time home buyers. By this
time you should have already established a working relationship with
a real estate agent that specializes in working with the first time
home buyer. You should already know your budget and how much you can
afford to spend on your first home. At this point you'll need to
narrow all this information into a specific format for your agent to
use to suggest certain homes to visit. Start with the price range.
Let your agent know how much you are qualified to spend. Then list
amenities that you desire such as number of bedrooms, and additional
items such as a deck, fireplace, whirlpool tub, etc. If you are
hoping to purchase your first home in a certain area, or within a
certain distance from work, let your agent know that too.
The more information that you give to your agent, the more time can
be saved by everyone. Your first home may not have everything
included that you could possibly want, so decide which items are
negotiable, and which aren't. Let your agent know. The more homes
that you visit, the more knowledge you'll develop regarding property
values in your area, and which homes you like and which homes you
don't in your price range. However, being a first time home buyer,
you'll need to understand that your agent gets paid on commission
(usually paid for by the seller). Therefore, your agent will not
want to spend the next 3 years showing you 500 different properties
without you actually making a purchase. Likewise, you would not want
the agent simply showing you one home in your price range then
pressuring you to make an offer.
An ideal world for the agent would be one sale for each time she/he
shows a home. On the other side of that same coin, an ideal world
for the first time home buyer would be the opportunity to look at
several hundred homes or more before ever making an offer. The ideal
world doesn't exist for either the agent or the first time home
buyer. Reality will be somewhere in between. You'll want to look at
a reasonable selection of homes in your price range. That will be a
good compromise for both the agent and the first time home buyer.
11. Learn about the elements and terms of a sales contract.
As a first time home buyer, by definition you've never been a party
to a real estate purchase and sale agreement. You'll need to do some
studying to learn the elements and terms of a sales contract. Here
is a short list of the basic elements of a real estate contract:
Acceptance: How much time the seller has to either accept the offer
or to provide a counter-offer.
Closing:
A future date by which time the closing will take place.
Description: A legal description of the property as well as the
street address.
Deposit: How much initial money is included with the contract and
who will hold it.
Financing Contingency: A clause that states the entire contract is
subject to the purchaser being able to obtain a mortgage loan of X
amount, by a certain date. First time home buyers should make sure
their agent includes this clause in the contract.
Home Inspection: The contract can be contingent upon a satisfactory
home inspection to be done by a qualified professional within X
number of days.
Inclusions and Exclusions: Some items in a home are not considered
part of the real estate, but are instead personal property.
Refrigerators and washing machines fit this category. This clause
should state exactly what is included in the sale, and what isn't.
Insurance: Who will insure the property until closing.
Price: The amount of money the buyer will be paying to the seller.
Possession Date: The date on which the buyer will receive possession
of the property.
12. Choose the right neighborhood.
It seems quite ironic that you should be thinking of selling your
house before you even buy your first home. But that is exactly what
every first time home buyer should do! There will come a time when
you'll want or need to sell your home. This may come out of a desire
to upgrade your home, or maybe due to a job relocation to another
city. If you choose the right neighborhood when you purchase your
first home, you'll be rewarded with a higher value home that will be
easier to sell.
Some items that a first time home buyer should look for when
searching for a great neighborhood are: 1. Located in a good school
district. Is there a particular school in your area that is a
recognized favorite? If so, you'll want to buy a home in that
district. If this school appeals to you as a first time home buyer,
it will also appeal to the next first time home buyer who comes
along and wants to purchase your home from you in the future. 2. Is
the area improving or in decline? You'll want to consider that point
carefully. While an area may be acceptable to you now, if it is in a
state of decline, by the time you are ready to sell, the next first
time home buyer may not find the area acceptable. 3. Is the area
close to many popular attractions? Being located next to parks,
beaches, lakes, mountains, and wilderness is important to both the
first time home buyer as well as the seasoned homeowner. Choose an
area that is convenient to popular locations. 4. Choose your
neighbors carefully. If there is an obnoxious neighbor right next
door to the first home you plan to purchase, think twice about it.
Nobody wants to live next to an eyesore, nor do they want to be kept
up all night by loud, uncontrolled behavior from their neighbor. 5.
Is the home closet to a hospital, fire station or police station? If
so there may be an excessive amount of noise and traffic. Do
your homework. Knock on doors if you have to. Find out what the
neighbors are like. If you follow these steps, you'll be a happy
first time home buyer instead of a disappointed one.
13. Submit your offer.
After completing the first dozen steps in this guide, the first time
home buyer can confidently submit an offer. If you've followed these
steps up to this point, you are well armed with the necessary info
to purchase your first home. Making your offer is an art, not a
science. Dozens of books have been written explaining techniques and
methods of successful negotiation. Here are some basic negotiation
guidelines:
1. Know the seller. It goes without saying that you want to purchase
the house for as little as possible, and the seller wants to sell
the house for as much as possible. Somewhere in between is the
settlement range. Try to find out what the seller wants besides a
high price? A quick closing, or a delayed one? Does the home need
some work like new carpet, new siding or windows? Does the seller
want to get this work done, or would she rather not deal with the
hassle? The more info you can gather, the better position you are in
to negotiate a win/win situation.
2. Determine what would be the best case and worst case scenarios.
Once you've done this, decide how much risk is involved. How bad do
you want this house? Are you willing to loose the deal to try to get
your best case scenario? Only you can answer that question.
3. Be professional at all times. The best negotiators remain
emotionally neutral throughout the negotiation process. By doing so,
it is much easier to remain professional. If you are insulted or
upset during the negotiation process, you'll likely make decisions
based upon your elevated emotions, rather than logic. Rarely will
emotional decisions be correct. Try your best to remain unemotional.
This is particularly difficult for a first time home buyer, as
buying your first home is a very, very emotional event. However, the
more professional you are, the more likely you are to succeed in
your negotiations.
14. Arrange for a home inspection.
Even experienced real estate investors will depend on a qualified
home inspector. This should be doubly true for the
first time home buyer. Qualified home inspectors will examine in
detail such items as roofing, heating and air conditioning systems,
structural integrity, siding, windows, plumbing and electrical
systems. Deficiencies in any of these components will be brought to
your attention in a detailed written report. We highly recommend
that every first time home buyer consult with a qualified home
inspector. You should make your offer contingent upon a satisfactory
report.
15. Arrange for homeowners insurance.
All real estate owners should have homeowners insurance, and the
soon-to-be first time home buyer is included in this group.
16. Make your moving plans.
Congratulations! You are about to become a first time
home buyer! You are now ready to make your moving plans. The
easiest, but most expensive option is to hire a professional moving
company. Your agent can probably recommend a few good movers.
However, if you want to save several thousand dollars, Gather a
group of friends and have a moving party. You and a dozen friends
can really make short work of moving.
That's
it. You are now ready to enjoy the fruits of your labor and
planning. We wish you many years of enjoyment in your first new
home!
