One of our awesome clients, Mary Whiteside, put together this guide after purchasing her home. This guide features everything you need to know when purchasing a home for the first time.
Choosing your Team
Your realtor is your representative when viewing homes and making offers. Etiquette calls for working with only one realtor at a time, but don’t be afraid to switch realtors if yours isn’t working for you. Some realtors may suggest signing a “Non-Compete Agreement”, which will legally bind you to that realtor; be cautious and pause before signing such a document.
Your mortgage broker is the representative for “the bank” or lending institution of the mortgage for whichever house you buy. They will guide you through the pre-approval process for a mortgage and set up your mortgage loan and interest rate. The broker should be available to answer your questions throughout the entire home search and buying process.
Questions to ask the broker include:
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How much of a down payment should I put down?
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Should I choose a 15 or 30 year mortgage?
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Which interest rate option will save me the most over the life of the loan?
Protip: Different neighborhoods have different tax rates, affecting your monthly payment amount. Always ask the broker to break down the monthly payment estimate for EACH SPECIFIC house on which you consider offering. Ultimately you want to know how much the house would cost you on a monthly basis while still writing a competitive offer, so consider several potential offer amounts.
Home Considerations
When looking at a house, consider the home’s layout and natural lighting– think about the “bones” of the house and don’t get distracted by the interior design, the staging furniture, bathrooms, flooring or kitchen– these things can be easily replaced, but the “bones” can’t be!
Other considerations include:
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How much life is left in the current roof?
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How new is the hot water heater and how recently/often has it been serviced?
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Which appliances will be included in the purchase of the home?
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Is there an HOA and what services or restrictions does it include?
Protip: If you are interested in making extra money off your home through Airbnb, building a tiny house on the property or renting out parking spaces, make sure your neighborhood is zoned and legally allows these activities.
Offer Drafting
Upon finding your dream house and deciding to place an offer, several things can make your offer stand out, such as including a nice photo of yourself and/or your family and writing a personal letter explaining why you want this particular house.
If your market is competitive, consider including an escalation clause in your purchase offer. If there are multiple offers on the home, this allows you to increase your suggested purchase price to avoid being outbid.
Protip: Ask your realtor if they can find out when the sellers want to move out and try to propose a closing date and/or a possession date that might work best for them- sometimes this persuades them to choose you!
Offer Acceptance
First, celebrate!
Soon after acceptance, your Earnest Money will be due. Earnest money is a portion of your downpayment that is submitted before the closing date, showing your good faith in purchasing the home. The earnest money deposit equals about 1% of the total sale price of the home.
Escrow is the third party that will be handling all the paperwork and processing required for the sale. Escrow collects your closing costs and downpayment, and will request many personal documents and signatures prior to closing. The most common source of fraud during a home purchase is escrow office impersonation. Confirm with your realtor which Escrow office you’re using, their representative and contact information so that you’ll be more protected!
Prior to closing, you will need an inspection and an appraisal of the home, which your realtor will walk you through completing. It’s a good idea to be actively participatory through both the inspection and the appraisal processes so that you have no surprises upon closing.
Protip: To catch any last minute errors at closing, know exactly what portion of your monthly payment will be allotted to each of the following:
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Mortgage principal & interest
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Property Taxes
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Homeowner’s Insurance
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Mortgage Insurance (if you are providing less than 20% downpayment)
Final Protip: Once your mortgage comes due, consider scheduling biweekly payments and additional principal to your payments. Making biweekly payments instead of once a month will pay off interest faster AND includes one additional monthly payment each year. Adding principal to each mortgage payment will hasten the payoff of your mortgage loan itself. Ask your Financial Trainer if these routes could be a good option for you!
