How To Buy Your First Home in 3 Basic Steps

To purchase a home, you will need to determine how you are going to pay for it. Since this will probably be the most significant monetary transaction in your life so far, you will likely need to get a mortgage to pay for your first house.

That may seem like common sense, but every Realtor® has had those buyers who send them a list of homes before they have even thought about this step. Yes, it happens. People want to go out and look at homes before they deal with their finances. Looking at houses is way more fun than talking to a mortgage lender. Be smart and talk to a lender before you get started.

TALK TO A MORTGAGE LENDER

First off, you will need to find a highly skilled mortgage lender who understands your mortgage options, is easy to work with, and communicates clearly. You will be interacting extensively with this person(s) over the period that you are under contract to purchase a home, so it's essential to choose someone professional, experienced, and competent.

Most Realtors® can refer a few mortgage lenders to you if you have a hard time finding one. Realtors® do not get compensated for these referrals. They refer them out in good faith as a gesture to help the loan close smoothly, with as little drama as possible from the mortgage company. Delayed closings are a nightmare for real estate professionals.

Where I work and live in Colorado Springs. People tend to prefer local mortgage lenders because they are more accessible and can usually close quicker. Many of our local lenders have underwriters in the same building where they work. The loan file only goes through a few different people in this scenario.

The National mortgage companies are notorious for being difficult to deal with because the file can be passed around by so many people. This issue makes the chance for a closing delay much higher. Do your research and find a lender with good reviews.

Using a reputable local mortgage lender helps strengthen your offer when you're ready to put a contract on the house. I recently had an offer rejected because the seller did not want to work with a national lender. We learned that the seller had just had a deal fall apart after waiting 60 days for it to close. We closed a VA loan in 25 days with a local lender and had no problems.

Experienced agents know that an offer is only as good as the lender's ability to close it. Most agents in Colorado Springs have had some bad experiences with larger national lenders, and they may be hesitant to promote your offer to their sellers due to fear of complications throughout the transaction.

Many first time home buyers are intimidated to talk to a mortgage lender, so they put this step off until the last minute. In reality, mortgage lenders would love to hear from you and have the opportunity to close a loan for you. The right lender will do everything that they can to help you purchase a home. They are on your side. Don't be intimidated.

Remember that you are paying the mortgage company for their services. You will have closing fees, most likely in the thousands of dollars, which you are paying to your chosen mortgage company for generating your loan. It's a terrible feeling to work with someone nice at first, but they turn out to be hard to get a hold of and bad at communicating essential details later on.

At the closing table, you will be giving the mortgage company a good chunk of money for preparing your loan. You want to work with someone whom you feel deserves this money. There are some excellent loan officers out there, as well as some terrible ones. The loan officer that you choose can make or break your home buying experience.

GET A COPY OF YOUR PRE-APPROVAL LETTER

Third, once you have determined your price range and have found the mortgage lender you want to work with, remember to get a copy of your pre-approval letter and have it handy as you go through the process. It's your proof that you are a legitimate home buyer.

As a Realtor®, I am always impressed by first time home buyers who email me their loan pre-approval letter at the beginning of the process. It shows maturity in how proactive they are as legitimate home buyers.

When you have found the house that you want to purchase and are ready to put together a written offer, your pre-approval letter will need to accompany the proposal. If you have not yet received a pre-approval letter, your offer may get held up waiting on the email; and in a situation with multiple offers, this can be a deal-breaker. Since you have already met with and chosen your mortgage lender, go ahead and get this step taken care of right away.

It's important to remember that there is a difference between a pre-qualification and a pre-approval letter. Ask for a pre-approval letter as it is a much more robust representation of your purchasing power.

FIND THE RIGHT REALTOR

First, find a good Realtor®. A Realtor® is your greatest asset as a home buyer or seller. They are the most involved professional in your transaction. They coordinate all the pieces of your purchase to make sure that everything is documented correctly, on time and processed successfully. They will also be knowledgeable of local market data that will help to navigate your home buying choices like a professional.

Since most first-time homebuyers end up selling in 3 years, it's crucial to find a home that will build equity. An excellent Realtor will help you find a home that has resale potential later on. They will show you sales statistics for your area and help you stay focused on areas that hold their values well.

A common mistake for first time home buyers is that they choose to hire the first Realtor® that they meet. This choice is like rolling the dice on an integral part of your home buying process. 90% of homes sold in most markets are sold by the top 10% of Realtors® in that area. The Realtors® in the top 10% of your local market are the ones who you want to work within most cases. They are the most knowledgable, experienced, and professional. This point is why they end up selling so many homes.

If you simply choose the first Realtor® that you meet, chances are 1 in 10 that you are working with a top-performing local real estate professional. Family members, local group members, church members, and neighbors are some of the worst places to meet Realtors®. I made this mistake when my wife and I tried to buy our first investment property many years ago. We used a friend, and it was a disaster. Do some research online and find an agent who has a robust online presence with great reviews. Your home buying experience will be considerably better.

NEGOTIATE A DEAL

Third: Once you have processed through all of the homes that you are interested in, and have found the home that you like the most, it's time to move on to the next step: writing a sales contract and negotiating the deal. This step is where all of the details of the transaction are documented and signed by both parties.

The competency of your Realtor® will play a significant role in your success through this process. If you have an experienced real estate agent who has written hundreds of sales contracts, you should be in good hands. Make sure that you take your time and ask any questions that you may have. There are no dumb questions during this stage of the home buying process.

A typical first-time homebuyer mistake is to try and submit a low-ball offer on their first deal. As a new buyer in the real estate market, you may feel as though you are entitled to a great deal. This scenario is possible, but great deals do not usually happen unless you are buying a distressed property. No one gives anything away in real estate. In Colorado Springs, our list price to sales price ratio is over 99% right now. That means that a low-ball offer of 90% lp/sp would be way off track if the home is priced at market value and in good condition.

Once you have presented an offer, agreed upon all of the terms of the contract, and both parties have executed the agreement, you will now move onto the home inspection process. As a home buyer, you will be responsible for hiring a 3rd party home inspector to make sure that there are no significant issues with the property.

Your Realtor® will most likely have a list of local home inspectors with whom they have worked with and can recommend if you need a reference. They should not be affiliated in any way or compensated for this referral. Once your inspection is performed, you will receive an inspection report, which makes the property look like it is falling apart. Don't freak out! It's the job of the inspector to find every possible problem that they can. Even brand new homes can produce lengthy inspection reports. Your job is to find critical issues with significant monetary value and determine whether or not you would like to ask for repairs on these items.

This may not be the last negotiating conversation that you have with the sellers, so keep that in mind as you work through the list of items that you want to be repaired or replaced on the property. You don't want to sour the deal by asking for 50 nit-picking items to be fixed before closing. Problems like water damage, AC/heating repairs, and broken appliances are common issues to have repaired by the sellers before closing. Asking for smoke detector battery replacement, new light bulbs, small nail hole sheetrock repair, or replacing cracked light switch plates are examples of items that can make you appear difficult to deal with. They may leave a wrong impression with the sellers.

Remember, the property still has to be appraised at value for the deal to continue to closing. If the appraisal comes back undervalue, you will have to negotiate a solution with the sellers to make the deal work. If you have bothered the sellers with a list of frivolous items to take care of before closing, they may be more challenging to deal with if you have appraisal issues or delayed closing deadlines during the rest of the transaction. Just deal with the significant inspection issues that have legitimate monetary value, and you will be more likely to have fruitful negotiations.

GET YOUR DOCUMENTS TO THE MORTGAGE & TITLE COMPANIES

First, make sure that your mortgage company and title company have all the relevant documentation and information needed from you to close the transaction. Your Realtor® should be communicating with all parties involved to make sure that the purchase is appropriately coordinated. Don't count on this to happen, though. Make sure that you are proactively communicating with everyone to protect the deal from falling apart.

Incompetent Realtors® and mortgage brokers wreck deals all of the time in this business. If you have a good Realtor®, mortgage broker, and closer at the title company, your sale will go very smoothly and without any issues. On the other hand, if you have an incompetent real estate professional involved in your transaction, they may sabotage the whole deal.

Your sales contract will have dates and deadlines that have to perform on time for the deal to maintain legality. If you have a contractual closing date and your mortgage lender needs another week or two to close, the sellers have the right to keep your earnest money and put their house back on the market if you cannot close by the date on the sales contract. This does happen. Make sure that you are watching the dates and deadlines, and are in communication with the parties involved to ensure that your closing is on track.

SIGN THE CLOSING DOCS & GET THE KEYS

The Grand Finale: As the buyer, the majority of the papers to be signed at closing will be yours. Be prepared to sign a stack of documents covering all aspects of your home purchase. Your mortgage company generates the majority of the materials.

If you are purchasing a government foreclosure (VA, Fannie Mae, Freddie Mac), you will have even more papers than the average closing. Most closings take about an hour. Once you have signed all of the documents, the title company will submit them to the mortgage company, and the mortgage company will then send the funds to complete the transaction. Some of our local lenders will fund the loan before closing, and you can receive the keys as soon as you have signed all the documents.

Most of the national banks will require a few hours to fund the loan. If you have a late afternoon or evening closing, the loan will not fund until the next business day. This means that you will not be entitled to the keys until the next day, so plan accordingly. Once the loan has funded, you will receive the keys and be the proud owner of your first home!