First Time Home Buyers Guide
Being a first time home buyer is a step that every homeowner experiences once in their life. The experience, while exciting, can also be very overwhelming. There are however a number of steps the buyer can take right from the start that can minimize the stress and lead to a smooth and enjoyable experience. Probably the most important step is selecting a knowledgeable and experienced Realtor to represent you in the process, especially for the first time buyer. Purchasing a home is the single largest investment most people make in their life. For any large decision or investment you want a team of professionals that can advise you on every step in the buying process. The real estate industry has evolved a lot in the last 20 years and the days of the part-time realtor are rapidly becoming a thing of the past. With constant modifications to the laws related to real estate sales as well as lending regulations changing all the time, make sure when selecting your Realtor that they complete an adequate number of transactions on a yearly basis to be up to speed with current laws and practices. At The Lester Group we strive to assist our clients with the highest level of professionalism while still managing to close a large volume of transactions annually. Because no two transactions are the same, the old adage of ‘practice makes perfect’ relates to the real estate industry as much or more than most.
After selecting a realtor any home buyer should select a qualified lender to handle the financial side of the equation. Although your realtor should be knowledgeable on the mortgage process, the true expert is the actual mortgage officer who will be handling the transaction. Ask your realtor for a list of reputable lenders which they have experience working with. Selecting a reputable lender is just as important as selecting your realtor. Think of it as a chain and that chain is only as strong as its weakest link! Many first time buyers get drawn in via advertisements for cheap rates or deals so be careful, even the largest financial institutions can cause great havoc to a real estate transaction. My advice is to stay away from large institutions and focus on smaller, more local banks or mortgage companies. Why is a smaller institution better than one of the large nationwide firms you ask? It boils down to accountability! The local firms rely heavily on the referrals of realtors to keep them in business. This makes their service and accountability spot on. Underwriting is a process that happens in every loan which in layman’s terms simply means investigating the application to insure everything is in order for the lender to close the transaction and make the loan. If there is going to be a hiccup with your loan, this is where it will originate from. The larger banks send the files off to be underwritten many times out of state where the client virtually becomes a file number and not a client. Whereas, with most local institutions the loans are underwritten in-house so your mortgage officer can have direct dialogue with the underwriter throughout the process. I can’t stress enough how important this is in the completion of a successful and pleasant experience.
Once you have selected a lender who you are comfortable with your next step is to actually submit an application and get what is called a pre-qualification letter. The application process is fairly painless and is simply filling out a form, somewhat like applying for a credit card or purchasing a car. Your lender will then discuss with you the best loan products for your individual needs and give you a maximum loan amount that they would be able to lend you based on your individual financial situation. This pre-qualification letter will be submitted with any offer to demonstrate to the seller that the offer being made is from a credible buyer. The pre-qualification letter is usually good for 90 days but can easily be renewed if the right property isn’t located prior to its expiration.
Now you are ready to start the most exciting part of the process, finding your dream home. First you will want to discuss with family and loved ones what is most important to you. I recommend writing down a list of needs and wants and then placing them in order of priority. You should consider schools, location to work, quantity of bedrooms and baths, age of the home, along with more detailed features such as flooring types or floor plan layout. But remember, if your list gets too specific with placing the items on a priority list you might never find the perfect fit especially in a fast paced market. As for budget your Realtor will discuss with you based on the pre-qualification letter your maximum, but remember that doesn’t mean necessarily you have to only look at that price point. If you are more comfortable with a smaller monthly payment simply tell your agent your personal max and they will keep the options in that range. Because this is the most enjoyable part many first time buyers want to skip the pre-qualification process and start immediately looking at homes. But beware, until you truly know what you can afford it can be very risky to look at properties. It happens all too often especially with first time buyers saying, “Let’s go take a look at property X.” The agent, against their better judgement, shows them the property and as he or she expected the client absolutely loves it and wants to make the purchase. But wait we don’t have the pre-qualification letter needed to submit with the offer. The client now starts that process and gets advised that they are actually qualified for a loan amount less than the price point of property X. This is a terrible feeling as the buyer has already fallen in love with property X, however the facts are that it is an unattainable option. Now not only is the buyer heartsick over their inability to make the purchase but will also compare every other option they look at to property X.
Once you or your agent have found some options that might work it’s time to go take a look. In Texas a licensed Realtor can show you any listing regardless of who actually lists the property. Calling directly off of the sign is never recommended. The listing agent represents the seller and has his or her best interest at heart. You should always use your Realtor or buyer’s agent to arrange all showings, request any information, and negotiate with the seller or the seller’s representatives. Many buyers feel that having their own Realtor is actually going to cost them more when in actuality the opposite is normally the case. A buyer’s agent’s commission is paid directly from the commissions paid to the listing agent. Upon taking the listing, the listing agent has pre-negotiated these fees with the seller. In other words your agent is there to represent you and look out for your specific needs for free!!!
Making an Offer
Now that you have found the perfect home it’s time to make an offer. Buying a home is no different than any other negotiation. There are numerous factors that should be considered when determining what to offer. Your Realtor should be there to discuss all these variables with you along with providing comparable sales directly from the MLS that will support your offer. But like in life, market conditions are always changing. Discuss the overall market with your agent; next to comparable sales this is one of the largest factors in determining whether your offer needs to be below the list price or above the list price. I know I just completely lost you with above the list price; you are thinking, “Why on earth would I offer more than what the home is listed for?” Remember a list price is nothing more than a starting place. In a buyer’s market it would be a number the seller really hopes to achieve but more than likely will need to take something less. However in a seller’s market, the list price is the number the seller authorizes their listing agent to market the property for but with the expectation they will actually receive more than the advertised price. Compare it to Super Bowl tickets, the supply is low and the demand is high so people pay well above face value for the tickets. This is exactly what happens in real estate during a seller’s market. Once a property is listed multiple agents are showing it that very first day and many times multiple different buyer’s present offers. Even if you were there virtually immediately sometimes that still isn’t fast enough to get the offer prepared, submitted and accepted before another agent messages the listing agent they are preparing an offer as well. This process leads to what’s known as a bidding war.
So you now have visited with your Realtor about the comparable sales and market conditions. Your Realtor more than likely has even given you their recommendation as to price. But price isn’t the end of the negotiation! However the largest, real estate contracts are not simply documents. Discuss the complete offer with your agent so you truly understand what your responsibility versus the seller’s responsibility is. For example, is the seller going to provide you with an owner’s title policy and what does that mean? What is earnest money and will I get that back? Is the seller going to provide reimbursement for a home warranty contract provided by a third party? Who is paying for the survey? Can I do inspections and how long is the option period? These are just a few of the most common areas that are up for negotiation in a standard Texas Real Estate Commission (TREC) contract. I know once again this all seems overwhelming, but if you considered all of these factors when selecting your Realtor they will walk you through all these steps advising you of industry standards and keeping your best interest in mind!
Once you have completed your formal offer and your agent submits it to the seller’s agent it’s time to sit back and wait. 90% of the time a seller will not accept your offer as presented the first time and will respond with a counter offer. This is not always simply the price but might also request a different closing date or a shorter option period. Normally this negotiation moves more rapidly than the initial offer and is much less formal. The agent might simply text or email your Realtor with the changes being proposed to your original formal offer and just as informal your agent will more than likely call you to discuss the counter. When both the buyer and seller have been able to come to an agreement then a final contract will be prepared for you to once again sign to formalize the agreement.
Option Period & Inspections
Congratulations you are now in what’s known as your option period! This is the time to fully inspect the property and do any due diligence that might need to be completed. During your option period you have the unrestricted right to terminate the contract and not move forward with the purchase. Does that mean you can simply change your mind? You bet, the right is completely unrestricted and you don’t even have to give a reason for the termination. However, usually this time is really used for the inspection process. It allows the buyer to hire independent licensed inspectors to look over all aspects of the property. Traditionally, I recommend having three separate inspections preformed. The first is a general inspection which looks at the overall home such as structure, electrical, plumbing, appliances, etc. Secondly, a buyer should consider having a licensed HVAC contractor inspect the heating and cooling system. The general inspector can perform a general visual inspection of the systems but aren’t allowed to actually open the system or check the freon levels to ensure the unit is functioning properly. Lastly, I recommend preforming a WDI or Wood Destroying Insect Inspection. The WDI is performed by a licensed pest professional and look for items like Termites or Carpenter Ants. Depending on your actual loan type this inspection might be a requirement of the lender. Ask your Realtor for a vendors list of local inspectors in the area. Once you have selected which inspections you wish preformed and by who, your Realtor should make the arrangements for you to have the property inspected. Although not required, The Lester Group attends all inspections with our clients so we have a true understanding of any issues discovered during the inspection process. Most of the time we are able to schedule all three inspections to be performed at the same time and generally take about an hour depending on the actual property. It isn’t required for the buyer to attend the inspections as they will receive a written report but it is highly recommended. Remember the inspectors work for you and if you are present during the inspections you can have any questions you might have answered directly by them!
With the inspection completed it’s time to start the negotiation process up again. While still in the option period buyers and their agents use the leverage of being able to terminate the contract to request repairs discovered during the inspections. Just as buyers have the right to terminate the agreement the seller are not obligated to make repairs unless negotiated during the option period. Remember to focus on the big picture, there has never been a 100% clean inspection period, at least that I have ever seen. Even new construction will generally find some deficiencies during inspections and older properties will show multiple deficiencies even if everything is working as originally intended. The inspectors are required to list items deficient if they are not up to code and with codes changing constantly a property even one year old might be out of code in some way shape or form. The building codes are designed to improve construction quality over time and are always evolving but they are not in place to force owners to continually update their home so many of these deficiencies appear on inspection reports but normally aren’t addressed in a repair amendment. There are always exceptions to the rule but in determining which items to request the seller take care of, consider the monetary value and always make these your priorities. Your Realtor should go over the reports with you and make recommendations as to items that customarily are always done by the seller. Roofs, HVAC repairs, structural issues, and any active WDI presence is 90% of the time items that the seller will agree to repair. Why these items you might ask? It’s simple; certain big ticket items aren’t going away and if they refuse to fix the items for you they can expect the next buyer to ask for the same repairs. If the agent representing the seller is experienced he or she will be advising the seller of this exact situation which leads to a higher success of getting the seller to agree.
Waiting Period or Under Contract
With a successful negotiation of the repair amendment and the expiration or your option period starts the under contract phase. In this phase for the most part there is no turning back and your Realtor has walked you through the vital real estate related tasks which need to be completed. Now it’s like substituting a player and your lender takes the lead role. Over the next few weeks you will be dealing directly with the lender answering questions and providing supporting documentation to verify your income and expenses you stated on your application. Unlike the pre-qualification process where I stated it was pretty painless, this is probably the most time consuming and stressful part of the entire transaction. But keep in mind with growing Federal regulations the amount of supporting documents grows every year. Be prepared to submit tax returns, bank statements, and explanation letters. As I previously said, selecting the right lender will drastically minimize the stress caused during this process.
Now the big day arrives and it’s time to complete the purchase and get you moved into your new home. Your Realtor will make all the arrangements for closing. You will need to bring certified funds to closing for your cash portion of the transaction along with a legal photo id. Throughout the process you have gone through a whirlwind of emotions and probably learned a lot along the way and now is the time to rejoice and enjoy the fruits of your labors. At The Lester Group we strive to be with you every step of the way throughout every phase of the process. Our commitment to you doesn’t end at closing; we strive to build long lasting relationships that don’t end at the closing table. From helping with utility transfers, arranging movers, or recommending a vendor to repair something that might come up in the future, we are only a phone call away. We would be honored to have the opportunity to represent you in your real estate needs. To schedule a time to come in and have a personal consultation with a member of the team simply call 979-271-4663!