This should really be titled “things I wish someone had told me before we tried to buy a home.” So, because no one told me, I wish to tell you, in hopes that it will help.
1. Realtors and mortgage people do not deal with first time home buyers very often. They are not used to having to walk buyers through every step of the way. Make sure to ally yourself with an outside party (a parent or friend) that has purchased a home before, the more recently the better. You will find this very helpful.
2. But first, we needed earnest money. Earnest money is a “small” amount of money (normally about 20-30% of your down payment) that is given to the seller to show that the buyer is serious. If they do not accept the offer, or the sale falls through, the money is returned to the buyer. If the buyer decides they do not want the house for what they consider a “stupid” reason (it’s too small, we found something better) the seller has the option of keeping the money. The earnest money is part of the down payment and is credited as such at closing.
That evening, they accepted our bid, and the games began. An inspection of the house must be done within 10 days of the bid being accepted. The buyer is responsible for setting up and paying for the inspection. This is not credited back to the down payment.
3. A regular home inspection only covers certain aspects of the house. Be sure to ask the inspectors exactly what the inspection covers. In our case, the initial inspection showed issues with the plumbing. Because the inspectors were not plumbers, we had to call a certified plumber to find out how much repairs would cost. This, of course, was an extra cost.
In our case, we found the plumbing to be a problem we could not live with, so we had to fill out a form that basically said we couldn’t move forward with the purchase until it was fixed. Because the sellers now live six states away, we opted to have them escrow the payments. Why we had to fill out four different forms to make this happen? Your guess is as good as mine.
Oh shit, we bought a house! What now?
I called my husband and told him, "Oh shit, we bought a house." He said, "Okay, we need to sit down tonight and make a... Read more
4. In this case, escrow is an account set up by the seller’s bank to pay for work done by a contractor. The seller gives the money to the bank, the bank gives the money to the plumber, and the plumber does the work. If the work exceeds the amount of money in the account, you can renegotiate with the seller, or pay for it yourself.
5. Some banks won’t let you escrow. Like mine. So, we worked with the seller to pay the plumber without involving our bank. This could end up biting us later if the work exceeds the price we agreed upon. We will have no legal way to negotiate the sellers paying a higher amount. Yes, this scares me.
While this was all going on, I was not only dealing with my realtor– I was also dealing with my mortgage lady. They need a lot of personal information about your history and finances. Make sure you are not giving out this info willy-nilly (i.e. make sure they are legit). And that leads me to point 6…
6. My realtor and my mortgage lady did not communicate with each other unless I asked them to. They each expected me to inform the other of major things happening on each side. We didn’t know that the bank didn’t approve the escrow until almost a week after we had agreed to do it because I didn’t tell my mortgage lady about it and neither did my realtor.
7. They need your race, nationality, last two paychecks from all places of work, info on all other loans you currently have including credit cards, social security number, one month’s bank statements for all accounts, tax records, W2’s and work history for the last two years. In my case, I had just graduated from college, so that was used as my work history. I had to prove it by getting my transcripts reprinted (in the summertime).
We were a little short with the down payment, so my mom lent us some money, except…
8. You can’t acquire any new loans while applying for a mortgage, even from family. A family member or employer can gift you money, but they must sign a form saying it is a gift, not a loan, plus provide bank statements proving that it is their money, not a loan or gift from a third party. My mom transferred the money from her saving to her checking to cut me a check and then had to prove it.
9. You also need an appraisal. An appraisal is different from the inspection; it is done much later in the process and ensures that you aren’t overpaying for the home. This is something that the buyer is responsible for paying, but is credited back to the down payment.
10. Banks get overwhelmed with closing at the end of each month and will push back your closing date. Then you have to sign another form allowing them to do this.
The most important thing I’ve learned from this: have easy access to a scanner or fax machine. The biggest hang up I encountered was having no easy way to have my fiancé sign paperwork (while at work) and send it to my realtor. I ended up driving all over town, wasting gas, time, and money. We probably could have closed early if I had my own scanner.
New homeowners, any “wish I’d known” tips you’d like to share?
We, also, are in the middle of buying our first. All of the documents are transferred electronically, meetings are held via email or phone, I’ve never seen our loan agent. Never.
The realtor is a doll. She’s helping guide us quite well and did a great job meeting our very specific desires for a place. It helps that the bank that owns the property is doing everything they can to offload it(been on the market for over a year).
It is a *very* arduous process in all respects. My best piece of advice is to actually be there when the inspection is being done, follow the person and ask as many questions as you can.
Doing all the paperwork and having to sign/send was the hardest part for me. One thing that completely saved me was getting an app (TurboScan, maybe?) that lets you take pictures of a document with your iPhone and will create a PDF of it for you. It’s not perfect, but I could just email things to our realtor without having to find the nearest Kinko’s and fax it.
I also recommend keeping a binder of everything you’re sending and receiving. We had gotten mostly approved by one lender, decided to go with another a month before closing, and ended up having to find/send all the W2s, paystubs, etc that we had already sent. Tracking it all down again was a pain in the ass.
I’m glad that I’m not the only one who ALL of this happened to. Great advice that I only wish I had read in May when we started the homebuying/mortgage/scan-every-financial-document-you-ever-received process.
Especially the “don’t get another loan/credit card” piece. My husband and I went to Lowes the night before our closing, got a credit card to get 5% off the tractor we were buying and almost weren’t able to close because of it. That would have been nice to know!
We bought 2 cars three months before we even saw the house and almost weren’t able to close because we “didn’t declare it” in original documents. I didn’t even know it mattered!!
I just started working in a the loan department of a local bank, and am overwhelmed with how many regulations there are. One thing that I I would like to point out is about pay.
Say you get a bonus or commission every month. Usually unless you’ve consistently gotten it for the past three years, they won’t include that in your income. Just something to think about.
This post makes me glad my husband and I bought our condo right after the housing bubble burst. Our closing was only postponed once, and that’s because the credit union was blindsided by a new Fannie Mae required form. Other than that, though, it was quite easy.
That said, having worked for an AMC for a while, I would like to point out one thing that you should NOT do: try to estimate the value of the house then dispute it if the appraisal comes in lower than what you think it should be. I see this more on home equity and refinance loans, but it can happen with purchases, too. Basically, if you dispute the value, you will hurt only yourself in the long run. Some banks will go through a reconsideration process that can take some time, and the value rarely changes for the better. Most reconsiderations either stay the same or go down in value. In a similar vein, please don’t call the appraiser directly to debate this. The appraiser is not legally obligated and is in fact discouraged from talking directly to purchasers/borrowers on other types of loans. Lastly, keep in mind that the appraisal is a required step in the home buying process but is more intended for the mortgage reps. The appraisal does have a significant impact on your loan going through, but odds are good you might not even see the appraisal if you don’t directly ask for it. It depends on the bank. Even if you do see it, the document will not make a whole lot of sense to you at first because appraisal forms are a whole different breed of jargon than pretty much any other form of technical writing I’ve encountered. I’ve been reading these reports for three years (I review them), and I still sometimes wonder what the appraisers are actually intending to say. Save yourself the stress and try not to interpret every last bit of minutia of the appraisal. It will drive you bonkers otherwise.
I just bought my first house in June and I cannot emphasize enough how valuable a good real estate agent is. I went through several agents before meeting the one that I used and continue to refer to friends. Good agents should be focused on helping you find “THE house”, not “A house”. That is, they should be helping you find a house that is right for you – both in terms of your “wishlist” and your financial limitations.
They should be pointing out negative aspects of the home right along with the good ones. They shouldn’t be glossing over the issues and continually telling you how easy things are to fix – especially if you have a limited budget, which most of us first-time buyers do!
Don’t be afraid to switch agents and don’t feel obligated to use someone because they are a friend or family or were referred to you! This is possibly the largest purchase you’re ever going to make, so make sure you have the right people in your corner!
The same goes for your home inspector, lawyer and mortgage broker!
Great article. Lots of great tips here. I think #8 is one of the most important tips.
I know someone who was just weeks away from closing on his first home (FHA loan) and the loan was rejected at the last minute. The reason was the buyer bought a flat screen TV on store credit during the application progress. That TV purchase messed up his debt to income ratios and he could not buy his first house. He should have waited to buy the TV until after he closed.
Steph
These are great things and glad to have stumbled across this. We are selling my husband’s house and if all goes well with that then we are buying a new one, yeah! He bought his house about 14 years ago so is a bit rusty on all of this.
Thank you for this article, I would like to add a small tip while buying a home which is asking about future plans. Do research about the area that you’ll buy your property in or ask your agent because real-estate agents are aware of any future plans that will happen in any area they’re selling property in because they use it as an advantage for the villa or apartment to increase its price. Future plans may be a hospital, bus station, or even a supermarket that is planning to open.
If you want to buy your first home, then you should give focus on these points for selecting the right home for you.
Try to find a realtor who specializes in first time buyers. I originally contacted the realtor that my family has been using for years (she sold my parents their first house about 40 years ago) and she suggested that I use her daughter/partner because first time buyers are her daughter’s specialty. She was absolutely fabulous and very patient. I actually wound up purchasing a house across the street from her house which turned out to be very convenient when I was meeting with potential roommates before I closed on the house because she could pop over and let us in. It also came in handy when it was time to sell but that’s a separate topic.
Also, when you’re looking at houses don’t be afraid to tell your realtor that you’re interested in a certain neighborhood even if there are no houses currently listed. Especially in this bad market it’s not unusual for them to have (or know of) what are called “pocket listings” or homes that aren’t officially on the market but where the owners are probably willing to sell (usually because they were on the market recently and didn’t sell). That’s how my husband and I got our current house; we were driving back from looking at houses with her and my husband mentioned that he liked a certain townhouse development we were driving by. It turned out her mom/partner had had a listing there the previous year where the sellers had decided to take a break from having it on the market. We were even able to get the house for significantly less than its previous listing price because the owners were so relieved not to have to go through putting it on the market again.
If you are searching for a house via the internet, try Redfin. We found a house we liked and didn’t have realtor preferences, so we asked to be contacted by one of their realtors. The house we were interested in didn’t work out, but she found us the home we closed on in July of this year. When we closed, Redfin gave us a $500 congratulations check for using their realtor. It’s a nice little bonus. So if you don’t have other recommendations from friends or family, going through a site like Redfin for a realtor helps. They also continually ask for feedback and communicate through e-mail very quickly, so if you’re having problems with your realtor, you can always ask Redfin to find you someone new.
I also have to triple (quadruple) support the attorney suggestion. We live in IL so it’s a requirement. But he was able to walk us through the entire process, give us advice, and facilitate all the paperwork. During the closing, he explained every single piece of paperwork that we were signing in easy to understand terms. The attorney works for *you* so utilize them if you are required to have one because a good one will fight your battles.