First Home Buyer: 18 Things You Need To Know


first home buyer

My best friend just bought his first house last week. As I work in the banking industry, I never realized how complex the home buying process really is when it’s your first one. He gave me the idea of creating these quick 18 things you need to know if you want to buy your first home this year. They are not in any particular order; I just wrote them as they came to mind:

#1 Prepare your proof of income and assets

In all cases, you will be required to provide proof of your income and assets. Gather your latest pay stub, year end income summary and investment portfolio statements. You will be ready when it will be the time to meet with your banker / mortgage broker.

#2 It’s easier to shop for your house if you have a preapproved mortgage from your bank

This is very true especially in the case of a first time home buyer. Why? Because both the Real Estate Agent and the seller will know that you are serious, qualified and that you are not just walking around to “see what’s on the market”. Go to your bank and ask for a preapproval. This is a document certifying the amount the bank is willing to lend you in the case of a purchase.

#3 Don’t overestimate your mortgage payment capacity

After getting your preapproval, you may have the feeling that you can buy the house of your dreams. WRONG! Most of the time, the preapproved amount is ridiculously high. It’s not that you can’t afford the mortgage payment, but you will have to make some serious decisions with regards to your budget (forget about nice restaurants, cool activities and new clothes for a while ;-) ).

#4 Your real estate agent can be a great help to find a property

I don’t really like real estate agents to be honest. However, I really like them when it’s time to buy a property. You can give him all your criteria and he will find properties within your budget, neighborhood and including your desires as well. They can book appointments and visit the house with you. They are very useful to buy properties.

#5 Your real estate agent will always tell you that there is an offer coming through

The real estate business is rough and agents are only paid when they sell a property. Therefore, they could be tempted to rush first time home buyers to make an offer as soon as they realize that you like a property. My advice; take an extra 24 hours to think about it. Once you are in the process of making an offer, it’s hard to back off.

#6 Your real estate agent may seem disappointed by your first offer

Then again, the higher the first offer is, the better are the chances to close a quick deal. Real Estate Agents are known to put their own property for sale for a longer time and selling them for a higher price. This is a great stat showing you that they will try to facilitate the negotiation toward the fastest closing time.

#7 Don’t be shy to start low and negotiate your price

Even though the Real Estate Agent will be disappointed, starting with a lower offer will give you more negotiation room in the process. If you negotiate properly, this could save you an extra $5,000 or more. This is more than enough to cover other purchase fees (transaction fees, moving, new furniture, etc.)

#8 Don’t be shy to make a 3rd offer

You make an offer, the seller comes back with another one and you close the deal. Really? Why don’t you try to grab an extra 3 to 5K? It often works since the seller certainly doesn’t want to go through this process again (visits, offers, counter offers, etc) for a few thousand. The negotiation game is an interesting one. Be patient and rational. Even though it’s your first home, it is also your first occasion to make a good deal!

#9 If you are buying with an agent, you can’t contact the vendors directly

The real estate agent represents the vendor. Therefore, all communications must go through him. It is sometimes a pain but this is the way it works. Sometimes, having a middle man is a good thing, especially during negotiation time ;-). If you wish to discuss a specific detail, you can always ask the agent for permission to contact the vendor.

#10 An appraisal doesn’t count as an inspection

There is a clear difference to make here: an appraisal will be done by an appraiser which is specialized in determining the value of houses compared to the market. The inspection is made by an inspector which is specialized in house structure and buildings. Therefore, he will not give you a value of your house but will rather tell you what is in good shape and what requires minor (or major) renovations to keep it up-to-date.

#11 You will need an official letter of approval once your offer to purchase is accepted by the vendors

Your preapproval from the bank is not enough. Once your offer is accepted, you need to go back to your banker with the offer and the house listing. Then, you can negotiate your lending conditions (term and rates). Once your mortgage is officially approved, the bank will send a confirmation letter to the real estate agent.

#12 Shop your rate with a mortgage broker first

If you want to make sure that you have a good rate, go see a mortgage broker first and he will give you the best rate around. Warning; some mortgage brokers are aware of this shopping method and will charge a file opening fee before starting working with you. Sometimes, it’s a $250-$500 well invested. And it doesn’t mean that you won’t do business with him ;-).

#13 You can ask your bank to pay for the appraisal fee

Once you are done negotiating with the vendor, you can start negotiating with your bank ;-). Ask for a special rebate or to have the appraisal fees paid since you are a first time home buyer. It usually works like this with bankers ;-). On top of that, they probably gave you an “okay rate” since it’s your first house and you are not used to negotiate. They certainly have more room to pay other fees.

#14 You can ask your bank to pay for lawyer fees

You don’t have enough with the appraisal fees paid? You can always push your luck to have your lawyer fees paid too. Worst case scenario, the banker will say no. But he will never cancel the deal based on your request ;-).

#15 You don’t have to get your mortgage where you had your preapproval

I know, this is not really fair with the original banker that dealt with you. However, if you are feeling ripped off by the high rate (remember, first time home buyers tend to get so excited about getting their first house that they completely forget about the rest), you can still shop around for a mortgage once your original mortgage is approved. Just make sure you are in line with your timing according to the offer to purchase (avoid last minute mortgage shopping!).

#16 Life insurance is recommended but not mandatory

Some advisors will tell you that the life insurance is mandatory to any mortgage. This is because they sometimes make even more with the insurance than with the mortgage itself ;-). Don’t get me wrong, insuring the biggest debt you will have (especially in the case of a first time home buyer) is very important. However, you should have the right to shop for the best product available.

#17 Creditor insurance vs Life insurance

An important point, as I mentioned before, for first time home buyer is insurance. You don’t have to take creditor insurance as you can also look for a term life insurance that matches your mortgage amount and term. This is usually cheaper. A good insurance shopping session with an insurance broker is suggested.

#18 Normal Steps in the buying process for the first time home buyer

– Get your budget in order

– Get your paper in order

– Go see your bank for a preapproval

– Go see a real estate agent to shop

– Visit at least 5 properties

– Make an offer (negotiation process)

– Get back to your bank for the official letter of approval

– Negotiate rate with your banker and a mortgage broker

– At the same time, you need to get an inspection done on the house you are buying

– Start looking for a lawyer to close the transaction

– Shop around for insurance

– Sign your documents at the lawyer and receive your keys!

– Move and enjoy ;-D

So that’s it for me, do you have any other great tricks people should know about being a first time home buyer?

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2 Feedbacks on "First Home Buyer: 18 Things You Need To Know"

Brian Rutter

In general, your points are sound, and are good advice. However, your point #9, where you state that the agent represents the seller (really, who says “vendor” anymore?), is incomplete, and potentially misleading, depending on the state in which you are buying. I am a licensed Broker in the state of New York, a licensed Salesperson in the state of New Jersey, and I held a Salesperson’s license in the state of Maryland (which I let lapse as I was not using it). The laws of all three states differ with regard to Agency. In Maryland, for example (assuming it has not changed recently), unless the buyer enters into a specific buyer’s agency agreement with the Agent, the Agent is considered a sub-Agent of the listing Agent, and thus works for the seller, as you indicated. That would mean, for example, that if you tell the Agent that you will offer, say, $450,000, but you would go to $500,000 if you needed to, the Agent has a fiduciary obligation to share that information with the seller. In New Jersey, by contrast, sub-agency is specifically prohibited, and the agent who brings in the buyer owes his fiduciary responsibility to the buyer, not the seller. (Technically, since the agency obligation runs through the Broker, not the Salesperson, there is a third category called a Disclosed Dual Agent, where both buyer and seller are represented by the same Broker, but usually through different Salespeople.) I believe that most, if not all, states now provide for Buyer agency in some form or other.
Therefore, your point 9 might better be stated “Understand the laws of Agency in your state, and be sure you understand who the Agent is representing in the transaction. Always opt for buyer agency if it is available.”

Your points 5 through 8 are all valid, but the role they paint for the Agent is somewhat unrealistic. An intelligent Agent (and yes, we do exist) knows that a buyer, particularly a first time buyer, is not likely to stay in a house forever. The intelligent agent will want to give you the best buying experience possible, to have a better chance of getting the listing when you sell and, assuming you stay in the area, of representing you on the next buy. If, in fact, your Agent is pressuring you to make an offer more quickly or at a higher level than you are comfortable, you need a new Agent. Of course, it needs to be said here that there is a difference between educating the buyer on the realities of a given market at a given point in time, and pressuring the buyer. Even in today’s market, some properties go under contract after 7 days on the market, while others can sit for more than 200. If your Agent says “This house may not stay on the market long at this price”, he or she may not be pressuring you, but trying to ensure that you don’t lose out on a house you want. If the Agent has done his job and educated you on the market conditions before you start out, you will both be on the same page on this.
I would also emphasize to a greater degree the importance of the home inspection. If you do not have your home inspected by a competent home inspector or engineer, you are an idiot. If your Agent does not introduce the topic of home inspection in your first serious meeting, get a new Agent. As far as I am concerned, the home inspection is far more important than the appraisal. The appraisal is to keep the bank happy. You are not buying this house as an investment (although we all hope it will appreciate), your buying it as a place to live and perhaps raise a family. As long as you have done your homework and are satisfied with the price you are paying, and you can get the mortgage you were looking for, the appraisal really doesn’t matter. (And I have now ensured lots of comments from enraged appraisers.) I do like appraisers (unlike your take on Agents), I have just been at this long enough not to take what they say as Holy Writ.
The Inspection, on the other hand, will speak, or should speak, to many issues which will have a direct material impact on your quality of life, your maintenance and repair costs, and even the resale value of your home. Structural repairs are quite costly, and issues such as inadequate insulation, improper drainage, or mold can make you uncomfortable or ill. I believe most states now require some form of disclosure of any known problems affecting a house, and if you do not have an inspection done before you buy, you could find yourself on the hook for expensive repairs when you go to sell and the new buyer does have an inspection which finds problems.
This brings me to what I consider a glaring omission in your list, which is really the first commandment of buying real estate: NEVER FALL IN LOVE WITH THE REAL ESTATE! If you allow yourself to fall in love with a particular home, you will be more likely to overlook potentially serious flaws in the property, and more likely to overpay for the property. No matter how perfect a given house seems to be, if you miss out on it, there will always be another coming along that is as good, almost as good, or possibly better. And that is probably the most important piece of advise for the first time buyer.

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