A Step By Step Guide To Buying Your First Home

By Tiffany Alexy

You’ve been working towards this day for months: the day you own your first home. While you can visualize yourself at the front door, key in hand, the process of getting there seems a little bit murky and uncertain.

  • How much money do I need for the down payment?
  • I’ve looked at houses online, but what do I do next?

First off: breathe. Don’t be in a rush to buy a home.

Some parts of the process will be simple, and other parts of the process will make you want to rip your hair out.

Here's a step-by-step guide to provide some direction.

1. Find a trusted real estate professional

If anyone you know has bought or sold a home recently, ask them who their real estate agent was and if they would use them again. If the answer is yes, it might be worth contacting that agent to see if working together would be an option. It may seem old school, but this is the best way to find a good agent.

There is no shortage of real estate agents out there, and while a good agent is worth their weight in gold, you also have to be careful not to fall into the grasp of an unreliable or untrustworthy agent. Just because you see an agent’s name a lot in advertisements around town does not necessarily mean they are competent!

Your agent should be knowledgeable, but not pushy. They will likely ask you to sign an exclusive working agreement. While this is not necessarily a bad thing and the agreement can typically be terminated by either party, don’t sign anything unless you feel 100% comfortable.

2. Research the area

Do you have school-age children? If so, make sure to research the school district. Have to commute to work during rush hour? Map it out and see if you can stomach that drive for as long as you intend to own the home or stay at your job.

While this part of the process (the due diligence phase) may vary between states, it is important to thoroughly vet the house during this time while your downside is limited.

In North Carolina, for example, home buyers are able to back out of the contract for any reason or no reason at all during this typically 3 week long due diligence phase. In that situation, you’d be out your due diligence deposit, typically a few hundred dollars -- but you wouldn’t have to go through with the purchase of the home if you found information about it that changed your mind.

3. Get pre-approved

When submitting an offer on a home, most sellers will ask to see either a proof of funds letter (showing you have the cash to purchase the home) or a pre-approval letter from a bank, showing your eligibility for a mortgage.

Depending on which bank your deposit accounts are with, that may prove to be a good starting place. Many credit unions, for example, offer special first time homebuyer programs with features such as 0% down and no private mortgage insurance (PMI). These programs can potentially save you a lot of money, so at a first time home buyer make sure you ask your lender what kind of special offers they might have.

It’s not a bad idea to compare lenders, either, to make sure you are getting the best rate and terms possible. Do your research on FHA and USDA loans - these can work out really well for first time homebuyers who don’t have a whole lot of money to spend.

Also, many real estate agents have their own preferred lenders that they work with, so you are running into a shortage of lenders to reach out to, try asking your agent if they have any recommendations. Legally, your real estate agent cannot receive a “kickback” for referring you to a lender.

See this article for information on getting a loan with no credit.

4. Make an offer

Once you’ve located a suitable property with the help of your real estate agent, the next step is to prepare your offer. Your agent should pull comparable sales in the area so you have an idea of whether the property is priced to sell or if there is some negotiating room.

Depending on the market you’re in, you could be facing a multiple offer situation. These can be extremely stressful. Sometimes it can help to write a personal letter to the seller or ask them what their ideal situation is.

In some cases you may be able to win the bidding war by making the sellers aware that you are completely flexible to their terms - it shows that you will be easy to work with. Of course, in these situations, a cash offer will usually trump all others - but for many buyers, that’s not practical.

5. Hire a home inspector

Home inspections typically will test the major systems and appliances to make sure they are in working order. This includes but isn’t limited to: heating/air system, plumbing, dishwasher, refrigerator, crawl space, etc. He or she may also identify areas of concern for the property and recommend a specific contractor to evaluate the issue. Home inspectors point out general concerns.

Based on the home inspection report you receive, you may want to bring certain issues with the home to the seller and request repairs. Once agreed upon, the seller would either hire a contractor to come out and repair the requested items, or obtain estimates and provide you with a credit at closing.

In many cases, it is more advantageous to the buyer to receive a credit, and hire your own contractors to do the work. This is simply due to an alignment of incentive. The seller’s goal is to sell the house as quickly as possible and spend the least amount of money possible. They are incentivized to get the minimum amount of repairs done, which might not necessarily be to your standards. In this case, time permitting, it’s possible for you to obtain your own quotes for repairs and request that amount as a credit from the seller.

Final thoughts

The homebuying process can be overwhelming. There’s information coming at your from all sides, and you’re not sure who you should listen to. Rest assured that you’re not alone.

The best thing you can do is to educate yourself. Also, the help of a professional is never a bad idea. Experienced real estate agents help clients buy dozens, and sometimes even hundreds, of homes a year. When navigating the home buying process for the first time, you definitely want to make sure you have someone guiding you who not only knows what they are doing, but has your best interest at heart. 

Note that the advice in this post is general and may not apply to your specific situation. Real estate is extremely local - what works in one market may be unheard of in the next. Also, real estate law varies by state, so there can be vast differences in the way things are done even between states.

About the Author

Tiffany Alexy is the owner of Alexy Realty Group. She occasionally contributes to the Self blog on personal finance topics.

Written on December 14, 2016

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