The best way to ensure your first home purchase is successful and relatively stress free, is to approach it methodically. Below I detail nine essentials to use as a framework—there are always additional steps that are specific to your transaction or area—but these steps are applicable to any purchase. Don’t worry too much about the timeline. You may have days, weeks or even months between steps here, but keep your eye on the prize and you will get there.
Step 1: Take some time to research and choose the best realtor you can to represent you in the search for your first home. Ask friends and family for referrals, read online reviews and interview the agent. Ask as many questions as you can about the real estate process, local information on the communities of interest, and ask for recommendations on lenders your agent likes to work with. Build a relationship with the agent and tell them your likes, dislikes, needs and wants. The more info you provide, the better equipped he or she is to help you.
Step 2: After getting recommendations, begin a similar process with a lender. These folks will want to pull your credit, etc., so be selective with whom you give your most sensitive information. Be honest with the lender—tell them exactly how you hope to make the deal happen and then listen to their suggestions as to a plan to make it work. They may tell you that you need to save for a bigger down payment or reserves; they may even ask you to clean up credit issues. Good lenders will give you a road map to repair your credit or debt to income ratio. It may take a few months or even years to make it happen, but trust the process.
Step 3: Don’t be too hung up on the interest rate. Yes, interest rates are going up, and yes there are some slight differences between lenders’ products. The most important thing to remember is that a mortgage is a 15, 20 or 30-year commitment and home prices are going up too, so by waiting for the perfect rate you might miss out on the perfect house. Keep the big picture in mind. A decade ago a 6% interest rate was fantastic, years from now it will be a great rate again. Get the best rate you can, but more importantly, pick the lender that will close the deal.
Step 4: Know your budget and mortgage payment comfort level. Don’t forget you have to pay principle, interest, taxes and insurance, and also be able to set some funds aside for repairs or maintenance. It’s common to feel stretched when you purchase, but you should never let someone talk you into buying a home you cannot afford. If this is your first home, it may or may not be your forever home. Buy the best home you can realistically afford.
Step 5: Look at the pluses and minuses of your chosen neighborhood. Even if you do not have school age children, how do the schools measure up? Do homes in the area appear to be well maintained? Drive through the area during the day, at night, on the weekend: do you feel uncomfortable or concerned by the activity you observe? Ask your agent about resale value and anything that may be happening in the future that might make the home more, or less, desirable.
Step 6: Plan on staying in this home for at least 3 to 5 years. This will give you time to gain equity, and when you sell you will be responsible for paying real estate commissions, so be sure you want to be there long enough to recoup those costs.
Step 7: Now you have found the home you want to offer on. Do not get too attached! I know this is easier said than done, but the market is tight now and you may not get that home. I assure you, if you stick to this plan, you will find the right house.
Step 8: Get as many inspections as you can: whole house inspection, pest, roof, chimney, septic or sewer … whatever the home may need. The money you spend on these inspections will pay for them. They may highlight a reason NOT to purchase the home, or they may provide a workbook for you to use as a guide for future improvement and maintenance. Pay for these inspections outside of escrow to avoid issues with the lender’s underwriter wanting to review the reports as a condition of giving you the loan. Inspectors are paid to find things wrong. Be sure to meet with them and go over the report. If you just read it without their expertise and input, it may appear that the home is a lemon. They will help you understand the differences between common maintenance issues and major problems that may need immediate attention.
Step 9: Do not make any major purchases or move funds around in your portfolio during the escrow period. This is a sure-fire way to throw a wrench in the lending process. If you want to buy the TV for the living room wall, wait until you close escrow. Ensure there are no credit inquiries on your record, so no new credit cards or lines of credit. If you are getting gift funds or need to sell some stock to make your down payment, be sure to ask your lender to give you detailed instructions as to how to document these funds and follow the directions exactly.
Stay focused on your goals and ask for help from trusted advisors along the way, and you will find success even in a very tough seller’s market.
