You stand in a vacant living room, the documents are complete, and the seller has departed. You are presented with a small set of keys and told “Congratulations.”
There are so many different things happening in the purchase of your first home. It is not simply a place to live with your name on it. It is a multiple-layered transaction that involves many moving pieces, whether it involves negotiations, inspections, documentation, or even a great deal of strategies.
Assuming that you have undertaken all of the tedious but necessary prep work necessary to purchase your first home, your credit rating is in decent standing, your total monthly debts are not out of control, you have accumulated enough money for your down payment, you have selected where you want to live, you have received until pre-approved for a mortgage loan, and you have selected a real estate agent to assist in the purchase of your first house.
If you did not complete that part of the process, stop and complete it first. House hunting without pre-approval for a mortgage loan is like going grocery shopping without knowing what you can afford.
It doesn’t get much easier than when you use web sites like Zillow or Redfin. You simply enter your city, your price range, your desired number of bedrooms or property type, and within a matter of minutes you will have hundreds of homes to choose from.
When viewing houses, make sure your chosen property meets your needs before viewing it; for example, if you require 4 bedrooms, would you consider a 3 bedroom property (even if the kitchen looks amazing) and waste half of your Saturday viewing it? Also, be prepared not to limit your searches by being too picky the first time out, One way of discovering how square footage will “feel” is to walk through multiple properties in different layouts.
So, now you have decided on a property you could live in? Assuming the seller agrees, you will enter into a contract to purchase (signed agreement of sale) upon acceptance of your offer by the seller. Your agent will prepare this offer with you. An acceptance, rejection, or counter offer can all happen.
At this point you have the opportunity to make strategic choices regarding your offer. An offer is not just about the price; in addition, you may include contingencies (rights to withdraw from sale if a significant inspection issue is found), and in some markets, buyers often waive various types of contingencies in order to make their offers more attractive.
Some sellers may have other reasons besides monetary value that influence them. Perhaps they need time to relocate, or maybe they don’t want the inconvenience of moving the very large piano from their living room etc. Therefore, putting those smaller details into your offer to give you the extra edge over others is beneficial!
After your offer is accepted, you are typically required to pay what is called “earnest money”, usually totaling about 1% of the purchase price; this money is deposited as a sign of your seriousness toward purchasing the property. Later down the line, this money will be deducted from your down payment amount.
Also, if for any reason you decided to back out of the deal without any valid reason, you would lose that earnest money deposit.
The Partner of An Inspection is the Reality Check
Once you are under contract, you will need to “look under the hood”.
I think getting a general home inspection is a must! Most states require that a licensed inspector performs a complete inspection on the entire home (the roof to the foundation). After determining if everything is, or is not in working condition, an inspection report will be given to you detailing the conditions of everything checked by the inspector.
The problems found could be minor, like a faulty electrical outlet; or could be major like leaked roofs or cracked/failing foundations.
Typically the inspection costs a few hundred dollars, and it is NOT recommended to skip the inspection, because you want to save money. This home purchase is most likely the largest purchase that you will ever make! The peace of mind from having the necessary inspections is priceless.
In addition to regular inspections, you can also order:
- An inspection for the sewer line using a camera
- Testing of the air to check for radon
- Checking for tree health
- Specific plumbing checks
After your inspections are complete, you can ask the seller to fix any issues you found, or reduce the price of the home. Expect to negotiate a good deal, but the majority of transactions will continue as long as nothing major is uncovered.
The Appraisal: The Bank’s Opinion Counts
A licensed appraiser will evaluate the home based on similar recent sales in the area. If the appraisal value equals or exceeds your contract price, you’re in good shape.
If it does not, the bank will not underwrite your loan until you pay the difference on your own or re-negotiate the sales price.
Even if you love the home, the numbers must still add up before you can purchase a home.
A title company (or attorney) will examine the history of the property to verify:
- The property taxes are current
- There are no recorded liens or old loans against the property
Basically, they will ensure that nobody will be able to make a claim against the property in the future.
Even though the items associated with your new home appear to be in good shape, it’s still warranted for you to purchase title insurance in case something pops up later on.
Getting an idea of what you are about to purchase, as per your contract, requires a final walk-through of the home.
This allows you to:
- Verify that the repairs were done to your satisfaction.
- Ensure that nothing significant has changed.
- Confirm that the property is in the condition agreed upon by both parties.
Once you have performed your walk-through satisfactorily, you can go and close your purchase.
You will be required to sign many documents at closing including — disclosures, loan documents, title documents — after which you will have completed your goal of purchasing a house.
You now have the keys.
Make Sure You’re Ready to Buy Your First Home
Buying a first home is not only an emotional purchase, but it also has a very systematic way of doing it.
Step 1 = Search for home.
Step 2 = Make an offer.
Step 3 = Inspect home.
Step 4 = Appraise home.
Step 5 = Verify title.
Step 6 = Close.
If any step is not completed or rushed, there could be issues regarding your purchase of the home.
Be diligent and call on professional support as necessary. Don’t hesitate to ask clarifying questions when something doesn’t sit right with you.
In the midst of all these documents being processed – contracts, deposits, appraisals, inspections/underwriting/negotiations – you’re likely feeling overwhelmed trying to juggle so many moving parts; this is only natural!
Please keep this rule in mind – before you know it, every single one of your friends who purchased their first house followed the same maze.
Once you are standing in that empty living room with keys in hand, the whole process suddenly becomes worthwhile.
Now, that brings us to the last step; even though signing papers and getting keys may not appear too terribly difficult, this could not be further from the truth! The majority of the work occurs before this point; i.e., preparing your financials, making wise decisions, negotiating terms carefully and protecting yourself from the unknowns by conducting thorough inspections and (property) title checks.
Purchasing your first house is more than simply closing on your first place; it is a compilation of sequential decisions stacked up against each other.
Take time processing each step, and you will have not only purchased your first home; but will have done so with confidence.
