What to Know Before Beginning the Home Buying Process
It’s normal to be confused as a first time homebuyer. Additionally, not having the right professional guidance can make the process even more tricky. Preparation and knowledge from a professional you trust, who communicates things in a way you feel comfortable with, is very important in achieving your goal of becoming a homeowner.
The fact of the matter is, you can’t really know if you’re ready or what steps you have to take unless you've started the processes before. Talking with a lender will prepare you for your reception, inform the type of house you can purchase, and outline the home improvement projects you can take on in order to build equity. Filling in these questions will get you to a place of understanding how you might reach your long term goals.
To answer some common concerns for first-time homebuyers, we’ve compiled a list of our favorite tips and easy ways to make the real estate experience stress free.
Tip 1: Know where to get started.
As a first-time homebuyer, the most important first step is getting connected with a lender and a realtor that you trust. If you've made contact with a realtor first, ask them for a recommendation. Selecting these two people/parties are key. Knowing where you stand financially will determine the plan you and your realtor set together.
Tip 2: Importance of being pre-approved
Getting pre-approved is a vital step in this process. Beginning with your lender, he or she will have you fill out an application, submit paystubs to verify income, and will run a credit check for you. From this you will know the status of your credit, debt-to-income ratio, and balances on your credit cards—which are all important factors that go into the types of loans available to you, along with interest rates. Having the best possible credit score can impact your interest rates drastically. The good news is, once you get an application in, you can usually get pre-approved in an hour or less! If you find yourself in a non-ideal spot, that’s not at all a dealbreaker. An experienced lender can give you some short-term pointers to get you into a good position within 1-3 months. Refrain from house hunting until you have a solid plan!
Tip 3: Know the role of your Realtor.
Understanding your realtor’s role in the home buying process will make things much clearer for you as you collaborate with them. Of course, there are some differing opinions on this topic, but our team believes in acting as a friend and guide along the way. Our goal is to help you meet and prioritize your goals. Sometimes that means figuring out where to compromise based on budget, whether that involves finding your first home, rental property, or a fixer-upper.
Your real estate professional should be looking at all of the factors that don’t just benefit you now, but will be best for you in the future. This means ensuring that you don't put yourself in the position where you can't handle a certain amount of work—for example, buying your first fixer-upper that might be too money-intensive or physically challenging to do on your own.
Your agent should also be considering the specific criteria that fits your wants and needs, and working to find the blend of those to make the overall process an excellent and fulfilling experience for you. You should know what you’re asking for, what you’re getting, and why. Don’t be afraid to ask those questions!
Tip 4: Remember, you won’t find a perfect house.
It’s OK to find an imperfect house. It’s very normal that you won’t find (or choose to pay for) the exact thing you were dreaming of. Fortunately, there are all sorts of ways to make your next home into what you want it to be.
The ability to build equity makes a good home a perfect home in terms of your financial goals. Home buyers should expect to invest about 20% of their total loan amount into their home to build equity. That's the amount that allows you to avoid paying mortgage insurance.
Thinking through the best and worst-case scenarios should be a part of your business plan, whether you are owner-occupying or purchasing an investment property. You should have a contingency for worst case scenario in order to put yourself in the best position to succeed on your next purchase.
Other ways to build equity include doing the right renovations to strategically increase the value of your home. For example, kitchens (big trends on cabinet-heavy kitchens), bathrooms, basements, luxury flooring, and full showers are all great solutions to the goal of upping house value.
Tip 5: Stay motivated & don't get frustrated
From start to finish, house hunting to accepted offer doesn't happen overnight. We often work with our clients for several months to find “the one.” In our local market here in Duluth and it’s surrounding areas, we have seen an imbalance of supply and demand. We have had far more house shoppers than houses to choose from over the last few years. Understanding this will help prepare you for the fast paced environment that shoppers experience from March-July (the “busy season”). It's not uncommon for a house to be listed and sold in 48hrs or less. With that, a common place our customers get frustrated is in the situation of multiple offers. It can often get very confusing for buyers when you don’t know what other people are bidding. You can find yourself competing with 5, or more, offers for the home you want. Be mindful that purchasing in the peak season may result in over-asking price offers.
Tip 6: Hire a good inspector.
Working diligently together with your realtor and lender, you now have an accepted offer and you've advanced to the next stage where you’ll need to hire an inspector. In the state of Minnesota, inspectors are not required to hold any kind of licensing. Crossing the bridge into Superior, the state of Wisconsin does. It's important to note that inspectors can be nationally certified, so look out for this. Regardless of the certifications held, reputations travel far. Trust your realtor on their recommendation. They have worked with both the good and the bad.
It’s difficult to pay attention to the little things when you’re walking through a home for the first or second time. Selecting a professional to fine comb the home will shed necessary light on potential details in a home that could be costly over time.
Additionally, having a good inspector can show you the annual routines that will give the home more stability and durability so that small projects don’t turn into big projects or small issues don’t turn into major issues. For example, if you don’t service your furnace once a year, there’s a better chance that it will malfunction or break--and cost you money you could have avoided spending.
Tip 7: Understand the closing process
Once you have passed the inspection phase and surpassed any negotiations, closing on your home can come in a quick 30-45 days. Once we get to the closing table, we often find people are relieved to see how easy it was. Having the right people in place--your realtor, lender and title company--ensures that you will have an easy and exciting closing experience.
A common mistake we’ve seen in the down payment/closing process stage is buying a car prior to closing. Don't make any large purchases without consulting with your lender! This can alter credit scores and ultimately change your initial loan approvals.
Receiving family “gifting funds” to pay for closing costs are very common, but needs to be done properly. The money unfortunately can’t just appear in the necessary bank account--there’s a paper trail process that needs to be followed. Pulling money out of trust accounts/401K funds can sometimes take longer than expected. To ensure it doesn’t delay the closing process, consult with your realtor/lender to make appropriate arrangements.
Conclusions
In all, remember that your first home will not be your “forever home”. What matters is that you’re clear about your wants and needs in this particular time in your life. Perhaps it’s for financial comfortability or finding the right space for your young family. The main idea is that you’re investing in yourself and your future, building equity, and sidestepping the wasted cash that was going towards short-term rent.
Meeting with a lender, even a year before you’re ready to buy, will put you in the best possible position. Our team can help make this process clear, stress free, and lastly: exciting! Give us a call at (218) 428-0861, shoot us a note at info@decarorealestate.com, and check out our website for further details.
Happy home-hunting!
Jordan DeCaro Real Estate Team