Photo by Sidekix Media on Unsplash

Quick Guide for First Time Homebuyers

Let’s be honest. Buying a home is a pretty big deal. Clearly, people don’t do it every day. Some never do. So, if you’re seriously considering buying a home, congrats! Every journey begins with a thought.


The first thing you should do is talk to an agent! Figure out the features of your home. Where’s it located? How many bedrooms? What’s the current state of the market? A good agent will be able to give you a quick rundown. You want to make sure your cash position is sufficient. In today’s market, the more cash you have in your bank account, the stronger the offer you can make. (This will come into play later.) Your agent will be able to recommend a lender to you. This is really important because your lender will help you figure out your best options regarding budget. Getting pre-approved is a critical first step. An agent can’t help you find a property until they have an accurate budget for you. Keep in mind, the pre-approval process can be intrusive — like an IRS audit. In the end, it’s worth it, and it’s nothing personal. The lender just wants to make sure you can afford to pay the money back. Once you’ve been pre-approved, your agent will be able to put together a game plan in terms of types of homes and locations. You’ll be off to the races. Your agent will help you search for homes that fit your criteria using the Multiple Listing Service (MLS). Every time a listing that fits your criteria hits the market, they’ll let you know.

When you see a home you like, tell your agent and they’ll book a showing appointment, and you’ll be able to see the home together. This is the tricky part — finding that home that speaks to you. Some people find a home quickly, others don’t. You never know. But let’s just say you find the right home and want to make an offer. Your agent will be able to help you prepare that offer. In today’s market, you want to make a strong offer. That may mean offering over the asking price. (This is where your savings account comes into play). If you offer above the asking price, and you’re taking out a mortgage, you may want to offer to cover an appraisal gap. An appraisal gap is what happens when your lender’s appraisal value of the property comes to less than the asking price. If you’re covering the appraisal gap, that means you don’t care how much the lender thinks the home is worth — you want it! Another piece of “strong-offer-pie” may include a generous good faith deposit. The good faith deposit is money you put toward the transaction once your offer is accepted. The larger the good faith, the more appealing the offer. Making the offer can be stressful, especially if the buyer and seller have different goals. Again, your agent will help you structure the best possible offer you are willing to make and negotiate on your behalf.

Your offer was just accepted! Get that good faith deposit over to your agent so they can drop it off to the seller’s office. The check will be deposited into the listing broker’s escrow account until settlement. At settlement, the good faith money will be put toward closing costs. Now, you’ve got to schedule inspections — wood destroying insects (WDI), radon, and home inspection. Not to worry your agent will hand you a list of companies to use. As long as the inspections go well and there are no major defects, you’ll be good to go to a settlement. If not, there are contingencies in place within your contract that allow the seller to make repairs. Your agent will also give you some referrals for closing attorneys to schedule the settlement. You’ll also need to select a homeowner’s insurance policy. In the meantime, your lender will send an appraiser to your future home. The lender uses an appraiser to determine a value for the home and, in turn, a final amount of money they will lend to you. If you had to offer over the asking price in order to get the home, several things can happen. You can pay the gap between the purchase price and appraisal, split the difference between the seller, or walk away. Your agent should have a solid offer that covers this type of contingency so you aren’t left high and dry. The last step is settlement, or, as some states call it, “closing.” Your agent will make sure that all your paperwork has been completed and shared with your attorney. They’ll also schedule a final walk-through between 24-48 hours before settlement. You’ll look over the property with your agent to make sure any repairs that were negotiated during the inspection process are completed. If everything seems in order, you’ll be able to proceed to settlement. If not, settlement may be postponed until the contractual issues have been rectified. If all is well, you’ll be free to attend settlement and get your paperwork signed. You’ll walk out with the keys to your new home in hand. The entire settlement process should realistically take approximately one hour.

There are a lot of steps to buying your first home. Before you really consider taking the plunge, make sure your credit rating is above 620. You also want to make sure you have sufficient work history (at least six months) and an acceptable income-to-debt ratio. A lender will be able to help you identify any areas that may be lacking. Keep in mind, fixing any issues that draw attention to a lender are absolutely worth it. Home ownership is not an instant gratification situation. The process of purchasing a home can be overwhelming, but with the right people around you — your agent and lender — you’ll be in good hands. No matter what happens, don’t be discouraged. All things that are worthwhile take work. Home ownership is no different. Hopefully this article was able to shed some light on the process. Property ownership is key to developing long-term wealth. Do what you have to do to get your piece of the pie.