Purchasing a home, to some people, may sound simple but yet in reality, it is quite a challenge due to an overwhelming amount of planning, tasks, and even strategies. A home, at the end of the day, is one of the biggest purchase and investment one can make. Hence, being anxious and nervous is completely normal. That is why we, as real estate professionals, are here for you.
As a homeowner, investor, and realtor, here’s a summary of what you, as buyers, will need to put into consideration before you even start going out there and check out houses. By following this guide, I promise you your purchase journey will be 10 times easier and less stressful.
Key Takeaways
- As First-time homebuyers, you can seek help from many different resources from federal to state levels such as tax advantages and lending help.
- Buy a home that satisfies your own needs and purposes, not to impress others! Understand and consider different types of properties that not only will serve your needs but also fit in your budget.
- You need a solid attack plan. From securing your financing plan / a mortgage loan to selecting a property, having a thoughtful plan will make your journey a lot more pleasant.
- Buying a home is an effort. Maintaining it is another journey of its own. An important one too!
Benefits of Being a First-Time Homebuyer
Let’s get this out of the way! In most cases for achieving the American dream, you don’t really need a minimum down payment of 20% of the purchase price (for a conventional loan) to start the purchase journey. Even though it has been a norm for decades now, with the upward acceleration of home price, 20% may be far fetch for some buyers. If you’re an actual first-time buyers, keep reading!
Qualifications of First-Time Buyers
As a first-time homebuyer, you must belong to at least one of the following criteria (Source #1):
- Individuals who have had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This may also include a spouse, so if either meets the above test, they are considered first-time homebuyers.
- A single parent who has only owned a property with a former spouse while married.
- Displaced homemakers and have only owned with a spouse.
- Individuals who have only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
- Individuals who have only owned property that was not in compliance with state, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.
Essential Factors you must include in your purchase plan
It’s much more than just going out and making offers on properties. Purchasing a home requires strategic efforts to meet those goals at the most effective level. And most importantly, have the right intention at the right time! Once you recognize that this will be one of the greatest investments you’ll ever make, you might as well just spend some time to create a comprehensive tackle plan. Don’t know how? You can contact one of our team members by filling out the contact form here or email us at info@chadvorealestate.com.
It’s okay if you want to DIY too (I love DIY projects). If you prefer that way, here are a few things to consider:
1. Your personal finance
Unless you have loads and loads of cash (good for you), understanding where every single dollar comes from is extremely important. Before even considering browsing on Redfin or Zillow, audit and write down the balances of every single income streams and asset accounts (checking, saving, investment, crypto, etc.). Do me a favor and be extremely honest with yourself. Ask yourself if you have enough fund to satisfy the minimum down payment required for your mortgage. If you do not, be discipline with yourself, revise your spending habits, and save more before wasting your precious time.
As a more conservative individual myself, not only that I prepare enough down payment plus closing cost, I also save at least an additional 6 months worth of living expenses for emergency funds. As a matter of fact, vary case by case, some lenders will put this as part of your mortgage approval requirement. Having trouble saving? Keep reading
By all means I am not a certified financial advisor so please do more research on this! Just sharing my own personal tips and tricks with the world here.
Take these tips with a grain of salt
- Review your spending. It’s quite easy to know how much one earns but sometimes it can be quite difficult to remember what you spend your money on besides rent. If you are not a fan of Excel and spreadsheet like I am, there are tons of free tools out there for you to not only keep track but organizing your expenses by categories (student loans, car payments, utilities, food, entertainments, etc.). Get that in order first!
- Reduce your expenses! Yes, I understand it’s hard. We live in a capitalistic world, where companies spend millions of dollars trying to get you to spend. I’m not here to ask you to go cold turkey but simply just be more intentional and have more control with your expenses. For example, cooking at home can easily save you hundreds of dollars per month and unsubscribing to streaming services that you don’t even use can build up your savings over time.
- Pay your bills on time. Everybody has debts. Sadly, not everybody pays his or her debts on time. On-time payments will not only help you save hundreds and thousands of dollars on interest fee charged but also help you build your credit score up, which plays a critical component in your mortgage loan application.
- High-yield saving account. If you’re not an experienced investor or just prefer not to (I won’t judge you), your money STILL shouldn’t just sit in your standard saving account. Please do me favor and look into opening high-yield saving accounts to park your savings in there, which will guarantee at least 1-2% in return. There are tons of options out there (though make sure it’s insured by the Federal Deposit Insurance Corporation or FDIC) – Source 2
- Investing. The stock market, short-term bonds, mutual funds, and even side businesses are the most common types of investments. After all expenses and savings, allocating the rest of your money into a diverse pool of investments is one of the best way to grow your assets. However, each has its own pros and cons so please do your own researches and take this with a grain of salt because I don’t want to be reliable for any of your gains or losses.
Keep in mind that I did not mention retirement accounts such as IRA & 401K because you would want your investments / funds to be easily liquidated and accessible at all time so when it’s time for you to make a move, you are able to do so without jumping through hoops and/or pay withdrawal penalty fee.
2. Can you qualify for a mortgage loan?
It never is a great idea to go shopping without having a concrete budget in place. Unless you have an abundant amount of cash, most likely, you’ll seek for a mortgage home loan. This is the single most important step out of the entire process. Why? Speaking to a professional loan officer and getting pre-approved will give you a good idea of how big of a loan you’re qualified for. As a matter of fact, in certain markets, sellers will not consider your offers without a serious pre-approved letter and some realtors will require you to get one before showing you properties. They just want to make sure they deal with buyers that can actually be qualified for a loan.
To speak to a Licensed Loan Officer (like myself), have your questions answered, or to get pre-approved, feel free to contact mortgage@chadvorealestate.com. Highly recommended but not required, in order to expedite the process, you should gather all documents that are applicable to your case in this checklist before meeting with a loan officer.
Major tips:
- When speaking to a loan officer, make sure you always ask for a fully disclosed Loan Estimate, which every single LO and lender is required to send it to you 3 business days after they receive your application. This Loan Estimate will allow you to have a holistic view of how much your loan actually costs and where your money is actually going.
- Always use PITI(A) as your monthly budget. PITI(A) stands for Principal, Interest, Tax, Insurance, and Association Dues, which is the loan you borrowed along with other costs/fees associating with your property. Yes, you have to pay all of them monthly (technically speaking).
- The minimum requirement of your credit score to qualify for a loan is 580, which is relatively low. If you are below that threshold, you may want to re-consider your purchase timeline
Note:
Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.(Source 4) One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).(Source 5)
3. Knowing the type of home(s) you will go for
Now that you know you’re qualified for a home loan, let’s see what you can afford. As of now, I will assume we all know there are more options out there besides a typical Single-Family Home (SFR). We also have townhome, a condominium, manufactured home, co-op, new construction, and multifamily property ranging from 2-unit or a duplex up to 4-unit building. Each option has a list of pros and cons and one isn’t necessarily designed to fit everyone out there. It really all comes down to your personality, your lifestyle, your budget, and homeownership goals.
If you need professional consultations on which property type may fit you best, please reach out to our team for further discussion.
4. Home features – needs vs wants
Alright, now that you know which property type you want, let’s move on to what features you particularly look for in your first home. Take out a piece of paper and write down the absolutely must have, the non-negotiable, the dealbreakers, or the highest priorities items. Then you shall move down to the wants, the must-be-nice to have, but you can survive without it. Just like bullet point number 2, this is really up to your personal homeownership goals.
Don’t know where to start? I got you. Here’s a quick checklist / buyer questionnaire you can fill out. When going through this list, do keep an open-mind and be flexible with the search because most of the times, your criteria will change the more properties you check out.
5. i repeat – please Be realistic with your monthly budgets!
Now, keep in mind, just because you are qualified for, let’s say $500,000 loan, it doesn’t mean you have to go out and borrow the maximum amount of $500,000. Lenders typically use your gross / pre-taxed income to calculate your Debt-to-Income ratio. Meanwhile. you should use your take-home / post-taxed income to budget your monthly expenses. Believe me when I say many homebuyers have made this mistakes over and over again and end up struggling financially by making major cutback with other categorized expenses.
I need you to trust me on this. Please go house-shopping with a smaller budget because it’ll simply make your life much more easier, flexible, and you will not regret it later on. Remember, you can always start with a smaller property and plan to upgrade once you have better qualifications and more equity from your first home.
6. Work with a professional (aka me and my team) through the buying process
It is always a wise choice to choose my team to assist find your best starter homes that fit your criteria, your budget, and give you the best possible deals on your loan. If you decide to go with someone else, it is okay too, I won’t get hurt (maybe a bit).
On a more serious note, I highly recommend working with qualified licensed real estate agent so he/she not only can help advise you on choosing a home but also negotiate with the other party and make sure the whole transaction go as smoothly as possible. Trust me, there are a lot of moving pieces once you’re in escrow and you may feel extremely overwhelmed with all the counter-offers, contingency deadlines, and loan period. And if you’re worrying about cost, do not worry! You, as buyers, do not have to pay us agents. Most agents receive our commission through the seller’s proceeds.
If you still think you can handle it by yourself, keep reading because you may change your mind.
The Purchase Journey
Finalize and secure your financing strategies
At this point, we all know being a First-time Homebuyer comes with many great benefits offered through many programs by banks, lenders, and government program. And don’t forget about the low minimum down-payment (as low as 3%).
Here’s a few tips & tricks you definitely need to look into:
- Tap into HUD, Department of Housing & Urban Development, as a resource. We all wish Uncle Sam offers us some money to buy a home right? Unfortunately we live in an imperfect world. However, even when we don’t receive the funds directly, there are other financial and tax benefits associating with being a first-time homebuyer. To learn more, you can visit their website and start with the funding opportunities or the FHA loan program in details.
- IRA Fund Withdrawal. As a first-time homebuyer, you can withdraw up to $10,000 without paying a penalty fee from your Individual Retirement Account, either it’s Roth or Traditional (you’ll still be liable to pay taxes if it’s a traditional account). If you purchase as a couple, that’s $20,000 right there! – Source 6
- Special Programs. Depending on states and lenders (and sometimes timing as well), first-time homebuyer can request financial assistance with your down payments & closing costs, and sometimes even to make necessary improvements to your property. Of course, not all buyer will qualify for this grant. A Loan Officer who works for the institution offering those programs will better assist you – Source 7
The most exciting part of the journey, Checking Out Homes!
It’s 2022! There are tons of search engines and tools out there for us realtors and you, as buyers, to look at available listings on the market. It doesn’t matter who you are as a buyer (micromanager, hand-on, hand-off, etc.); you will want to make sure you exhaust all the available options and helps out there. From browsing Redfin and Zillow to attending random open houses, you will need to try it all if you are serious with your search.
Now, you can choose to think if I’m being salesy or not after reading the next sentence but I’ll write it out anyway. If you really are serious about purchasing, never go to a showing or attend an open-house without talking to a Buyer’s Agent and a Loan Officer already. Why? A buyer’s agent will have your best interest and negotiating on your behalf against the seller(s) and the seller’s agent. There I said it! Never say I never warned you.
Put Together a winning offer
Sounds like a simple thing to do right? It really is not especially in Orange County and Los Angeles County in California and other hot markets in the United States. Before making an offer, you and your agent should go over the following items:
- Initial Offer Price – The rule of thumb is to go over all the comparable sales within the past 6 months and make a decision from there.
- The Purchase Agreement – Yes, please do read over your contract and its addendums extremely carefully simply because you’ll be held reliable for everything listed on there once you signed. Here’s a few items you, as buyers, need to be aware of:
- Earnest Money Deposit
- Contingencies and their Deadlines
- Length of Escrow (typically 28-30 days)
- Financing Details
- Seller’s and Buyer’s Specific Requests (Addendums)
- Items To Include in the Offer Package – As houses are in higher demand, buying party will need to be a lot more creative and details-oriented than just submitting the Purchase Contract and Pre-Approval letter.
- The Highest Counter-Offer Price – If you’re lucky, your offer will get accepted within the first try. However, it doesn’t always happen due to bidding war and seller’s counter-offer. It is never wise to bid emotionally and decide to go way over the budget you set out for yourselves. Have an honest discussion with yourselves and your agent to come up with the highest offer price that you’re comfortable without breaking your bank.
- Double-check with your Lender – Yes, this is necessary. You don’t know when your offer will get accepted. It can be within a few days and it can be within a few months. It’s never a bad idea to re-confirm with your lender your budget before pulling the trigger. You’ll be surprised how the estimated closing cost can change drastically within a few days.
- (Optional) Lender to Seller’s Agent Connection – I put this as optional since it isn’t always necessary. Once the offer has been sent in, have your Loan Officer reach out to the Seller’s Agent to reassure him/her and the sellers that with your financial background, it’ll be a guaranteed closing and there won’t be any hiccups in that aspect. It’ll be a very nice bonus on your end and make you stand out.
I’ll cover this topic in a separated article to go more into details in terms of strategies and definitions of each major items. But for now, you can run over this list with your agent or our team as we successfully wrote many winning offers within tough markets.
Escrow Island
Home Inspection
Even if you are purchasing a brand-new built unit from the number one builder in the US, you should never ever skip the home inspection. Home Inspection will protect you from any liability moving forward and it’ll hold the sellers accountable for any intentional or unintentional flaws and defects that come with the property. Additionally, home inspection will be a great tool for the buyer’s party to renegotiate either the purchase price or repair credits during the escrow period.
Closing or… onto the next
Besides home inspection, which is fairly straight-forward, as buyers, you’ll face many other key components of the escrow process. These items will be completed by the Lender and its associating servicers such as Title Search, Home Appraisal, Mortgage Insurance (if you put less than 20% down-payment), etc. I will cover the entire escrow process along with each individual item in a separated article since this process alone has its own complexity that will be too much to include here.
If all go well, generally you should have no problem closing. However, if you run into any major problems in the process, you’re better off losing a few hundreds dollars and walking away from the deal than getting stuck with a big mortgage for the next 10-30 years.
Advices for New Homeowners
Loving your new couch? Enjoying your new bed? Comfortable at your new place? That’s great! Enjoy because you definitely earn it after a long purchase journey. Relax your shoulders a bit but always stay prepared and expect the unexpected. Homeowners are more than just paying your mortgage, tax, and insurance.
Continue building your savings
Unlike your old self as a renter, great homeowner comes with great financial responsibilities. Remember, you have a mortgage to pay now and missing a monthly payment may put a significant amount of damage on your credit score. On top of that, there will be unexpected expenses at the most random moments that will require you to pay for either repair services or home parts or both. Therefore, always put some funds on the side and build up your emergency fund so you have a nice cushion to lean on when facing those oh sh*t moments.
Never Skip on the Maintenance
Your home is among one of the largest and most valuable assets. Since you’re paying so much money for it, make sure you spend enough time and resources to take great care and maintenance of it. Preventative maintenance is always better than corrective maintenance. From changing your AC filters to cleaning your dishwasher, I’ll make sure to cover these common tasks in the future.
Expand your horizons
So, are you going to stop at your first home? It’s never too late to plan for your property upgrade, either from a condo or a townhome to a Single Family Residence or to build an Accessories Dwelling Unit (ADU). And even purchase your next property as an investment one 
. Our team is always here to bring you and your assets to the next level.
Conclusion
With this comprehensive guidelines, all you need to do now is to follow it and go after your American Dream. Knowing the process before having a discussion with any real estate professional will not only help you gain credibility as a buyer but also protect yourself from predatory lender and incompetent real estate agents as well.
Of course, if you have any additional question or are interested in our services, you can reach out to our team anytime at info@chadvorealestate.com for the general real estate service and mortgage@chadvorealestate.com for our mortgage department.
Other than that, I wish our readers nothing but the best. Go out there and win some offers!
Have a Topic in mind?
Let us know by filling out the form below or contact us here and we will be more than happy to dive deep in future blogs
Source
U.S. Department of Housing and Urban Development. “First-Time Homebuyers.”
Federal Deposit Insurance Corporation. “Deposit Insurance.”
Consumer Financial Protection Bureau. “What Is a Debt-to-Income Ratio? Why Is the 43% Debt-to-Income Ratio Important?”
Washington State Housing Finance Commission. “Here to Home.”
U.S. Department of Housing and Urban Development. “Complaints.”
Internal Revenue Service. “Publication 590-B Cat. No. 66303U Distributions from Individual Retirement Arrangements (IRAs),” Pages 24–27.
U.S. Department of Housing and Urban Development. “Borrowers Section 184 Loan Resources.”