A First Time Buyer's Guide To Real Estate
Buying a home is a lengthy and complex process. We're going to break it down for you and answer all of the questions that you haven't thought to ask.
How long does it take?
This varies by state, but you should generally budget 4-6 months from the time you start until when you move in.
PREPPING FOR YOUR PURCHASE: 2 - 3 weeks
Budget (1 - 2 weeks) - Determine your budget (both in terms of a monthly and down payment). You should also speak with a lender (if financing) to see how much the bank will lend.
Exit Strategy (1 - 3 weeks) - Most new home buyers are currently renting. Read your lease and find out when it ends or if you have an Assignment or Sublet clause. If you have to speak with your landlord, this should be prioritized. You'll likely want to give your landlord 30-60 days notice before you close on your home.
Research Neighborhoods (1-3 weeks) - Speak with friends who live there, read articles and blogs and figure out if the neighborhood is right for you. Chances are that new neighborhoods will come up once you start your search, so figuring out the reasons you want to be in a neighborhood (I.E. school district) is almost as important as the listing the neighborhood, itself.
SEARCHING FOR YOUR HOME: 1 - 3 months
Needs / Wants List (1 week) - Make a list of your needs and wants. Include everything from home type, beds/baths, proximity to important locations down to your ideal layout.
Interview Agents (1 - 2 weeks) - If you've narrowed down a few neighborhoods that are close together, you'll want to work with one agent. If your list is spread out, you may want to consider working with a couple who are helping you with specific areas or property types.
Attend Showings (1 - 3 months) - If you know what you want, you may be lucky enough to make an offer after the first showing. Chances are that it may take you a while to find your dream home so this is often the longest part of the search.
SIGNING THE DEAL: 1 - 3 weeks
Pre-Qual / Pre-Approval (1 - 3 days) - If your finances are organized, this will only take a few hours. If you haven't prepped yet, it may take you a bit longer to get everything together. Banks require lots of paperwork.
Term Sheet (1 - 3 days) - A term sheet can be drafted in a few hours, but knowing about contingencies and standard clauses will help you get a term sheet drafted sooner.
Negotiate Offers (1 - 2 weeks) - Once you submit your term sheet and financing documents, there will be some back and forth. If you have an attorney involved, budget a week or two for additional negotiations.
GETTING TO CLOSE: 1 - 2 months
Diligence and Contingency Periods (10 - 30 days) - While you may opt for an inspection before you go into contract, your diligence period usually starts running when the contract is signed.
Get Cleared to Close (30 - 45 days) - If you're financing, you'll need to arrange for an appraisal and go through the bank underwriting process (bank research on you and the home). This is generally the last hurdle that assures that the bank will lend you the funds you need to close.
Board Approval (2 - 5 weeks) - If you're buying in an HOA / Codno / Co-op there will also be an additional approval process, which can take 30 days or more.
Insurance (1 - 2 weeks) - In order to close, you will also have to secure Property and Casualty Insurance, so make sure you've spoken with a vendor.
Walkthrough (1 - 2 days prior to close) - This is your last chance to find out if there's anything wrong with the home. You'll want to bring a checklist to cover all of the bases. If you find anything major, you'll likely be renegotiating the price at the closing table.
If you need financing, you'll need to work with a Mortgage Lender or a Mortgage Broker.
BANK OR BROKER
Bank - Banks are typically the better choice if you have good credit, a stable income, and are buying something within your means.
Broker - Brokers are typically used when there are some hurdles to get through and bank financing isn't the best option. Brokers will also help you rate shop many of the smaller regional and non-traditional lenders.
Factors That Affect Your Rate - The most important factors on your mortgage rate are going to be 1) Income, 2) Credit Score, and 3) Debt.
Credit Repair - If you don't have great credit, you may want to work with a credit repair company. This process can take a few months, so budget your time wisely.
Rate Shopping - Most banks will match rates, so be sure to ask before going through the entire loan approval process again.
You should budget 3% - 5% of the purchase price for closing costs. This will be due at the time of your down payment. Closing Costs are an almost endless list made up of Bank Fees, Title Fees, Attorneys Fees, HOA / Condo / Coop Fees, and Taxes, amongst others. Many of these services are shoppable, so get quotes before you sign documents.
Shifting Costs - If you have leverage in the deal, you may ask the seller to cover some of the closing costs for you.
Negotiating - If you don't ask, you won't get. Ask the bank if any of the closing costs are negotiable.
Purchase CEMA - This allows you to effectively takeover an owners existing mortgage, and allows you to avoid mortgage recording fees. Ask the seller and your bank if this is an option.
PMI - If financing, you may be able to avoid Private Mortgage Insurance if putting down 20% or more. If you have the money to do it, but want to put down less, you can also ask for a Recast Loan that avoids prepayment penalties.
Timing - Most monthly fees are pro-rated, so if you close at the end of the month, you'll have less money to put down at the closing table.
No Closing Cost Mortgage - While your rate may be higher, you'll come out of pocket less money up front.
QUESTIONS FOR THE LISTING AGENT
Why are the owners moving? - It's always good to have the backstory. You'll also know if there is any urgency.
What is the seller's timeline? - This will help you draft a more compelling offer.
Are there any offers? - How much competition are you up against?
Have there been any renovations or upgrades recently? - You'll want to know any work done that may be an indication of future repairs.
Is there anything substantial that needs to be repaired? - Don't wait for this to come out in disclosures.
Are there any assessments on the property or liens? - It's always good to get ahead of any other issues that may arise.
Can you provide prior utility bills? - Know how much to budget for monthly expenses (water, gas, electric) once you close.
Have there been any recent insurance claims? - Your first tip-off that something may be wrong.
RESEARCHING THE PROPERTY
Property Inspection - Have a certified home inspector walk the home. The cost of this is far outweighed by how much you may save by them pointing out any issues that may arise, or in peace of mind, knowing that you won't have additional expenses to incur.
Permits / Violations / Complaints - Find out if any permits have been pulled, or whether there have been any recent violations or complaints. These records are publicly available.
Financial Diligence - If you're buying a Condo / Co-op / HOA, you'll want to know that the building or community are in a good financial position. You'll also want to see if there are any mortgages or grievances filed.
This list is just a quick, but important, overview of the home buying process. Having the right team around you will ensure that all of your bases are covered and the purchase goes smoothly. If you have any other questions, or are looking for a service professional to assist, don't hesitate to contact us.