First Time Home Buyer’s Guide

For most, buying a home is easily the most expensive decision we make in our lifetime. It is no wonder it can be a stressful time, no matter how many times we been through the process. Although buying a home is a huge commitment, it does not always have to be hair-pulling, gut-wrenching stressful. In fact, buying a home should be looked at as an exciting, enjoyable and life-altering journey in which we all should look forward too. Just like with many other important decisions we make, being prepared and having a good plan set in place can make this process much easier and enjoyable. Let’s discuss the key steps involved in the home-buying process and establish the key action plans so that you can be fully prepared and excited to start your home search.

Step 1) Decide if you are ready to buy a home

Although being a homeowner is great for many, depending on your situation, it is not for everyone. Your financial situation, your lifestyle and your short term plans on where you think you’d like to live, all should be considered when deciding if you are in the right position to be a homeowner. Buying a home is a huge financial obligation. You will need to have a sizable amount of money to put down for a down-payment and to cover closing costs (we will discuss in further detail in step 2). You also need to have good credit in order to qualify for a loan to purchase a home as well as a good paying job. When deciding whether or not to buy you should find a reputable lender and loan officer who can walk you through the financial aspects of your home purchase. Even if you are financially capable in buying a home you should be aware of your short term plans and be conscious of the kind of lifestyle you live before committing to buying a home. If you think there is a good possibility that you may move to a different area within a couple of years then it most likely wont make financial sense to buy a home. The same goes for those that get relocated often through work or for those that just don’t like to be tied down to one area for an extend period of time.

Step 2) Find a Reputable lender and loan officer.

Unless your one of the few lucky people that have enough money to buy a home all with cash, you are going to have to take out a loan to pay for your home. With that said, you will need to find a reputable, honest and hardworking lender and loan officer that will assist you with your loan process. It is strongly recommended that you get pre-approved for your loan before you even start your home search. Why? Well, a couple reasons really: It is crucial to know your buying power so that your expectations are set straight. If you start looking for a $550,000 house during your home search, only later to find out you only qualify for a $450,000 purchase you can expect that your criteria will have to change in some aspect and compromises will need to be made. Also, a seller will not accept an offer without a pre-approval. It seems it happens all too often where the house of your dreams becomes available when you least expect it and are least prepared. If a home is priced right and in demand it can very will receive an offer in a matter of a day or so. Getting a pre-approval that quick is not always possible so it pays to be prepared and get a pre-approval before you even start your home search. Good loan officers are those who typically are available during days and evenings, whether it be during the week or on the weekend. Your Loan officer will be able to walk you through the different options you may have that make the most sense for your particular situation. They will discuss with you your estimated monthly payments based off information you provide about your desired home and the amount of money you should anticipate to put down as your down payment. Over here in central New Jersey, homes easily start over $400,000 or more in some desired towns. Even a 10% down payment on a $400,000 start home, or $40,0000 is no amount to sneeze at, especially after adding in closing costs which can creep up to almost an additional $10,000. Your loan officer will also go over with you the interest rate for your loan that you qualify for. Although interest rates continuously fluctuate based on external market conditions, an individual’s credit health also plays a critical role in calculating one’s interest rate. This is why for example, you may find your friend received a higher interest rate than your brother who both purchased and took out a loan at the same time. Your brother should pat himself on his back for keeping his credit in good standing. Most lenders require a minimum credit score of 620 to 640 but that range can easily fluctuate depending on many factors relative to the particular bank or applicant.

3) Find a Reputable Real Estate Agent

Good realtors can be an invaluable asset to one’s home-buying process. A realtor can be the key difference in having your home buying experience be remembered as a fun and enjoyable endeavor or as a bad nightmare that you desire to forget. It is important to find a good realtor that will be resourceful and one who will best advocate and represent you during the process. They should be someone who has local real estate experience so you can get more accurate information of the area you think you may be looking to move to. Some qualities and characteristics a good realtor typically posses is one who is a punctual, good communicator, organized, strong negotiator, honest, loyal, hardworking and who is flexible with their availability. It is important to gain trust with your realtor as they should tell you their honest opinion, no matter how good or bad the information may be. They should be able to guide you through the entire process and educate you on the market so you are best prepared. The best way to find a good realtor is is to talk to your friends and family members and see if they can recommend a realtor. Otherwise, the internet is always a good resource. There are many websites to search for realtors around your area. Homelight is a very popular website and has been gaining steam and popularity over the last several years.

4) Figure out your criteria in your home Search

We would all like to have an unlimited amount of money so we can have someone build our dream home and be ready to move in next week but unfortunately this is not reality. Many of us have different reasons why we are considering to move and therefore have a different criteria from one another. Maybe you are moving because you have young children that will be beginning school, or maybe your job is relocating you to the area and you want to be within close proximity, or maybe you just adopted a child and need an extra bedroom and more space. Whatever the reason you should write down your reasons for moving which will make it easier for you to then also write down your list containing your criteria. You should list them down in order of your priorities so you can easily identify the more important aspects of what you would like in your desired home. Go over your criteria with your realtor so that they can then go over what options are available based on different areas. Often times it will be extremely hard to find everything on your list. Depending on the list of criteria and budget that you have there may be some compromises that will be made but the things on the top of your list of criteria should still be met. It is very typically that you may find throughout your home search your list of criteria may change a bit which is a common occurrence.

5) Place an offer on your next home!

It may take several weeks or even months to find the home you really like. However long it may take it will pay to be patient and wait for the home that meets most of your criteria. When you do find the home that you really like and desire you will be then be ready to take the next big step in placing an offer on the home you plan on purchasing. Before placing an offer on the home you will need to get an understanding on an estimated market value of the property. Your realtor should send you “comparables”. Comparables are properties that have recently sold within the last 6 months that are most similar to the property you plan to purchase. These are properties that are most similar in size, style, condition, etc. This will give you a much better idea so you can compare of what other similar properties have recently sold for in the immediate area. Based of this information you can be much better prepared to calculate and decide on a purchase price you would like to offer. Once you know the price you would like to offer the sellers you should then be ready to prepare your offer so that you then can submit to the sellers for review. You realtor will go over all the specific documents and addendum that may be appropriate including the Standard NJ Sales Contract which will be needed in order to officially submit an offer in writing. Once you have reviewed and signed all of the necessary documents your realtor will officially present your offer and start negotiations. The sellers have the option to accept, decline or counter the offer that was presented to them. If they accept you will then enter into “attorney review”. The buyers (you) and the sellers of the property would both hire a real estate attorney to represent each other. The attorney’s will make some amendments of the contract to better protect their client and once both parties agree, the offer is considered to be fully and mutually agreed and at that time be “under contract”. If the sellers counter the offer that was presented to them this means that they do not agree with one or more of the conditions of the offer. They will specify the condition that they would like changed and will give the buyer the opportunity to accept the change. For example, the seller may agree with the offer price that was presented but would like to change the proposed closing date to an earlier time-frame. If acceptable to both parties then they would have an agreed offer and will a that time begin “attorney review”.

6) Congrats! Your offer was accepted! Now what?

Once attorney review is concluded both parties (buyer and seller) enter an “under Contract” phase. During this phase the parties are in a binding contract and typically no other offers are allowed to be negotiated. Most of the time the buyer typically would now hire a home inspector to preform a general home inspection on the home he/she is buying. The home inspector will perform a full inspection of the property you plan to purchase. This is a very crucial part of the home buying process so it is important to hire a home inspector that is knowledgeable and reputable. The inspector will go through each room of the house and point out any “defects” that are found. It is important to note that although inspectors are licensed professionals they are not specialist in each area. If there is an area of concern noted during the inspection he/she may recommend you hire a licensed specialist to further investigate or address the area of concern. Some defects that may be considered major or safety concerns may be negotiated to have the seller repair or provide a credit at closing that would cover the cost of the repair. However, this would need to be addressed case-by-case. Your realtor and attorney will be able to guide you through the inspection negotiations.

7) Appraisal, Survey and Title Search

Your lender will order an appraisal on the home you plan to purchase. A licensed appraisal will physically walk through through the property and compare the home with other similar homes that recently just sold. They will use that information to determine the market value of the home you plan to purchase. At a minimum the market value will need to be the amount you and the seller previously agreed on. If the market value, according to the appraiser, is lower than the price both parties agreed on then the purchase price will need to be renegotiated. For example, if both parties agreed on a purchase price of $400,000 and the bank’s appraisal is valued at $390,000 then the difference of $10,000 will have to be renegotiated to come to an agreement on which party will be covering the difference in the appraisal. A survey will also be ordered on the property. A survey refers to the process of locating and measuring a property’s boundary lines to determine the exact amount of land that a homeowner owns. A survey will also locate and measure any easements or encroachments on a property, which will be noted on a home’s chain of title. Buyers have a property surveyed after making an offer to make sure any issues with easements or encroachments are documented and resolved before closing. The title company will conduct what is called a title search of the property. During the title search, the title company looks for any outstanding mortgages, liens, judgments or unpaid taxes associated with the property, as well as any restrictions, easements, leases or other issues that might impact ownership.

8) Walk through and closing

Congratulations, you made it to closing day! Before closing you should call the utility companies of the property to have the service changed in your name. Also, the day of the closing you should walk through the property to make sure the property is in “broom swept” condition and that all utilities that were functioning during the inspection and/or fixed after inspection are also in working order. Once the walk through is complete you can then proceed to the closing. The time and location of the closing is determined ahead of time and typically is held at the buyers attorney’s or settlement company’s office. You will be instructed to bring whatever is required for the closing which may include but not limited to: a formal government ID, certified check owed and due at closing. Your attorney and settlement company will go over all the appropriate documents for your review and signature. There are many documents that will need to be signed so be prepared. Once all necessary documents are reviewed and signed by both parties and funds are received by the settlement agent then, congrats, your officially a homeowner!