Buying My First Home - A Realtor's Experience
Hello All! Mallory here, RJ & Co's from Keller Williams Executive Assistant. I recently just purchased my first home (so excited!) and found that I have so much I'd love to share with all of you that are on your way to purchase your first home!
For those of you that don't know, I do hold my Minnesota Real Estate license. This means that I can do anything that a full blown agent can do, I just choose to support Rochelle and Kelly on our team from an administrative roll while they go out and work as your primary agent. I love being able to support them in this way, while still being able to provide all of our clients with additional information that I gain by holding my license.
You would think that because I have been working in the industry (and that I grew up watching my mother as an agent) there wouldn't have been much to learn as I went through the buying process myself. As always, there were a few surprises and more emotions then I expected along the way.
My goal here today is to help show you a bit of what a typical experience is a a first time buyer, while providing some tips that I have learned from being in the industry. If you or someone you know is going to be a first time homebuyer soon, I hope you can show them this to help prepare them for what it is come!
Preparing for the Search
While finding your home is one of the most exciting parts, the preparation is definitely the most important. If there is one key thing I've learned from being in the business is that you shouldn't start actually looking at home until you are APPROVED with a lender and have really taken the time to figure out what numbers you are comfortable with.
Find Your Lender
Kevin and I actually met with our lender in late 2017 for the first time. We knew we weren't ready at that time to buy our home, however, we wanted to know if we needed to do any credit repair or really budget more money into savings then we had been doing. I cannot recommend this step enough.
During this meeting, you should also ask for an estimate on what your closing costs will be in addition to a downpayment. Yes, there is more money that you will likely need than just a downpayment. For example, usually, for a a home around $250,000, the closing costs are usually about 3% of the sale price. When you get to the offer, you can ask your agent about asking for the seller to pay some of your closing costs, however, situations will vary on how easy it will be to have a seller accept this.
If you are thinking about buying anytime in the near future, do take the time to meet with your lender so you know what you are looking at. Take their advice seriously and make sure you take any steps needed so that when you are ready, you will be in the price range and interest rate you want.
We decided in late October of 2018 that we were ready to seriously start looking and then went through a full approval process at that time. That means submitting a lot of documents, however, it is worth it. A full pre-approval will save you a lot of headaches later.
After we had our pre-approval, Kevin and I sat down and decided the price range we were actually comfortable with. To determine this we discussed how much we wanted to put down (I'll get to this more later) and our top monthly payment we were comfortable. We ended up deciding we were most comfortable about $50K under our top approval price, but it gave us wiggle room if we found our perfect home for a little more than we expected.
In many cases, you might want to go with your top approval amount and that is 110% okay! As long as you can afford the payments and other living expenses it is completely your decision.
If you don't have a lender, please ask us! We have several lenders that many of our clients have worked with that we would be happy to recommend you to. If you know someone that had a great experience with a lender as well and want to use them, that is great too!
Determine Your Time Frame & Be Prepared to Hustle
We were personally in a lease until June of 2019, however, we knew that we wanted to get into a home before that. The Spring market in real estate is great, however, as that is also my job, it is one of the busiest times of year and it would have been very difficult to find the time to find our own home. We changed our personal goal to close by the end of March, which means we would have had to find our home by about the end of January for a standard closing timeframe. However, a quicker closing may be possible. Our total under contract time was only about 34 days. You can find more on Timing Your Next Move in this blog post.
You might have to be prepared to hustle when you are finding the right home. We set you up on a search that shows homes directly from the MLS with your search criteria and can also send you an app to look up homes on your own. If you find something you like, let us know as soon as possible and we will plan a time to get you in as soon as both of our schedules allow.
Must Haves & Nice to Haves
Make a top 5 list of the things a home MUST have for your home work well for you. Additionally, it helps to make a list of about 5 items that would be nice to have, but wouldn't completely negate a home off your list if it didn't have them all. For an example, here's what we had:
Must Have
1. 2 Car Garage
2. Semi-Updated (either bath and/or kitchen)/mostly cosmetic updates
3. 2 or more bedrooms
4. Usable dining AND living space
5. Good sized yard for entertaining & a dog
Would be Nice To Have
1. Attached garage
2. Fenced in Yard
3. Updated appliances (sometimes you have to or will want to replace some if they're really worn/kinda gross anyways)
4. Finished basement
5. 2 or more bathrooms
Finding "The One"
Throughout the whole process of searching for our home, we looked at between 12 - 15 homes. This was a combination of showings and Open Houses. However, many people find their home in fewer than 10. In a typical first time homebuyer price range, you might need to see a few to know what to expect. If you do go to an Open House, ONLY go to homes that are actually in your price range. It is so easy to fall in love with something that is out of your price range and ruin it for your search!
Before we found the home we purchased, we seriously considered writing on 2 other homes. This gets me to my next point, don't settle on the TOP items you want, within reason. The first home we almost wrote on was not in the area we wanted. The second home was in one of the areas we wanted did not have a 2 car garage, which was one of the highest items on our list, and a must have for us. We decided not to write for a few other reasons and because we knew we had more time and we felt we'd be settling. From that, Rochelle would also ask us questions when we wanted to see something else to make sure we wouldn't run into the same issues. It would be a waste of our time, her time, and the seller's time to go see a home that we knew had a similar issue to one of the other homes we had seen.
When we found our current home, we happened to see it for the first time, write on it, and get an accepted offer all in the same day. Kevin and I had only had Rochelle come out to a few of the homes, and when she saw this one, she agreed it was a keeper. When you find a keeper, especially when you've seen enough other homes, do not wait too long write the offer.
Our price range happened to be very competitive so if we had waited, we probably would not be the happy homeowners of this home we are now.
Before You Write the Offer or Immediately After
Here we come with money talk again. Before you write an offer, look at the property taxes. This will affect your monthly payment. Also, we will check on any special assessments. Special assessments are additional costs that will go into your yearly property taxes, over a set period of time. In many cases, this is for a street improvement or something similar. You can ask in your negotiations for a seller to pay for the remaining balance at closing, or you can assume the assessment. We will help you through this as your Real Estate Team!
Additionally, see if you can gather the monthly utility averages from the seller. Depending on the age, size of the house, etc. the utility bills could be quite a bit different than what you may be paying in an apartment. It helps to know what the homeowners are currently paying to factor into your monthly costs to help determine if the home is still affordable for you. High utility bills with a mortgage at the top of your budget could be stressful! The utilities we recommend asking for are water/sewer, gas, electric, trash services, and possibly internet/cable.
The Transaction
We lucked out with some of the nicest sellers I've had the opportunity to work with and we worked with an awesome agent as well. This always just makes the process so much enjoyable!
Just a quick review of the process after you are under contract - you will go through an inspection period where you determine if any thing should be address. Generally, safety issues are the biggest concern. This can cost a few hundred dollars, and in many cases you may need to do a radon test and a sewer scope. Spending the money up front to determine any serious issues is definitely worth it to not run into big issues once you're in!
After the inspection the lender will order an appraisal if you are getting a loan. (Cash transactions don't need this). There is also a fee that will be included in your closing costs to pay for the appraisal. Once you are through these two big things, it's mostly smooth sailing. Luckily, both of these processes went quite smooth for us and we didn't have to do much negotiating. Sometimes you do, and once again, that fine! We will help you through it and make it a win-win.
Once you are under contract for your new home, it is totally okay to be stressed. I work on transactions every day and I found when it was my own home, I was nervous too. However, my worries were just making sure that Kevin and I did everything we could to make it as easy as possible for everyone else! Just remember that we have your back. Because we do this every day, we often can spot issues before they arise, or know how to handle it should something happen. In the end, everything will be fine.
The Down Payment
As a first time home buyer, I believe that many people still think that you need to have 20% down to purchase a home. I want to make sure you know, this is not the case!
Kevin and I chose to put 5% down with a privately insured conventional loan. However we could have gone to as little as 3% down. The main reason we didn't wait until we had 20% down was because we didn't want to rent anymore. When you put less than 20% down on a home, you do pay for private mortgage insurance until you hit a certain payoff amount. However, this amount was very small in comparison to the money we were throwing into our rent. (You can read more about what Millennials are spending on rent here.) Now we are building equity and are in a home far sooner than we would have been by waiting to hit that magic 20% down number. We have another post that addresses other questions, similar to how much you need for a down payment here.
Another reason we didn't want to wait, or put more down, was because we were able to find a home we love with a monthly payment we felt comfortable with. Because we didn't spend all of our saved money on purchasing, we now have the money to put into home improvement to continue to build our equity even more (Yes, we are tackling the kitchen right away), and keep a separate home savings account should any unexpected issues happen.
When you meet with your lender in the beginning of the process, make sure to talk to them about your down payment options and the various loan options you have. FHA loans or VA loans (if you are veteran), have different down payment requirements and may be a better option for you.
After you have an accepted offer, you will also be expected to provide earnest money. This is essentially good faith money on the transaction. This is usually about 1% of the purchase price and it will go towards your final closing costs or down payment when you get to closing. It will also help you feel like your spreading out the costs throughout the process. At least, it did for us!
Mini Tip on Home Owners Insurance
This is a quick one, but a good one.
Talk to an insurance a couple of insurance agents, or one you know and trust, and see if you can bundle some of your insurance together. We were able to bundle home and auto insurance and save a significant amount on our monthly homeowners insurance. This resulted in an even lower monthly payment than we had expected. Who doesn't like that kind of a surprise?
And one more thing about money....
Once you are under contract, and are waiting to close. Don't go crazy spending money! You should not make any big purchases or do anything that might drastically change your credit, or the amount of money you have to close on your home. Deals have fallen apart because of this. If something comes up, talk to your lender right away to make sure that everything will stay on track.
We have a whole other blog post about What Not to Do When Buying a Home that touches on this and a few other tips as well that you can check out.
Additionally, it is okay and expected that you will be planning for the furniture you want to buy, changes you want to make, etc. before you close on the home. However, try your best to wait until you are in the home to make many of these purchases. This was a tough one for me. I was planning on everything I wanted to do from the moment we submitted an offer and it's easy to get carried away. Once your in the house, however, you might find that some of your ideas might not work out the way you thought.
Closing!
This is the best part. The part where you finally get to sigh with relief and you get the keys to your new home!
For the closing you will work with a Title company and this company is just as important as your Realtor and your Lender. The Title company is responsible for making sure that there are no judgements against the property your purchasing, any ownership issues, and making sure that everything is properly put into your name at closing. Trust me, they'll do more than you realize!
After signing what felt like a ton of paperwork, we were finally handed over the keys to our new home! The sellers were also at closing and were extremely friendly and gave a few great tips about the home and neighborhood.
Now that we own the home, we have been busy painting and making it feel like ours.
We truly could not have done the process with the amazing people we worked with to get there. Even though I am in Real Estate, I am very grateful I had people on my own team to help with the process, a great lender, title company, and a listing agent to represent the sellers. It was a great experience and we are so grateful!
Now that I have been through the process as well, I can tell all you buyers, "I understand what you're going through and I understand how you must be feeling" and mean it.
If you are looking to buy your first home (or your 3rd!), we would love to help you! It really is an exciting time and is such a great accomplishment to purchase your own home. You can reach out to us at RochellesHomes@KW.com or fill out more information about your search here.
If you have more questions or are curious to learn more about our team, see our listings or past sales, you can visit our website at RJandCoHomes.com.