CONGRATULATIONS! YOU’RE A FIRST-TIME HOMEBUYER {NEW HOME BUYERS – PART SIX OF SIX}
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
HOME BUYING PROCESS – STEP-BY-STEP GUIDE
Congratulations are in order.
- You spend less than you earn
- Saved a down payment
- Have Good to Great credit
Time to start shopping for a home that meets your needs. If you have a homeowner, family member, or friend, get their opinion. They will steer you clear of problems they may have encountered or hopefully learned to avoid, such as traffic noise, poor-performing schools, etc. Ask for their help!
MORTGAGE PRE-APPROVAL
Pre-approved assures potential sellers you can afford their home. Some listed homes will only show to pre-approved potential buyers to eliminate the noisy neighbors. Shop for mortgage lenders offering competitive fees and interest rates and complete their applications. The lender will review your credit score, income, and other financial information to determine whether you qualify for a loan and how much you can borrow. With pre-approval, you’ll be one step closer to owning your dream home. NEVER PURCHASE THE MAXIMUM HOME YOU QUALIFY FOR OR PURCHASE MORE THAN YOU CAN AFFORD! Leave room in your monthly budget for unplanned expenses, emergencies, loss of job, etc.
CLOSING COST
In addition to your down payment, you have home closing costs. These costs vary depending on location, the home’s price, and the loan type. Closing costs typically range from 2% to 5% of the house’s purchase price.
I am closing on a new home in December 2023; the estimate is three percent of the new build cost. Yep, closing cost SUCK, but add to your budget!
Typical closing costs:
- Appraisal fees: $300-$500
- Home inspection fees: $300-$500
- Loan origination fees: 0.5% – 1% of the loan amount
- Title search and insurance: $700-$900
- Survey fee: $300-$500
- Escrow fees: $500-$1,000
- Prepaid taxes and insurance.
- Attorney fees {Optional in some States}: $500-$1,000
- Recording fees: $25-$250
Request a more accurate list of closing costs from your lender and real estate agent.
DECIDE IF YOU WANT MOVE-IN READY OR FIXER-UP
We have all seen tv shows where they find a great house that needs $30,000 of work, and they complete the job in four days. They should rename those shows – Fantasy Island. Typically, their budgets are too low, and you cannot do QUALITY work in a few days. Some of these shows are sued for shoddy and unfinished work.
As a first-time home buyer, only buy a fixer-upper if you have the competency, and time can identify needs, and can ACCURATELY estimate the cost. Most of us cannot.
I typically purchase move-in ready for my homes, where I pick up a key and move in. For my rental properties, most require some work. My rental manager and I can estimate needs and costs reasonably accurately.
The more repairs and upgrades a home require, the lower the price. But that upgraded bathroom you think is a simple job may require four to eight weeks (if you are fortunate in hiring the right contractors), costing ~$20,000.00 in materials and ~$25,000.00 in labor, not including your time and efforts.
HOUSE-HUNTING REAL ESTATE APPS
I love real estate apps. You search areas you are interested in and can view the interior, exterior, and costs. These apps narrow down what areas you want to see with an agent. I use Realtor.com, Homesnap, and Zillow.
FINDING A COMPETENT AND HONEST REAL ESTATE AGENT
There are a lot of real estate agents out there, and like every profession, the good, average, and the horrible. Let’s get you a great agent. If you start working with an agent and realize it is not working, provide them feedback. If you are still unhappy, you know my favorite line from The Apprentice– You’re Fired.
Find an agent with experience in the areas you are looking for. If you are searching in several cities, I suggest you use an agent familiar with a specific town. That agent will know the competitiveness and quality of the schools, local stores, and conveniences you desire and where to steer clear.
Find an excellent local real estate agent:
- Ask for referrals: Ask friends, family, and colleagues if they have worked with local real estate agents and if they can recommend someone. Getting a referral from someone you trust is the best way to find a good agent.
- Check online reviews: Besides asking for referrals, check online reviews of local real estate agents. Websites like Zillow, Redfin, and Realtor.com have reviews from past clients that can give you an idea of the agent’s reputation.
- Look for experience and expertise: Look for a real estate agent with experience in your local market and who specializes in the type of property you buy or sell.
- Interview potential agents: Ask about their experience, marketing strategies, and communication style. You can also get a feel for their personality and whether they fit you well.
- Check their credentials: Make sure the real estate agent you choose is licensed and has no disciplinary actions or complaints against them. You can check their credentials with your state’s real estate board.
- Look for a good communicator: A good real estate agent should be an excellent communicator. They should be able to explain the buying or selling process to you and keep you updated.
- Trust your instincts: Ultimately, you want to work with someone you feel comfortable with and trust. If your gut says move on, find someone else.
Make an offer:
When you find a home you like, you make an offer to the seller. Your real estate agent can help you with this process. Remember, your agent offers their opinion; you make the decision. A real estate agent has a conflict of interest. They only get paid if a deal is accepted. It is your money.
Do not be afraid to negotiate aggressively; it is mandatory in my book! Worse, case-improve your offer!
Close the deal: If your offer is accepted, sign the necessary paperwork and pay the closing costs. If you use an attorney for closing, your agent can recommend closing attorneys. I typically hire an attorney to protect my interest; however, some states do not require a closing attorney. Also, ask friends and family in the area for recommendations.
HOME INSPECTION
The buyer pays for the home inspection; you are not refunded if you exit the deal. But a home inspection can save you time, money, and stress. Yes, I paid for a home inspection, could not come to terms with the seller, and WALKED AWAY! It cost me a few hundred dollars versus potentially thousands of dollars.
I always pay for a home inspection! Here are some of the benefits:
- Identify potential problems: A professional home inspection can reveal potential issues with the property, such as structural defects, faulty electrical or plumbing systems, mold, Radon, or pests. The report lets you decide whether to proceed with the purchase, renegotiate the price, or leave the deal altogether.
- If the inspection uncovers issues with the property, use this information to negotiate with the seller for repairs or a lower price. Alternatively, you can ask the seller to address the issues before the sale is finalized.
- The inspection provides you with a list of future repair needs. This information can help you budget for these expenses and avoid unexpected costs.
- Reduces the risk of potential legal or financial problems arising from purchasing a property with hidden issues.
AVOID THIS WHEN BUYING YOUR FIRST HOME
- Annoying traffic noise. Corner lots offer more privacy but often come with annoying (especially at 3 AM) traffic noise.
- Poor School Quality – School ratings included in home listings and using the above apps.
- Lack of convenience to the interstate (if needed)
- Safety concerns. You can google search the crime stats for an area.
You get what you pay for. When you see a home $57,000.00 cheaper than a comparable – THERE’S A REASON! It is ok to buy a great deal with your eyes open, recognizing it may require some work or have some negatives listed above. Use your critical thinking skills to decide.
CONCLUSION
Interest rates are high today at ~seven percent. I paid ~13% interest on my first home. I am very glad I made the buy. Buying a home in the right location was then and now a great opportunity to grow your net worth.
Prepare yourself for a successful home purchase using the above step-by-step guidelines.
I later refinanced my first home mortgage to <six percent.
WELCOME TO HOME OWNERSHIP!
WHAT SUBJECTS DO YOU WANT TO READ NEXT? WHAT QUESTIONS CAN WE ANSWER? UNTIL NEXT TIME!
LET’S MAKE SOME MONEY! – CRYPTOCURRENCY, ANYONE?
YOUR GREATNESS IS NOT WHAT YOU HAVE; IT’S WHAT YOU GIVE!
I GIVE BECAUSE I CARE!
St Jude Hospital: The mission of St. Jude Children’s Research Hospital is to advance cures and means of prevention for pediatric catastrophic diseases through research and treatment. Consistent with the vision of our founder Danny Thomas, no child is denied treatment based on race, religion, or a family’s ability to pay.https://www.stjude.org/
Wounded Warrior Project: An American charity and veterans service organization that offers a variety of programs, services, and events for wounded veterans of the military https://www.woundedwarriorproject.org
Folds of Honor: Providing life-changing scholarships to the spouses and children of America’s fallen or disabled military. And now, our mission expands to the families of America’s first responders. On our watch, those who protect our freedoms and our families will know they are not forgotten. https://foldsofhonor.org
Wilson’s No-Kill Animal Shelter: A N0-Kill shelter that is a top-rated non-profit. They compassionately care for all their animals. https://wcnkas.org
Tunnel To Towers: Since 9/11, we have been helping America’s heroes by providing mortgage-free homes to Gold Star and fallen first responder families with young children and by building specially-adapted smart homes for catastrophically injured veterans and first responders. We are also committed to eradicating veteran homelessness and helping America to Never Forget September 11, 2001. https://dogood.t2t.org/give/320847/#!/donation/checkout
TRUST ME – YOU WILL LIKE THE BELOW BLOGS!
STRATEGIES FOR FIRST-TIME BUYERS TO AFFORD A HOME IN TODAY’S MARKET {PART ONE OF SIX}
WANT TO SAVE THOUSANDS $$$$$$$ ON YOUR NEW HOME PURCHASE? IMPROVE YOUR FICO SCORE! {PART TWO OR SIX}
HOMEBUYERS STATE ASSISTANCE PROGRAMS {NEW HOME BUYERS SERIES THREE OF SIX}
BEFORE BUYING YOUR NEW HOME, LET’S FIX ANY FINANCIAL HICCUPS! {NEW HOME BUYERS SERIES FOUR OF SIX}
UNLOCKING SUCCESS: WHY I’M STILL INVESTING IN HOMES DESPITE RIDICULOUS PRICES! {NEW HOME BUYERS SERIES FIVE OF SIX}
ARE ADJUSTABLE-RATE MORTGAGES RIGHT FOR YOU?
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QUESTIONS AND ANSWERS: DO YOU RECOMMEND HAVING A MINIMUM 20% DOWN PAYMENT
IS BUYING A HOME A GREAT, GOOD, OR RISKY INVESTMENT – TODAY?
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WHAT DOES IT TAKE TO DEAL WITH YOUR IRRATIONAL MIND? – CRITICAL THINKING SERIES – PART NINE (9)
WHAT STAGE ARE YOU IN CRITICAL THINKING DEVELOPMENT? – FINAL CRITICAL THINKING SERIES – PART 10
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Jamie Dimon, Chairman and CEO JP Morgan Chase and Company, 2021 Letter to Shareholders
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https://wealthbuildingpowers.com/2019/04/01/financial-literacy-is-just-not-that-complicated-trust-me/
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an N.C. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
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