A Primer for First-time Home Buyers: Seven Useful Tips

Dreams do come true! Purchasing a home may feel overwhelming, but it doesn’t have to be an insurmountable task. The process becomes easier if you assemble a team of trustworthy experts and take it step by step. This article lists seven tips to further set you up for success.

Analyze Your Financial Situation

The absolute first step toward buying a home is to gain a clear, honest understanding of your financial situation. You’ll want to clarify your budget and required savings, which will depend on the mortgage products you prefer and the property types you’re targeting (most co-ops require 20% down payments, whereas there’s no minimum down payment for house purchases).

Your total cost calculations should incorporate all costs – not just the down payment, but also closing costs and moving expenses. It’s important to consider all these costs to determine how much home you can afford.

Your home’s price range will depend on your income, debt, liquid assets, and credit score. Your real estate agent and mortgage lender can help you understand your budget and all potential costs. It is recommended that you spend no more than 30% of your income on monthly housing costs.

Check your credit score to see where you stand. Polishing errors off your credit report can improve your score and make you eligible for lower mortgage interest rates.

Get Familiar with Your Market

Research your target area. Identify the top things you want in a home and get a sense of your preferred neighborhoods, based on available inventory, potential commute times, and nearby amenities.

For example, if you want a prewar co-op, are they available where you’re looking? Do you need to be near a certain school? What’s the max commute time you’ll do? Are most of your friends and family in a certain neighborhood?

Going to open houses is a great way to get clear on your goals. Attending open houses is free and can be a fun way to explore the market. To get started, you might use home-buying search tools like Realtor.com or StreetEasy.com.

Enter your basic criteria including price, number of bedrooms/bathrooms, and preferred neighborhoods. See which listings advertise upcoming open houses, and make a plan to show up. Based on the number of people at open houses and how quickly those properties enter contract, you’ll learn when properties are priced well, and when they may be overpriced.

Assemble a Team of Professionals

You’ll want to build a team of professionals to help with your journey. Start with a real estate agent highly recommended by friends or colleagues. Many talented agents are trustworthy and honestly want to help you secure your dream home. Look for one who is transparent and acts as an advocate for you. Your agent is important – they’ll serve as your confidant and point person. They’ll also help you set a realistic goal and timeline for your purchase.

The best real estate agents can link you to other professionals who will help you navigate the market while avoiding pitfalls. Real estate agents are connected to attorneys, home inspectors, and lenders they have working relationships with and trust.

It’s important to note that practices, laws, and rules vary from state to state. For example, in some states, real estate attorneys are not used at all, whereas in New York, purchasers are required by law to have a real estate attorney. Different markets across the country also carry different levels of price negotiability, competitiveness, and inventory, which affects how you make offers.

Therefore, working with a reputable real estate agent is crucial. They’ll offer guidance on how much a home is worth, terms and prices appropriate for your offer packet, and the customs and expectations of your specific market.

For example, in competitive NYC markets, a mortgage preapproval from a reputable lender and a completed offer form detailing your finances are required to make a formal offer. And once a seller accepts your offer, it is customary to have a home inspection immediately, before you sign a contract. This is in contrast to other states, where purchasers schedule their home inspection after they’ve signed a contract.

Receive a Mortgage Preapproval

It’s never too early to connect with a lender who works in your specific market. A seasoned, knowledgeable lender will provide invaluable clarity on closing costs in your state, as well as your eligibility for loan products. This budget assistance is free to you.

You are not obligated to source your loan through the first lender you talk to, even if they’ve “preapproved” you and answered a bunch of your questions. The best lenders are happy to answer all your questions – and everyone has lots of questions about this part of the process. Loan products can be quite nuanced.

Once your savings and budget are organized, getting a “preapproval letter” is an essential next step. Having a preapproval letter from a reputable lender lets agents know you’re a serious buyer; it’s an indication the lender has thoroughly vetted your ability to carry a mortgage by reviewing your credit score, income, assets, and liabilities. In most markets, a preapproval letter from a reputable lender is required to make serious offers on property.

In New York, home buyers shop interest rates only after they’ve entered a fully binding contract of sale. So, plan to shop around different lenders and compare their costs, including interest rates and possible origination fees. Your real estate agent can help you with this. Comparison shopping can save you thousands of dollars in interest across the life of the mortgage.

Researching first-time home buying programs can be fruitful, too. Many states and localities offer programs to first-time buyers that help with low interest rates, down payment assistance, and/or closing cost assistance. If you meet guidelines for low to moderate income, you might even qualify for a grant or forgivable loan that you won’t have to pay back.

Understand the Transaction

It can take two to four months for a purchase to close, depending on the type of property you’re purchasing. House and condo purchases that require a mortgage typically last six to eight weeks, whereas a co-op purchase that requires a mortgage can run three months or more.

Here’s the basic breakdown of steps once you’ve found your ideal place. You’ll make an offer with the help of your agent. In New York, should the seller accept your offer, you’ll have a home inspection and your real estate attorney will negotiate a contract of sale, to make sure the terms you and the seller agreed upon are accurately reflected in the contract. Your attorney also conducts due diligence research, which includes, for example, investigating liens on a house, or investigating the health of an apartment building.

Should the home inspection and your attorney’s due diligence reveal a sound investment, you’ll sign the finalized contract and a deposit is due. This “contract deposit” is typically 10% of the purchase price and is held in escrow by the seller’s attorney. Once the seller countersigns your contract, you will receive a fully executed document you can shop mortgage interest rates with.

After you’ve shopped rates and chosen a lender, your bank will order an appraisal of the home’s worth. Following the appraisal, the bank will take a few weeks to underwrite your mortgage.

If the property you’re buying is a co-op or has a Home Owners’ Association (HOA), you’ll be required to submit a board application and go through their interview and approval process. Your agent will help you complete the application and prepare for the interview. Once the HOA/co-op board has approved your application, and your loan clears, you’re ready to close.

Regardless of property type, everyone meets at the closing table once the purchase is complete. Your attorney will help you navigate the ownership and loan documents, and you’ll collect your keys. At closing, the remainder (if any) of your down payment is due. The bank brings the balance of the purchase price. You’ll pay your attorney and lender, and in some areas, your real estate agent. And sometimes the seller will give you their phone number, should you have questions as you settle into your new home.

Have the Home Inspected

Home inspection practices are different across states. In New York, buyers have a home inspected before signing a contract.

A professional home inspector will thoroughly assess the home’s structure and mechanical systems. This will help you make an informed decision about whether to move forward with the purchase. Your real estate agent can recommend home inspectors and help arrange the inspection appointment.

Both you and your agent should be present for the inspection; your agent can ask questions you may not think to ask. Excellent inspectors will explain all the mechanics of the home to you, so it’s a good idea to be present. The inspector’s report will outline problematic areas and suggested repairs. Your agent can then propose solutions in line with your goals and/or negotiate fixes with the seller.

Plan Ahead for Your Move

Your lender will have required you to obtain homeowner insurance before closing, but if you hire movers, an apartment building may require additional types of insurance. Check with your building to see what their moving requirements are.

Some apartment buildings require you to make an appointment for your move and require a move-in deposit, which is typically refundable as long as no damage occurs during the move. Keep your receipts and documentation for moving expenses, as some can be tax deductible.

Make sure to make a plan for boarding your pets during the move. Don’t forget to transfer utility services like electricity, gas, cable, or internet; updating your address with the post office and DMV is also important!

Alongside the advice of your trusted team, this article offers seven tips to lean on. At the very least you’ll know what questions to ask… and you’ll be able to move through decisions more easily and enjoy your home purchase. It could be the best decision you’ll ever make. May these tips place you on an informed path to your dream home!