Juliette and Antoine on the steps of their first home
I love being invited to take that first photo on the front steps! It is such an important moment in your life when you hold the keys in you hand and unlock the door to YOUR house.
Before that moment you will go through the complicated and emotional process of buying a house. There are unfamiliar terms, contract documents, decision-making requirements and steps in the process to figure out as you go. All the pieces that go into buying a home can be overwhelming.
To help you get started, I am answer eight questions I know will help make this easier for you. Many more questions come up throughout your own experience, but use this list as a starting point.
Some of these questions have straightforward answers, such as what is an EMD (Earnest Money Deposit)? Others will have answers that vary based on your own situation and your own preferences.
Don’t forget to download my free worksheet to help you as you buy your home!
1. What can I afford?
First, get pre-approved! This is a great first step that will save you time and stress later on. With this as your first step, you can go into the process with realistic expectations for what type of house you can get.
The mortgage pre-approval process involves providing your lender with various documents that show your income, credit score, and more. Some documents you should have ready to go include your social security number, valid ID, proof of employment and proof of income, tax documents, and credit information.
You can get this process started as soon as you like. Your pre-approval letter typically expires within 60-90 days, so you will have to provide your lender with updated information if you go beyond that initial time period. Don’t think that you have to find a house within that 60-90 day period though; updating your pre-approval letter is quick and easy since your lender already has all your information!
Once you have your pre-approval and know your affordability, set your budget based on that. I suggest setting your budget below the amount you were approved for to account for additional costs such as closing costs, the home inspection, the appraisal, any home repairs, and insurance.
2. What am I looking for in a neighborhood/community?
This will, of course, depend on your personal preferences and needs. Some important things to consider are HOA fees, amenities (ie. pools, tennis courts, playgrounds), lifestyle of the neighbors, school district, safety, and walkability.
Whatever your preferences are, you’ll want to make sure your new community aligns with what you’re looking for. You might find the perfect home in a neighborhood that's completely wrong for you. Will you be willing to sacrifice the location for the house itself? Remember the three most important things about of real estate...location, location, location!
3. How long do I plan to stay in this home? Will it fit my needs 3-5 years from now?
This is a very important question to not overlook. You probably plan to stay in your first house for at least a few years, maybe more. You want your house to meet your needs until you’re financially ready to move up to a different house. Do you plan on growing your family within the next few years? If so, does your house have room to grow? Do you anticipate making a job change soon that will affect your commute needs? Is the house practical for a baby or toddler?
Your first house does not have to be perfect by any means! But make sure it will work for you and your family for at least a few years.
4. What’s included with the home purchase?
The listing description usually states which appliances are included in the sale, but it is wise to double check! Make sure that the contract specifically includes everything you expect to be included. Pay attention to notes from the seller indicating that they may be taking the washing and dryer with them or that they will not be leaving a dining room chandelier. You’ll want to make sure you know which appliances and fixtures you’ll have and which ones you can expect to buy yourself.
5. What are the closing costs and other hidden costs?
Closing costs are typically 2%-5% of the loan cost. If you are house-hunting in a buyers' market, you may be able to request closing cost help in your contract; this is an option you can discuss with your agent before you make an offer. With the current low interest rates and reduced housing stock across the country, most first time home buyers are house hunting in a sellers' market. That means that requesting closing help is not likely to succeed.
Other hidden costs to anticipate include home inspections (discussed below), property taxes, earnest money (discussed below), homeowner’s insurance, utilities, and moving costs. Make sure you discuss all of these costs with your lender and/or agent so you know what to expect!
6. How does the home inspection work?
The home inspection period and terms are generally laid out in the contract. The contract will specify the time frame and what will happen if problems arise during the inspection. Generally, sellers are willing to accept a home inspection period of around a week. Sometimes, in a particularly competitive housing market, buyers will conduct a home inspection before submitting their offer. They do this to reassure themselves that the house in in acceptable shape and to relieve the sell of the uncertainly of the home inspection period.
This is usually a $500-$1000 cost depending on the size of the home and how many tests you wish to conduct (ie. radon, mold, asbestos, etc.), but don’t forgo the inspection! This small investment during the buying process can save you much more money and time later down the road if there are issues that need to be addressed.
Most inspectors treat the home inspection for first time home buyers as a "Home-ownership 101" class. They will give you very valuable information so I highly recommend that everyone who will be responsible for the house attend the home inspection and write down copious notes.
7. How much down payment do I need?
This will depend on what type of mortgage you get.
Conventional Loan- As little as 3% down
This loan is not insured or guaranteed by the government, but is instead backed by private lenders. You can put as little as 3% down with this type of loan, however, it’s recommended to put down at least 10% to reduce your monthly payments.
FHA Loan- As little as 3.5% down
This loan is good for buyers who need to make a smaller down payment and/or have a lower credit score. FHA loans do, however, require the borrower to purchase mortgage insurance.
VA Loan- As little as 0% down
This loan is available to veterans and active members of the U.S. military and eligible spouses.
USDA Loan- As little as 0% down
This loan is for borrowers buying in a qualified rural area, which is typically an area with a population of less than 20,000. Borrowers must also meet monthly income caps in order to qualify for this type of loan.
8. Is a fixer-upper a good deal?
If the house is much too small and you already know that you need to build an addition, then it is not a good deal. Not ifs, ands or buts. An addition will cost you much more in time and money than you ever expected. It is far better to identify a house that meets your square footage needs, even if it costs a bit more upfront than to buy a house that will need an addition. One main reason is that you can finance the larger house with your mortgage. There are very few ways to finance construction so most people have to have liquid funds available to pay for work and materials.
Other serious red flags are structural problems and water problems because these can be very expensive to mitigate. I would leave those kinds of repairs to those who have experience dealing with them.
My favorite kind of fixer-upper is a large enough, solid house, with no structural or water problems that is simply dated. Ugly paint choices, dated curtains and dirty carpet can be replaced incredibly easily. If you are up for the job, most of these can be handled yourself. You would be surprised at how many people refuse to buy houses with unattractive surface finishes. With a little bit of vision and willingness to work, you can manage to get a bargain in almost any market.
Buying your first home can be intimidating, but it’s an incredible and rewarding experience! You should get to enjoy the process as much as possible. I hope these questions help you as you journey into this new chapter of your life.