Tips for first time home buyers

by | May 5, 2022

In this video we’re going to go over some tips for first time buyers looking to get into their very first home. Additionally, we’re going to be going over a super useful home buying checklist that you can use to keep track of what happens in the entire buying process so that you aren’t surprised along the way…cause surprises in real estate are almost never good.

First Time Home Buyer Tips

First time home buyer tips…there are just so many things we could go over if you are about to buy your very first home.  But instead of trying to pull out a random bag of tricks, what I thought would be more useful to you is to walk you through the entire process the right way. Meaning, there’s an order you should go about doing these things and if you do it in the wrong order that can actually have a negative impact on your experience. So first thing’s first before you jump into buying your first home the first thing you should do is figure out how much you can afford.

Affordability

The easiest way to figure out how much you can afford is to talk to a mortgage broker or a lender.  I’m a mortgage broker you can always call me but if you’re shy or you’re just dipping your toe in the water let me explain what we’re going to ask you.  There are five key pieces of information:

  1. How much do you make at work
  2. How LONG have you been working (we’re hoping for at least 2 years of history)
  3. How much do you have saved up for a down payment and for closing costs
  4. Do you know your approximate credit score
  5. What kind of debt do you have – credit cards, car loans, and student loans are the one’s we’re most interested in as those are the main ones that actually show up on a credit report and count against you. 

With these five piece of information we can calculate your debt to income ratio also called your DTI and figure out what the maximum amount of house you can qualify for. 

Your credit score and how big the loan is are going to be the deciding factors on what kind of interest rate you can get so with the five piece of information above we can start talking numbers and looking and what homes or condos or townhomes in your area are going for and figure out what is and isn’t possible. 

After we have those five pieces of information and figure out how much house you qualify for and make sure that the payment is something you’re going to be comfortable with (because quite often you will qualify for more than you actually want to spend on your house so keep that in mind as well).  But once we have that we’re going to move on to step 2 which is getting prequalified.

Getting Prequalified

A prequalification letter is a simple one page letter that says that a lender has looked over your financials and your credit history and has made sure you actually qualify for a loan and this is what you qualify to buy.  This letter is crucial when going out to buy a house. It lets sellers know that you can actually afford the offer that you are submitting. Without a prequalification letter you could just be a homeless con artist trying to waste people’s time for the free food at the open house – and nobody likes that guy.  

Get your must haves down on paper. 

There are things you are going to WANT in your house and there are things you are going to NEED in your house. It’s important to actually make a list in writing (especially if you’re doing this with your significant other or your buying with a family member because oftentimes somebody will not budge on something that you thought was TOTALLY negotiable).

Needs and Wants are Different

To give you an example from my own life – my wife needed to be able to park indoors when we bought a house. Nevermind that the weather in Los Angeles is perfect 350 days of the year and we lived in a safe area and over 95% of people park outside because they can use the garage for storage or a gym or a separate rental unit. That didn’t matter to her…she NEEDED to park inside.  By the way – it took me six long years to win the garage back but I did it. I got it back…maybe I should make a video on how to secretly get your wife to say yes to things she doesn’t want….note to self – make youtube account under fake name so wife doesn’t find out secret tactics of negotiation I use. 

Now you don’t have to do it on paper, if you’re more into spreadsheets you can open up a Google Sheet and make your wants and needs in two columns just make sure everyone is on the same page and make sure that your needs are really needs. I don’t think anyone really NEEDS a jacuzzi, for example – but having a certain number of bedrooms or being in a particular school district or a certain distance from work or a church or something – those can all be deal breakers so make sure those are clear and everyone is in agreement. Doing this now is going to save you SOOOO many fights and headaches later and your realtor is going to really appreciate it – which brings us to our next step

Find a Real Estate Agent

How do you find a realtor, and how do you know you have a good realtor? I’ll be honest with you, knowing whether or not you have a good realtor is actually not the easiest thing. Before being a mortgage broker, I owned my own marketing company but before that I was creative director for 3 Sotheby’s Real estate offices in the LA area where I oversaw the marketing for over 100 real estate agents on a daily basis and let me tell you, the agents I thought were great on my first day were NOT the agents who proved to be the best after working there for a couple years. Looks can be deceiving. 

Honestly, the best thing you can do is have one vetted by someone who knows what to look for, what to ask for and how to really figure out if the person you’re working with is going to go that extra mile to put you in the perfect home.  

If you’re at the point where you want to get prequalified and set up with an agent – one thing you can do to kill two birds in one stone is call me directly.   I can get you prequalified for just about anywhere in the country and I will personally call and vet the real estate agents in your area on the off chance that I don’t already know someone in the area you are looking to buy in. 

Now you might be asking yourself if you actually need a realtor – and yes you do. You’re not legally required to have one but as a buyer the realtor’s commission is not paid by you –  it’s paid by the seller so really why wouldn’t you want someone finding deals, trying to negotiate on your behalf, holding your hand every step of the way – it’s a no brainer.

Now the thing that I hear people recommending to others all the time is to not have an agent – why? That way you can go to the agent who is representing the seller and tell them that you don’t have an agent and that you’re willing to use them as your agent so they can get both sides of the commission on the deal.  Let me tell you this is a dumb idea – I’ve seen this blow up in people’s face all the time. 

If you’re going to try to use that technique just know that the loyalty that realtor has will ALWAYS without exception be with the seller. So if the inspection comes back saying there’s a termite or mold problem they’re not going to negotiate for you, if there’s a stall in your lender’s approval they’re not going to push the sellers to wait longer, if there’s even the slightest little tiny hiccup in the deal (and there often is one or two) all of that advantage you had in winning the deal gets thrown right out of the window. You wouldn’t want to go to trial and ask the defense attorney to also be the plaintiff would you? No – and honestly in real estate I don’t think it’s any different. Get your own guy and don’t try to sneak around the back cause it’s just going to bit you in the you know what!

Once you have your realtor and your preapproval it’s time to shop – 

Time to Shop

There’s not much to say about this step. You go look at houses, talk about how much you like them or not (this is where those must and want lists really come in handy) and then if you like the house you put an offer in writing through your real estate agent. The seller can either accept, reject or present you with a counter offer but the goal is obviously to work with your agent to get your offer accepted.  

Once your offer is accepted there will be an initial contract called a residential purchase agreement that both you and the seller sign. 

Earnest Money Deposit

Your Earnest Money Deposit or EMD for short. You’re going to put anywhere from 1-3% of the purchase price into escrow (which is a neutral third party that verifies that the money is there and the house is there before releasing either the cash or the keys to the other party).  Now you shouldn’t screw around with an EMD – there are many many many ways that you can get your EMD back but technically speaking once you put it into escrow it’s always at risk of being sacrificed if you get cold feet. I’ve never, not ever had a borrower lose their deposit but that doesn’t mean you should go around putting deposits in on multiple houses knowing you can just back out at anytime…putting in your deposit means you are serious about buying the house. 

Inspections, Appraisals and Underwriting

Step 7 and 8 happen at the same time.  You’re going to order both an inspection and appraisal on the property while simultaneously getting the loan for the house underwritten. There’s not much for you to do on the loan side other than submit the paperwork that your broker or lender asks (this is going to be things like your W2, paystubs, bank statements etc).  A person called and underwriter is going to check to make sure everything pans out on your finances to get the loan approved while the inspection and appraisal is going on. 

Here is a pro tip – your inspection and appraisal are your opportunities to renegotiate a little – or even a lot in some instances. Every house comes back with some flaws in inspection – even if it’s a brand new construction there’s going to be a couple things the inspector finds – just the name of the game. This is where you can try to push for something called a seller concession.  If the windows are stuck or something in the house needs updating – even if you knew about it or noticed it in the open house, getting it in writing during the inspection is your ammunition to go back to the seller and say hey, this thing is going to cost us five or ten thousand dollars to fix…we’d like you to cover some of our closing costs to make this fair.  Very often once your seller agrees to your price, five ten or even twenty thousand dollars isn’t going to make the deal go away so it’s always worth trying to ask for something during the inspection. 

Usually within 30 days of the offer being accepted the inspection and appraisal are complete and the loan is ready to be funded and that’s when you go to closing.

Closing

Closing has three parts – you’re going to sign a stack of a few hundred pages (I wish that were an exaggeration but it’s not – there are literally hundreds of pages of documents in a real estate transaction).  Usually a notary will come to you to get these signed and the process of signing takes about 45 minutes or so.

Additionally you’re going to wire the remaining funds into escrow and then once everything checks out you get your keys and can move in. Which brings us to the last step.

Celebrate

Finding and buying a house is a huge deal. Don’t underplay it. Once you move in you deserve to celebrate. It’s going to take you a while to unpack but I recommend popping open a bottle of champagne or a six pack or whatever gets you going. Even if you’re just sleeping on the floor or an air mattress the house is yours and you need to break it in with joy.

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