First Time Home Buyers Guide

For first-time home buyers, purchasing a house can be daunting and overwhelming. Here at Ewing & Clark, we strive to streamline each step and make the process as stress-free as possible. We have some insider tips and information to share within it for those looking to take the leap into home ownership. Our first time home buyers guide will help prepare you for this milestone.

Find a Trusted Real Estate Agent

First things first, find an agent! Good real estate agents do so much more than help you find your future home, they have troves of knowledge and endless resources at their fingertips. Not only can they supply you with expert lenders, advisors, and vendors, but they can talk you through what to expect at each step, answer ALL your questions, and be a trusted confidant, offering support when needed. Finding a real estate agent early in the home buying process will save you a lot of time and energy!

Your agent in most cases is paid by the homeowner, not you as the buyer.

Real Estate Agent Rolodex

Get Pre-Approved and Compare Mortgage Rates

A bank loan officer or mortgage broker can assist in the next important step: getting pre-approved for a loan. This is an important step because when you go to make an offer on a piece of real estate, the sellers want some verification that you can follow through with your offer. To prove this, buyers often include either a pre-qualification or a pre-approval letter with their purchase and sale agreement.

Pre-Qualification Letter: an estimate of the amount of home you get. This is based on an informal evaluation of one’s income and other information, but does not require your lender to do a thorough research of your records.
Pre-Approval Letter: an official document (Mortgage Letter) from a lender that lets you know exactly how much loan money you can get based on your verified financial information. For example your credit score, tax return, W-2, and other bank statements i.e. savings account would be reviewed prior to this letter being available.

In a hot real estate market, a buyer should take the time to do a pre-approval letter because the seller could have several buyers interested in their home. Thus, all things being equal with the different offers, the seller will assuredly will pick the buyer with the most likely ability to close. Consequently, an offer with a pre-approval letter will beat out an offer with with pre-qualification offer. Nevertheless, in most other real estate markets a seller often only gets one offer at a time. Hence, a pre-qualification letter is ample proof that a buyer can perform on their offer.

Photo Credit: FF Community

Despite having approval from a lender, you are not locked into using them. It will be additional work for the buyer, but once you know what you qualify for, you have the ability to shop around for different lenders to compare rates and find the best one that suits your financial needs. If under contract for a property, make sure you ask your real estate agent how long you have to switch lenders. Generally you have time even after getting a home under contract, but it depends on the purchase and sale contract, so confirm with your real estate agent before switching.

Ask your real estate broker if they can refer you to a lender who can assist in getting pre-approved for a loan. Real estate agents often know several and will likely give you two or more options to inquire with. Never feel obligated to use your real estate agents’ lenders, they are just suggestions. The most important thing is to find a lender you are comfortable with that will give you the best service, price and will be able to get the loan done in a timely manner.

Understand Hidden Costs of Homeownership

It’s important to be aware of unexpected costs before and after you buy a home! Have your agent supply you with a list (and hopefully estimates) of hidden costs associated with buying a home. Here’s a list of some fees/taxes/etc. to expect:

Costs when buying a home:

Inspection fees (ex. home and sewer inspections)
Closing costs
- Appraisal fees
- Escrow fees
- Homeowners insurance reserve
- Property taxes reserve
- Title insurance
- Mortgage applications fees

These fees can very greatly. For example, a buyer could pay “a point” (1%) of the total loan amount as a fee at closing or a lender may give you a credit towards your other closing costs depending on your interest rate of your mortgage. Nevertheless, a very general number for closing costs for a home with a purchase under $1 million is about $5,000. Thus, a homebuyer should budget an additional $5,000 over the purchase price at closing. It is best to talk to your real estate agent and/or lender to get a more accurate figure.

Costs after closing:

Moving fees
HOA dues (if purchase a condo or some townhomes)
Utilities
Homeowners Insurance
Property Taxes
Mortgage Insurance (depending on amount of down payment)

In addition, it is important to make sure you estimate and allocate funds for maintenance and repairs. American Family Insurance explains the 1 percent rule well – “…put aside 1 percent of the total purchase price of your home for home maintenance repairs”. depos

Create a Budget and Save

When creating a budget, the first thing you should do is figure out a monthly mortgage amount and down payment that you are comfortable with. NerdWallet.com has a helpful mortgage calculator tool that can help you visualize this. However, it never hurts to consult a financial advisor for help determining this. If you don’t have a financial advisor, your bank is a great place to start! Your real estate agent is also a great resource, as they typically have several trusted financial advisors they can refer you to.

It is wise to start saving for a down payment as early as possible, however it is a common misconception that one needs 20% down to buy a house. You can put as low as 5% down in most circumstances, however there are other loan options where you can put even less than that. Talk with a local lender to go over your options in detail.

Photo Credit: Go Banking Rates

Making Offers

An offer consists of the following components:

Purchase Price
Closing date – A more competitive offer will have a quicker closing date.
Earnest Money – This is a “good faith” deposit that is put down upfront and goes towards your down payment or closing costs. This money needs to be available for deposit into an escrow account within 48 hours of being under contract. The amount of earnest money can vary especially in different geographical locations. For example, the amount that is normal in Seattle maybe be different than Ellensburg. Nevertheless, without knowing the local norms, a general rule of thumb is it should be no less than 3% of the offer price and no more than 5%. The higher the amount the more competitive the offer.
Contingencies – There are contingencies and other criteria that your agent will review with you, as well as any other details within the contract. Some of these include optional clauses, title contingency, and inspection contingency.
Disclosures/Other – There are several disclosures or other forms that will be added to the offer. Typical disclosures include lead-based paint disclosure for homes built before 1978. Other documents may include a FIRPTA form that ensures the seller is not a foreign person or entity. If not disclosed, the IRS could come after you if they do not pay their capital gains tax on the sale. In addition, different counties and areas have different addendums. For example, Whidbey Island has disclosures for Airport and Aircraft Operations Noise Disclosure which points out the 5 active airport facilities on the island.

Escrow

Once both parties reach a mutually agreed upon price and the contract is signed around, escrow is opened. Escrow is a neutral third party that helps facilitate the transaction to a smooth closing. They collect funds, documents, and other needed information throughout the transaction. Your agent will be overseeing the process from start to finish to make sure deadlines are met and all parties are completing their agreed-upon tasks before closing.

Closing Day

The final settlement statement, title paperwork, etc. are all signed by both parties. Escrow will release all signed paperwork to the county for recording. The title is officially transferred to the buyer. Possession of the home is legally required at 9:00 PM on the day of closing. However, most often keys are provided to the buyer as soon as recording numbers are received from the county.

Time to celebrate in your first home!