How To Buy Your First Home: A No Nonsense Step-by-Step Guide
You know want to buy a home — you’re just not sure where to begin. And no wonder: Buying your first home can be a long, intimidating process, full of gross stuff like math, legal documents, and cutthroat competition. But have no fear: First-time buyers just like you do it all the time, and we’ll walk you through the process.
First, you’ve got to make sure you’re emotionally and financially ready to buy a home. Hopefully you’ve spent the past few years getting yourself on solid financial footing — that means earning a steady income, saving up for a down payment, and improving your credit so you can qualify for a mortgage.
There’s no harm in dropping in on open houses before you’re officially ready to buy, just to get a feel for the market and what you like and don’t like. But once you’ve got your finances squared away, it’s time to get started in earnest.
If you’re renting, begin your search about six months before your lease is up, says Marie Presti, owner/broker at the Presti Group in Newton, Mass. “For the average home buyer, it takes two to three months just to find a property, and once you put in an offer, that’s another six to eight weeks,” she says. However, in markets with a lot of competition and little inventory, the search can take even longer.
It’s a good idea to start with a first-time homebuyer class, which will introduce you to the process as well as some trustworthy real estate professionals in your area. “Definitely consider taking a first-time homebuyer class to learn as much as you can, so it’s not as scary,” Presti says. Completing such a class is often a requirement of first-time homebuyer loan programs anyway, so it’s good to get this under your belt early.
Around this time, you’ll want to start assembling your real estate team, beginning with a buyer’s agent and a mortgage lender. (Later on, you’ll need a real estate attorney, home inspector, and insurance agent, too.) Ask around, read realtor reviews on Zillow or Trulia, or see if your class instructor has any recommendations for a buyer’s agent. If you like and trust your realtor, they can generally steer you toward other local pros they’ve worked with in the past, from loan officers to insurance agents.
State laws vary, but a buyer’s agent will represent your interests throughout your home search and negotiate on your behalf, and generally receives a cut of the commission from the seller when you finally buy a home (meaning you don’t pay them directly). Choose someone with a deep understanding of the local market — and whom you trust to look out for you.
Begin with a brief consultation with your agent so you’re on the same page – they need to know what you’re looking for. Presti gives her new buyers homework, instructing them to come up with a list of their top five “must-haves” — non-negotiable features a home absolutely needs to have, which might range from central air to a certain town or location – and then prioritizing them. “And if you’re buying a property with someone else, they should do the same thing separately, and then the two of you should get together and combine that list into one priority list,” she says. “That can take weeks and weeks to do.”
Then, Presti tells them to make ranked lists of their top five “wish-list” items as well – and merge the two lists together. Unless there’s significant overlap between the two of you, this list will often contain a combination of jettisoned must-haves from the first pair of lists. But every feature you can remain flexible on opens you up to more potential homes – and price ranges.
Listing these criteria will help you stay focused on what really matters to you when you’re viewing a house, Presti says. “If people just start going to look at houses and they don’t have this prepared list, they go in and if it has a nice kitchen they suddenly think it’s great. They look at the cosmetics, and that should be one of the last things you should focus on,” she says.
“First, look at whether it meets your criteria, what’s important to you. Second, the structural aspects — how old is the furnace, the roof, the windows – before you start looking at whether it has a stainless steel dishwasher,” Presti says. “Because as a homeowner, you can absolutely change the inside of your house or condo anytime. You own it, and you can always fix it up over time. But you can’t pick up a house and move it away from a busy street.”
You should also get pre-approved for a mortgage before you start visiting homes. For one thing, if you find your dream house right away, you might miss out as you fumble for financing. But it will also give you realistic expectations about what you can afford. “I usually suggest you do that early on, because it can be surprising and upsetting when a buyer finally goes to the lender and asks for preapproval, and they find out their credit score is lower than they thought or they don’t have the purchasing power they need,” Presti says.
Compare a few different lenders and mortgage products online, including those offered by local credit unions if you’re eligible and the low-down-payment, first-time homebuyer loans offered by your state’s housing finance agency.
You’ll need to gather pay stubs, tax returns, and other financial documentation for your mortgage application. Keep these in a folder for the duration of your home search, since you’ll need to provide them again when you finalize your mortgage (or if your 90-day pre-approval expires).
With a buyer’s agent on your side and a pre-approval letter in hand, you’re now ready to stalk listings and scour the earth for your dream home – and make an offer, if you find it.
When you find the right house, your agent will help you write up and submit an offer. A good buyer’s agent will try to glean some details about the seller that might improve your chances (and determine whether you ought to submit a personal letter as well), and will know the local market well enough to ensure your bid is competitive.
“Your agent’s job is to find out the motivation of the seller, whether there are other offers, and what’s important to the seller when looking at offers,” Presti says. With that intel, you may be able to make your offer more appealing in small ways. “In a lot of cases, they’ll learn that, sure, the money’s important, but it’s not the only thing. Maybe it’s really important to them to close on a particular day.”
You’ll usually need to include a deposit with your offer, called earnest money, which might be $1,000 to $10,000 or more. This money is applied to the purchase price if your offer is accepted, and returned to you if not — but if you end up violating the terms of an accepted offer, it’s gone.
Wait and Worry
Take it from me, making an offer takes a lot of guts: You’re committing to paying hundreds of thousands of dollars, so you really need to like – maybe love – the place. At the same time, it’s entirely possible your bid will be rejected. We fell in love with and bid on three homes over the course of a year before our fourth offer was finally accepted; each rejection was devastating.
Judy Alexander, a realtor with the Higgins Group in Lexington, Mass., said some of her buyers were outbid 10 or more times before they were finally successful — each one its own grueling disappointment. “It is agony,” she said. “The biggest part of [this job] is being a social worker. It’s not all real estate.”
Sarah Korval, who bought a house with her husband Scott in 2016, says this is when things really get stressful. “There were a lot of moving parts that kicked into motion immediately after we put in our offer. It was a whirlwind,” she said. “It also happened that the offer was accepted the week we were leaving on vacation, and so we had to conduct business from a national park with poor cell service. Trying to put a rush order on a radon test when you can’t hear the person on the other end doesn’t help your blood pressure.”
In normal market conditions, your offer should contain a contingency allowing you to conduct a home inspection within a week or so of the accepted offer. This allows you to back out of the purchase or renegotiate the price if a home inspection turns up previously unknown problems.
“A home inspector will examine the structural and mechanical condition of the home,” says Jorge Colon, program manager at The Homebuying Mentors, a program of the nonprofit Allston-Brighton Development Corp. in Boston.
They’re not omniscient, but a home inspector can generally alert you to obvious problems or potential trouble spots that might need a closer look from a specialist, such as a pest inspector or structural engineer. An inspection averages about $300 to $500, and should last a couple of hours. If you’re able to, it’s a good idea to shadow the inspector to learn about the house.
“A home inspector will tell you, for example, if a heating system or a roof needs to be replaced in the near future, both of which could be costly repairs,” Colon says. If you included an inspection contingency, you can use the inspector’s report to decide whether to renegotiate or even back out of the transaction without losing your deposit. “However, what a home inspector cannot tell you is whether you should buy a home or not,” Colon adds. “That’s up to the buyer.”
In a hot market, first-time buyers can struggle to keep up with cash buyers, and may feel pressured to drop contingencies from their offer – such as the home inspection contingency. “I think you have to be a real cowboy to do that, I mean it,” Alexander told me. “But on the other hand, if you want to be in the running, sellers usually don’t want to accept an offer with an inspection contingency if there are multiple bids involved.”
One way Alexander suggests getting around that in competitive markets is to squeeze in a home inspection between the open house and when all offers are due, usually a few days later. “The other is to go back and see the house a second time before the offer is due, and this time with a knowledgeable contractor or friend who’s in the business who can size up the heating, the electrical, the plumbing, the main systems of the house,” she said.
Colon cautions against waiving your inspection contingency, unless you have the means to cover any unexpected repairs. “When writing an offer, make sure that the terms and conditions included are realistic for you,” he said. “Don’t allow the competitiveness of the market to force you into making emotional decisions.”
Purchase & Sale Agreement
After you’ve had the home inspected and, after any renegotiations, both sides are ready to continue, it’s time to sign the final contract, often called a purchase and sale agreement (P&S). This will spell out the final purchase price, the closing date, and other legal details about the sale. It may include additional contingencies that protect you or the seller: for example, a mortgage contingency would allow you to back out if you’re unable to secure financing.
Submit Final Mortgage Application and Shop for Homeowners Insurance
Once the P&S is signed, it’s time to finalize your financing. You’ll submit a final mortgage application — a refresh of your earlier application, with new pay stubs and bank statements – for a more rigorous underwriting. Keep your credit on lockdown during this period, as you don’t want a sudden credit card splurge to drop your credit score and mess up your mortgage application.
Around this time, your lender will typically hire an appraiser to assess the property’s value. This will cost about $300 to $400, though it can be lumped into your closing costs. If you bid over the asking price, this can be a bit nerve-wracking, because you need the appraisal to come in near or above the agreed-upon purchase price — the lender’s not going to loan you more money than the place is worth.
Now that you’re working with finalized figures, this is often the point where buyers will choose to lock in an interest rate for 30 or 45 days – long enough to hold all the numbers in place through your closing date. (However, you can choose to lock in rates at any point in this process — your loan officer may be able to advise you in that regard.) Your lender should also now be able to give you an accurate assessment of closing costs and any insurance or property taxes you’ll need to pre-pay (for the year ahead) at closing.
Speaking of homeowners insurance, you’ll need to get some before you’re able to close on the home — the bank is not about to hand you hundreds of thousands of dollars without confirmation that its investment is insured. Your realtor might be able to recommend a local insurance agent, or if you’re satisfied with your car insurance, you can ask them about bundling your auto and homeowners policies for a discount. When in doubt, look for an independent agent who can shop around for the best rates and coverage on your behalf.
Just before closing, you’ll have a chance to perform a final walk-through of the home, to make sure it’s empty, clean, and more or less intact – the same house you agreed to buy. Tensions may be high at this point, but neither party wants the deal to fall through now, so any nitpicking details can hopefully be worked out. (Our seller tried to leave a huge, ugly piece of furniture behind – we weren’t having it.)
Closing procedures vary, but generally you’ll meet with the seller, realtors, and attorneys to sign over the deed — and add your John Hancock to about a hundred other legal forms. Your agent or attorney can explain anything you don’t understand – it’s okay to ask questions. It’s a pretty big deal, after all.
And at the end, voila! You’ll get the keys to your new house. Congratulations!