How do I buy a home? First-Time Home Buyers Guide 

How do I buy a home

estate for the very first time. Between mortgage rates, property taxes, negotiating with sellers, and closing the deal, it's easy to feel a bit overwhelmed. There's just so much at risk!

However, if you become familiar with what it takes to buy your first home at the very beginning, it can help you navigate the real estate market with ease. So let's get started! In this first-time home buyers guide, you'll learn exactly what it will take to buy your first home from beginning to end. Whether it's your first time in the real estate market or you're an experienced homeowner who wants to brush up on their skills, this guide has you covered.

How do I buy a home? First-time home buyers guide

GETTING STARTED

What's your price range? Let's find out. In this first-time home buyers guide, you'll discover what you can afford and what the difference is between being pre-qualified and pre-approved to buy a home.

Likely the biggest financial decision you're ever gonna make, is buying your very first home. Educating yourself as much as possible is important before you take this huge step in your life.  Let's get started.

First, have a peek at your financial standing: How much home could you afford? Which truly means how much can you afford to borrow? Also meaning, how much do you make a year and what amount do you already owe? The basic rule of thumb is that you qualify for a mortgage loan with a minimum debt-to-income ratio of 40% or better. So, if your household income is about $100,000 a year, you can not owe more than $40,000 to credit cards, car loans, student loans and all other debts you owe.

Budget

Next piece of advice is, budget for the home you can afford now, not the home you want to afford 6 years from now.  What kind of house would that be? One way to accomplish this is using an affordability calculator to help figure that out!

Once you have a general idea of what you can afford today, you'll want to go get a mortgage pre-approval letter. A pre-qualification is a lender's basic overview of your financial ability to obtain a loan. You provide your chosen lender with all your information, no paper work is necessary at this point, and receive a pre-qualification based on the information you provided. This usually can be done online, by phone or in person, which ever you prefer.

Pre-Approval vs Pre-Qualification

A pre-approval letter, which we highly recommend over the pre-qualification letter, is a more in-depth look at your ability to get a mortgage loan. A pre-approval letter is the document that can prove you are a serious buyer to a seller, a lot of the time, a seller will not consider your purchase offer without a pre-approval. Your lender will take a look at your bank statements, credit scores, tax returns and other requested financial information. While doing so, a lender will check to see if you qualify for any special programs that are available, like government-backed FHA loans and VA home loans.

Neither a pre-qualify or pre-approval letter will guarantee you a loan, they're a much more reliable indicator of your ability to secure a home loan. You may be thinking, what do I do with this letter? You will include it when submitting your offer to purchase a home and it will make your offer that much stronger.

Reevaluate

If you have trouble getting a pre-approval or pre-qualification for a home and loan you want, don't distress. Instead look a little more seriously at how much you wanted to spend on a home and how you can budget to put yourself in a much stronger financial position.

Whether you get pre-approved or pre-qualified, it's worth speaking with a Realtor® or other professional to navigate these process correctly. You're just beginning a long, complicated and very rewarding quest—let's do things right the first time! Reading this complete first-time home buyers guide is a great place to start!

Balancing your budget and home size

PRIORITIES vs BUDGET

There is ALWAYS a trade-off. Every home buyer will make decisions about their priorities and budget.

First-time home buyers should plan to live within their means, which will take some financial self-reflection. Choosing the home that meets your budget requirements will take some thought-out planning. Consider this:

Things to consider:

Size Matters:

The American motto: "bigger is better". The problem with this motto is with property, bigger usually means more expensive. One aspect you should consider is how much home will you need in the near future. Will your life possibly change soon? Getting married? Having kids? Frequent house guests? Will an elderly parent soon be living with you?  It's important not to pay for what you won't need, but considering a balance of the near future.

Fixer Upper:

​A home in need of some work can usually be found for a more affordable price point, however are you the type that can do the work? Do you have the skills and patience to do it yourself? Does your spouse have the patience to wait for the work to be completed? Can you afford to hire the help of a handyman or specialized contractor? Will you and your family be able to live in the home while the upgrades are being done? If you answer "no" to any of these questions, then you're probably looking for a home that is "move-in ready".

Costs of Home Ownership:

​It's important to note that you will multiple utility bills, like electricity, gas, water and possibly sewer and trash. Some of which you may not be used to paying if you've been renting your whole life. Depending where the home is located and it's age, you may have to consider other costs. If you live in a colder climate, you may need to upgrade insulation or add modern energy efficient windows to keep heating bills manageable. Warmer climates, you'll want a strong air-conditioner that may need to run often to stay cool.

Your Priorities:

​Does your chosen home meet your needs? Is it located to fit your life? Are you able to accept a longer commute? Are the schools nearby adequate? Does this home have large yards and gardens that will need tending on weekends and does this fit your lifestyle? Do you have room to park your toys like bikes, kayaks, rv or motorcycle? Do you need a special quite space to do your hobbies?  These are all important aspects to consider, that usually aren't realized until after you've moved in!

The Near Future:

Let's be real—things change! Make a list of some of the life changes that may be fairly realistic in the near future (job change? children? school activities?), and consider how long this home may last for your needs. Will this home meet your needs for the next 7 years? Possibly decades? If not.. what may it sell for down the road?  This would be an excellent time to take advantage of a Realtor's free advice, this is precisely what we are trained for!

Other decisions must be made in regards to the home's location and your commute time. Buying a home is a balancing act between time, money, amenities and your environment. You'll need to understand exactly what matters to you the most and plan your purchase around as man of those prioritized needs as possible. Take advantage of our free professional Realtor services and use our valuable guide to help you navigate these real-life considerations.

The closing (also known as the escrow period) begins as soon as you're home purchase offer is accepted and ends when you are given the keys to your new home.

An overview of home warranties, contingencies, deadlines, and insurance.

Let's take a look at some of the steps:

Selecting your Title and Escrow Company and Agent.

​Escrow companies/agents are neutral third parties who assist in handling title and escrow work, financing, transaction instructions and other paperwork related to your home purchase. They will collect and hold documents and funds in "trust" for all parties until the transaction is completed.

Title companies also provide insurance that a title is satisfactorily clear of any liens, judgments and other encumbrances or title defects. Your Realtor has a handful of companies and agents they recommend for you to choose. Typically your Realtor has had the experience of working closely with these recommendations and can attest to their quality and professionalism. Contact us today for a free no obligation recommendation!

Next we will schedule home inspections.

Inspections are sometimes optional, but don't be fooled—this is NOT something you want to skip. The home inspection will help you get a better understanding of the pluses and negatives of the property being purchased.

Frequent Examples:

• Inspections can include checks for termites, water leakage and compliance with housing codes. You might also consider having a survey of the property to determine it's legal boundaries, title reviews and structural inspections if necessary. You can be present for these inspections and have your Realtor ask the seller questions about repairs. You will receive a professional report a day or two after the inspection that will included details on minor and significant defects and issues with the home as well as pictures of the items in question. Ask your Realtor for free recommendations on home inspection companies and inspectors they use.

Now we move on to clearing title and ordering insurance.

Once the title company issues a clear title, you will purchase title insurance. Typically your escrow agent will choose your title insurer from one of the five major U.S. title insurance underwriters. This insurance will protect both the buyer and lender from possible future disputes over the property.

You may also want to consider the following extra insurances. Note, some of these may be required by your lender in order to secure your home loan.

Homeowner Insurance: This will cover fire, theft, and liability. (often required by lenders)
Flood Insurance: Is the home in a high-risk, flood-prone area? Then this may also be required by lenders.
Home Warranty: For a little extra protection, it helps to know an insurance company will offset or cover the costs of unforeseen defects and repairs to the home.
Mortgage Insurance: Certain loan types may require an insurance policy to protect lenders from an unexpected default in loan payment.

Final walk-through.

We can now look forward to the final walk-through. This will be your last chance to view the property and confirm that the condition of the home has not significantly changed since the sale agreement was signed.

Finally, it's Closing Day!

Also known as the settlement. This is the last step in your home purchase journey. This is the day that ownership of the home officially transfers to you!

There will be a lot of paperwork to sign. Get your signing hand plenty of rest, cause you can expect to sign 10-40 times on all the mortgage documents, legal disclosures, tax records and any extra loan or lender specific terms.

Closing day will also be the final distribution of purchase funds. As the buyer, you will need to have a cashier's check to cover all closing costs. Your Realtor and Escrow agent will notify you of the amount needed when presenting your closing documents approximately 3 days before closing day.

Can I have my keys now?

So, you're probably thinking.. Can I have my keys now? In Idaho, typically if you sign early morning the county will have officially recorded the new title and you can receive your keys later that day. However in some instances, depending on the county clerks office, it could take up to a few days to be officially recorded. Once this happens, the keys are yours and you're able to move in immediately!

Congratulations! You're now a homeowner!

Fact or Fiction

MYTHS vs TRUTHS

Learn what real estate agents actually do and who usually pays for what.

For most, a home is the most expensive purchase we'll ever make. That makes buying your first home a big deal! Starting your home search online is usually the first place to start looking for a home, but buying a house is not the same as ordering a blender from Amazon. Most home buyers will reach out at some point for professional guidance. Typically the sooner this is accomplished, the faster your dream can become reality. Don't make the mistake of letting common myths you've heard about the home buying process stand in the way of getting a helpful professional!

Myth #1 – I'll just do this myself and save the commission!

​The truth is, your Realtor normally works without getting paid anything until closing, and even then, the seller is typically the one who owes the commission, which will be based on a percentage of the home's selling price and can be negotiated. Additionally, their commission is usually split up between the buyer's agent and the selling agent. One exception is when a certain agent handles both transactions in a process called dual-agency, and receives the full commission. This is not a typical situation however.

The purchase of a home can be pretty complex and very time consuming. Be sure you work with a professional agent. As professional real estate agents we know the ins and outs of financing, different property types, real estate procedures and contingencies, market trends, art of negotiations and so much more. Why go it alone when Realtor's sole job is to give you expert guidance throughout the process?

Myth #2 – Real estate agents just want to make a quick buck!

​Truth is, a good Realtor's ultimate goal is to find the right home for you, and make a client for life with you, no matter how long it takes! As real estate agents, we all rely on referrals and repeat clients, it's makes up approximately 70% of our total client base. In the case you are not happy with your agent, you will probably tell your family, friends or even worse.. write an online article about it! Most agents may want to make the sale, it's how we all provide for our families, but good agents really want to make you a satisfied client for life. In turn, this helps us, as you may just refer others to us!

Myth #3 – My rental lease is up in a couple weeks, let's start house hunting today!

​The truth is, purchasing a home usually takes a couple months. On average, the typical home buyer should give themselves roughly six months to go from being a renter to becoming a homeowner. Most will start their search online using websites, but at some point you'll have to get out of the house and tour these homes before you truly find the right home for you and this takes time. Before you begin looking at houses, you should get pre-approved to know what you could realistically afford. Pre-approval is also the best sign to give a seller that you are serious about buying their home. Don't forget, a good agent can walk you through this important process step-by-step. Contact us today for advise or let us get you in touch with a great lender!

Myth #4 – When I used the online calculator, it said I could afford a $300,000 home. I don't need to talk to a loan officer.

​Truth is, online calculators are pretty helpful. They can give you a basic idea of how much you should budget for your mortgage payments and what your payment might typically look like. However, this will not replace being pre-approved. Not to mention, many sellers will require a pre-approval before accepting your purchase offer. Lenders will take many things into consideration, like credit scores, employment history, annual income, and your debt ratio we talked about earlier. There truly is no way to now exactly how much you will be approved for without talking to a loan officer and running all those specific numbers.

Align yourself with the truth, a great agent, and begin your home search adventure!

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